Battle begins over Advocate, NorthShore health systems merger

Two Chicago health care giants seeking to merge, Advocate Health Care and NorthShore University HealthSystem, head to court Wednesday in a legal battle with the Federal Trade Commission that opposes it.

The agency last month ruled against the proposed merger, saying it could hurt competition and lead to higher prices in the region. Adamant that the ruling is flawed, the companies have vowed to fight it in U.S. District Court here. The two parties make their first court appearances in preparation for an April 6 trial over the FTC’s request for an injunction.

“We are very passionate about this case. We think it’s important not only for Advocate and NorthShore, but also for consumers and employers in Chicago,” NorthShore President and CEO Mark Neaman said at a meeting Tuesday with the Sun-Times Editorial Board.

“If you look most recently at what the FTC has been doing, they’ve been just saying no in a whole series of marketplaces, like Toledo, with a population of 300,000 and five hospitals; Huntington, West Virginia, with 350,000 people and three hospitals; or Boise, Idaho, 135,000 people and two hospitals,” Neaman said.

“And yet, when they get to Chicago, with 8 million people and over 75 hospitals, they come down with the same boilerplate ruling, ‘We’re just going to say no, going to vote to protect the status quo, which is all about inpatient hospitals and about big insurance companies’,” Neaman said. “We just don’t think that provides the best opportunity for consumers in this marketplace.”

NorthShore and Advocate struck an agreement to create Advocate NorthShore Health Partners in September 2014. The combined operation would serve 3 million patients a year and be the state’s largest integrated health care delivery system and the nation’s 11th largest not-for-profit health care system.

The companies argued the merger would advance the transition from a fee-for-service model, with its inherent incentive to increase services and therefore costs, to a fee-for-value model, which rewards lower costs and improved health outcomes, a direction many say the evolving industry must move toward.

A major dispute with the FTC is the agency’s methodology used to determine the combined market share of the merged entity. The companies say the combined market share after their merger would be 22 percent; the FTC believes it would be 50 percent.

Debbie Feinstein, director of the FTC’s Bureau of Competition, has said of the merger: “Advocate is one of the largest health systems in the Chicago area, and it competes directly with NorthShore in the northern suburbs of Chicago. This merger is likely to significantly increase the combined system’s bargaining power with health plans, which in turn will harm consumers by bringing about higher prices and lower quality.”

But there is disagreement on pricing impact.

“They clearly have expressed that this will substantially decrease competition,” said Advocate President and CEO Jim Skogsbergh. “Mark and I are saying, ‘Really? In Chicago, with 75 hospitals, this dramatically and substantially reduces competition?’ We don’t get it. The other concern that they’ve expressed is what’s called upward pricing pressure. So we once again said, ‘Really? In Chicago? When Blue Cross has 75 percent market share, we are all price takers, not price setters.’”

“But even then, we went to the FTC and said, ‘If your biggest concern is upward pricing pressure, and you think consumers are going to be hurt by us coming together and jacking up our prices, which is absolutely not true, we’ll enter into a pricing agreement with you. Let’s eliminate that concern,’” he said. “They said, ‘We reject it out of hand.”

The proposed partnership would have allowed the two companies to market health care services to insurance providers who sell plans to companies with workers scattered across the Chicago region, sharing the risk of a move to a patient-centered approach.

NorthShore operates four hospitals in Evanston, Skokie, Highland Park and Glenview. Advocate operates 13 hospitals: Chicago’s Illinois Masonic and Trinity; hospitals in suburban Barrington, Downers Grove, Elgin, Hazel Crest, Libertyville, Oak Lawn and Park Ridge; and others in downstate Eureka and Normal. Advocate also operates one of the area’s largest home health care companies and one of the region’s largest medical groups.

The trial will be heard by federal Judge Jorge L. Alonso.