Federal regulators sued to block Hackensack Meridian Health’s acquisition of Englewood Health, claiming that it would tip the competitive scales in an already concentrated acute-care market in Bergen County, N.J.
The combined health system would control three of the six acute-care hospitals in the county, eliminating otherwise close competitors in the process, the Federal Trade Commission said in its complaint on Thursday. Hackensack would be able to demand higher rates from insurers, which may lead to higher insurance premiums and other out-of-pocket costs, regulators said, adding that the deal would also reduce incentives to improve quality.
“There’s a growing narrative about the widening gap between public and private prices, a lot of which is traceable to market power,” said Katherine Hempstead, a senior policy adviser at the Robert Wood Johnson Foundation, citing a RAND Corp. study that found private insurers paid hospitals on average 247% what Medicare would have for the same services. “That variation doesn’t seem to be driven by local differences in cost, and there is an increasing sense that is unacceptable.”
Hackensack and Englewood executives said they were disappointed that the FTC challenged the proposed merger, which they claim would allow them to increase access, improve quality, boost population health efforts and achieve cost efficiencies that would lower costs.
“We plan to vigorously defend the merger in court, which will give us the opportunity to further demonstrate the benefits Hackensack Meridian Health and Englewood Health will achieve together,” the organizations said in a joint statement. Hackensack pledged to invest $400 million in Englewood in the definitive agreement.
Hackensack University Health Network and Meridian Health merged in 2016 to form the largest health system in New Jersey, where it and its peers have been consolidating at a significant clip, largely free of federal opposition. Englewood provides very similar services to Hackensack University Medical Center, which is one of two Hackensack hospitals located within 10 miles of Englewood’s hospital, according to the complaint.
“The research is pretty clear that merged hospitals end up with higher prices that end up hurting consumers, although hospitals will always argue they will produce cost savings and increase care quality, but that doesn’t really happen,” Hempstead said.
Regulators did not find enough offsetting factors to balance the potential anticompetitive effects of combining hospitals that insurers deem substitutes, which typically leads to higher prices, studies have shown.
It’s unlikely that competitors will enter the market or that current stakeholders will expand their footprint, given the high cost, time required and the Certificate of Need approval process, the FTC claimed. Also, Hackensack and Englewood have not conveyed cognizable, merger-specific efficiencies that would mitigate those concerns, according to the complaint, which supports other findings that mergers’ estimated cost efficiencies often fall short of initial targets.
“This is the first time in this round of consolidation that has been evolving over last 10 years in New Jersey that the FTC said no to a hospital transaction,” said John Fanburg, a managing member at New Jersey-based law firm Brach Eichler. “This perhaps signals a breaking point for this geographic area. Eyebrows were raised when we saw this.”
But there are financial and care quality synergies that are often realized when hospitals combine, Fanburg said, adding that those were particularly apparent during the COVID-19 pandemic.
“Here in New Jersey, the healthcare system came together in a miraculous way,” he said. “That type of cooperation and collaboration is only enhanced when they come together.”
State and federal authorities have relaxed many of the antitrust safeguards that prevented hospitals from sharing data and coordinating services. But those are set to expire when the emergency declaration ends.
“There are benefits and detriments on both sides of hospital mergers,” said Michael Schaff, a shareholder at the law firm Wilentz. “I hope that the FTC gives significant consideration to both sides, and don’t just look at it from the payer’s perspective.”
Federal regulators often declined to intervene in New Jersey hospital deals given its dense population and proximity to major metro markets in New York and Philadelphia, Schaff noted.
The same year Hackensack Meridian was formed, Robert Wood Johnson Health and Barnabas Health combined to form RWJBarnabas. Hackensack has since acquired JFK Health System and Carrier Clinic, while RWJBarnabas has partnered with Rutgers University and has deals in the works with Trinitas Regional Medical Center and St. Peter’s Healthcare System.
“It’s very challenging for independent hospitals to compete or exist,” Fanburg said, noting the higher relative costs related to supply chain expenses and limited bargaining leverage with insurers.
The FTC has warned that it will not allow “opportunistic” mergers that stem from the pandemic, even as COVID-19 has reinforced the need for reserve capacity and capital in the event of future national or global emergencies.
That underscores the competing interests in play. There has been pressure for hospitals to become more efficient and reduce inpatient capacity to lower overall healthcare costs. But now, there is a huge demand for hospital beds and a greater emphasis on hospitals as a public resource, even though they operate and price like a business, Hempstead said.
“Some of the needs of independent hospitals will be more acute after the pandemic, so it will be interesting to see how those tensions get resolved,” she said.