Judge undoes hospital merger, finds it led to higher prices

October 22, 2005|By BRUCE JAPSEN | BRUCE JAPSEN,CHICAGO TRIBUNE

A federal judge has ordered the undoing of a merger of two hospital operators in the affluent suburbs of Chicago on grounds it led to unfair price increases and violated antitrust laws.

The decision, released yesterday, could lead to similar challenges of hospital mergers across the country.

The ruling ordered that the five-year-old merger of Evanston Northwestern Healthcare and Highland Park Hospital be undone.

The judge, who oversees an administrative law court at the Federal Trade Commission in Washington, D.C., directed the company to sell Highland Park Hospital, separating it from others it owns in Evanston and Glenview.

Evanston Northwestern plans to appeal, first to the commission and then, if necessary, to a federal court of appeals, such as the 7th U.S. Circuit Court of Appeals in Chicago. That process could take two years.

When the FTC filed a complaint challenging the merger five years after it had been consummated, the case was unique. But, such challenges could become more common as hospital costs continue to soar and have grown to encompass more than half of all health care spending.

"Evanston increased prices dramatically after the merger and that was one of the hardest facts for them to get around," said David A. Balto, a Washington lawyer and former FTC policy director who sat in on parts of the trial, ended in July. "They just shouldn't have raised prices so much in this case."

The FTC alleged prices rose 50 percent or more in certain instances. It cited an in-patient care case in which the price increased nearly 200 percent within a year after the merger.

In his order, the judge pointed to testimony from one expert witness that compared Evanston Northwestern's pricing with a control group of hospitals and found that "across all managed care plans price increases [at Evanston] exceeded the control group's by 11 to 18 percent."

If other hospitals increased prices by 10 percent, Evanston Northwestern raised them by 21 percent to 28 percent, the judge wrote.

Even if upheld on appeal, the case seems likely to have little impact in Maryland since regulators there set hospital prices. A merged hospital system in Maryland isn't free to increase prices on its own.

"That's part and parcel of our law," said Robert B. Murray, executive director of Maryland's Health Services Cost Review Commission. "You can't raise prices without prior review by the commission."

In Maryland, hospital rates are raised each year by an "update factor" set by Maryland's Health Services Cost Review Commission, based on inflation and other factors.

Hospitals can seek approval to raise rates by more, but such requests are only approved "based on the commission's estimate of what's reasonable," said Murray.

Chief Administrative Law Judge Stephen J. McGuire's ruling said the Illinois merger resulted in "substantially lessened competition" and higher prices for insurers and patients.

Attorneys for Evanston Northwestern said the health care company used price increases to upgrade facilities and other improvements.

The case is considered a landmark of sorts for federal antitrust lawyers who used the challenge to renew the federal government's aggressive stance toward hospital mergers.

Bruce Japsen writes for the Chicago Tribune. Sun reporter M. William Salganik contributed to this article.

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