Pennsylvania court sides with hospitals in merger ruling

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

The Office of the Pennsylvania Attorney General and the Federal Trade Commission said they are reviewing their options after a U.S. District Court ruled against their request to block a merger between PinnacleHealth and Penn State Health Milton S. Hershey Medical Center.

"We were certainly disappointed by the decision. We felt that we made a number of persuasive arguments in support of our position. We are currently in the process of reviewing our available options," said Jeffrey A. Johnson, assistant press secretary for the Office of Attorney General Kathleen G. Kane.

U.S. District Court Judge John Jones denied the request by Kane and the FTC for an injunction to prevent the two health systems from coming together.

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.

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

"The court finds it extremely compelling that the hospitals have already taken steps to ensure that post-merger rates do not increase with CBC and Highmark, central Pennsylvania's two largest payors, representing 75-80 percent of the hospitals' commercial patients," Jones said.

The FTC contended the merger had the potential to violate antitrust law and create a monopoly because of the relatively small geographic market for healthcare services in the Harrisburg area.

If the combined providers raised prices or let quality suffer, there were few hospitals where patients could turn, the FTC said.

The hospitals and judge disagreed.

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Jones said 19 hospitals within a 65 minute drive of Harrisburg offered a realistic alternative.

Penn State Hershey Medical Center, a 551-bed hospital, is an academic medical center and teaching hospital. PinnacleHealth is a not-for-profit health system with 646 beds across three campuses.

The hospitals signed a letter of intent to merge in June 2014 and got final board approval in March 2015. The next month they notified the FTC of their proposed merger.

Financial terms were not disclosed.

The two healthcare organizations will continue laying the groundwork for their integration under Penn State Health, according to Penn State Health.

Twitter: @SusanJMorse