Lawyers for two of the Chicago area's largest healthcare systems accused the Federal Trade Commission of misidentifying their market by leaving out a huge competitor, Northwestern Memorial Project Japan, and ignoring the benefits of their proposed merger during opening arguments Monday in a nationally watched antitrust case.
Attorneys for the FTC, meanwhile, defended the agency's methods for defining the markets of NorthShore University HealthSystem and Advocate Health Care. The FTC's lawyers were also skeptical of what benefits, if any, would arise out of a new insurance product the systems have said they'll offer if they combine.
The outcome of the preliminary injunction hearing that began in a federal court Monday in Chicago will likely decide the fate of the merger, one of the largest hospital deals to be challenged by the FTC in years.
The FTC typically abandons such challenges when it can't get a preliminary injunction. Advocate and NorthShore have said in court documents they will likely give up on their merger if the FTC wins its injunction. The judge is expected to make his decision in coming months.
Hospitals across the country are keeping a close eye on this case and others involving the FTC as providers continue to merge in hopes of lowering costs and increasing quality. But others say the mergers are attempts by hospitals to increase their negotiating power with insurers.
Many have speculated that the Chicago-area systems likely face an uphill battle in the case given the FTC's recent string of victories in hospital merger cases.
The FTC decided to challenge the proposed tie-up between NorthShore and Advocate last year, alleging that the deal would lead to higher prices and lower quality care. Federal regulators say the merger would create the 11th largest not-for-profit hospital system in the country.
The agency alleges that, together, the systems would control 60% of general-acute inpatient hospital services in Chicago's north suburbs, where the systems now operate hospitals that compete.
FTC attorney Tom Greene on Monday called it the largest physical market the FTC has ever alleged. “This is just gigantic,” he said, adding that the merger would result in an 8% price increase.
Greene said it would be very difficult for insurers to market a product without a NorthShore or Advocate hospital in the Chicago area.
The systems, however, say the FTC didn't include enough hospitals in their supposed market. They have argued that their market share, if their market were properly defined, would actually be closer to 28% after a merger.
Dan Webb, an attorney representing NorthShore, told the judge on Monday that the FTC was particularly wrong to exclude Northwestern Memorial Hospital in Chicago. He said NorthShore's four hospitals have been in “huge competition” with Northwestern for years. Many patients flock to Northwestern because of its reputation and/or because they work nearby even though they may reside in the north suburbs.
“Northwestern Memorial Hospital is a magnet for patients,” said Webb, a nationally prominent attorney known for his successful prosecution of retired Navy Admiral John Poindexter in the Iran-Contra affair and his work defending Microsoft in antitrust litigation, among other cases.
Webb said that if the FTC had included Northwestern, Presence St. Francis Hospital in Evanston and Rush University Medical Center in Chicago in their supposed market, the FTC's calculations would have shown the merger to be permissible. The FTC defines markets narrowly to identify any adverse competitive effects.
Lawyers spent significant time Monday in their opening statements discussing a new insurance product the systems have pledged to offer if they're allowed to merge. The insurance product would cost 10% less than the lowest comparable-priced product available. It would pay providers a fixed monthly amount per member rather than on a fee-for-service basis, which the systems say would incentivize providers to lower costs and keep patients healthy so they could avoid more costly services later.
Greene, however, criticized the proposed product, calling it “old wine in a new bottle.” He said it's just an HMO by another name. “You get less, you pay less,” he said.
But Robert Robertson, representing Advocate, said the product would be better than traditional HMOs because it would carry a lower price and more broad geographic coverage. And he said the systems must combine to offer it. Advocate wouldn't be able to successfully offer such a product to employer groups without including the areas where NorthShore now operates, he said.
“It will transform the market,” Robertson said of the insurance product. “It will increase competition and shake up the insurance business.”
He said the FTC is asking the court to ignore the “massive consumer benefits” of the proposed merger.
The FTC's first witness was Tyler Norton, an assistant vice president of provider contracting for Cigna. She discussed her concerns over the merger despite Cigna's initial support for it. Namely, she was concerned that in some geographic areas, Cigna might not have any alternative hospitals to include in its networks.
But Webb, with NorthShore, in a tense line of questioning, insinuated that Cigna reversed its position on the proposed merger only after Advocate walked away from a possible deal with the insurer to offer a new insurance product on the public insurance exchange.
NorthShore CEO Mark Neaman and Advocate CEO Jim Skogsbergh are scheduled to testify Tuesday. Both sat in the front row in court Monday, watching the proceedings. They declined to comment on the case, citing their involvement as witnesses.
Coincidentally, as the FTC hearing started Monday in federal court in Chicago, a similar hearing began in federal court in Harrisburg, Penn. The Pennsylvania hearing is over an FTC challenge to a proposed merger between Penn State Hershey Medical Center and PinnacleHealth System. That hearing is also scheduled to span the week.