Markets Wired

Continuing its efforts to protect healthcare consumers, the Federal Trade Commission today challenged ProMedica Health System, Inc.’s consummated acquisition of rival St. Luke’s Hospital in Lucas County, Ohio. The FTC’s administrative complaint alleges that the deal will reduce competition and allow ProMedica to raise prices for general acute-care and inpatient obstetrical services, significantly harming patients and local employers and employees.

The FTC staff will file a separate complaint in federal district court tomorrow seeking an order requiring ProMedica to preserve St. Luke’s as a separate, independent competitor during the FTC’s administrative proceeding and any subsequent appeals. The action in federal district court will be brought jointly with the Attorney General of the State of Ohio.

ProMedica is a not-for-profit healthcare system headquartered in Toledo, Ohio. Excluding St. Luke’s, ProMedica operates three general acute-care hospitals in Lucas County: 1) The Toledo Hospital; 2) Flower Hospital; and 3) Bay Park Community Hospital. It also provides healthcare services throughout northwestern and west-central Ohio and southeastern Michigan. ProMedica had 2009 revenues totaling about $1.6 billion.

On August 31, 2010, ProMedica acquired control of St. Luke’s, a formerly independent, not-for-profit general acute-care hospital in Maumee, Ohio. At the time of the acquisition, St. Luke’s was widely recognized as a high-quality, low-cost hospital; it generated revenues of approximately $156 million in 2009.

The FTC’s complaint alleges that ProMedica’s acquisition of St. Luke’s threatens to substantially harm competition in two relevant service markets in Lucas County, Ohio: 1) general acute-care inpatient hospital services, and 2) inpatient obstetrical services. Specifically, the FTC alleges that the acquisition reduces the number of general acute-care hospital competitors in Lucas County from four to three, leaving ProMedica to face only Mercy Health Partners and The University of Toledo Medical Center (UTMC). The complaint states that after acquiring St. Luke’s, ProMedica has a market share approaching 60 percent for general acute-care services in Lucas County.

In the market for inpatient obstetrical services in Lucas County – in which UTMC does not compete – the FTC charges the acquisition leaves only one competitor to ProMedica, increasing ProMedica’s market share to more than 80 percent.

The complaint also charges that ProMedica’s acquisition of St. Luke’s eliminates significant price and non-price competition between the two firms in both the general acute-care and inpatient obstetrical markets. According to the FTC, business documents reveal that a principal motivation for the acquisition was for St. Luke’s to gain enhanced bargaining leverage with health plans, and the ability to raise prices for services. Such reimbursement rate increases, the complaint states, would impose significant financial burdens on local employers and employees, either directly or through higher insurance premiums, co-pays, and other out-of-pocket expenses.

The acquisition, the FTC complaint alleges, also vests ProMedica with the ability to demand higher rates for services performed at its other hospitals as well, because the addition of St. Luke’s to the ProMedica hospital system has made ProMedica a “must-have” system for health plans seeking to do business in Lucas County, as plans can no longer offer consumers a viable provider network without including ProMedica’s hospitals.

Although ProMedica consummated the acquisition at the end of August, it agreed to refrain from certain actions – for example, renegotiation of St. Luke’s health-plan contracts and elimination or consolidation of St. Luke’s clinical services – while the FTC investigated the potential anticompetitive effects of the transaction. These critical protections will expire shortly without court-ordered relief.

The Commission votes approving both the administrative and federal district court complaints were 5-0. The administrative complaint was issued today, and a public version will be available on the agency’s website shortly. The evidentiary hearing is scheduled before an Administrative Law Judge at the FTC, beginning on May 31, 2011.

NOTE: The Commission issues or files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the named parties have violated the law. The administrative complaint marks the beginning of a proceeding in which the allegations will be ruled upon after a formal hearing by an administrative law judge.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/competitioncounts.

(FTC File No. 101-0167)