FTC Challenges Pennsylvania-Based Health System Merger – Again

The Federal Trade Commission (FTC) is continuing its aggressive scrutiny of health system mergers with its February 27, 2020 filing of an administrative complaint seeking to block the proposed merger of Pennsylvania-based Jefferson Health (Jefferson) and Albert Einstein Healthcare Network (Einstein). This most recent FTC lawsuit is the first challenge to a proposed hospital merger filed by the agency since 2016, and the first challenge since 2016 when the FTC successfully enjoined two proposed hospital system mergers, including a merger between two other Pennsylvania hospital systems. As is often the case, the FTC is working with the state attorney general and announced that the Pennsylvania Attorney General would join its complaint in federal district court.

Jefferson is the largest health system in the Philadelphia region and operates 11 general acute care hospitals in Pennsylvania and New Jersey and three inpatient rehabilitation facilities in Pennsylvania. Einstein operates three general acute care hospitals, one in Philadelphia and two in Montgomery County, in addition to five inpatient rehabilitation facilities. Jefferson and Einstein each operate an academic medical center. According to the administrative complaint, the proposed transaction would create a system with 18 hospitals, more than 50 outpatient and urgent care centers, leading rehabilitation and post-acute facilities, and more than $6 billion in annual revenues.

According to the FTC complaint, the combined entity would have 1,000 more beds than the next largest system in the Philadelphia region, control at least 60% of the market for inpatient general acute care hospital services in the “North Philadelphia” area, and control at least 45% of the market for inpatient general acute care hospital services in and around Montgomery County, Pennsylvania. The FTC’s complaint alleges further that, together, Jefferson and Einstein would control at least 70% of the inpatient acute rehabilitation facilities in Philadelphia. The complaint claims that, due to the combined system’s significant market share, it would be difficult for a commercial insurer to exclude it from health plans, giving the merged system the ability to raise prices. The FTC also alleged that head-to-head competition between the health systems has driven them to upgrade facilities and invest in new technologies and that the merger would harm patients by eliminating the benefits of that head-to-head competition.

In a joint statement, the merging parties emphasized that their merger would benefit underserved patients and expand their ability to provide value-based care and training for medical students in the Philadelphia region. The parties indicated they were studying the FTC’s lawsuit in an effort to evaluate next steps.

The challenge represents the FTC’s second challenge of a major health system merger in Pennsylvania in the last four years. In October 2016, Penn State Hersey Medical Center and PinnacleHealth System abandoned their proposed merger after the U.S. Court of Appeals for the Third Circuit sided with the FTC, reversing a lower court decision that had denied the FTC and Pennsylvania Attorney General’s request to enjoin the transaction.

In announcing the complaint, the FTC stated that it also had authorized agency staff to seek a temporary restraining order and preliminary injunction in federal court to prevent the merger pending a trial in the FTC’s administrative court scheduled to begin in September.

While the final outcome of the proposed combination between Jefferson and Einstein may not yet be known, it is clear the FTC’s program to challenge proposed hospital mergers that they believe will harm competition is alive and well.