April 2, Legal Intelligencer article by Lamb McErlane PC Health Law Attorneys Vasilios J. Kalogredis and Rachel E. (Lusk) Klebanoff.

On March 3^rd, the U.S. Department of Justice (“DOJ”) announced that it had reached a settlement with Geisinger Health (“Geisinger”) and Evangelical Community Hospital (“Evangelical”) that would resolve the DOJ’s ongoing civil antitrust litigation challenging Geisinger’s “partial acquisition” of Evangelical. Among other terms, the settlement requires Geisinger to cap its ownership interest in Evangelical at a 7.5% passive interest and eliminates additional entanglements between the two competing hospitals.

Last August, the DOJ’s Antitrust Division filed a civil antitrust lawsuit challenging Geisinger’s partial acquisition of Evangelical after the hospitals finalized an agreement to partner in 2019. The DOJ alleged that Geisinger and Evangelical are close competitors for inpatient general acute-care (“GAC”) hospital services for patients in a six-county area in central Pennsylvania, where the two hospital systems together account for approximately 70% of the market. According to the complaint, the partial-acquisition agreement created significant entanglements between the hospitals, reducing their incentives to compete against each other on the price, quality, and availability of high-quality healthcare services, and increasing the likelihood of harmful coordination.

“For example, Geisinger was slated to obtain a 30% ownership interest in Evangelical in exchange for providing $100 million to Evangelical for use on projects approved by Geisinger,” officials said in a statement. “These terms would have set Geisinger up as a critical source of funding for Evangelical for the foreseeable future and provided opportunities for Geisinger to influence strategic decisions of its competitor. The agreement also gave Geisinger rights of first offer and first refusal for certain transactions and joint ventures, which, in conjunction with other provisions in the agreement, would have made it difficult for Evangelical to partner with other healthcare entities.”

If approved by the court, the proposed settlement, which was filed in the U.S. District Court for the Middle District of Pennsylvania, would resolve the competitive harm alleged in the complaint. The terms of the settlement are intended to prevent Geisinger from exercising any form of control or influence over Evangelical and to restore the hospitals’ incentives to compete with each other on both quality and price. In addition to capping Geisinger’s ownership interest in Evangelical, the proposed settlement restricts Geisinger from increasing its ownership interest in Evangelical, making any loan or providing any line of credit to Evangelical, or exerting any control over Evangelical’s expenditure of funds. Geisinger and Evangelical are also each required to implement an antitrust compliance program.

While fully addressing the harm threatened by the partial-acquisition agreement, the settlement allows procompetitive aspects of ths hospitals’ proposal to move forward. Specifically, the settlement permits Evangelical to obtain new electronic health records information technology systems and related IT support from Geisinger, enabling Evangelical to upgrade its electronic health records systems and improve the delivery of care to patients in Central Pennsylvania. The settlement also requires Evangelical to use the funds associated with Geisinger’s passive investment for specific projects that will benefit patients and the community.

Policing hospital mergers has become a top enforcement priority among federal antitrust enforcers, including the DOJ and Federal Trade Commission (“FTC”). With the health care industry facing unprecedented challenges presented by the global coronavirus pandemic in 2020, the FTC and DOJ devoted scarce enforcement reasons to block hospital transactions that they viewed as anticompetitive and harmful to patients.

But not all attempts by these agencies have been successful. Less than 48 hours prior to the DOJ’s announcement in the Geisinger/Evangelical case, the FTC announced it was walking away from its year-old challenge to the pending merger of the Philadelphia-area Jefferson Health (“Jefferson”) and Albert Einstein Healthcare Network (“Einstein”). The FTC, which was subsequently joined by the by the Pennsylvania Office of Attorney General (“PA-AG”), sought a preliminary injunction to block the proposed combination of Jefferson and Einstein that would create an 18-hospital system in the Philadelphia area. The FTC and the Pennsylvania Attorney General had alleged the merger would lead to Jefferson/Einstein controlling at least 60% of the inpatient GAC hospital services market in a portion of Philadelphia.

On December 8, 2020, Judge Gerald J. Pappert of the U.S. District Court for the Eastern District of Pennsylvania denied the injunction request and found that the government had incorrectly alleged patient-focused markets and not, as he held was more appropriate, insurer-focused markets. Judge Pappert believed that the demonstration of an adverse effect on insurers from the merger was necessary, i.e., that they would be harmed by a potential price increase due to an inability to turn to other health care providers as an alternative to the combined Jefferson-Einstein enterprise. The failure to address that issue, and the patient-focused approach taken, was fatal to the FTC’s case. The FTC quickly appealed to the Third Circuit Court of Appeals and filed an emergency motion for a stay pending appeal. Days later, a three-judge panel denied the government’s motion without comment.

Judge Pappert’s opinion is notable because is suggests that inconsistent testimony from health insurance companies may be enough to doom a government lawsuit seeking to block a hospital merger.

On March 1^st, the parties announced that the FTC was dropping its opposition to the transaction, thus ending its appeal. The FTC’s vote to abandon the transaction was 4-0 and came after the Pennsylvania Attorney General had reached a separate deal with the parties.

Despite their different outcomes, both of these local challenges should be viewed as important indicators of the issues the enforcement agencies are likely to focus on in health care industry deals and why market definition is particularly critical in health care market transactions.

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Vasilios J. (Bill) Kalogredis, Esq. has been advising physicians, dentists, and other health care professionals and their businesses as to contractual, regulatory and transactional matters for over 45 years. He is Chairman of Lamb McErlane PC’s Health Law Department. bkalogredis@lambmcerlane.com. 610-701-4402.

Rachel E. (Lusk) Klebanoff, Esq. is a senior associate at Lamb McErlane PC who focuses on health law and health care litigation. She represents physicians, dentists, medical group practices, and other health-related entities in transactional, regulatory, and compliance matters. rlusk@lambmcerlane.com. 610-701-4416.