Evanston Northwestern Suit

something to pay attention to: Mergers in Non-profit organizations like hospitals

WSJ.com - FTC Targets Hospital Merger In Antitrust Case:

Next month, the Federal Trade Commission brings to trial an unusual case in which it is seeking to undo the January 2000 takeover of Highland Park Hospital, in suburban Chicago, by Evanston Northwestern Healthcare Corp. The FTC accuses Evanston Northwestern, which already ran two hospitals in the area, of antitrust violations, saying it used its postmerger “market power” to impose huge price increases -- of 40% to 60%, and in one case 190% -- on insurers and employers.

Evanston Northwestern, a nonprofit corporation, denies any impropriety. It says it rescued the once-struggling community hospital in Highland Park and improved the quality of care. The hospital system has said that a forced divestiture, as demanded by the FTC, would “disrupt the lives of patients, doctors, employees” and others.

To unscramble Evanston Northwestern's merger, the FTC is armed with reams of data it believes will prove that the company acted in an anticompetitive manner, by making price increases that ultimately hurt consumers. The government charges that price increases are “far beyond those achieved by comparable hospitals” during the same period of time. The case begins Feb. 10 before an FTC administrative law judge.

An important backdrop to the FTC case is the nonprofit status of Evanston Northwestern, because in some previous mergers, courts have pointed to hospitals' nonprofit status as a reason to let mergers go through. In the mid-1990s, for example, the FTC fought unsuccessfully to block a Grand Rapids, Mich., hospital merger. A federal court allowed it to proceed, based on economic analysis that nonprofit mergers tended to reduce costs and prices. The court also ruled that nonprofit hospital boards, as community leaders, had an incentive to restrain prices. A federal appeals court upheld that ruling in 1997.

Nonprofit hospitals, the FTC argues, do have an incentive to maintain a “surplus” of revenue over expenses, and while they don't distribute these “profits” to shareholders, they can use them for salaries, equipment or expansion.

Evanston Northwestern, affiliated with Northwestern University, is a major teaching facility and medical powerhouse in Chicago's northern suburbs, with 850 beds in three hospitals, about 7,600 employees and annual revenue of $1.8 billion. After merging 239-bed Highland Park into its system in early 2000, the FTC alleges, Evanston Northwestern moved to impose big price increases on insurers such as Aetna Inc., Humana Inc. Cigna Corp., United Healthcare and others who pay hospitals under contracts for medical care received by patients. Several of the insurance companies, unhappy with the price increases, are expected to be called as witnesses by the FTC at the trial.

In 2000, for example, the hospital system raised United Healthcare's health-maintenance-organization rates by 52% at its Evanston and Glenbrook hospitals and by 38% at Highland Park, the FTC alleges. The hospital raised its preferred-provider rates by 190% at Evanston and Glenbrook hospitals and by 20% at Highland Park.

Evanston Northwestern, responding to the allegations, has said that the hospital system “renegotiated its contract with United after the merger, and that such contract documents speak for themselves.”

The FTC also has accused Evanston Northwestern of price-fixing of physician fees, after combining two large groups of physicians following the merger. Evanston Northwestern has denied the price-fixing charges.

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This page contains a single entry by Seth A. published on January 17, 2005 8:40 AM.

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