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From Antitrust Law Daily, December 8, 2015

FTC to challenge Penn State Medical Center/PinnacleHealth System merger

By Linda O’Brien, J.D., LL.M.

The FTC and the Pennsylvania Attorney General will file an action in federal district court on December 9, seeking to block Penn State Hershey Medical Center’s proposed merger with PinnacleHealth System, the FTC announced today.

The antitrust enforcers allege that the combination of the two health care providers would substantially reduce competition in the area surrounding Harrisburg, Pennsylvania, and would lead to reduced quality and higher health care costs for the area’s employers and residents. The complaint, seeking a preliminary injunction to stop the merger pending an administrative trial, will be filed in the U.S. District Court for the Middle District of Pennsylvania. The administrative trial is scheduled to begin on May 17, 2016.

Penn State Hershey is a 551 bed, not-for-profit health care system in Dauphin County. It also owns and operates the Penn State Hershey Cancer Institute and the Penn State Hershey Children’s Hospital. The system’s total revenues in fiscal year 2014 were $1.39 billion.

Pinnacle is a not-for-profit, three-hospital system in Dauphin County. Pinnacle operates Harrisburg Hospital, Community General Osteopathic, and West Shore Hospital, with a combined total 610 beds. Pinnacle had total revenues in fiscal year 2015 of $1.07 billion.

The merger would create a dominant provider of general acute care inpatient hospital services sold to commercial health plans in the area of south-central Pennsylvania consisting of Dauphin, Cumberland, Perry, and Lebanon counties, according to the complaint. The merged entity allegedly would control 64 percent of this market, likely leading to increased healthcare costs and reduced quality of care for more than 500,000 local residents and patients.

“The proposed merger would eliminate the significant competition between these hospitals, resulting in higher prices and diminished quality,” said Debbie Feinstein, Director of the FTC’s Bureau of Competition.

“We have learned the hard way in Pittsburgh what happens when a health system has a large market share," Pennsylvania Attorney General Kathleen G. Kane remarked. "The continued competition between Pinnacle and Hershey will ensure that the greater Harrisburg area will continue to have a vibrant and competitive health care market."

Companies: Penn State Hershey Medical Center; PinnacleHealth System

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