Court Refuses to Block Advocate Health Merger

By Matthew Loughran

June 14 — Two Chicago-area hospitals can go ahead with a $2.2 billion proposed merger after a federal judge June 14 refused the FTC's request for an order blocking the transaction ( FTC v. Advocate Health Care, N.D. Ill., No. 1:15-cv-11473, 6/14/16 ).

Judge Jorge L. Alonso's refusal to issue an injunction against the merger of Advocate Health Care and NorthShore University HealthSystem allows it to go forward in the face of the Federal Trade Commission's ongoing internal administrative review of the transaction.

The order from the U.S. District Court for the Northern District of Illinois deals the commission its third setback in the past few months, the longest string of losses in hospital merger challenges for the enforcement agency this century. Previous commission challenges to hospital mergers in West Virginia and Pennsylvania failed to stop those mergers either through intervention by the state legislature or by a court order similar to the one in this case.

The commission expressed its disappointment with the court's decision when reached by Bloomberg BNA for comment. “The Court’s ruling is disappointing and we will be considering our options,” said Debbie Feinstein, director of the FTC’s Bureau of Competition, in a statement e-mailed to Bloomberg BNA.

“We couldn’t be more thrilled with the judge’s decision,” Advocate Health Chief Executive Officer Jim Skogsbergh told Bloomberg BNA.

“We are very excited to bring these two organizations together and provide a great low-cost, high-quality product to people all across the Chicago market,” he added.

NorthShore Chief Executive Officer Mark Neaman agreed. “We really believe that today’s decision is precedential, not just in Illinois, but nationally,” he told Bloomberg BNA.

“The court has recognized that we can meet the demands of the Affordable Care Act to provide integrated care and to do so at a lower cost,” he said.

Hospital Executives Tout Efficiencies

Neaman pointed out that the FTC’s geographic definition had come under fire during the six-day court hearing.

“We have believed since the beginning that the FTC painted a relevant geography that is clearly gerrymandered and not representative of the competitive marketplace that is the Chicago area,” he said.

Additionally, both Neaman and Skogsbergh pointed to the differences in the claims put forward by the commission versus the merger efficiencies touted by the hospitals.

“The FTC made claims about what the future would look like that were very theoretical and the reality was that NorthShore with Advocate was offering a lower-price product that had high-access and high quality of care,” Neaman said.

The executives also emphasized the national attention that the case has received.

“We are well aware that a lot of eyes have been focused on this case,” Skogsbergh said.

“This favorable decision might be a catalyst for more collaboration in the industry and will open up a debate that is positive about how to provide high-quality, low-cost products for our patients,” he added.

Court's Reasoning Not Yet Clear

The court issued an opinion detailing Alonso's reasoning for denying the injunction, but the judge filed the opinion under seal in an effort to protect any confidential information.

According to his order the parties will have until June 17 to confer and request redactions before the court releases a public version laying bare the court's reasoning for denying the injunction.

“We can't draw lessons as to what's gone wrong until we see the opinion,” Douglas Ross, a partner in Davis Wright Tremaine in Seattle who focuses on antitrust litigation, told Bloomberg BNA.

“The court could have decided it on the basis that the geographic market was too narrow or on the basis that the opportunities for efficiencies the hospitals argued the merger would present are real,” he added.

Setbacks on All Three Challenges

The West Virginia merger, between Cabell Huntington Hospital and St. Mary's Medical Center in Huntington, W. Va., is currently under review by state regulators after the Legislature in March passed a certificate of public advantage law that was geared toward exempting the merger from federal antitrust laws (61 HCDR, 3/30/16).

The FTC has stopped its internal administrative review of that merger until the state agency concludes its review (81 HCDR, 4/27/16).

Last month, a federal judge in Pennsylvania dealt another blow to the commission, refusing to stop the merger of Penn State Hershey Medical Center and PinnacleHealth System in Harrisburg, Pa. (90 HCDR, 5/10/16).

In that decision, the court rejected the FTC's geographic market definition and cited recent changes in the health-care market generated by the Affordable Care Act as reasons that the merger wasn't anticompetitive.

The commission has appealed that decision to the U.S. Court of Appeals for the Third Circuit, which has scheduled oral arguments for July 26 (95 HCDR, 5/17/16).

The FTC has also delayed its internal review of that merger until “21 days after the United States Court of Appeals for the Third Circuit renders its judgment on the Commission’s appeal.”

In the Chicago case, the FTC hasn't determined whether to halt its administrative review. A final prehearing is scheduled for July 11.

J. Mark Waxman, a partner in Foley & Lardner in Boston who focuses on health care and antitrust litigation, said that the recent losing streak for the FTC might be representative of a new trend.

“It does seem that the standards to be applied are being tested a bit, with perhaps fluidity in the markets and how they should be viewed now upon us,” he told Bloomberg BNA.

However, he cautioned, “with a fact based analysis, you may just have to take these as you—or a federal judge—sees them,” indicating that the recent losing streak may be nothing more than coincidence.

FTC May Have to Reconsider

According to Ross, the FTC will have to study the Chicago decision carefully to see whether the reasoning offered by the judge is consistent with the reasoning advanced in the Pennsylvania merger case.

“It's far too early to suggest the FTC should go back to the drawing board—as they did in the early 2000s after losing a string of cases in the 1990s—and figure out what's going wrong,” he added.

Ross said that he thought that the FTC “has an excellent chance of prevailing on appeal before the Third Circuit in Pennsylvania” and that he couldn't guess at how strong the court's decision in the Chicago merger case is until he can read it.

“But obviously the folks at the agency have to be trying to understand, even though all the information is not yet in, whether there are things that they should change as they analyze mergers and decide what to challenge and what not to challenge in the future,” he added.

However, at a recent conference of antitrust and health-care attorneys in Arlington, Va., FTC chair Edith Ramirez seemed undeterred by the Pennsylvania court's decision. Instead, she advocated for increased enforcement of the federal antitrust laws (93 HCDR, 5/13/16).

Advocate Health was represented by Drinker Biddle & Reath LLP and Hogan Lovells LLP.

NorthShore was represented by Winston & Strawn LLP.

Attorneys from the FTC represented the commission and the Illinois Attorney General's Office represented the state.

To contact the reporter on this story: Matthew Loughran in Washington at mloughran@bna.com

To contact the editor responsible for this story: Peyton M. Sturges in Washington at psturges@bna.com