Supreme Court refuses to weigh in on hospital merger, giving FTC another win

Ruling forces ProMedica to divest Ohio hospital

The Supreme Court on Monday declined to consider ProMedica Health System's appeal to review a lower court's ruling that a 2010 acquisition violated antitrust laws, ending a five-year battle with federal regulators.

Background on the case and the lower court ruling

The dispute originates with Toledo-based ProMedica's 2010 acquisition of St. Luke's Hospital in Maumee, Ohio. Months after the hospitals signed the deal, the Federal Trade Commission (FTC) attempted to block the merger, arguing that the deal was "anticompetitive and likely to substantially lessen competition and increase prices."

FTC said the merger would give ProMedica almost 60% of the acute-care inpatient service market and more than 80% of the inpatient obstetrical services market. Before the merger, ProMedica was one of four hospital systems in Lucas County and it controlled 47% of the market for acute care, compared with St. Luke's 11%, according to Modern Healthcare.

Additionally, FTC refuted the hospital's argument that the merger would create the type of collaboration promoted by the Affordable Care Act (ACA). ProMedica also contended that it was doing the Toledo metropolitan area a service by rescuing St. Luke's from financial insolvency.

In a unanimous decision, a three-judge panel of the Sixth U.S. Circuit Court of Appeals in Cincinnati in April 2014 agreed that the FTC "had every reason to conclude that, as ProMedica's dominance in the relevant markets increases ... so too does ProMedica's leverage in demanding higher rates."

ProMedica asked the full court of 12 justices to consider the case—a request that the justices denied. So in December, ProMedica filed a petition with the U.S. Supreme Court.

Two lessons from ProMedica vs. FTC on consolidation

Implications of the Supreme Court decision

By refusing to hear the case, the Supreme Court leaves the decision by the Sixth U.S. Circuit Court of Appeals standing. As a result, ProMedica will need to divest of St. Luke's.

On Monday, ProMedica in a statement said it will work with St. Luke's over the next six months to create a divestiture plan and submit it to FTC. "St. Luke's is in a much better place than it was five years ago when the hospital joined ProMedica," the statement said, adding, "St. Luke's will begin this new chapter in its history from a position of strength."

Experts commenting on the case said the Supreme Court's decision was not surprising, according to Modern Healthcare.

"What this does demonstrate is even with a conservative Supreme Court, the FTC's views on how antitrust laws should apply to provider consolidations are not really controversial," says Matthew Cantor, a partner at Constantine Cannon. Prior to striking deals, he says providers "should very much think about how antitrust law could apply and whether or not they'll have any problems in the antitrust review process."

Moreover, Cantor notes that the Supreme Court's decision affirms the precedent set by the lower courts that did not accept the defense that a merger to save a financially weak hospital is an exception in cases where a merger appears anti-competitive (Schencker, Modern Healthcare, 5/4 [subscription required]; Harris-Taylor, Toledo Blade, 5/5; Bartz, Reuters, 5/5).

The takeaway: The Supreme Court's decision not to hear the case requires ProMedica to divest St. Luke's Hospital, ending a five-year battle with FTC and affirming precedent against certain defenses in anti-trust cases.

M&A—To What End? Five Characteristics of Intentional Strategy

We are in the midst of the most significant period of provider consolidation in the last 30 years.

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