A federal judge dismissed a lawsuit Tuesday that looked to block the Jefferson Health and Albert Einstein Healthcare Network merger, poking holes in regulators’ argument that it would stifle competition and lead to price increases.
The Federal Trade Commission and the Pennsylvania Attorney General sued to block the deal that would add three acute-care hospitals and a rehab hospital to Jefferson’s 14-hospital network, noting that the combined entity would control at least 60% of the acute-care market around North Philadelphia. But federal and state regulators failed to prove that insurers wouldn’t be able to find viable substitutes for the merged system and thus would have to submit to higher reimbursement rate mandates, U.S. District Court Judge Gerald Pappert wrote.
“To establish its prima facie case, the Government must put forth enough evidence to prove that the insurers would not avoid a price increase in any one of the Government’s proposed markets by looking to hospitals outside those markets. The Government has not met this burden,” the memorandum decision reads.
The FTC said that they are considering their actions, describing the ruling as “disappointing.” The Pennsylvania Attorney General said it is reviewing the ruling.
Jefferson and Einstein said they are pleased with the ruling, and await the decision of the FTC and state AG as to whether they will appeal.
“We are gratified by today’s decision in which the court properly concluded that the government was unable to show that the transaction would reduce competition in the highly competitive Philadelphia area,” Virginia Gibson, a partner at Hogan Lovells, which represented Jefferson and Einstein, said in prepared remarks.
The competitive advantage skews toward the insurer in Philadelphia, Pappert concluded. The decision detailed 51 area hospitals, with Jefferson and Einstein accounting for just two of the 13 health systems in the market.
While Philadelphia’s provider market is relatively less consolidated compared to other metro areas, there are only four insurers in the region. Independence Blue Cross has more than half of the market share, accounting for around 20% of Jefferson’s total revenue, according to the court filings.
“Jefferson’s Chief Executive Officer Dr. Stephen Klasko characterized the area as having ‘the worst externalities of any city in the country’ for healthcare systems because there is ‘pretty much a monopolistic type insurance situation with a few insurers,'” the decision reads.
While regulators claimed that the merged system would control at least 60% of the acute care North Philadelphia market, they defined that geographic area without Penn Medicine’s three Philadelphia hospitals, among others, the court found.
The combined system would also control at least 70% of the inpatient acute rehabilitation facilities in Philadelphia, federal and state authorities said. That was the first time a system attempted to define rehabilitation services as a relevant product market, according to court filings, noting that market definition was also narrow and ultimately flawed since it excluded skilled-nursing facilities.
In addition, regulators did not adequately define the southeastern Pennsylvania market, the court ruled, finding limited probability of a competitive imbalance if the merger went through.
The second largest health insurer in southeastern Pennsylvania has “no concerns” about the Jefferson-Einstein merger and the third largest never said it would pay higher rates for general acute care services post-merger, according to court filings.