ProMedica Health System, Inc.’s bid to buy St. Luke’s Hospital has been dealt the final knockout blow by the U.S. Supreme Court. The Court recently denied ProMedica’s December 2014 petition for writ of certiorari, effectively ending ProMedica’s battle with the FTC. The FTC deemed that the merger between ProMedica and St. Luke’s was substantially anticompetitive, and the Sixth Circuit Court of Appeals agreed, affirming the FTC’s decision. Now, following the Supreme Court’s denial, ProMedica must divest itself of St. Luke’s over a six-month period with the oversight of the FTC.
In 2010, ProMedica and St. Luke’s merged. The merger gave ProMedica a market share of more than 50% in the primary and second service market, and more than an 80% share of the obstetrical market. The FTC took issue with the results of the merger, challenging it was anticompetitive. An administrative law judge found the merger was anticompetitive, and the FTC largely adopted the judge’s reasoning in its own opinion. As part of its opinion, the FTC ordered ProMedica to divest itself of St. Luke’s to an approved buyer within 180 days of the date of the FTC’s order.
Following the FTC’s decision, ProMedica filed an appeal with the Sixth Circuit Court of Appeals. In a unanimous opinion issued in April, 2014 a three-judge panel denied ProMedica’s petition to overturn the FTC’s ruling. ProMedica then sought review by the entire Sixth Circuit Court, but was again denied. At that point, ProMedica filed its petition with the U.S. Supreme Court. In its petition, ProMedica argued, among other things, that the implementation of the Affordable Care Act and associated federal mandates require “economies of scale and encourage greater integration among health care providers,” which can be difficult for small hospitals because they cannot access the capital necessary to meet the Affordable Care Act’s goals to improve quality and contain cost. As a result, many smaller hospitals seek to enter into mergers. ProMedica then argued that the Sixth Circuit’s decision would create a “virtual irrebuttable presumption of anticompetitive harm,” which will drastically impact many such hospital mergers and allow the FTC to have a “near veto over almost any proposed hospital merger.” The Supreme Court didn’t agree, denying ProMedica’s petition in May 2015.
Now that ProMedica knows its fate, what does the Supreme Court’s decision mean for ProMedica and its divestiture of St. Luke’s? The process by which ProMedica divests itself of St. Luke’s could take on one of several forms, including ProMedica and St. Luke’s entering into another agreement to restructure the entity to quash any anti-trust concerns, St. Luke’s being sold entirely to another competitor, or St. Luke’s operating as a stand-alone facility. Over a six-month period ProMedica and St. Luke’s will have to decide which option suits them best, but it will come under the watchful eye of the FTC.
Even so, ProMedica doesn’t seem too concerned about the required divestiture. “Employees and the community should not expect to see any immediate changes as the divestiture plan is completed and approved,” the company said in a statement. According to ProMedica, St. Luke’s has “returned to financial stability” in the five years since it merged with ProMedica. “St. Luke’s is in a much better place than it was five years ago when the hospital joined ProMedica,” the statement says. “St. Luke’s will begin this new chapter in its history from a position of strength.” For now it appears ProMedica is resigned to accept its fate. However, the results of ProMedica’s fight with the FTC should send warning shots to other potential hospital mergers in the time after the Affordable Care Act.