ANTITRUST STUDY LIKELY IN MERGE; HOSPITALS TO SELL PLAN TO AGENCIES

Cape Girardeau's two hospital administrators are working hard to sell their merger plan to area employers, but selling the plan to the federal government would take more work.

James Wente, administrator of Southeast Missouri Hospital, and James Sexton, president and chief executive officer of St. Francis Medical Center, expect the Federal Trade Commission or Department of Justice to investigate the hospitals' merger plan.

Wente said the hospitals would cooperate with an investigation, and he thinks the government would "take a hard look at our plans."

Sexton assumes the Department of Justice's antitrust division will investigate. "They already had us in their sights because of the PHO," he said, referring to a report from 1996 that the Department of Justice was investigating possible antitrust violations of the now-defunct MedAmerica HealthNet physician-hospital organization.

The hospitals expect to notify the federal government of their merger plans next month, and barring federal intervention the merger should be completed by Jan. 1.

Once the government is notified, the merger process could be completed in 30 days if the government doesn't intercede, said Michael Madsen, president of the Missouri Society of Hospital Attorneys. The government would study the information submitted and determine if the merger would create a monopoly, Madsen said.

Robert Leibenluft, the FTC's assistant director for health services and products, said antitrust agencies review merger proposals with two questions in mind: Will the transaction limit consumer options in a service area and will the transaction mean higher prices.

Madsen said the FTC or Justice Department would review the hospitals' financial conditions, market area and population, other hospitals in the region and the impact of the merger on prices.

More hospitals are seeking mergers because of increased competition, higher costs, managed-care contracts and efficiency of larger operations and duplication of services, he said.

"There's not too many independent hospitals around any more," Madsen said.

In 1993, the Department of Justice and the FTC laid out six "safety zone" guidelines for agencies to intercede in joint ventures of health-care organizations.

The guidelines address hospital mergers, joint ventures of physician networks, joint purchasing agreements among providers, hospitals' exchange of price and cost information, hospital joint ventures and physicians' provision of medical data to health-care purchasers.

For the most part, the federal government won't intervene in mergers of two acute-care hospitals if one hospital has fewer than 100 licensed beds and a daily average census of fewer than 40 patients over the most recent three-year period.

If the hospitals fall outside those guidelines, or if either facility is less than 5 years old, the transaction comes under scrutiny by the FTC or the Department of Justice.

The FTC is trying to block the proposed merger between Lucy Lee Healthcare System, which is owned by Tenet Healthcare Corp., and Doctors Regional Medical Center in Poplar Bluff.

"The fact that Tenet was involved was probably a red flag in that," Madsen said, explaining that the federal government is more likely to scrutinize a transaction between a large chain like Tenet and a small, independent entity.

But, he said, the two Poplar Bluff hospitals are both for-profit enterprises, while Southeast and St. Francis are not-for-profit operations.

That fact might make the federal government "look more kindly" on the merger, Madsen said.

Wente expects the federal government to scrutinize the hospitals' market area, the regions from which the facilities draw patients.

The hospitals' service area includes Cape Girardeau, Scott, Stoddard, Bollinger, Perry, New Madrid and Mississippi counties in Missouri and Union, Alexander and Pulaski counties in Illinois.

"They may see it different than we do," Wente said, and the definition of the market area will be a key consideration in determining how the merger will affect competition.

He said Cape Girardeau's hospitals are "seeing more and more competition from outside the area," including St. Louis, Memphis, Springfield, Ill., and Southern Illinois.

In the meantime, the hospitals will try to negotiate a consent decree with the Missouri attorney general to guarantee the merger will save at least $44 million over five years.

If the consent decree is signed, Wente and Sexton say, it could signal to federal authorities that the merger has support and could discourage an investigation.

Negotiation for the decree has begun, but the attorney general's office hasn't taken a stand.