Threat of FTC denial scuttles Indiana hospital, physician group merger

Beacon Health System and the South Bend Clinic physician group have suspended their merger plans because of a longer than expected Federal Trade Commission (FTC) review and uncertainty over whether the deal would be approved.

In a press release, Beacon Health System noted that “dramatic changes in health care, along with a challenging regulatory environment would extend the review for at least another twelve to eighteen months and with no assurance of regulatory approval.”

Beacon Health System includes 225 physicians and 73 advanced practitioners. It is made up of Memorial Hospital, Elkhart General Hospital, Memorial Children's Hospital, Beacon Medical Group, Beacon Health Ventures, Memorial Home Care, Elkhart General Home Care, MedPoint Urgent Care, HealthWorks! Kids' Museum, BrainWorks, and Pfeil Innovation Center.

It had sought to merge with South Bend Clinic’s more than 90 physicians practicing at five outpatient care centers and three offices in the greater South Bend metro area in order to offer the community more integrated and advanced care. However, because of the “burden of cost, time and uncertainty” created by the FTC approval process, it will instead pursue these goals through other forms of collaboration.

"Beacon Health System and South Bend Clinic care for thousands of people on a daily basis. We enjoyed a very close relationship long before this process began and will continue to do so," stated Phil Newbold, CEO of Beacon Health System in the press release. "This is not a step back, but rather an opportunity to innovate and lead the discussion on health care reform, and develop new problem-solving initiatives that will influence improved care for years to come."

The two healthcare providers may have been wise to suspend their merger plans. According to the local newspaper the Elkhart Truth, the merger would have been opposed by St. Joseph Regional Medical Center, which operates two acute care hospitals, a rehabilitation facility, 20 physician practices and additional community health centers in the larger South Bend metro area. After the merger plans were announced last summer, St. Joseph Chief Executive Officer Albert Gutierrez sent the paper a statement saying in part:

"When one hospital in a community controls too many physicians, that hospital is then in a position to demand higher prices, driving up the cost of health care. In addition, it faces less pressure to compete in the marketplace on quality and cost."

Furthermore, court challenges to FTC ruling have tended to go the FTC’s way. In FTC v. St. Luke’s Health System, a U.S. Federal Court judge for the district of Idaho earlier this year found that St. Luke’s Hospital’s acquisition of the leading physician group in the small town of Nampa, Idaho, was a violation of the Clayton Act and ordered divestiture.

This case and other like it raise interesting issues, however, notes Steve Levitsky, J.D., an antitrust and internal investigation lawyer in New York, on Lexology. “The pure, technical antitrust answer in [FTC v. St. Luke’s Health System ] may be easy. But the antitrust laws are also supposed to be consumer protection laws,” he wrote. “As medical facilities in smaller communities come under intense pressure to meet new requirements, the question here really is whether competition is the best way to regulate medical services in small communities.”

Without no leniency from antitrust agencies on mergers of healthcare providers, small isolated rural communities may be left with the appearance of competition, but the actual prospect of being served by providers who cannot afford to upgrade equipment and facilities, and cannot attract new physicians to practice in the community, Levitsky noted.