Government Opposes Health Care Merger Between Penn State Hershey and PinnacleHealth Citing Potential for Reduced Competition and Increased Prices

December 11, 2015 | By

This week, the Federal Trade Commission (“FTC”) and the Pennsylvania Office of the Attorney General (“Attorney General”) publicly opposed the anticipated merger between Penn State Hershey Medical Center (“Penn State Hershey”) and PinnacleHealth System (“PinnacleHealth”). This partnership would be one of the biggest health care mergers Central Pennsylvania has ever experienced.

The FTC and Attorney General allege that the proposed merger between two of the largest hospital systems in Central Pennsylvania would “substantially reduce competition” and “lead to reduced quality and higher health care costs for the area’s employers and residents.” The FTC determined that the health systems combined would control approximately 64 percent of the relevant market for general acute care inpatient hospital services within Dauphin, Cumberland, Perry, and Lebanon Counties. In a press release issued earlier this week, the FTC stated it would jointly file a complaint with the Attorney General in federal court to request a preliminary injunction, pending trial. An administrative trial in the U.S. District Court for the Middle District of Pennsylvania is scheduled for May 17, 2016.

Under the federal premerger notification program, the FTC and the Department of Justice (DOJ) review details of large mergers and acquisitions before they occur. The FTC and DOJ review the proposed transactions to make sure they are compliant with the Sherman Act, the Federal Trade Commission Act, the Clayton Act, and the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Under these laws, the government can challenge potential mergers and acquisitions that restrain trade, substantially lessen competition, create a monopoly, and/or perpetuate unfair methods of competition. According to the FTC, it will file a complaint “when it has ‘reason to believe’ that the law has been or is being violated” and when government intervention is in the public’s best interest.

In a press release issued by Penn State Hershey and PinnacleHealth, the health systems expressed their disappointment in the government’s opposition: “We are extremely disappointed that the FTC does not share the enthusiasm of the many employers, community leaders, private physicians, commercial insurance providers and others who have recognized the benefits of our integration and demonstrated their broad support for it.” However, the health systems defended their proposed merger and maintained their commitment to its success.

Penn State Hershey and PinnacleHealth first announced their plans to merge in 2014. Both hospital systems are not-for-profit and located in Dauphin County. In addition to its Medical Center, Penn State Hershey consists of the Cancer Institute and the Children’s Hospital. PinnacleHealth owns and operates Harrisburg Hospital, Community General Osteopathic, and West Shore Hospital. Penn State Hershey and PinnacleHealth have 551 and 601 beds, respectively. This year Penn State Hershey reported total yearly revenues of $1.39 billion, while PinnacleHealth reported total yearly revenues of $1.07 billion.

Emily Hart is a 3L at Drexel University Thomas R. Kline School of Law, where she is a Staff Member of the Drexel Law Review and a Member of the Moot Court Board. She is a guest contributor to the Health Law Gurus™ blog.

Categorized In: FTC, Guest Contributor, Mergers