A federal judge on Tuesday emphatically rejected a bid by the Federal Trade Commission and the Pennsylvania Attorney General to temporarily block Thomas Jefferson University’s acquisition of the Einstein Healthcare Network.
The FTC’s case failed to mesh with the reality of the Philadelphia-area health care market and relied on testimony from health insurers that was “not credible,” concluded U.S. District Judge Gerald J. Pappert. The 62-page decision came after six days of testimony in September.
The FTC could appeal Pappert’s denial of its preliminary injunction request to the Third Circuit Court of Appeals in Philadelphia.
If Pappert’s ruling stands, Jefferson would cement its position as the biggest hospital network in the Philadelphia area and give it a chance to radically change the region’s health-care marketplace by integrating with an insurance company it already partly owns. The deal also throws a lifeline to financially struggling Einstein, which has said it needed the merger to stay afloat.
“The court’s ruling is disappointing, and we are considering our options,” the FTC said in an email.
Barry Freedman, Einstein’s president and chief executive, said in a note to staff that ”we are eager to move forward. However, we await a decision as to whether the FTC and Pennsylvania Attorney General will appeal the District Court decision, and whether we will be forced to spend more time litigating a deal that would benefit the people we serve.”
Jefferson echoed Einstein’s relief. “Our merger will bring together two historically linked academic medical centers and high-performing health-care organizations, whose shared vision is to improve the lives of our patients and the health of our communities while providing top-notch health education and research,” Jefferson said in a statement.
Pappert’s decision described Southeastern Pennsylvania as a region of tremendous competition among health systems — with Jefferson and the University of Pennsylvania Health System as chief rivals squaring off in a heavily consolidated insurance market dominated by Independence Blue Cross.
As is standard in antitrust cases in health care, Pappert focused his analysis on whether health insurers would be forced to accept price increases for hospital care or could rely on hospitals outside their immediate market area to avoid price increases.
The impact on consumers is a secondary consideration in such antitrust cases because consumers typically pay for care through insurers.
Cigna and Independence Blue Cross executives testified that they “would have to succumb to a price increase” for hospital services if Jefferson and Einstein merged, Pappert wrote. He described those assertions as “not credible,” particularly in the case of Independence, which evidence showed has repeatedly considered excluding particular providers from its network.
“IBC’s views on this merger merit little weight,” Pappert wrote. “The evidence does not support the assertion that IBC would roll over and pay higher prices instead of turning to its network of hospitals outside the government’s proposed geographic markets.”
Pappert found a more likely reason for IBC’s opposition to Jefferson’s acquisition of Einstein: Jefferson could gain complete control of Health Partners Plans Inc., a Medicaid insurer, and challenge IBC directly in insurance. Jefferson and Einstein each own 25% of Health Partners. Temple University Health System owns the other half, which Jefferson has a pending deal to acquire.
“What the record does show,” Pappert wrote, “is that IBC is far more concerned with hospitals joining forces where, as here, IBC views them as a competitive threat in the insurance market.”
IBC officials declined to comment on Pappert’s opinion.
Cigna, the fourth-largest commercial insurer in the region, also testified against the merger, but the judge said “it makes little sense that Cigna would pay higher reimbursement rates to hospitals because of their purported importance” in “submarkets” of the region. A Cigna official testified that the company thinks of the region as a whole, not as a group of submarkets, as proposed by the FTC.
Aetna did not testify in September, but the judge drew on a deposition and other testimony by an Aetna executive: “The government does not rely at all on testimony or evidence from Aetna, the region’s second largest insurer, for good reason: Aetna has no concerns about the merger.”
An executive with the fourth major commercial insurer in the region, UnitedHealthcare, said in a deposition that the merger would “provide the additional leverage for Jefferson to ask for higher rates.” But her comments did not do what the FTC needed her to do, which was to say that UnitedHealthcare would agree to pay higher rates in particular areas if the merger were allowed.
Unmentioned in the ruling was the financial plight of Einstein, a topic that took up hours of testimony in September.
Einstein has had operating losses in five of its last six fiscal years. It was portrayed by Einstein’s financial expert Todd Patnode as a system “that has degraded and deteriorated to a point that it will not be able to continue as a viable stand-alone entity and continue to provide like services and quality.”