Attorneys discuss antitrust issues in Utica hospitals’ affiliation

UTICA — The recently consummated affiliation agreement between Faxton St. Luke’s Healthcare (FSLH) and St. Elizabeth Medical Center (SEMC) in Utica was “all about the patient, quality of care, [and] reduced costs.”

That’s according to Dale Worrall, an attorney with the Syracuse office of Harris Beach PLLC.

Both Worrall and his colleague, attorney Justin Runke, helped the hospitals in the strategic-planning process and then served as transaction counsel, working with the facilities’ internal general counsels.

“We worked them in order to facilitate getting the deal done,” Runke says. They served as antitrust counsel as well, Worrall added. Their work included plenty of document drafting, according to Runke.

That work culminated in the March 6 formal announcement that FSLH and SEMC have affiliated as the Mohawk Valley Health System (MVHS). It will serve as the parent organization of both hospitals, the institutions said in a news release.

A new board of directors comprised of 18 members, with an equal number of members from the FSLH and SEMC boards, will govern MVHS. Scott Perra, president and CEO of MVHS, will oversee the management team for the system.

Antitrust issues
Before the hospitals reached their destination of a completed, formal affiliation agreement, they had to navigate considerable regulatory hurdles. When two of the primary hospitals in a given market combine, regulators worry that the merged organization would have the ability to dominate the market and increase prices, the Harris Beach attorneys say.

Such an outcome was “not at all” the purpose of this affiliation, says Worrall.

“The purpose of it was to create efficiencies to lower costs, to improve the quality of care for patients in that market,” he adds.

Still, the attorneys had to work with the hospitals to assure the Federal Trade Commission (FTC) and the office of New York Attorney General Eric Schneiderman that market dominance wasn’t the primary motivation, they say.

Schneiderman’s office on Dec. 11 announced a settlement with the Utica hospitals, resolving concerns that their proposed affiliation would adversely affect competition in the health-care market in the Utica–Rome region.

The overhead cost of operating two hospitals independently is “significant” in a service area the size of Utica–Rome, Runke says.

“To cut, consolidate that infrastructure, pull out some of the duplication in services, you can actually drive down the costs and create financial stabilization in that market to ensure that the consumers, the patients, have access to high quality health care,” he adds.

Both attorneys have worked with the hospitals for “about a year-and-a-half,” Runke says, noting that the work focused on both the facilities’ planning and the transaction.

Any time a merger of this nature, which involves consolidating this type of organization, state and federal officials will have concerns, Worrall says.

The transaction was very “transparent” in the marketplace, says Runke, noting the hospitals issued a press release indicating that they were talking and thinking about the transaction.

“That prompted the FTC to actually pick up the phone and call almost immediately,” Runke recalls.

As the process unfolded, Runke and Worrall spoke with the hospitals to learn about the purposes and the reason for the affiliation agreement.

They wanted to impress upon the hospitals that presenting their case to the regulators would be key

“We just have to make sure that the enforcement agencies, the FTC and the [attorney general’s] office, understand the benefits of this proposed transaction, and that’s what we did,” Worrall says.

Those attending the January meeting of the New York State Bar Association in New York City discussed the antitrust issues surrounding this affiliation agreement, according to Worrall.

In the context of health-care reform, Runke called this affiliation agreement “a big deal.”

The ongoing changes in the nation’s health-care system seem “to favor consolidation in health care,” he says. And with the passage of the Affordable Care Act, or Obamacare, in 2010, the anti-trust enforcement agencies “got interested in health care again,” Runke added.

He believes the affiliation of Faxton St. Luke’s Healthcare and St. Elizabeth Medical Center represents a “lesson to be learned.”

“If you’re willing to work with the enforcement agencies, and if you’re willing to demonstrate the true intent of what you’re trying to achieve and convince them that what you’re doing is in the interest of the patients, is in the interest of driving down health-care costs, of assuring access to quality health care in the communities where the patients live, [then] they’re willing to work with you,” Runke says.

Contact Reinhardt at ereinhardt@cnybj.com