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Hospital Merger May Violate Antitrust Laws

CHICAGO (CN) - A federal judge blocked the merger of two Rockford, Ill., hospitals while regulators determine whether the union will lessen regional health care competition.

OSF Healthcare System owns and operates several acute care hospitals in Illinois, including St. Anthony Medical Center in Rockford. Rockford Health System (RHS) owns and operates Rockford Memorial Hospital, also located in the same city.

Under a January 2011 affiliation agreement, OSF would acquire all the operating assets of RHS. OSF then planned to combine the operations of the two Rockford hospitals to create a subsidiary called OSF Northern Region.

In November 2011, the Federal Trade Commission asked the court to block the merger from moving forward until completion of an antitrust investigation.

U.S. District Judge Frederick Kapala granted a preliminary injunction last week, finding that "the FTC has demonstrated a likelihood of success on the merits."

"Initially, the FTC must make a prima facie showing that the proposed merger would result in 'a firm controlling an undue percentage share of the relevant market' as well as 'a significant increase in the concentration of firms in that market,'" Kapala wrote, quoting Supreme Court precedent. "The Supreme Court has explained that a merger with these characteristics 'is so inherently likely to lessen competition substantially that it must be enjoined in the absence of evidence clearly showing that the merger is not likely to have such anticompetitive effects.'"

The court found that Dr. Cory Capps, the FTC's expert witness, "calculated the post-merger market shares under both measures and found that the merged entity would control 59.4 percent of the GAC market based on patient admissions or 64.2 percent of the market based on patient days."

"These market shares far surpass the threshold found to be presumptively unlawful in Philadelphia National Bank, and they also exceed the percentages found in other hospital merger cases in which the FTC has established a prima facie case," Kapala wrote.

"Based on these market share calculations, the court has no trouble finding that the combined entity in this case would control 'an undue percentage share of the relevant market,'" he added.

The medical groups failed to show that the another hospital in the area, SwedishAmerican Hospital, would retain a greater than 40 percent post-merger market share based on patient admissions.

"Here, rather than continuing to compete against SwedishAmerican, defendants have chosen to pursue an affiliation that would automatically boost the combined entity's market share to the top position and simultaneously lessen the number of competitors from three to two," Kapala wrote. "Although it is true that SwedishAmerican will remain as a competitor, the court is not aware of, and defendants have failed to cite, any authority which holds that the FTC is required to show that all competition will be eliminated as the result of a merger in order to obtain an injunction pending the administrative trial on the merits."

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