Nonprofit Hospitals’ Merger Temporarily Blocked

April 6, 2012; Source: Wall Street Journal

At the request of the Federal Trade Commission (FTC), a federal judge in Rockford, Ill. has temporarily halted the proposed merger of St. Anthony Medical Center and Rockford Memorial Hospital. The issue has been referred to an FTC administrative law judge who will begin hearings on the merger on April 17. OSF HealthCare owns the 224-bed St. Anthony, while the 396-bed Rockford Memorial Hospital is part of Rockford Health System. Both are nonprofit. The FTC—which is reportedly “targeting deals it says create local health care monopolies”—is concerned that the merger of the two hospitals could increase the cost of care in the city. The hospitals’ CEOs issued a joint statement disputing that claim and asserting that merging two of the three area hospitals would save $15 million or more annually as well as better position the hospitals to adapt to emerging regulations associated with health care reform legislation passed in 2010.

In addition to the Rockford, Ill. merger assessment, the FTC is also scrutinizing potential nonprofit hospital mergers in Toledo, Ohio and Albany, Ga. Much has been written in recent years about the advisability of considering nonprofit mergers as a way for nonprofits to adapt to economic downturns, tighter operating margins and more competition for donations, among other financial challenges. However, mergers come with direct costs, indirect costs, and consequential costs. These costs can be expressed in dollars, but are more often felt in terms of service disruption and cultural change as two or more institutions become one.

The two hospital CEOs in the Rockford example cite savings of at least $15 million a year, but don’t mention the costs to complete the mechanics and cultural assimilation of a merger. This missing information makes the exact “payout” for the merger impossible to assess. $15 million is only about three percent of the combined hospitals’ annual revenue. Any organization evaluating a merger should carefully assess the value of saving three percent alongside the monetary and cultural costs of doing so. Nonprofit organizations have an additional responsibility and burden to assess the community impact of such a merger. There are many ways to collaborate, cooperate, share resources, and serve a community in challenging times. A merger is often a more radical solution with a long time horizon before any net benefits are realized. –Michael Wyland