FTC challenges third hospital merger in two months

The Federal Trade Commission (FTC) challenged the merger of two hospital systems in Chicago’s North Shore: Advocate Health Care Network and NorthShore University HealthSystem. The administrative complaint alleging that the merger would violate section 5 of the FTC Act (15 U.S.C. §§ 41-58, as amended) and section 7 of the Clayton Act (15 U.S.C. § 18, as amended) is the third administrative complaint challenging hospital mergers that the FTC has filed since November 6, 2015. The Commission believes that the merger, if consummated, would result in control of more than half of the general acute care (GAC) inpatient hospital services market, decreased quality, and increased prices for consumers, and has authorized staff to seek a temporary restraining order and a preliminary injunction to postpone the merger.

Anticompetitive effects

Advocate is the largest hospital system in the Chicago metropolitan area, generating more than $490 million in inpatient revenue in 2014; two of its 12 hospitals are in the North Shore area. NorthShore generated $1.9 billion in revenue in 2014; three of its four hospitals are in the North Shore area. The FTC argued that the proposed merger would result in control of 55 percent of the market, compared to 15 percent control exerted by the next largest hospital, and would reduce competition for inclusion in hospital networks, leading to a decrease in quality of care.

The FTC disregarded Advocate and North Shore’s claim that the merger would allow them to decrease costs, participate in ultra-narrow insurance networks, and increase quality as “neither substantiated nor merger-specific, and ultimately not cognizable.” It noted that the Herfindahl-Hirschman Index (HHI) used to measure market concentration requires scores above 2,500 points or an HHI increase of more than 200 points for a merger to be presumptively illegal; the proposed merger at issue scored 3,517 points, with an increase of 1,423 points.

Recent challenges

The FTC’s complaint is the latest in a series of challenges to hospital mergers. On November 6, 2015, it filed an administrative complaint challenging the merger of two West Virginia hospitals: Cabell Huntington Hospital and St. Mary’s Medical Center. It filed a second administrative complaint against two Pennsylvania hospitals—Penn State Hershey Medical Center and Pinnacle Health System—which would result in control of 64 percent of the market (see Proposed PA health system merger challenged, Health Law Daily, December 9, 2015).