FTC Challenges Proposed Merger of Two West Virginia Hospitals

The Federal Trade Commission today authorized action to block Cabell Huntington Hospital’s proposed acquisition of St. Mary’s Medical Center – two hospitals located three miles apart in Huntington, West Virginia. The FTC issued an administrative complaint alleging that the combination would create a dominant firm with a near monopoly over general acute care inpatient hospital services and outpatient surgical services in the adjacent counties of Cabell, Wayne, and Lincoln, West Virginia and Lawrence County, Ohio likely leading to higher prices and lower quality of care than would be the case without the acquisition.

The Commission also authorized staff to seek a temporary restraining order and a preliminary injunction in federal court if, and when, necessary to prevent the parties from consummating the acquisition, and to maintain the status quo pending the administrative proceeding. The FTC may not immediately pursue an action in federal court because the merging hospitals are still awaiting approvals from the West Virginia Health Care Authority and the Catholic Church before they can close the transaction, which may take months.

“If this proposed acquisition goes forward, it would eliminate important competition that has yielded tremendous benefits for Huntington-area residents,” said Steve Weissman, Deputy Director of the FTC’s Bureau of Competition. “The merged hospitals would have a market share of more than 75%, and local employers and residents are likely to face higher prices and reduced quality and service at the combined hospital.”

The complaint alleges that the two hospitals are each other’s closest competitor for health plans and patients, and that the acquisition would substantially lessen competition between the hospitals for patients and for inclusion in health plan networks. The complaint also alleges that, at times, the parties have attempted to limit their intense head-to-head competition through collusive conduct, such as restrictive marketing agreements.

According to the FTC’s complaint, in an attempt to avoid a merger challenge the merging hospitals have entered into temporary agreements with the Attorney General of West Virginia and the largest health plan in the area, but those agreements fall far short of replicating the benefits of competition. Also, when these agreements expire, Huntington-area employers and residents will be subject to the full harmful effects of a virtual monopoly for hospital services in their community, according to the complaint.

The Complaint also alleges that entry is unlikely to offset the competition lost by the acquisition.  Moreover, according to the complaint, potential cost savings and purported quality improvements are speculative, not merger-specific, and insufficient to outweigh the likely competitive harm resulting from the acquisition.

The Commission votes to issue the administrative complaint and to authorize staff to seek a temporary restraining order and preliminary injunction in federal court were 4-0. The administrative trial is scheduled to begin on April 5, 2016.

NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. The issuance of the administrative complaint marks the beginning of a proceeding in which the allegations will be tried in a formal hearing before an administrative law judge.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust{at}ftc{dot}gov, or write to the Office of Policy and Coordination, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave., NW, Room CC-5422, Washington, DC 20580. To learn more about the Bureau of Competition, read Competition Counts. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.