Advocate, NorthShore merger halted by appeals court

A federal appeals court sided with the Federal Trade Commission (FTC) against the proposed merger of two Illinois hospital chains, Advocate Health Care and NorthShore University Health System, reversing a lower court’s decision that denied the FTC a preliminary injunction.

A three-judge panel from the 7th U.S. Circuit Court of Appeals ruled the district court ruling failed to take into account the true geographic market of the combined system, which would be the biggest in Illinois. In the written opinion, Judge David Hamilton called its definition of the market “clearly erroneous.”

“Most patients prefer to receive hospital care close to home, and insurers cannot market healthcare plans to employers with employees in Chicago’s northern suburbs without including at least some of the merging hospitals in their networks,” Hamilton wrote. “The district court rejected that evidence because of some patients’ willingness to travel for hospital care. The court’s analysis erred by overlooking the market power created by the remaining patients’ preferences, something economists have called the ‘silent majority’ fallacy.”

The decision sends the case back to the district court to reexamine the decision not to grant the FTC a preliminary injunction.

A very similar decision was enough to convince Penn State Hershey Medical Center and Pinnacle Health System to drop their proposed merger. For now, Advocate and NorthShore appear to moving forward with the deal.

“We believe that blocking this merger will be a loss to consumers and further underscores the conflicting message with the objectives of the Affordable Care Act. While our legal teams review the decision, we remain confident our merger would lower costs and improve outcomes for consumers,” the systems said in a joint statement.

The FTC was happy with the decision, having argued the merger would harm competition by giving the new partnership a more than 50 percent market share of acute care hospitals in Chicago’s north and northwest suburbs.

“The FTC is pleased that the 7th Circuit rejected the district court’s geographic market findings, and we are looking forward to proving our case,” Debbie Feinstein, director of the FTC’s Bureau of Competition, said in a statement.

The FTC has its own administrative hearing on the merger scheduled for Nov. 21.