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As part of its ongoing effort to protect U.S. health care consumers,the Federal Trade Commission today challenged OSF Healthcare System’s proposed acquisition of Rockford Health System. The FTC filed an administrative complaint against both hospital systems, charging that the acquisition would substantially reduce competition among hospitals and primary care physicians in Rockford, Illinois, and significantly harm local businesses and patients.

The FTC’s staff will file a separate complaint in federal district court seeking an order to halt the transaction temporarily to preserve competition for Rockford area residents pending the FTC’s administrative proceeding and any subsequent appeals. The federal District Court for the Northern District of Illinois, where the federal court action is to be filed, previously blocked a merger of Rockford hospitals due to antitrust concerns under very similar circumstances.

“If OSF is allowed to acquire Rockford Health System, decades of competition between the defendants’ hospitals would end,” said Richard Feinstein, Director of the FTC’s Bureau of Competition. “This would lead to significantly higher costs that would be passed on to employers and to health care consumers in Rockford.”

According to the FTC’s complaint, OSF’s proposed acquisition of Rockford Health System would violate federal antitrust laws by reducing competition in two markets in the Rockford area: 1) general acute-care inpatient services, and 2) primary care physician services. Specifically, OSF would control 64 percent of general acute-care inpatient services in the Rockford area post-acquisition, and face only one competitor, SwedishAmerican Health System. The two hospitals together would control more than 99 percent of the market for general acute-care services in the Rockford area. In the market for primary care physician services, today there are only three significant primary care physician groups in the Rockford area. The complaint alleges that, post-acquisition, OSF and SwedishAmerican together would control almost 60 percent of all primary care physician services.

This significant consolidation would give OSF greater leverage to raise rates, the complaint alleges, which would impose a significant financial burden on local employers and employees, either directly or through higher insurance premiums, co-pays, and other out-of-pocket expenses. The complaint also charges that OSF’s proposed acquisition would increase the incentives and ability for the two remaining hospitals in Rockford to engage in coordinated anticompetitive behavior, including sharing confidential information, deferring competitive initiatives, or aligning managed care contracting strategies. Importantly, the complaint alleges that OSF’s acquisition of Rockford Health System would also eliminate vital non-price competition among the Rockford hospitals, reducing the quality, convenience, and breadth of services provided to local residents.

The Commission vote to issue the administrative complaint and authorize staff to file a complaint seeking a temporary restraining order and preliminary injunction in federal district court was 4-0. A public version of the administrative complaint will be available on the agency’s website shortly, and the evidentiary hearing is scheduled before an administrative law judge at the FTC, beginning on April 17, 2012. The federal district court complaint will be filed in the U.S. District Court for the Northern District of Illinois, Western Division.

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, Bureau of Competition, Federal Trade Commission, 601 New Jersey Ave., Room 7117, Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook and follow us on Twitter.

(FTC File No. 111-0102)