In blocking a merger between two New Jersey health systems, the Federal Trade Commission is trying to do something that it has never directly attempted in hospital merger litigation and it might open the floodgates to more litigation of this kind, according to two prominent provider groups.

The American Hospital Association and Association of American Medical Colleges have filed an amicus brief in support of Hackensack Meridian Health and Englewood Health. The New Jersey-based health systems are appealing a district court decision to delay their merger. Hackensack Meridian and Englewood announced their intention to merge in 2019, but last December, the FTC sued to block the deal and won a preliminary injunction on Aug. 4.

In its 2020 lawsuit, the FTC argued that if the merger goes through, the combined health system would control three of the six inpatient general acute care hospitals in Bergen County, New Jersey. Thus, the proposed deal would curb competition and drive up prices negotiated with insurers in the area.

But, according to the provider groups, by using this argument, the agency is defining a relevant geographic market based on where “commercially insured patients” live, which it has never done before in merger litigation. In every other case that the FTC has litigated, it has defined the relevant geographic market based on the location of the hospitals, the groups said in their brief, which was filed in the U.S. Court of Appeals for the Third Circuit.

So now the burden is on the FTC to show that the merged health system could charge different prices to insurers for their members who live in Bergen County as compared with their members who live outside the county.

But it is a burden the “FTC never even attempted to carry,” the brief states.

Further, “it is not feasible for hospitals to charge patients different prices based on where they live, and it would make no real-world sense to even try,” the provider groups claim. If a hospital attempted to do so, it would be reprimanded by government regulators.

“Put simply, the price discrimination on which the FTC’s market definition rests is both practically and legally infeasible,” the brief states. “Thus, the district court’s acceptance of the FTC’s relevant geographic market was legal error that compels reversal.”

The American Hospital Association and Association of American Medical Colleges also expressed concerns about what it would mean for future hospital merger litigation if the court were to endorse the agency’s approach to market definition.

The FTC could litigate or threaten to litigate merger challenges based on “artificially narrow markets that are unrelated to how hospitals actually negotiate prices with insurance companies,” the groups said in their brief.

This, in turn, would allow the FTC to challenge transactions that do not pose a threat to competition, they allege.

The provider groups are asking the court to cancel the preliminary injunction and allow the health systems to complete their merger.

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