Pa. Attorney General drops opposition to Jefferson-Einstein deal

Pennsylvania Attorney General Josh Shapiro dropped his opposition to Thomas Jefferson University’s acquisition of Einstein Healthcare Network following a federal court loss and after Jefferson agreed to invest $200 million over seven years in Einstein’s North Philadelphia facilities.

“Our focus in this case has always been on strengthening access to high-quality health care for people living and working in North Philadelphia,” the attorney general’s office said in a statement Monday. “Following extensive talks with Jefferson and Einstein, the systems have committed to making investments in North Philadelphia that will go beyond what was initially proposed and are especially crucial while we face this global health pandemic.”

The Federal Trade Commission’s litigation against the deal is still alive in the Third Circuit Court of Appeals.

Until reaching its agreement with the attorney general, Jefferson had not committed to spending a specific amount of money at Einstein’s hospital and other facilities in Philadelphia. A financial expert hired by Einstein to testify during last fall’s six-day antitrust trial estimated that Einstein needed an infusion of $210 million to $300 million in cash over four years to pay for “must-do” capital expenditures and to maintain minimally acceptable amounts of money in the bank.

Jefferson, which uses Einstein as a major training site for medical students, did not respond to a request for comment Monday.

The attorney general early last year joined the FTC in a lawsuit in U.S. District Court for the Eastern District of Pennsylvania to block the Jefferson-Einstein deal, alleging that Jefferson’s control of Einstein would give Jefferson enough market power to unfairly raise prices for hospital care in parts of Philadelphia and Montgomery County.

Judge Gerald J. Pappert rejected that bid on Dec. 8, concluding that the case by the FTC and the attorney general failed to mesh with the reality of the Philadelphia-area health-care market and relied on testimony from health insurers Independence Blue Cross and Cigna that was “not credible.”

The attorney general was still involved in the case on Dec. 9 for the emergency motion for an injunction pending appeal in district court, but dropped out by the time the FTC appealed to the Third Circuit Court of Appeals the next day.

Pappert denied the motion for an injunction pending appeal on Dec. 14. A panel of three Third Circuit judges denied a similar emergency motion for injunction pending appeal a week later.

The FTC had no comment Monday on the attorney general’s decision to drop out of the case. The agency said last month that it was considering its options for next steps in the litigation.

Antitrust experts have said that the FTC’s loss in district court illustrates the agency’s difficulty making hospital antitrust cases in metropolitan areas with many hospitals.

If the FTC defines the market where the merging parties would gain excessive market power to raise prices as an entire region, then market shares are typically too small to show undue concentration. If the agency tries to peel off parts of the region — as it did in the Jefferson-Einstein case with areas surrounding Einstein in North Philadelphia and Einstein Medical Center Montgomery in East Norriton — opponents can always argue that other nearby hospitals should have been included in the mix.

In this case, Pappert found it hard to believe that the FTC tried to make the case that the Jefferson-Einstein combination would have too much market power without mentioning the presence of the University of Pennsylvania Health System in the market.