US v. Mercy Health Services
| Decision Date | 27 October 1995 |
| Docket Number | No. C94-1023.,C94-1023. |
| Citation | 902 F. Supp. 968 |
| Parties | UNITED STATES of America, Plaintiff, v. MERCY HEALTH SERVICES and Finley Tri-States Health Group, Inc., Defendants. |
| Court | U.S. District Court — Northern District of Iowa |
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Mary Beth McGee, Eugene Cohen, Jessica N. Cohen, U.S. Department of Justice, Anti-Trust Division, Washington, DC, Lawrence D. Kudej, Assistant United States Attorney, Cedar Rapids, IA, for plaintiff.
David A. Ettinger, Howard B. Iwrey, Honingman Miller Schwartz & Cohn, Detroit, MI, James D. Hodges, Jr., Steven J. Pace, Shuttleworth & Ingersoll, Cedar Rapids, IA, for defendants.
The United States has brought this action under the antitrust laws. The defendants, Mercy Health Services and Finley Tri-States Health Group, Inc. own Mercy Health Center (Mercy) and Finley Hospital (Finley), respectively. Mercy and Finley are the only two general acute care hospitals in Dubuque, Iowa. The two hospitals have agreed to form a partnership, Dubuque Regional Health Services (DRHS), which all parties acknowledge constitutes a merger for purposes of antitrust analysis. On June 10, 1994, the government filed a complaint seeking injunctive relief against the merger as a violation of § 7 of the Clayton Act, 15 U.S.C. § 18, and of § 1 of the Sherman Act, 15 U.S.C. § 1. The parties agreed to waive a preliminary injunction hearing in order to proceed to trial on the matter. After expedited discovery, the matter was tried to the bench. Two weeks of testimony was heard and several hundred items were moved into evidence.
Dubuque is situated within Dubuque County, Iowa, which in 1993 had a population of 86,403. Dubuque lies on the Mississippi River, at a point where Iowa adjoins the south-western portion of Wisconsin and the north-western portion of Illinois.
Mercy is an acute care hospital which, in 1994, had approximately 320 staffed beds, 9980 acute care patient discharges and an average daily census of 127. Mercy's acute care commercial discharges for 1994 were estimated to be 3622 and the average daily acute care commercial census was 44. Finley is also an acute care hospital and, in 1994, was estimated to have 124 staffed beds, 5247 acute care patient discharges and an average daily census of 63. Finley's acute care commercial discharges for 1994 were estimated to be 2175 and the average daily acute care commercial census was 21.
There are seven rural hospitals in the area: Galena-Stauss Hospital in Galena, Illinois, 15 minutes from Dubuque, has 25 licensed beds and an average daily census of 3. Southwest Health Center in Platteville, Wisconsin, 30 minutes from Dubuque, has 35 licensed beds and an average daily census of 11. Lancaster Memorial Hospital in Lancaster, Wisconsin, 30 minutes from Dubuque, has 35 licensed beds and an average daily census of 10. Delaware County Memorial Hospital in Manchester, Iowa, 40 minutes from Dubuque, has 58 licensed beds and an average daily census of 12. Jackson County Public Hospital in Maquoketa, Iowa, 30 minutes from Dubuque, has 99 licensed beds and an average daily census of 12.4. Guttenberg Memorial Hospital in Guttenberg, Iowa, 40 minutes from Dubuque, has 37 licensed beds and an average daily census of 7. Finally, Central Community Hospital in Elkader, Iowa, 60 minutes from Dubuque, has 29 licensed beds and an average daily census of 3-4.
These hospitals primarily serve patients who are closer to the rural hospital than to any other hospital. The rural hospitals mainly provide primary care services and do not provide the breadth of services Mercy and Finley offer. Guttenberg provides the largest array of services in that it offers 68% of the same Diagnosis Related Groups (DRGs)1 Mercy and Finley provide. Galena-Stauss has the smallest array of services, providing care for only 11.5% of the same DRGs Mercy and Finley provide.
There are several regional hospitals within 70 to 100 miles of Dubuque which generally offer the same or greater range of services as provided by Mercy and Finley. Allen Memorial Hospital in Waterloo, Iowa has 194 staffed beds and an average daily census of 145. Covenant Medical Center in Waterloo, Iowa has approximately 322 staffed acute care beds with an average daily census of 173. St. Luke's Methodist Hospital in Cedar Rapids, Iowa has 441 staffed beds with an average daily census of 284. Mercy Medical Center in Cedar Rapids, Iowa has 353 staffed beds and an average daily census of 193. St. Mary's Medical Center in Madison, Wisconsin has 345 staffed beds and an average daily census of 265. Freeport Memorial Hospital in Freeport, Illinois has 143 staffed beds and an average daily census of 70. University of Wisconsin Hospital and Clinics in Madison, Wisconsin has 496 staffed beds and an average daily census of 386. Meriter Hospital in Madison, Wisconsin has 429 staffed beds and an average daily census of 258. The University of Iowa Hospitals and Clinics in Iowa City, Iowa (UIHC) has 868 staffed beds and an average daily census of 677.
Mercy and Finley's patient bases are composed of individuals covered by government insurance programs, traditional indemnity insurance and managed care payers. Managed care payers include health maintenance organizations (HMO's), and preferred provider organizations (PPO's). HMO's generally charge a set fee which covers all of an enrollee's health care needs, including hospitalizations. HMO's generally restrict the doctors and hospitals from which an enrollee can receive care to those physicians and hospitals providing a discounted rate to the HMO. HMO's often work with the hospitals when an enrollee is hospitalized to insure that the costs of the hospitalization remain as low as possible. HMO's may have their own clinics to which enrollees are obligated to go for office visits and most outpatient needs. HMO's generally stress preventative care and require preapproval prior to being hospitalized in order to keep the rate of hospitalizations low.
PPO's generally negotiate discounted rates with physicians and hospitals and then require their enrollees to receive their care from the discounted care providers or risk being denied reimbursement. PPO's generally do not have their own clinics and do not stress preventative care. In contrast to the managed care payers, the indemnity health insurers have not traditionally attempted to gain discounted rates from physicians or hospitals.2 Instead, these traditional insurers cover a percentage of the health care costs with the remainder being paid by the insured. HMO's and PPO's have only recently established themselves in Iowa, but already 25% of Mercy and Finley's patients are covered by managed care payers. Of the remaining 75% of Mercy and Finley's inpatients, 50% are covered by Medicare and Medicaid and the other 25% are covered by traditional indemnity insurance.
A hospital will discount its stated charges to managed care payers in order to entice the managed care entity to send more enrollees to their hospital for inpatient care. Mercy currently gives discounts to the following managed care entities: Medical Associates, Heritage National Health Plan, Self-Insured Systems Corporation (SISCO), Alliance Select PPO (a Blue Cross plan), HMO of Wisconsin, Wisconsin Education Association Insurance and the Affordable Health Plan. Finley contracts with Blue Cross/Blue Shield of Iowa, Alliance Select PPO Program (a Blue Cross plan), Heritage National Health Plan, Inc., Heritage Preferred, Medical Associates HMO, HMO of Wisconsin, Blue Cross of Illinois PPO, BeefAmerica Operating Co., ProAmerica Network, Inc., American Health Care Advisory Association, Hospice of Dubuque County, and Collaborative Medical for Religions (a charitable contribution).
Medical Associates is a physician-owned medical practice which operates the Medical Associates HMO in the Dubuque area. The HMO has approximately 30,000 enrollees. The Medical Associates HMO accounts for 11-12% of Mercy's net revenues. Physicians employed by Medical Associates refer patients to Mercy for inpatient and outpatient care constituting approximately 80% of Mercy's yearly revenue. Heritage National Health Plan operates a PPO which covers 5,000 lives in the Dubuque area. Nationally it covers 280,000 persons. It accounts for 2-3% of Mercy's net revenues. SISCO is a third-party payer which administers self-insured employee health plans and also contracts for reduced rates for some of its employer-customers. Blue Cross has a state-run managed care plan in which it offers the hospital a contract on a "take it or leave it" basis. The hospital can either agree to the stated rates or not be on the plan's preferred provider list. It accounts for 8-9% of Mercy's net revenues. Affordable accounts for less than 1% of Mercy's revenues. HMO Wisconsin accounts for less than 0.5% of Mercy's revenues. Medicare and Medicaid account for 46-47% of Mercy's net revenues. Traditional indemnity insurance accounts for 26% of Mercy's revenues.
Medical Associates has a clinic in Dubuque in which it sees patients for regular office visits. It also operates an outpatient clinic in Dubuque which directly competes with Mercy and Finley for outpatient procedures. In addition to its Dubuque Clinic, Medical Associates has permanent facilities in Bellevue, Iowa; East Dubuque, Illinois; and Galena, Illinois. It operates outreach clinics in Bellevue, Iowa; Dyersville, Iowa; Lancaster, Wisconsin; Maquoketa, Iowa; Platteville, Wisconsin; Boscobel, Wisconsin; Elkader, Iowa; Guttenberg, Iowa; Manchester, Iowa; Oelwein, Iowa; Darlington, Wisconsin; Clinton, Iowa; and Monticello, Iowa. These outreach clinics are primarily conducted in order to obtain secondary referrals for Medical Associates' specialists.
Traditionally, hospitals competed on the basis of amenities and...
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