The U.S. Department of Justice has sued to block Geisinger Health's partial acquisition of its close rival Evangelical Community Hospital.
The complaint alleges that the agreement fundamentally alters the relationship between the parties, raising the likelihood of coordination and reducing incentives to compete aggressively against one another.
As a result, the transaction is likely to lead to higher prices, lower quality and reduced access to high-quality inpatient hospital services for patients in central Pennsylvania, the DOJ said.
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The lawsuit was filed in the U.S. District Court for the Middle District of Pennsylvania.
WHY THIS MATTERS
In October 2018, Geisinger announced that Evangelical Community Hospital had selected Geisinger as its strategic partner but would remain independent under the terms of the deal.
Geisinger was to make capital investments in Evangelical and Evangelical was to transition to a single information technology platform and leverage Geisinger's business and operating systems.
In exchange, Geisinger Health Plan members would have access to Evangelical at lower out-of-pocket costs.
Evangelical and Geisinger also planned to develop clinical programs together.
Together, the two organizations were expected to invest $265 million over five years.
According to the complaint, Geisinger has a history of acquiring community hospitals in Pennsylvania and initially sought to acquire Evangelical in full.
The defendants recognized, however, that such an acquisition would likely violate antitrust laws, the DOJ said. Instead, on Feb. 1, 2019, Geisinger and Evangelical entered into a partial-acquisition agreement, in part to avoid antitrust scrutiny, the DOJ said.
The agreement gave Geisinger a 30% ownership interest in Evangelical and required it to invest $100 million in Evangelical, much of which was earmarked for specific projects approved by Geisinger.
"These terms link the two organizations financially and set Geisinger up as a critical source of funding to Evangelical for the foreseeable future," the DOJ said.
According to Geisinger documents quoted in the complaint, Geisinger's investment makes Evangelical "tied to us" so "they don't go to a competitor."
The agreement also gives Geisinger rights of first offer and first refusal for certain transactions and joint ventures, which, in conjunction with other provisions in the agreement, make it difficult for Evangelical to partner with other healthcare entities, the complaint said.
THE LARGER TREND
The DOJ said Geisinger, a large hospital system in central and northeastern Pennsylvania, and Evangelical, an independent community hospital in Lewisburg, Pennsylvania, are close competitors for inpatient general acute-care hospital services for many patients in a six-county area in central Pennsylvania, with the two hospitals together accounting for approximately 71% of the market in this region.
Geisinger's flagship facility is Geisinger Medical Center, a 574-bed hospital located in Danville, Pennsylvania. Geisinger Health's revenues in 2019 were approximately $7.1 billion.
Evangelical Community Hospital is a 132-bed nonprofit hospital. It owns physician practices and operates an urgent-care facility and several other outpatient facilities in central Pennsylvania. Its revenues in 2019 were approximately $259 million.
ON THE RECORD
"Preserving competition in healthcare markets is a priority for the Department of Justice because of its important impact on the health and well-being of Americans," said Assistant Attorney General Makan Delrahim of the Justice Department's Antitrust Division. "This agreement between Geisinger and Evangelical threatens to harm patients in central Pennsylvania by reducing competition that has improved the price, quality, and availability of healthcare in the region."
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