Pinnacle-Penn State Hershey merger called off after loss in court

The Federal Trade Commission (FTC) has successfully blocked the merger of Pennsylvania’s Pinnacle Health System and Penn State Hershey Medical Center as the two nixed their consolidation plan after the courts sided with the FTC.

The two systems had a clearer path to merging in May, when a U.S. District Court judge ruled against the FTC’s bid for an injunction against the deal so the commission could pursue its own review. Pinnacle and Penn State Hershey’s fortunes were reversed, however, when the decision was overturned on appeal Sept. 27.

Pinnacle announced Oct. 14 the systems have abandoned the merger plans.

We firmly believe the integration of our two health systems would have served the best interests of patients and the entire central Pennsylvania community,” Pinnacle said in its statement. “But given the time and cost associated with continuing litigation, PinnacleHealth and the Milton S. Hershey Medical Center have decided to bring our integration efforts to a close.”

U.S. District Court Judge Dennis Michael Fisher had questioned whether the integration would benefit patients in the Harrisburg, Pennsylvania area in his 48-page opinion reversing the earlier ruling. The hospitals, meanwhile, argued local patients could visit 19 other hospitals within a 65-minute drive if they didn’t want to use their consolidated four-hospital, 1,200-bed system. Fisher said that argument, and the original ruling, ignored evidence suggesting Harrisburg patients wouldn’t drive so far for general acute care (GAC) services.

“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 wrote, calling the merger “presumably anticompetitive.”

The systems’ decision to drop their merger plans was welcomed by the FTC.

“The parties’ decision to abandon this transaction preserves hospital competition in the Harrisburg area,” Debbie Feinstein, director of the FTC’s Bureau of Competition, said in a statement. “Had it been consummated, the merger would have likely led to lower quality and higher cost health care, at the expense of Harrisburg residents and their employers.”

The win on appeal turned around a string of losses for the FTC against hospital consolidation, which its chairwoman, Edith Ramirez, has blamed for driving up prices for hospital services.

Other court challenges remain—the commission lost in its first attempt to block the merger of Advocate and NorthShore University health systems in Illinois and, like the Pennsylvania case, hopes to get the loss reversed on appeal.