Court Rejects FTC Case Against Philly Healthcare Merger Deal

December 10, 2020 - A federal district court has thrown out a case brought on by the Federal Trade Commission (FTC) alleging a proposed healthcare merger deal between Jefferson Health and Einstein Health Network would increase prices in the Philadelphia area.

The two Philadelphia-based health systems signed a definitive agreement to merge back in 2018. The healthcare merger deal sought to create a “merged clinical academic enterprise” of 18 hospitals, over 50 outpatient and urgent care centers, and other clinical sites. The combined health system was estimated to bring in $5.9 billion in annual revenues.

FTC filed an administrative complaint earlier this year seeking to stop the deal.

The agency alleged that the combined health system would control over half of the inpatient general acute care hospital services in and around North Philadelphia and at least 45 percent of the market in neighboring Montgomery Country.

Additionally, FTC claimed the combined health system would dominate the inpatient rehabilitation market in the region, controlling six of the eight inpatient rehabilitation facilities in and around Einstein’s flagship MossRehab at Elkins Park facility.

Judge Gerald Pappert of the US District Court for the Eastern District of Pennsylvania dismissed the compliant earlier this week, writing in an opinion that the FTC failed to show “that there is a credible threat of harm to competition.”

“To establish its prima facie case, the Government must put forth enough evidence to prove that the insurers would not avoid a price increase in any one of the Government’s proposed markets by looking to hospitals outside those markets. The Government has not met this burden,” stated Judge Pappert.

FTC is able to appeal the decision.

Meanwhile, Jefferson Health and Einstein Health Network plan to continue healthcare merger discussions in light of the court’s ruling.

“We are gratified by today’s decision in which the court properly concluded that the government was unable to show that the transaction would reduce competition in the highly-competitive Philadelphia area,” said Virginia Gibson, a partner at Hogan Lovells, the firm that represented the health systems in the case.

“The ruling allows Einstein to continue to fulfill its vital public mission of providing necessary healthcare services to underserved Philadelphia communities during a particularly critical time,” Gibson added in a statement emailed to RevCycleIntelligence.

Philadelphia has a more concentrated commercial payer market compared to the provider market, according to Judge Pappert. The opinion detailed dozens of area hospitals that compete with Jefferson and Einstein providers for general acute care and inpatient rehabilitation services.

In contrast, the region only has four major commercial payers, with one – Independence Blue Cross (IBC) – dominating the marketing with more than 50 percent of market share.

A testimony provided by Jefferson CEO Stephen Klasko, MD, even described the area in question as having “the worst externalities of any city in the country” for healthcare systems because there is “pretty much a monopolistic type insurance situation with a few insurers.”

Judge Pappert said that the health insurers in the area would not have to surrender to price increases because of Jefferson and Einstein’s proposed merger.

“First and foremost, the second largest health insurer in southeastern Pennsylvania has ‘no concerns’ about the Jefferson-Einstein merger and the third largest never said it would pay higher rates for GAC [general acute care] services post-merger. Given the numerous healthcare systems here, no insurer can credibly assert that there would be ‘no network’ without a combined Jefferson and Einstein,” wrote Pappert.

The judge also pointed out that the FTC’s attempt to block the healthcare merger based on inpatient acute rehabilitation services was inadequate. This was the first case the FTC has tried to define a market using inpatient rehabilitation services.

The American Hospital Association (AHA) previously defended the proposed merger, telling Congressional leaders that enjoining the deal would impede efforts to “to ensure the sustainability of providing essential health care services to the most vulnerable communities.”

“It is time for members of Congress and other policymakers to make clear that antitrust enforcement in the hospital sector needs to account for all relevant factors,” in particular “the long-term viability of health care facilities and their ability to provide quality and reliable healthcare and access to all members of communities,” the Association stated.