Court Says A Penn State Health Merger With PinnacleHealth Would Be Bad For Patients

Sep 29, 2016

Credit WITF

In a decision that is expected to reshape the health care world in the midstate, a federal court has blocked a merger between Penn State Health and PinnacleHealth.

The ruling by the 3rd U.S. Circuit Court of Appeals caps a saga that stretched more than two years, when two of the largest health systems in the region first announced their plans to unite.

In the decision, the Court wrote that the merger was, on its face, anticompetitive. It said testimony from the two largest insurers in the region (Highmark and Capital Blue Cross) showed that if the health systems merged, they would be able to hike prices significantly.

The Court dismissed arguments from the hospitals that the merger would make the systems more efficient. It questioned Penn State Health's insistence that it needs a $277 million, 100-bed tower, when its own documents show it needs just 13 additional beds. And it said there wouldn't be enough competition to keep prices down.

The decision is a victory for regulators that only complicates how hospital mergers are evaluated; the Federal Trade Commission had recently lost a similar case in Chicago.

"The FTC is very pleased with today's ruling from the Third Circuit Court of Appeals, which found that we have a likelihood of success on the merits.  We look forward to proving our case," said Debbie Feinstein, Director of the FTC's Bureau of Competition.

The Court's decision is highly dismissive of an earlier ruling by U.S. District Court Judge John Jones III, best known for his decisions on same-sex marriage, and teaching intelligent design in schools.

It says he "completely neglected" any mention of insurers in his analysis, improperly considered whether pricing contracts would have kept prices down enough to allow the merger, and didn't consider key evidence about where patients get care.

The Federal Trade Commission and state Attorney General's office first sued to block the merger in December 2015, arguing it would result in less competition in the area, leading to higher prices, lower quality, and less innovative care.

The combined entity would have controlled about 68% of the market for hospital services in the four-county area of Cumberland, Dauphin, Lebanon, and Perry.

Penn State Health and PinnacleHealth had won a decision in a lower level federal district court, but the FTC and AG's office took the extraordinary step of appealing the ruling.

Penn State Health and PinnacleHealth could appeal to the U.S. Supreme Court, but it is unlikely to hear it.

In a statement, Penn State Health and PinnacleHealth said: "We are disappointed by the Court's ruling. Over the next several days the leadership and respective boards of both organizations will carefully review the decision, and together we will determine our next course of action."

Penn State Health/PinnacleHealth merger decision by Ben Allen on Scribd

Find more of this and other reports at the website of our partner Transforming Health and WITF.