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Elliot, Dartmouth-Hitchcock merger could face antitrust challenge

New Hampshire Union Leader

May 28. 2016 7:30PM
Dartmouth-Hitchcock, New Hampshire's largest health system, could soon embrace the second-largest, Elliot Health System of Manchester. (File)

The recently announced decision by Dartmouth-Hitchcock in Lebanon and Elliot Health Systems in Manchester to pursue an alliance is just the latest move in a wave of consolidation that's altering the health-care landscape in the Granite State.

Dartmouth-Hitchcock in March added the nearby Alice Peck Day Memorial in Lebanon to a network that already includes formerly independent New London Hospital, Cheshire Medical Center in Keene and Mt. Ascutney Hospital in Windsor, Vt.

Four hospitals in the North Country cemented their alliance earlier this year and the newly created board of North Country Healthcare met for the first time on May 5. Wentworth-Douglass Health System in Dover announced in late April an agreement in principle to be acquired by Massachusetts General Hospital.

Memorial Hospital in North Conway is now part of MaineHealth, dominated by the massive Maine Medical Center in Portland, Me. Catholic Medical Center in Manchester is negotiating with Monadnock Community Hospital in Peterborough and Huggins Hospital in Wolfeboro.

But the granddaddy of them all looms on the horizon, as Dartmouth-Hitchcock, the state's largest health system, could soon embrace the second-largest, Elliot Health System of Manchester, to create a health-care behemoth that would dwarf all in-state competitors.

Whether that's good or a bad for consumers and the health-care market in New Hampshire is something that regulators in the state's antitrust and charitable trust departments will have to decide.

The Federal Trade Commission, which has been concerned about the trend nationwide, is also likely to enter the picture. Three mega-mergers were blocked by the FTC at the end of 2015, involving large hospital groups in Illinois, West Virginia and Pennsylvania.

It's been tried before

New Hampshire's three largest health-care organizations have been dancing a merger minuet for years, with shifting partners. An attempted merger between Catholic Medical Center, the state's third-largest hospital, and Dartmouth-Hitchcock fizzled in 2010, when state regulators objected and the FTC raised antitrust concerns.

CMC and Elliot formed Optima Health Care in the late 1990s, but that unraveled and changed the regulatory environment for hospital mergers or affiliations moving forward. Disentangling the two organizations proved to be so costly and complicated that the antitrust division in the Attorney General's Office had to assist in the process.

"I've heard people refer to it as trying to unscramble eggs," says Assistant Attorney General David Rienzo, chief of the antitrust division. "So this office essentially said to the health care community that it might make some sense for hospitals, if there is an intent to combine or merge or affiliate, to have a pre-merger review."

A review by the charitable trust division is required by law if any nonprofit or charitable entity is involved, but the antitrust review has been voluntary since the Optima debacle.

"They don't have to do it, but it's been generally accepted," according to Rienzo, who said every hospital merger or affiliation agreement since Optima has been submitted for antitrust review by state officials.

"If they say they are not, that's their right," says Rienzo. "There's nothing in the antitrust statute that says they need to, but it would be a break from recent practice."

John Friberg, general counsel for Elliot Health System, said in a written statement that the state Director of Charitable Trusts would be "vital participants in the regulatory review process," but declined to commit to an antitrust review at the state level at this time.

"We will ensure that applicable federal regulatory requirements are followed, and will work with federal antitrust regulators, as applicable, in the appropriate manner and time," he wrote.

State antitrust officials signed off on the creation of North Country Health Care, but joined the charitable trust division in opposing the CMC/Dartmouth proposal (see related story).

Universal factors

There are factors universal to the health care industry that pushed the financially stressed Elliot to seek a white knight, attracting interest from for-profit chains like HCA and Universal Health Services before settling on nonprofit Dartmouth-Hitchcock.

"In the 1990s and 2000s, hospitals were growing at a 10-percent clip," says Steve Norton, executive director of the New Hampshire Center for Public Policy Studies. "The economic pressures were relatively light on the New Hampshire health care environment, but that has fundamentally changed."

Hospital expenses are rising as revenue is crimped by increasing competition from speciality services and the emergence of urgent care walk-in clinics. Insurance companies have consolidated as well, and are in a stronger negotiating position on charges.

The Affordable Care Act encourages the creation of large-scale "accountable care organizations" and rewards hospitals for patient outcomes that can be difficult to verify statistically without a large patient population.

Many mergers

All of those factors and many others led to more than 400 hospital mergers or acquisitions in the country since 2010. But the Elliot has some unique challenges, not the least of which is the debt acquired in building a $100 million satellite campus, The Elliot at River's Edge, six years ago.

Elliot executives have also cited the need to upgrade the main campus to the tune of $350 million, or build an entirely new hospital.

Jayme Simoes, whose Concord-based marketing firm advises health-care clients, believes the DH-Elliot affiliation, if approved, would accelerate the already torrid pace of health-care consolidation in the state.

"When organizations affiliate, they save costs, and we know that New Hampshire has high health-care costs," he said. "So by affiliating, they are able to cut costs in ways that hopefully don't impact the consumer. But it puts pressure on smaller organizations to find affiliations, so they can cut their costs as well. It's not that different from what we saw in banking a few years ago."

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