Hospital deals raise questions about less competition

Published: August 8, 2011

Separate deals involving two area hospitals may raise red flags because of the potential to shrink competition in the region, though it is too soon to say when federal and state officials may weigh in, experts said.

About two weeks ago, Community Medical Center announced plans to join with Geisinger Health System. The same day, it was announced that Moses Taylor Hospital and its affiliate, Mid-Valley Hospital, had forged an agreement to sell to Community Health Systems Inc.

The announcements came four months after CHS won approval to buy Mercy Health Partners for $150 million, a deal that included the sale of Mercy Hospital in Scranton, Mercy Tyler Hospital in Tunkhannock, Mercy Special Care Hospital in Nanticoke and several outpatient clinics.

A for-profit company that owns more than 133 hospitals in 29 states, CHS established its presence here in 2009 by purchasing Wilkes-Barre General Hospital for $271 million. If the sale of Moses Taylor and Mid-Valley Hospital is approved, CHS would own six hospitals in the region.

“CHS is a large system, and they know the impact they will have,” said Joshua Nemzoff, a consultant who has managed hundreds of hospital mergers and acquisitions. “They could become a virtual monopoly in your region.”

If the deal between CMC and Geisinger is approved by federal and state entities, it will be the Montour County-based health system’s first acute-care hospital in Lackawanna County. Geisinger owns one acute-care hospital that has two locations and two specialty facilities in Luzerne County, as well as several doctors’ practices in both counties.

The growing clout of both companies might make it difficult for other hospitals to compete, experts said, and could lead to changes that would drive health care costs up for patients and insurers.

Review pending

Ultimately, a Lackawanna County judge will decide whether to approve the proposals.

But before a hearing is scheduled, the state attorney general’s office and the Federal Trade Commission will review the details of the deal. Part of the reviews will focus on the impact on the region’s health care, according to Daniel West Jr., Ph.D., a professor at the University of Scranton’s Health Administration and Human Resources Department.

“The whole issue is that of market power,” he said. “If Northeastern Pennsylvania only has two major providers of care, is there still a choice for patients?”

For decades, Scranton’s three hospitals have struggled to stay financially viable. Selling to larger, more stable companies is a survival strategy, Nemzoff said. But it could lead to decisions to shutter certain services, consolidate others and allow hospitals to charge more for care, he and West said.

One big question is how Moses Taylor and the former Mercy Hospital, now renamed the Regional Hospital of Scranton, would change if CHS owned both, West said. The two hospitals are within blocks of each other, though officials at Moses Taylor have been assured the hospital will not close if the deal goes through.

But Moses Taylor’s CEO and President Karen Murphy, R.N., Ph.D., said there would certainly be changes at both facilities in the future, though she and officials at CHS say it is too soon to begin speculating on what those changes may be.

The attorney general’s office has been historically tight-lipped about their investigations and had no information on how soon their reviews would be finished. CMC CEO and President Robert P. Steigmeyer has said he believes the review will take about six months. Murphy was not sure how long the review would take.

Attorney general reviews have put the brakes on a deal involving local hospital in 2008, during a review of a proposal that would have brought together CMC, Moses Taylor and Blue Cross of Northeastern Pennsylvania.

After the attorney general’s office raised concerns about how the deal would affect competition in the local health care marketplace, plans were abandoned.

Last week, the attorney general’s office imposed restrictions on a merger involving Geisinger Medical Center and Shamokin Area Community Hospital because of concerns that the deal “may substantially lessen or eliminate competition in the region,” according to a press release.

The attorney general’s concerns revolved around Medicare Advantage plans, which offer better benefits and lower co-pays than traditional Medicare coverage available to those over 65. Geisinger offers a Medicare Advantage plan that competes with several other plans in the region, and the health system has limited participation in Medicare Advantage plans it does not own, Attorney General Linda Kelly said.

Geisinger Medical Center and Shamokin Area Community Hospital are the two largest providers of inpatient acute-care hospital services in Northumberland County and together would control 60 percent of the region’s hospital market, according to the attorney general’s findings.

To protect patients, Geisinger Medical Center was ordered to extend Shamokin Area Community Hospital’s Medicare Advantage plan contracts with other health plans for three years from the date of closing.

Frank Trembulak, chief operating officer and executive vice president at Geisinger Health Systems, does not expect any restrictions on the deal with CMC, because the details are very different than the one forged with Shamokin.

Shamokin Area Community Hospital will become a Geisinger campus, but CMC will remain a free-standing acute-care hospital affiliated with Geisinger, he explained.

“There’s still two sizeable hospitals in (the Scranton) market to compete,” he said. “If a company came in and bought all three (hospitals), that would be a problem” for the attorney general’s office.

Likewise, Murphy and CHS spokeswoman Tomi Galin believe their deal will also be approved by the attorney general’s office.

“In advance of announcing plans to acquire Moses Taylor Health Care System, we considered the regulatory review process,” Galin wrote in an email, adding that CHS believes the changes occurring in the Scranton market “will result in a dynamic, competitive health care environment … good for the hospitals, their patients and the Scranton community overall.”

Should officials reject the proposed deal with CHS, Murphy said the hospital would likely go back to the drawing board.

“We would have to evaluate strategic options,” she said.

CMC spokeswoman Wendy Wilson said the hospital would continue to operate as it is should their deal with Geisinger not go through.

“Of course we would go on,” she said. “We are financially viable right now.”

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