The two largest hospital systems in Rhode Island abandoned a proposed merger after Rhode Island’s Attorney General denied the proposed transaction under the states’ Hospital Conversions Act, R.I. Gen. Laws § 23-17.14-1 et seq., and committed to joining the FTC’s challenge of the transaction in the U.S. District Court for the District of Rhode Island.
The Hospital Conversions Act obligates the RI Office of Attorney General to review proposed transactions to “[alssure the viability of a safe, accessible and affordable healthcare system that is available to all,” R.I. Gen. Laws § 23-17.14-3, with explicit reference to “[w]hether the proposed conversion is proper under . . . [the] ‘Rhode Island Antitrust Act.’” R.I. Gen. Laws § 23-17.14-7(c)(31).
Following a thorough ten-month review with retained experts, the OAG issued a written decision on February 17, 2022, denying the parties’ application. The detailed decision describes the head-to-head competition between the parties across multiple markets and how the post-merger entity would account for “75% of all
inpatient acute care hospital beds in Rhode Island and roughly 80% of the statewide market for inpatient hospital care” as well as “79% of the statewide market for inpatient psychiatric care, and more than 60% of the statewide market for many outpatient surgery specialties.”
The decision describes how the transaction would increase the parties’ leverage in contractual negotiations with commercial insurers, potentially “reduc[ing] incentives to make quality improvements and to participate in innovative [network] products,” and it notes one commercial insurer’s experience with successfully building a narrow network product that excluded one of the parties.
The decision also concludes that the parties “would employ 67% of the full-time registered nurses employed by Rhode Island hospitals,” that ordinary course documents “demonstrate that they compete . . . in the labor market for nurses,” and that the resulting reduction in competition “is likely to result in lower wages, worse benefits, and limited options for nurses.”
Per a press release published by his Office, Rhode Island Attorney General Peter Neronha stated that eliminating the competition between the parties for many inpatient and outpatient service lines would “have the same effects here as seen across the country following mergers of this size: rising healthcare costs, lower quality, and reduced access.”
He further stated, “if this extraordinary and unprecedented level of control and consolidation were allowed to go forward, nearly all Rhode Islanders would see their healthcare costs go up, for health care that is lower in quality and harder to access.”
Rhode Island is one of many states that require pre-transaction notification of hospital mergers to its Office of Attorney General and one of a minority that require affirmative approval based on an analysis that expressly factors in effects for competition. Hospital mergers continue to be a topic of particularly strong interest for state enforcers given the “inherently local” nature of hospital services as recently reemphasized in an amicus in support of the FTC’s successful challenge to a different hospital merger filed by the attorneys general of 24 states (including Rhode Island) and DC and Guam.
This article was prepared by the Antitrust Law Section's State Enforcement Committee.
