FTC, PA Challenging Proposed Hospital Merger in Philadelphia

The Federal Trade Commission (FTC) and the Commonwealth of Pennsylvania issued an administrative complaint last week challenging the proposed hospital merger between two Philadelphia-area hospital systems.

The Feb. 27 complaint alleges that a merger between Jefferson Health and Albert Einstein Healthcare Network would significantly reduce competition for inpatient general acute care hospital services and inpatient rehabilitation services in the Philadelphia-area, causing prices to rise for commercial payers and their patients.

“Patients in the Philadelphia region have benefitted enormously from the competition between the Jefferson and Einstein systems,” Ian Conner, Director of the FTC’s Bureau of Competition, stated in a press release. “This merger would eliminate the competitive pressure that has driven quality improvements and lowered rates. Throughout our investigation, we have benefited from close cooperation with our partners in the Office of the Attorney General of Pennsylvania.”

Jefferson Health – a 14-hospital system in Pennsylvania and New Jersey – announced in September 2018 that it signed a definitive agreement to merge with the Philadelphia-based Albert Einstein Healthcare Network.

The two hospital systems intend to create a “merged clinical academic enterprise” of 18 hospitals, over 50 outpatient and urgent care centers, and other clinical sites. The merged system would have annual revenues of $5.9 billion. Leaders from both hospital systems intend for the hospital merger to bolster medical education in the region, as well as improve outcomes for patients and the community.

However, the FTC is arguing that improved outcomes may not be possible to achieve considering the merged system would control at least 60 percent of the inpatient general acute care hospital services in and around North Philadelphia and at least 45 percent of that market in and around Montgomery County.

The combined system would also dominate the inpatient rehabilitation space, operating six of the eight inpatient rehabilitation facilities in the Philadelphia area in and around Einstein’s flagship Moss at Elkins Park facility. Collectively, the systems would control at least 70 percent of this market.

The move would “significantly increase market concentration in an already highly concentrated market,” FTC explained in its complaint. And the market power resulting from the hospital merger would force commercial insurers to include the combined system in its Philadelphia area plans on terms favorable to the system.

As a result, commercial insurers would have to raise prices of their products for employers and their employees to offset higher reimbursement rates, FTC stated.

Einstein Healthcare Network disputed claims that the proposed hospital merger would negatively impact patients and the community. In direct response to the FTC complaint, hospital system leaders stated:

“We believe we have presented a strong and comprehensive case as to how the merger would benefit the patients we serve and advance our academic mission without reducing competition for healthcare services. At a time when regional and national politicians and leaders are seeking ways to better support essential safety net hospitals, we see this merger as a creative solution to preserve access and enhance services to the residents of the North Philadelphia.

We remain confident our merger will result in continued high-quality care for our consumers. Our goal is to broaden our delivery of accessible and value-based care to patients and provide an exceptional education and training experience for our students. We are two like-minded, culturally aligned organizations with a mutual goal of improving lives for all of our patients, particularly the most vulnerable in the Philadelphia area.”

Pennsylvania State Senator Christine M. Tartaglione and US Representative Dwight Evans also issued statements supporting the proposed hospital merger.

On his official website, Evans called the challenge an “outrageous action” and urged the FTC and Pennsylvania Attorney General’s office to drop their case against the proposed hospital merger.

In a separate statement on her website, Tartaglione expressed disappointment with the FTC’s decision, adding that the “merger of Jefferson Health and Einstein Healthcare Network would provide the residents of North Philadelphia and the surrounding region with improved access to high-quality, reliable medical care.”

Jefferson Health and Einstein Health Network are now facing a temporary restraining order and preliminary injunction. An administrative trial is set for Sept. 1, 2020.