FTC Moves to Block Merger of Inova, Prince William Hospital

By Kristen Mack
Washington Post Staff Writer
Saturday, May 10, 2008

The Federal Trade Commission and Virginia Attorney General Robert F. McDonnell said yesterday they would attempt to block the planned merger between Northern Virginia's largest hospital chain and Prince William Hospital in Manassas.

The legal challenge is a setback for Inova Health System Foundation's 22-month attempt to add to its network of five hospitals in the region. The challenge also hurts Prince William Health System's efforts to gain access to the millions of dollars needed to expand to keep up with the county's growth. The merger was expected to be completed later this month.

The commission said the merger between the competing health-care providers would violate federal antitrust laws and lead to increased costs and reduced coverage for Northern Virginians.

"There is no question that Northern Virginia residents have benefited from the robust competition between Inova and Prince William Hospital through better services and lower prices," Jeffrey Schmidt, director of the commission's Bureau of Competition, said in a statement.

"If Inova acquires Prince William Health System, this vital competition will be lost, health-care prices will increase, and many residents will be forced to accept reduced health-care coverage or no coverage at all."

Next week, the commission and McDonnell will seek a temporary restraining order and a preliminary injunction in U.S. District Court in Alexandria to stop the deal, pending an administrative trial. The FTC unanimously approved an administrative complaint, which contained the agency's objections to the planned transaction.

Inova and Prince William Health System said they were disappointed by the commission's challenge and plan to "vigorously defend" the merger.

"In order to meet the growing population of Prince William County and to elevate the quality of care, we need to move forward with this merger. Our quality is good, but we want to be better than good," said Michael J. Schwartz, president and chief executive of Prince William Health System. The commission's view of the merger, he said, "is that it is going to lessen competition, and we don't accept that view."

Prince William Health System, an independent nonprofit in Manassas, operates the acute-care Prince William Hospital, which the western part of the county along with the cities of Manassas and Manassas Park.

Inova, of Falls Church, owns Fairfax Hospital, Alexandria Hospital, Mount Vernon Hospital, Fair Oaks Hospital and Loudoun Hospital.

If the merger is approved, Inova would control about 73 percent of the licensed hospital beds in Northern Virginia, the FTC said. The deal would leave four independent hospitals in the region, including Virginia Hospital Center in Arlington County and Potomac Hospital in Woodbridge.

Because of the close competition between the two hospital systems, the commission said in its complaint, the various health plans in the region are able to negotiate to keep down health-care prices.

The complaint also claims that price increases would lead to higher health-care costs for employers and consumers in Northern Virginia.

The Prince William system sought Inova as its partner because it was willing to invest more than $200 million to renovate and expand the hospital, Schwartz said.

"The FTC's challenge is not the final word on the proposed merger," Inova said in a statement. The company also said the commission seems to have "missed completely" the consumer benefits of nonprofit hospitals.

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