FTC will appeal Pennsylvania decision allowing hospital merger

Penn State Health Milton S. Hershey Medical Center. Photo by Penn State University

The Federal Trade Commission is appealing a Pennsylvania judge's decision allowing the merger between PinnacleHealth and Penn State Hershey Medical Center to go forward, according to court documents.

On Tuesday, May 10, the FTC and the State of Pennsylvania filed a motion for an injunction blocking the merger, pending an appeal.

Without the temporary restraining order, the hospitals would be able to merge by Friday, May 13.

This is a "very, very important case from the public standpoint," the FTC wrote in the request.

If the merger were allowed to move forward it would be difficult to unwind the transaction if the FTC is successful in its appeal, it said.

An injunction would prevent irreparable injury to consumers and competition, but not substantially injure the hospitals, the FTC said, given the proposed transaction has been under consideration since October 2013.

[Also: Pennsylvania court sides with hospitals in merger ruling]

The FTC said it has made a strong case that the merger is unlawful due to antitrust concerns.

The merger would result in a combined entity that would control a 76 percent market share in the Harrisburg area for general acute care inpatient hospital services sold to commercial health plans, the FTC said.

The merger would eliminate close competition between Hershey and Pinnacle and substantially increase the hospitals' bargaining leverage in contract negotiations with commercial payors, leading to higher prices for general acute care inpatient hospital services, the FTC said.

"These issues deserve full and thorough consideration by the Court of Appeals before the merger is allowed to be consummated," the FTC said.

In its decision for the hospitals issued earlier this week, the court erred in focusing on the geographic location of Hershey's patients, the FTC said. Instead it should have focused on the commercial insurers.

[Also: Pennsylvania insurance commissioner latest to propose protection from surprise balance bills]

Healthcare mergers must be analyzed through the lens of contract negotiations between healthcare providers and commercial health plans, the FTC said.

The question is whether commercial payors would pay a small but significant non-transitory increase in price to maintain access to a hypothetical monopoly for services in the Harrisburg area.

Employers overwhelmingly demand access to Harrisburg area hospitals, and health plans that do not offer that access are essentially unmarketable, the FTC said.

The court incorrectly held that temporary rate protection agreements with insurers Capital Blue Cross and Highmark precluded a finding that a monopoly could impose small but significant price increase, the FTC said.

[Also: FTC and Pennsylvania AG challenge proposed Penn State Hershey and PinnacleHealth merger]

Health insurers would likely be forced to pay higher reimbursement rates in a noncompetitive market and pass on those increases in the form of higher premiums charged to employers and higher out-of-pocket expenses charged to patients, the FTC said.

On Monday, U.S. District Court Judge John Jones denied the request by the Pennsylvania Attorney General and the FTC for an injunction to prevent a merger between PinnacleHealth and Penn State Health Milton S. Hershey Medical Center.

The crux of Jones' decision was the hospitals' five-year contract with Highmark and 10-year contract with Capital Blue Cross - the area's largest insurers - requiring the providers to maintain the existing rates in fee-for-service contracts and to preserve the existing rate differences between the hospitals.

Twitter: @SusanJMorse