Government regulators are seeking to block John Muir Health's acquisition of San Ramon Regional Medical Center from Tenet Healthcare, citing concerns about the planned deal's potential to reduce competition for health care in the valley and thereby threatening quality and costs to patients.
The Federal Trade Commission and California Attorney General Rob Bonta's office announced Friday that they had filed a joint antitrust lawsuit regarding the proposed agreement following a months-long review in which they said they had reason to believe the deal would eradicate competition between hospitals along the I-680 corridor.
"San Ramon Regional Medical Center has played an important role in ensuring Californians in the I-680 corridor have access to quality, affordable care for critical health care services, such as cardiac surgery and childbirth," Henry Liu, director of the FTC's Bureau of Competition, said in Friday's announcement. "John Muir's acquisition of San Ramon Medical would increase already high health care costs in the area and threaten to stall quality improvements that help advance care for all patients."
Under the proposed deal, John Muir Health -- which has had a 49% non-operating interest in the hospital since 2013 -- was set to be sole proprietor and owner of the facility, acquiring Tenet Healthcare Corporation's current 51% interest and additional assets including operating rights at Pleasanton Diagnostic Imagery for $142.5 million.
The deal was announced early this year, with officials at both companies expecting it to be finalized by the end of the year pending approval from federal regulators.
Pleasanton Diagnostic Services had also been poised for acquisition by John Muir Health, with Friday's court filings putting a halt to that.
John Muir Health officials said they were in the process of exploring next steps as of Friday.
"We are disappointed by the FTC's decision, and are discussing our options and next steps, including challenging the decision in court," said Mike Thomas, president and CEO of John Muir Health. "We believe the proposed acquisition would benefit our community, caregivers and patients, as well as John Muir Health, San Ramon Regional Medical Center, and Pleasanton Diagnostic Imaging."
However, John Muir and Tenet were already aware in March that federal regulators would be conducting an in-depth review of the deal, with both companies having submitted large amounts of documentation and data as well as letters of support from local experts, according to an announcement from John Muir Health late Friday morning.
Contrary to FTC allegations, John Muir officials said that the acquisition had been poised to improve services and patient outcomes by extending existing programs and practices at John Muir to the San Ramon hospital and investing in it with the goal of reducing the likelihood that patients would need to leave the area for care.
"We appreciate the patience of John Muir Health, San Ramon Regional Medical Center and Pleasanton Diagnostic Imaging-affiliated employees and physicians throughout this process," Thomas said. "Once we determine our course of action, we will communicate with all impacted audiences."
The federal antitrust suit submitted to California Northern District Court on Friday is in addition to an administrative complaint filed with the FTC, with officials noting that administrative complaints are issued when the commission has grounds to believe that a deal would violate the law and that the decision to halt a deal is in the public interest.
The FTC voted 3-0 to approve the administrative complaint as well as seek a temporary injunction and restraining order to prevent the acquisition.
Without intervention from the FTC, John Muir Health and Tenet were set to have the greenlight to commence with the deal as of Nov. 22. Friday's filings by state and federal regulators put a stop to that.
Bonta and the FTC allege that if the deal were to go through, John Muir Health would have the power to control more than half of the market along the I-680 corridor for acute patient care and drive up prices, with SRRMC currently offering lower prices and serving as a competitor to John Muir Health.
"We're in court today challenging John Muir Health's anticompetitive acquisition of San Ramon Regional Medical Center, because when healthcare markets illegally consolidate, patients pay the price," Bonta said in Friday's announcement.
"At the California Department of Justice, ensuring that every Californian can access quality, affordable care is a top priority. Competitive markets help keep prices lower," Bonta added. "We will continue to fight to ensure that Bay Area residents -- and all Californians -- can access the affordable healthcare they need to live healthy and happy lives."
Prosecutors in the federal lawsuit point to evidence of John Muir Health's high costs for insurance companies, and argue that SRRMC -- one of the few other non-Kaiser affiliated inpatient hospital along the I-680 corridor -- has historically been pressured to improve their services while keeping costs lower than those at John Muir facilities in order to compete in the region.
"Multiple insurers who offer health plans to individuals along the I-680 corridor confirm that John Muir's hospitals are more expensive than other facilities in the area," prosecutors wrote in the federal complaint filed Friday.
They allege that officials at John Muir Health and Tenet were both aware of this dynamic when they entered the deal, and that they knew the deal would have the potential to reduce competition in violation of federal antitrust laws.
"The Proposed Acquisition is presumptively illegal because it will significantly increase concentration in the already highly concentrated I-680 corridor market for inpatient GAC services sold to commercial insurers and their enrollees," prosecutors wrote.
"Post-acquisition, John Muir will control more than 50% of inpatient GAC (general acute care) services offered in the I-680 corridor as measured by hospital discharge data," they continued. "These high market shares and concentration levels underscore the competition the Proposed Acquisition will eliminate and render the Proposed Acquisition presumptively unlawful under the relevant case law. An array of qualitative and quantitative evidence confirms this strong presumption of illegality."
Tenet and John Muir Health have until Dec.1 to respond to the allegations in Friday's filings should they choose to do so.
An evidentiary hearing in the case is scheduled for April 17 at 10 a.m. at the FTC offices in Washington, D.C. The federal complaint is currently in the process of being assigned to a judge in the California Northern District Court.
As it stands, Tenet will maintain its 51% operating interest in SRRMC with John Muir Health maintaining its 49% non-operating interest, John Muir officials said. Pleasanton Diagnostic Imaging will continue to be operated by United Surgical Partners International, which is part of Tenet Healthcare.