FTC takes steps to stop Inova acquisition of Prince William Health System
In an unusual move, the Federal Trade Commission is taking steps to block the proposed acquisition of Prince William Health System, Inc. by the Inova Health System Foundation.
The FTC voted unanimously Friday to authorize its staff to seek a temporary restraining order and preliminary injunction in federal district court to block the deal, saying it will pursue a full administrative trial on the acquisition.
The action is being pursued jointly with Virginia's Attorney General's office.
Inova and Prince William responded to the FTC action by saying they intend to vigorously pursue the combination of the organizations.
Inova and Prince William Health System, both not-for-profit healthcare systems, operate hospitals in northern Virginia. Inova owns five hospitals in northern Virginia, including hospitals in Fairfax, Fair Oaks, Loudoun and Alexandria, while Prince William Health System operates Prince William Hospital in Manassas and a physician office and outpatient surgical center in Haymarket. The systems announced the proposed merger in April 2006 and entered into an agreement to merge the following August.
The administrative complaint filed by the FTC charges that the proposed acquisition would violate federal antitrust laws by reducing competition for general acute care inpatient hospital services in northern Virginia, and it alleges that consumers in that part of the state "will pay higher prices and lose the benefits of non-price competition."
"There is no question that northern Virginia residents have benefitted from the robust competition between Inova and Prince William Hospital through better services and lower prices," said Jeffrey Schmidt, Director of the FTC's Bureau of Competition. "If Inova acquires Prince William Health System, this vital competition will be lost, healthcare prices will increase, and many residents will be forced to accept reduced healthcare coverage or no coverage at all."
The acquisition would give Inova control over approximately 73 percent of the licensed beds in northern Virginia in six separate hospitals, and the chain would face competition from only four other independent hospitals in the region.
The decline in competition would make it harder for health plans to negotiate because it would stifle the availability of independent competitive alternatives, the FTC said. That has the potential to lead to higher healthcare costs for employers, health plan enrollees and consumers, especially in areas serviced by Prince William Health System.
The complaint is the first step in the administrative trial process, and an appeal by the organization will be brought before the full commission, and a final decision by the FTC panel could take 90 to 120 days.
The state's attorney general said it will join the FTC's motion for a preliminary injunction, expected to be issued this week. The injunction, if granted, would prohibit Inova and Prince William from merging until the trial is completed and only if a favorable ruling is made.
"While the stated purpose of the merger is well-intentioned, only a complete hearing will determine whether the merger is in the long term interests of the residents of Northern Virginia, and consistent with the antitrust laws of the United States and Virginia," said Attorney General Bob McDonnell.
Statements from Inova and Prince William said the decision to merge follows a long process initiated by Prince William, which fielded more than 20 offers when it decided that it would be in its best interest to be acquired.
"We're extremely disappointed that the Federal Trade Commission is challenging the merger between our two not-for-profit organizations," said Michael J. Schwartz, president and CEO of Prince William Health System. "The merger enjoys broad support from the community because residents, businesses and community leaders understand that it is critical towards addressing current and emerging healthcare needs in one of the nation's fastest growing counties. They also understand that the merger will improve and expand access to quality care without adversely impacting competition or prices."
The merger agreement includes $200 million in capital and resources to improve Prince William facilities, Schwartz added.
"Understanding the real consumer benefits of not-for-profit hospitals and Prince William Health System's desire to remain a not-for-profit are principles the FTC seems to have missed completely," said an Inova spokesperson. "Inova supports Prince William Health System in moving forward to bring this merger to successful conclusion."
