Geisinger Health will reduce its ownership interest of Evangelical Community Hospital under a Justice Department settlement agreement announced Wednesday.
Danville, Pa.-based Geisinger initially proposed a 30% acquisition of the neighboring independent hospital in Lewisburg, which federal regulators sued to block over concerns that it would lead to less independent expansion, sharing of competitively sensitive information, lower quality care and higher prices. Capping that ownership stake at 7.5% and limiting Geisinger’s future investments would mitigate the competitive harm associated with controlling about 70% of the acute-care market in central Pennsylvania, the Justice Department said in a proposed settlement agreement filed in a Pennsylvania federal court.
In addition to limiting Geisinger’s ownership interest in Evangelical, the agreement restricts Geisinger from making any loan or providing any line of credit to Evangelical or exerting any control over Evangelical’s expenses. They are also required to implement an antitrust compliance program.
“The anticompetitive agreement between Geisinger and Evangelical reduced their incentives to compete on the price, quality and availability of high quality healthcare services, which would have harmed patients in central Pennsylvania,” Richard Powers, acting assistant attorney general of the antitrust division, said in prepared remarks. “Today’s settlement ensures that those patients will continue to benefit from robust competition between Geisinger and Evangelical.”
Geisinger said in a statement that it is pleased to come to a resolution that allows it to maintain its investment in the health of the community.
“We are grateful that the Department of Justice acknowledges the investments Geisinger has made to Evangelical to date and we look forward to our continued work on projects that will benefit patients and the community at large,” the organization said.
Since the proposal in 2018, Geisinger has invested $17 million in Evangelical’s patient room improvement and modernization and enhancement project and $3.3 million in the Miller Center for Recreation and Wellness, according to the proposed settlement agreement. “Geisinger is not obligated to and will not make further capital contributions to Evangelical,” it reads.
In the acquisition proposal, Geisinger would have obtained a 30% stake in Evangelical in exchange for providing $100 million to Evangelical for use on Geisinger-approved projects. That influence, coupled with Geisinger’s right to refuse certain transactions, would have made it difficult for Evangelical to partner with other healthcare entities, regulators said. The settlement would restore the incentives to compete with each other on both quality and price, the DOJ claimed.
While the settlement prohibits most capital contributions, it allows Evangelical to obtain new electronic health records, information technology systems and related IT support from Geisinger. Geisinger will install Epic and related software for Evangelical at an 85% discount through an existing anti-kickback and Stark law safe harbor; IT support may continue for a five-year period.
The settlement also requires Evangelical to use the funds associated with Geisinger’s passive investment for specific projects that will benefit patients and the community.
Geisinger drew $7.1 billion in revenue in its fiscal 2019, generating a 1.7% operating margin. The integrated regional health system operates 12 hospitals and ancillary facilities throughout Pennsylvania.
The 132-bed Evangelical Community Hospital reported more than $259 million in annual revenue in 2019, generating an unaudited net income of $15.6 million. It also owns a number of physician practices and outpatient facilities in central Pennsylvania.
The settlement agreement awaits approval by a judge in the U.S. District Court for the Middle District of Pennsylvania expected later this year, following a public comment period.
The health systems are facing another lawsuit that they allegedly suppressed workers’ wages by agreeing not to recruit each other’s employees.