ProMedica must divest St. Luke's

Health system promises to appeal order from FTC

Workers erect a ProMedica sign on St. Luke's Hospital in Maumee in December. The hospital remains part of Promedica during the appeal process.

As ProMedica expected and as an administrative law judge had previously ordered, the Federal Trade Commission has ruled the Toledo health-care system must divest St. Luke's Hospital to a government-approved buyer within six months.

ProMedica, which already has spent about $10 million in outside legal fees, continued its vow to appeal the case to the U.S. 6th Circuit Court of Appeals in Cincinnati and maintained the partnership is not anti-competitive as regulators contend. St. Luke's remains part of ProMedica as the appeals process continues, and the 6th Circuit Court's decision will be final, said Jeffrey Kuhn, ProMedica's chief legal officer and general counsel.

Because commissioners approved an administrative complaint against the partners more than a year ago and then agreed with an FTC administrative law judge's findings, the process so far has been like having the prosecutor also be the judge and jury, Mr. Kuhn said.

It could be more than a year before the appeal is settled, although the bulk of needed outside legal fees already has been reached, he said.

"Clearly, we're disappointed, but we're not surprised," Mr. Kuhn said Wednesday.

"This case is far from over. We do intend to appeal the case."

The commission's ruling also does not surprise anti-trust expert Dan Crane, a law professor at the University of Michigan not involved with the case.

"It would have been quite surprising for it to go the other way," Mr. Crane said.

The 6th Circuit Court, however, could reverse the FTC's decision, he added.

In a 4-0 decision made public Wednesday, commissioners agreed ProMedica must divest St. Luke's after restoring any assets.

The commission ruled the joinder is illegal and anti-competitive, and the partnership is likely to increase prices both for general acute-care inpatient hospital services and inpatient obstetric services sold to commercial health plans.

The FTC also may appoint a monitor to ensure ProMedica is following the order once it becomes final.

And if ProMedica has not divested St. Luke's within six months of the commission's order becoming final, the FTC may appoint a trustee to sell the Maumee hospital and its assets, according to the ruling.

Public versions of the ruling, which were issued March 22, and commissioner opinions were made available Wednesday with some redactions.

The FTC declined further commenty.

A financially struggling St. Luke's opted to join ProMedica in 2010, and regulators began looking into the partnership more than a year and a half ago.

Last March, the FTC received a preliminary injunction in U.S. District Court in Toledo that prevented the partners from fully joining. ProMedica, for example, has been unable to change staffing levels or clinical services at St. Luke's without FTC approval.

An administrative trial was held sporadically over eight weeks last summer before FTC Chief Administrative Law Judge D. Michael Chappell in Washington. Judge Chappel agreed with FTC attorneys that the partnership between ProMedica and St. Luke's is anti-competitive and illegal, giving them the ability to charge "supracompetitive" reimbursement rates to insurers for general acute-care inpatient hospital services.

Besides having to sell St. Luke's, ProMedica also would have to provide transitional services for a year after the divestiture at the request of the acquirer, according to Judge Chappell's decision, which the commission's ruling largely upholds on that and other points.

ProMedica unsuccessfully had proposed having a separate team negotiate insurer contracts for St. Luke's to allay government concerns. FTC used that approach a few years ago to settle its case with the former Evanston Northwestern Healthcare Corp. in Illinois, now NorthShore University HealthSystem, with the hospital in Highland Park having a separate negotiating team from those in Evanston and Glenbrook.

Yet seven years had elapsed since the merger in the Evanston case, leading the commission to conclude a divestiture would be a "complex, lengthy, and expensive process," while a hold-separate agreement has limited St. Luke's integration into ProMedica, Commissioner Julie Brill wrote in the commission's opinion.

If the partners are unable to prevail in the 6th Circuit Court, having a separate team negotiate contracts could be suggested there as well as a remedy to divestiture, ProMedica's Mr. Kuhn said. That way, St. Luke's could remain part of ProMedica, he said.

Just a small percentage of mergers reviewed by the FTC or Department of Justice end up going to trial, and some firms decide not to proceed with mergers because of problems found by enforcement agencies, experts say.

Four years ago, Inova Health System of Virginia and a competing hospital dropped plans to merge instead of facing an FTC administrative trial. Inova and Prince William Hospital Health System of Manassas, Va., which since has merged with Novant Health of North Carolina, initially vowed to defend their merger.

Some other firms avoid trial by negotiating acceptable terms, although it is not unusual for legal proceedings to take place, said Mr. Crane, the UM law professor.

The FTC appears to be getting more aggressive with hospital mergers, which are becoming more common in an era of health-care reform, ProMedica's Mr. Kuhn said.

Last week, the U.S. solicitor general on behalf of the FTC petitioned the U.S. Supreme Court to review a recent federal appeals court ruling concerning Phoebe Putney Health System's acquisition of Palmyra Park Hospital in Albany, Ga.

The FTC last year filed a complaint in federal district court to block the combination of Albany's only two hospitals, saying it reduces competition and would allow prices to be raised. The case was dismissed in district court, and the judgment was affirmed in a federal appeals court.

Contact Julie M. McKinnon at: jmckinnon@theblade.com or 419-724-6087.