Hospital Groups Challenge FTC Opposition to NJ Hospital Merger

Leading hospital groups have backed a proposed hospital merger deal between two New Jersey-based non-profit systems, arguing that a federal challenge of the proposed merger is based on a flawed methodology.

The Federal Trade Commission (FTC) challenged the proposed acquisition of Englewood Healthcare Foundation by Hackensack Meridian Health, Inc. last December. The federal agency argued that the merged health system could control half of the inpatient general acute care hospitals in Bergen County, New Jersey, leaving payers with few alternatives for care and possibly higher rates for that care.

However, the American Hospital Association (AHA) and the Association of American Medical Colleges (AAMC) challenged FTC’s arguments in a recent friend of the court brief.

“The FTC’s approach to defining the relevant geographic market in this case conflicts with settled law and economic principles, as well as business reality,” they wrote to the US Court of Appeals. “In-deed, the FTC is attempting to do something that it has never directly attempted in hospital merger litigation—define a relevant geographic market based on where ‘commercially insured patients’ live—'in Bergen County.’”

During the hospital merger case, FTC defined the geographic market in Bergen County based on the location of commercially insured patients using the services, rather than where the hospitals themselves are located, the friend of the court brief explained.

The unconventional definition of geographic market in this case stemmed from a model used in an academic paper that analyzed hospital mergers. But those mergers were not in “New Jersey, much less Bergen County,” the hospital groups pointed out.

“Hospitals operate in local markets with varying supply and demand conditions, and under settled Third Circuit precedent, geographic markets are ‘[d]etermined within the specific context of each case’ and ‘must correspond to the commercial realities of the industry being considered,’” the brief stated.

The hospital groups also argued that, “It is not feasible for hospitals to charge patients different prices based on where they live, and it would make no real-world sense to even try,” despite FTC arguments that they could.

In a separate friend of court brief, the New Jersey Hospital Association (NJHA) also challenged FTC’s arguments against the proposed hospital merger deal. NJHA highlighted “New Jersey’s robust regulatory framework for evaluating nonprofit hospital transactions that resulted in approvals of this transaction” and the idea that hospital mergers benefit the public.

“The District Court failed to consider benefits such as the development of innovative diagnostic and treatment protocols by integrated health systems which enables them to better respond to the needs of the communities they serve (including in public health emergencies such as the COVID-19 pandemic) and investments in staff, facilities and technology which expand the availability of quality care to a broader patient population. These important public policy considerations should have been considered by the District Court in its analysis of this transaction,” the Association wrote.

A recently released report from the AHA touted the public benefits of hospital mergers. The report leveraged data from 3,000 short-term acute care hospitals, 775 of which underwent an acquisition between 2009 and 2019. Operating expenses at acquired hospitals dropped by an average of 3.3 percent, while readmission rates and composite outcome measures of quality improved compared to those at non-acquired hospitals, the report showed.

Hospital groups worry that if the court were to allow FTC’s new approach to market definition, then it “would open the floodgates to the FTC litigating (and threatening to litigate) hospital merger challenges based on artificially narrow markets that are unrelated to how hospitals actually negotiate prices with insurance companies.”

“This in turn would allow the FTC to challenge transactions that pose no threat to competition, while making it harder for hospitals to allocate capital to procompetitive transactions—a result squarely at odds with the purpose of the antitrust laws,” AHA and AAMC added.

Hackensack Meridian Health, Inc. and Englewood Healthcare Foundation continue to fight FTC’s opposition to the proposed hospital merger.