In a reflection of the federal government’s power to halt the trend toward increasing hospital consolidation and decreased competition, a federal appeals court on Tuesday blocked the proposed merger of Englewood Health and Hackensack Meridian Health.
The case has been watched closely after the Federal Trade Commission challenged the merger in December 2020, arguing that the deal would eliminate competition between Hackensack and Englewood. The FTC said it would enable Hackensack Meridian to demand higher prices from insurers, which could lead to higher premiums for insurance plan members.
The decision by a four-judge panel of the U.S. Court of Appeals for the 3rd Circuit concurred with that assessment, saying that “the merger is likely to substantially lessen competition.”
If the merger occurred, it said, “consumers would likely be disadvantaged because Englewood would no longer have an incentive to outperform HUMC” in areas such as hospital safety, patient experience, timely and effective care, nursing recognition, and care-associated infection rates where it currently scores better than Hackensack on national measures.
“It’s the end of the road as relates to the legal process with this particular merger,” said Warren Geller, Englewood Health’s president and CEO.
After nearly four years of merger planning, hospital leaders and trustees will “catch our collective breath,” he said.
Under the proposed merger, the 531-bed Englewood hospital would have joined Hackensack Meridian Health’s Hackensack University Medical Center and Pascack Valley Medical Center, each located 8 miles away, as part of one of the state’s largest health care systems.
Hackensack pledged to invest $440 million in capital improvements at Englewood aimed to improve its facilities and services.
The focus now will shift to a long-term strategic plan that includes an emphasis on outpatient care, which already accounts for the vast majority of Englewood’s revenue, and strengthening the Englewood Health physician network. An ambulatory care center is planned to open in Journal Square in Jersey City later this year. Another is being designed for Englewood Cliffs, and a third opened in Fair Lawn last year, Geller said.
Englewood was founded more than 130 years ago and is one of the last remaining independent hospitals in New Jersey, along with Valley Health in Ridgewood and Holy Name in Teaneck. Market pressures have forced most hospitals in the state to seek partners.
“Can a hospital like Englewood survive or continue to be competitive on its own? That remains to be seen,” said John Fanburg, an attorney who chairs the health care law practice at Brach Eichler, a Roseland law firm.
The COVID-19 pandemic caused turmoil in hospital finances, with a large drop in revenue for elective procedures and routine care as the hospitals focused on caring for the waves of patients sick with COVID. But huge infusions of federal aid helped most hospitals balance their books. Englewood essentially broke even after two years of the pandemic, Geller said.
The appeals court upheld a decision last August by U.S. District Court Judge John Michael Vasquez in Newark that sided with the FTC to grant an injunction that temporarily blocked the deal, pending a full review. Hackensack and Englewood appealed that decision in September, and oral arguments were heard in December.
The hospitals contend that a full administrative review of their proposal would support the merger.
In a statement, Hackensack Meridian said it was “weighing the next steps that are in the best interests of the communities we serve.”
Hackensack Meridian was “very disappointed” in the appellate decision, the statement said. “We firmly believe this merger is in the best interest of our patients and the community at large.”
Englewood, which sought a merger partner in 2019 to improve its finances, said through a spokeswoman that “although this is not the decision we had hoped for, we entered merger planning from a position of strength.”
When the agreement was announced in October 2019, Hackensack Meridian agreed to take on Englewood’s $182 million in debt, as well as invest in capital improvements. On Tuesday, Geller said the debt level had not increased.
“As any forward-thinking organization, we’ll always continue to evaluate any options that we think can help us improve care in the communities we serve and allow us to innovate and expand,” he said.
Partnerships that are less than a full merger are possible. “There’s other approaches to affiliate without merging, subject to antitrust rules and guidance,” said Fanburg. “They could do joint programming, or partner in different health care initiatives.” Hackensack could make an investment in such joint undertakings.
Twenty-three states and the District of Columbia had sided with the FTC in a “friend of court brief” that said mergers like the one proposed “lead to increased health care costs in local communities and raise the overall cost of health care.”
On the other side, the American Hospital Association, Association of American Medical Colleges, New Jersey Hospital Association and African American Chamber of Commerce of New Jersey filed briefs in support of the merger, arguing that it would improve hospital quality.
New Jersey’s attorney general and health commissioner had already approved the proposal when the FTC intervened.
The FTC works to promote competition. It filed a similar complaint about the anti-competitive consequences of a proposed merger of Rhode Island’s two largest health care providers, who earlier this month terminated their agreement.
Along with the Justice Department, the FTC will hold listening sessions this spring to “hear from those who have experienced firsthand the effects of mergers and acquisitions … including consumers, workers, entrepreneurs, start-ups, farmers, investors, and independent businesses.” The session on health care mergers is scheduled for April 14.
Lindy Washburn is a senior health care reporter for NorthJersey.com. To keep up-to-date about how changes in health care affect you and your family, please subscribe or activate your digital account today.