FTC tries to block merger, but West Virginia hospitals vow to push forward

Latest battle over mergers raises new questions about oversight

The Federal Trade Commission (FTC) on Friday took steps to block the merger of two West Virginia hospitals, Cabell Huntington Hospital and St. Mary's Medical Center.

The hospitals had announced their planned merger last year and agreed to a deal with the area's largest health plan and West Virginia's attorney general that would have imposed rate regulation. Specifically, the hospitals agreed to reduce their rates for three years if their average operating margin exceeded 4% over a three-year period, Melanie Evans writes for Modern Healthcare.

However, FTC's said that the terms "fall far short of replicating the benefits of competition" and that the merger would harm patients in Huntington and surrounding communities. The hospitals are located three miles away from one another.

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"If this proposed acquisition goes forward, it would eliminate important competition that has yielded tremendous benefits for Huntington-area residents," Steve Weissman, deputy director of FTC's Bureau of Competition, said in a statement. "The merged hospitals would have a market share of more than 75%, and local employers and residents are likely to face higher prices and reduced quality and service at the combined hospital."

FTC's administrative trial is scheduled for April 2016. The commission also may seek a federal injunction if the two hospitals seek to complete their merger ahead of the trial.

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However, Cabell Huntington's CEO Kevin Fowler vowed to stand by their planned alliance.

Fowler said FTC's decision "misreads the highly competitive landscape [and] overlooks the enormous community benefits" that would come from a merger.

"Despite the FTC's decision, we remain committed to this acquisition as we believe it assures quality medical care for the residents of our region," Fowler added.

Health care mergers have been on the rise; there were 100 hospital acquisitions in 2014, up from 50 in 2009. However, analysts noted that FTC has become increasingly active in moving to block provider mergers. Friday's announcement—which overrules the state attorney general's agreement—also may send a mixed message to organizations seeking to partner, they say.

Lisl Dunlop, a partner at Manatt, Phelps & Phillips, told Modern Healthcare that the split between federal and state authorities over the West Virginia hospital merger raises questions about oversight and enforcement (FTC release, 11/6; Cabell Huntington release, 11/6; Evans, Modern Healthcare, 11/6; Morse, Healthcare Finance News, 11/6).

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