FTC loss on blocking Hershey-Pinnacle hospital merger reversed on appeal

The merger of Penn State Hershey Medical Center and Pinnacle Health System in Pennsylvania can be blocked by the Federal Trade Commission (FTC), according to a ruling by a federal appeals court judge, reversing a decision in May that went against the FTC.

By a 3-0 vote of judges from the Third U.S. Circuit Court of Appeals, the FTC was granted a preliminary injunction against the deal, clearing the way for the FTC’s own review process.

In a 48-page opinion, Judge Dennis Michael Fisher said the earlier ruling in a U.S. District Court failed to “apply the correct legal standard” dealing with the geographic area which would be affected by the merger, which would combine four hospitals totaling nearly 1,200 beds. The FTC argued for the area to be limited to the four counties around Harrisburg, the state’s capital, while the hospitals and the district court ruling said 43 percent of Hershey’s patients come from outside that area, and should the hospitals merge, there were 19 hospitals within a 65-minute drive as alternatives—a standard that Fisher wrote “more closely aligns with a discredited economic theory.”

Fisher’s opinion also dismissed a private contract the hospitals made with two of the largest insurers in the area to lock in prices at pre-merger levels for at least five years, saying those contracts “aren’t relevant” to the legal standards which should have been applied.

Overall, Fisher said the district court ruling ignored data which suggested Harrisburg patients wouldn’t travel as far as 65 minutes for general acute services (GAC).

“The government presented undisputed evidence that 91 percent of patients who live in Harrisburg receive GAC services in the Harrisburg area,” Fisher wrote. “Such a high number of patients who do not travel long distances for healthcare supports the government’s contention that GAC services are inherently local and that, in turn, payors would not be able to market a healthcare plan to Harrisburg-area residents that did not include Harrisburg-area hospitals.”

Fisher added that the appeals court’s view of data showed the merger would be "presumptively anticompetitive," even if the savings from efficiencies were passed onto patients.

Reacting to the ruling, FTC Chairwoman Edith Ramirez told Reuters "I'm delighted to hear about the win."

This would reverse a series of losses for the FTC on challenging hospital consolidation, which Ramirez blamed for increases in price earlier this year. Along with losing at the district court level in this case, a judge ruled against the FTC’s request for an injunction against the merger of Advocate and NorthShore in Illinois. The commission then declined to challenge a hospital merger in West Virginia.