FTC blocks merger of two West Virginia hospitals

Federal Trade Commission Building

The Federal Trade Commission on Friday authorized action to block Cabell Huntington Hospital's proposed acquisition of St. Mary's Medical Center located three miles away, saying the merger would create a near monopoly leading to higher prices and lower quality of care.

Both hospitals are located in Huntington, West Virginia.

The FTC issued an administrative complaint alleging that the combination would create a dominant firm with a near monopoly over general acute care inpatient hospital services and outpatient surgical services in the adjacent counties of Cabell, Wayne, and Lincoln, West Virginia, and Lawrence County, Ohio likely leading to higher prices and lower quality of care than would be the case without the acquisition.

The Commission also authorized staff to seek a temporary restraining order and a preliminary injunction in federal court if, and when, necessary to prevent the parties from consummating the acquisition, and to maintain the status quo pending the administrative proceeding, according to the FTC.

The FTC may not immediately pursue an action in federal court because the merging hospitals are still awaiting approvals from the West Virginia Health Care Authority and the Catholic Church before they can close the transaction, which may take months.

"If this proposed acquisition goes forward, it would eliminate important competition that has yielded tremendous benefits for Huntington-area residents," said Steve Weissman, deputy director of the FTC's Bureau of Competition. "The merged hospitals would have a market share of more than 75 percent, and local employers and residents are likely to face higher prices and reduced quality and service at the combined hospital."

The complaint alleges that the two hospitals are each other's closest competitor for health plans and patients, and that the acquisition would substantially lessen competition between the hospitals for patients and for inclusion in health plan networks.

The complaint also alleges that, at times, the parties have attempted to limit their intense head-to-head competition through collusive conduct, such as restrictive marketing agreements.

According to the FTC's complaint, in an attempt to avoid a merger challenge the merging hospitals have entered into temporary agreements with the Attorney General of West Virginia and the largest health plan in the area, but those agreements fall short of replicating the benefits of competition.

"Also, when these agreements expire, Huntington-area employers and residents will be subject to the full harmful effects of a virtual monopoly for hospital services in their community," according to the complaint.

The complaint also alleges that potential cost savings and purported quality improvements are speculative, not merger-specific, and insufficient to outweigh the likely competitive harm resulting from the acquisition.

The Commission voted 4-0. The administrative trial is scheduled to begin on April 5, 2016.