Experts: Hershey-Pinnacle decision signals need for clearer antitrust guidance

The decision by Penn State Health Milton S. Hershey Medical Center and PinnacleHealth System to give up on a merger affects more than the future of two local health systems. It also has an impact on potential mergers around the country.

The merger case highlighted the need for better definitions of a geographic market in antitrust litigation, according to industry observers.

The Hershey-Pinnacle merger was opposed by the Federal Trade Commission and the Pennsylvania Attorney General’s Office. They claimed that the Dauphin County-based hospitals are direct competitors, and that their union would eliminate competition in the Harrisburg region.

But court opinions differed on how to define the health systems’ geographic markets, leaving a need for clearer guidance from the U.S. judicial system on antitrust laws, according to people who have followed the case.

The hospitals indicated last week that they intend to pursue future partnerships with each other. But Stephen Foreman, a professor of health administration and economics at Allegheny County-based Robert Morris University, hinted that the hospitals should tread lightly.

“There are ways to cooperate without a merger, but they have to be careful not to be anticompetitive,” Foreman said, noting that the FTC is likely still watching.

What’s next for Hershey, Pinnacle

Instead of partnering with one another, it is possible that one of the hospitals will pursue a merger with a different health care entity, Foreman said.

PinnacleHealth could look to merge with another health system, or maybe Hershey Medical Center will rethink the direction of its medical school, Foreman said.

Meanwhile, larger health systems nearby could become bigger players in the region – Penn Medicine has partnered with Lancaster General Health in Lancaster County; Johns Hopkins Children’s Center is working with WellSpan Health in York; Holy Spirit in Camp Hill is  affiliated with Geisinger Health System. These partnerships could impact future decisions by PinnacleHealth and Hershey Medical Center, Foreman said.

The health systems declined to comment on their plans following their decision not to pursue a merger, except to say in a prepared statement on Friday that they will “continue to collaborate in the future.”

Future FTC fights

At a time when so many mergers are happening in the health care industry, industry observers were intrigued that the FTC chose to stop this one.

“I’ve seen a whole bunch of mergers over the last 20 years,” Foreman said. “I am a little surprised that the FTC chose this one to draw the line.”

William Markham, a trial attorney in San Diego at the Law Offices of William Markham, also has been observing the Hershey-Pinnacle case. He believes the blocked merger is a sign that an antitrust case with geographic market issues such as this one needs to reach the U.S. Supreme Court.

Ultimately, the merger battle will likely cause other hospitals in the U.S. to think twice before pursuing a merger where their geographic markets are similar, Markham said.

“Antitrust attorneys across the country will look to this case for how to define geographic markets,” he said.

The FTC is satisfied with the outcome, stating that the hospitals’ decision will preserve competition in the Harrisburg area.

“Had it been consummated, the merger would have likely led to lower quality and higher cost health care, at the expense of Harrisburg residents and their employers,” said Debbie Feinstein, director of the FTC’s bureau of competition.

Lenay Ruhl

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