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Third Circuit halts Pa. hospital merger

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Harrisburg — A federal appeals court has overturned a decision greenlighting the merger of Penn State Hershey Medical Center and PinnacleHealth System, which the Federal Trade Commission claims would harm competition in the Harrisburg-area health care market.

Tuesday’s ruling from the U.S. Court of Appeals for the Third Circuit sends the case back to a lower court with directions to order a preliminary injunction that would pause the merger. The decision buys time for the FTC to complete an administrative case to determine whether the merger violates antitrust law.

Related: FTC asks appeals court to block Pa. hospital merger

The merger was initially approved in May by U.S. District Judge John E. Jones III of the Middle District of Pennsylvania. Jones ruled that the FTC did not show it was likely to succeed in proving that the merger was anti-competitive.

However, in the Third Circuit’s opinion, Judge D. Michael Fisher wrote that the FTC is likely to succeed on the merits of the case. The Third Circuit also rejected the hospitals’ claim that they would scrap the merger if an injunction was granted.

“Even accepting the hospitals’ assertion that they would abandon the merger following issuance of the injunction,” Fisher said, “the result—that the public would be denied the procompetitive advantages of the merger—would be the hospitals’ doing. We see no reason why, if the merger makes economic sense now, it would not be equally sensible to consummate the merger following a FTC adjudication on the merits that finds the merger lawful.”

The FTC alleged that a merger between the two would lessen competition in the hospitals’ geographic coverage area, which the commission defined as Harrisburg and the immediate surrounding area. The FTC claimed that very few people who live there travel outside that area for health care. The hospitals argued, however, that the commission drew their geographic market too narrowly.

Jones noted in May that half of Hershey’s patients drive 30 minutes to receive care at the hospital, and 20 percent travel more than an hour to be treated there.

“These salient facts controvert the FTC’s assertion that” a wide array of services, including overnight hospital stays, “are ‘inherently local,’ and strongly indicate that the FTC has created a geographic market that is too narrow because it does not appropriately account for where the hospitals, particularly Hershey, draw their business,” Jones said.

Additionally, Jones said the FTC had a narrow view of the number of hospitals that patients in the area could turn to if the combined hospitals raised prices or let quality dip.

“There are 19 hospitals within a 65-minute drive of Harrisburg, and many of these hospitals are closer to patients who now come to Hershey. Thus, if a hypothetical monopolist such as the combined hospitals imposed a SSNIP,” or a small but significant increase in pricing, “these other hospitals would readily offer consumers an alternative,” Jones said.

“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, in a statement.

William D. Coglianese of Jones Day represented the hospitals and did not return a call seeking comment.


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