Editor’s Note: The talented analysts at the FTC and the DOJ frequently review merger applications within a set of rules that are open to interpretation. In some instances Amicus Briefs filed by regulatory watchdogs such as CRE can ensure a complete venting of relevant issues. CRE has filed a number of amicus briefs in regulatory proceedings; in particular in those proceedings which could be dominated by compliance with the Data Quality Act.
Merged hospitals’ pricing a concern
Hazleton General and Lehigh Valley hospitals can provide better care after merging, but state and federal regulators will study whether the hospitals will gain power to raise prices, too.
“The real question we focus on is what the merger changes,” Alexis James Gilman of the Federal Trade Commission said.
Either the FTC or the U.S. Department of Justice will review the merger plans that the hospitals announced in April. The Pennsylvania Attorney General’s Office also must review the merger agreement.
During reviews, the agencies look at whether a merger will reduce competition for health services and allow the hospitals to negotiate higher prices with insurance companies and patients.
If Hazleton General gains leverage with insurers or if any of the three Lehigh Valley hospitals in the Allentown area gain leverage, that could raise anti-trust concerns, Gilman said.
As deputy assistant director for the Mergers Division of the FTC in Washington, D.C., Gilman has seen hospitals merge for various reasons, such as to expand their territory, avoid bankruptcy or keep up with competitors.
“Lots of hospitals also are looking across the street at other hospitals that are merging. They also feel like they have to merge, too, or else they’ll become insignificant or left out of health plan networks. Especially the smaller community hospitals feel like they need larger scale to continue to be stable, to serve or be financially viable,” Gilman said.
When executives and board members of Hazleton General look at nearby hospitals they notice the growing presence of two health-care chains: Geisinger Health Systems and Community Health Systems.
Geisinger, which operates its flagship hospital in Danville, Montour County, merged with hospitals in Scranton, Shamokin and Bloomsburg in the past two years. Also, the health system has Geisinger Wyoming Valley Medical Center in Plains Township near Wilkes-Barre.
Community Health Systems, a for-profit group based in Tennessee, has hospitals in Scranton, Wilkes-Barre, Kingston, Tunkhannock, Peckville and Berwick.
Five years ago in Pottsville, the city’s two hospitals, Good Samaritan and Pottsville General, merged in a move that mirrored steps that occurred earlier in Hazleton, which previously had two hospitals.
Hazleton General and the Hazleton-St. Joseph Medical Center never merged, but they formed the Greater Hazleton Health Alliance to share services from 1996 until St. Joseph’s closed in 2007.
After allying with St. Joseph’s, Hazleton General arranged for Lehigh Valley to staff its emergency department. Other agreements allowed patients from Hazleton to receive care from Lehigh Valley’s specialists for treatment of burns, infectious diseases and stroke – often through computer and video links.
When announcing the merger on April 24, the leaders of Hazleton General and Lehigh Valley said the hospitals sought a way to accomplish more together.
Lehigh Valley’s chief executive officer said Hazleton General’s number one rating in a measure of value-based care showed it developed a culture of quality that his hospital shares.
For Hazleton General, the merger offers security that the larger Lehigh Valley network can provide.
Lehigh Valley has two hospitals in Allentown and one near Bethlehem. Together, they have approximately 1,000 beds and 12,000 employees. Two years ago, Lehigh Valley’s network earned $74 million and had revenues of 1.024 billion.
Hazleton General, which earned $11.8 million on revenues of $108 million, has 150 beds and approximately 1,000 employees.
When studying the merger, regulators will look at the size of the markets in which the hospitals operate and their shares of those markets.
“We typically focus on patient days. In the course of our investigation, we’ll look at market share sliced different ways,” Gilman said. “We may look at it based on admissions or discharges or number of staffed beds.”
In annual returns filed with the Internal Revenue Service, Lehigh Valley lists its primary market as Lehigh, Northampton and Carbon counties, a region with 712,000 residents who accounted for 73 percent of discharges.
The secondary market of Lehigh Valley includes all of Luzerne, Berks, Monroe and Schuylkill counties and parts of Montgomery and Bucks counties. The 1.3 million residents of the secondary market account for 23 percent of discharges.
Hazleton General, in IRS filings, lists its primary market as the 66,000 residents who live in parts of Luzerne, Carbon and Schuylkill counties, a figure that generally coincides with the population of the Hazleton Area School District. The secondary part of the market is home to 33,000 residents of other parts of those same counties.
Mitchell Katz, a spokesman for the FTC, said either his agency or the U.S. Department of Justice will review the merger between Hazleton and Lehigh Valley.
When the FTC reviews a merger, it generally asks to see additional information and launches a full investigation in 3 percent of the cases.
“Only a small number are challenged,” Katz said.
The Pennsylvania Attorney General’s Office reviews all hospital mergers in the state from anti-trust standpoint and the charitable trust standpoint, Dennis Fisher, a spokesman in the office, said.
Some hospitals receive gifts for specific purposes that must be honored after mergers.
Hazleton General, however, lists no grants or gifts received from the public between 2007 and 2011 on its tax form and lists no endowment.
The Attorney General’s Office doesn’t comment on reviews until they are complete.
After a review, three outcomes are possible: The office can agree with the merger and take no action; the office can sue to prevent the merger, or the office can negotiate conditions that the hospitals agree to follow after the merger.
For example, Geisinger agreed to keep open the Bloomsburg hospital for eight years. The hospital is 10 miles from Geisinger Medical Center in Danville, and the Attorney General’s Office was concerned that the merger could lead to higher rates in the areas.
To merge with Shamokin, Geisinger had to honor contracts with other insurers at Shamokin for three years. Doctors in Northumberland County who aren’t affiliated with Geisinger retain the right to admit patients to the hospital in Shamokin as part of an agreement.
When, however, the attorney general and the FTC thought a merger in Reading would led to a price increase for surgeries, the agencies filed a legal challenge. Reading Health Systems, which operates a 700-bed hospital, wanted to merge with the Surgical Institute of Reading, which generally charged 30 percent to 40 percent less than the hospital for procedures.
The government agencies filed a challenge in November 2012 and don’t expect the merger to occur.
Five years ago, opposition from the Attorney General’s Office stopped a merger proposed between Community Medical Center of Scranton, Moses Taylor Hospital of Scranton and Blue Cross of Northeastern Pennsylvania.