Appeals court blocks Pennsylvania hospital merger

September 27, 2016 9:48 AM EDT

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By Diane Bartz and Jonathan Stempel

(Reuters) - A federal appeals court on Tuesday blocked the proposed merger of the two largest hospital systems in the Harrisburg, Pennsylvania, area.

Reversing a lower court ruling, the 3rd U.S. Circuit Court of Appeals in Philadelphia ordered a preliminary injunction against the combination of Penn State Hershey Medical Center and PinnacleHealth System.

By a 3-0 vote, the appeals court said the U.S. Federal Trade Commission and the Commonwealth of Pennsylvania would likely be able to show that the merger would harm competition, and could boost prices for patients.

Preliminary injunctions allow FTC judges to review proposed mergers. Such mergers can become imperiled if the reviews become prolonged.

Penn State Hershey is a 551-bed hospital in Hershey, while PinnacleHealth has 646 beds in three hospitals, two in Harrisburg and one in nearby Mechanicsburg.

The FTC sued in December to block the merger, which had been approved by both systems' boards the prior March.

In a joint statement, the hospital systems said they were disappointed with the decision, and would review it over several days before determining their next steps.

FTC Chairwoman Edith Ramirez said in a brief interview: "I'm delighted to hear about the win."

A spokesman for Pennsylvania Attorney General Bruce Beemer said his office was pleased with the decision.

The FTC and the state contended that the merger would give the combined system a 76 percent market share around Harrisburg, the state capital.

Circuit Judge D. Michael Fisher said this and other data showed the merger is "presumptively anticompetitive," even if it led to cost savings that could be passed on to patients.

He also said the public's strong interest in effective enforcement of antitrust laws justified an injunction.

"We see no reason why, if the merger makes economic sense now, it would not be equally sensible to consummate the merger following an FTC adjudication on the merits that finds the merger lawful," Fisher wrote.

U.S. District Judge John Jones in Harrisburg refused to issue a preliminary injunction on May 9. The appeals court returned the case to him.

The FTC is awaiting a decision from the federal appeals court in Chicago on the validity of a separate merger between two suburban hospital systems there, Advocate Health Care and NorthShore University HealthSystem.

The case is FTC et al v. Penn State Hershey Medical Center et al, 3rd U.S. Circuit Court of Appeals, No. 16-2365.

(Reporting by Diane Bartz in Washington, D.C., and Jonathan Stempel in New York; Editing by Bill Trott and Jeffrey Benkoe)



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