In stunning move, AG Neronha rejects Lifespan-Care New England merger – WPRI.com

PROVIDENCE, R.I. (WPRI) — Attorney General Peter Neronha on Thursday rejected the proposed merger of Rhode Island’s two largest hospital groups and joined the Federal Trade Commission in a lawsuit to block the deal, in a stunning move that throws the future of the state’s most powerful health care institutions into turmoil.

Lifespan and Care New England announced plans to merge a year ago, arguing that by combining forces into an academic medical center affiliated with Brown University they could improve patient care and promote economic development. But they’ve faced pushback from those who fear the potential power of the new organization, which would control roughly 80% of inpatient hospital services in Rhode Island.

“Rather than putting the healthcare systems on stronger financial footing, the proposed merger would leave Rhode Island’s healthcare system in even greater financial peril,” Neronha wrote in his 150-page decision.

The attorney general called the combined market share an “extraordinary and unprecedented” level of dominance and cited it as a key reason for his rejection of the merger. He noted that the biggest hospital groups in Massachusetts and Connecticut — Mass General Brigham and Yale New Haven Health, respectively — control less than one-third of inpatient care in their states.

(Story continues below the video.)

The attorney general cited four key factors that drove his decision: the negative effects of a lack of competition in Rhode Island health care on costs, care, and workers; the financial weakness of the merged organization; a lack of specifics from Lifespan and CNE about how they would achieve the stated benefits of the merger; and an inability to mitigate the concerns through regulations or approval conditions.

Neronha argued that if the merger was approved, “nearly all Rhode Islanders would see their health care costs go up, for health care that is lower in quality and harder to access, and Rhode Island’s health care workers would be harmed.”

Under the Hospital Conversions Act, there is a process to appeal the attorney general’s decision, although they would likely face an uphill legal battle.

At the same time as Neronha’s news conference, the FTC announced it had jointly filed a federal lawsuit with the attorney general to block the proposed merger. The commission voted 4-0 in favor of authorizing the legal challenge, echoing the attorney general’s concerns over what the deal would mean for Rhode Islanders.

“This proposed merger is a bad deal for patients who are likely to see higher hospital bills, lower quality of care, and fewer cutting-edge medical services,” said FTC Bureau of Competition Director Holly Vedova.

Neronha’s staff found that all the hospital mergers which the FTC has moved to block since 2004 involved smaller concentrations of market power than the Lifespan-CNE proposal would.

“When a system is so big, so dominant, that it is the only system that the vast majority of patients will go to for, say, inpatient care, that system no longer has to do the hard work to strive to be better than the alternative, because there is no alternative,” Neronha wrote.

(Story continues below the video.)

As an example, he pointed to when Care New England’s Kent Hospital created a partnership with Brigham & Women’s cardiologists to attract more patients needing complex heart procedures. “Care New England saw its market share for those surgeries rise relative to Lifespan’s and, subsequently, Lifespan established a call center to improve its appointment scheduling operation and win back more patients,” he wrote.

Top officials at Lifespan, Care New England and Brown issued statements following the news conference, expressing disappointment in the decisions. Lifespan Board of Directors chairman Lawrence Aubin warned “the status quo will not serve the healthcare needs of the people of Rhode Island,” and Care New England CEO Dr. James Finale indicated they would “explore all options” moving forward.

“We can truly know that we did everything we could over the past few years to get this done,” Finale added. “We thought it was the right thing to do, but now we will need to move on to a new path forward.”

“A Rhode Island solution, that remains nonprofit, and creates the state’s first fully integrated academic health care system is what we seek to accomplish for the state and that remains our overriding goal,” added Lifespan president and CEO Dr. Timothy Babineau.

Brown President Christina Paxson said the university remains “steadfastly committed to supporting the work of the physicians who work in both Lifespan and Care New England, serving the health of Rhode Islanders and fueling the local economy through the teaching, research and service conducted by the Warren Alpert Medical School, Brown’s School of Public Health and other academic departments and programs.”

The attorney general’s announcement came well ahead of the March 16 deadline for him to render a decision, and followed an extensive investigation as well as multiple public meetings. His office said it collected more than 3.6 million documents totaling over 11 million pages as part of its review.

During the news conference, Neronha criticized the hospital groups for providing information with a “number of deficiencies” throughout the review. He said his office repeatedly asked for information that would outline how the merged entity would work and what it would look like.

Those answers “proved elusive,” Neronha said.

He also dismissed the hospital groups’ argument that their services are more complementary than competitive, saying even their own submitted documents his office reviewed showed the two hospital groups see each other as their biggest competitors. As a result, he argued, the hospitals wouldn’t suddenly become a financial success story that best served Rhode Islanders if combined.

(Story continues below the video.)

“The proposed transaction is based on a financial paradox: that somehow by combining two organizations that each have significant and distinct financial challenges, Rhode Island would be left with one dominant and financially healthy system that can make substantial investments in prestigious initiatives, all while living up to the parties’ promises not to close facilities or cut services, or pass on those costs to consumers and workers,” he wrote in his decision.

Lifespan owns Rhode Island, Miriam, Newport and Bradley hospitals; Care New England owns Women & Infants, Kent and Butler. They employ more than 22,000 workers combined. Brown has agreed to contribute $125 million toward the new entity.

“Any transacting party aggrieved by a final order of the department of health or the attorney general under this chapter may seek judicial review in the superior court,” according to the law.

The hospital groups are still awaiting a decision on the merger from the R.I. Department of Health, which like the attorney general must sign off on the deal under state law. It’s unclear whether Neronha’s decision will affect the Health Department’s next move.

The merger process has been expensive. Lifespan and Care New England said they have spent about $28.8 million on merger costs as of this week, including application fees, legal work and consultants, as well as footing the ball for the state’s regulatory review; Lifespan pegged the latter cost at about $3 million alone.

Neronha’s decision quickly evoked both praise and criticism.

United Nurses and Allied Professionals president Lynn Blais, whose union recently came out in support of the proposed merged, warned that Care New England is in “dire financial straits,” and that Neronha’s decision “opened the door” for Rhode Island hospitals to be sold to out-of-state groups.

“The people of Rhode Island can’t afford another buyer who wants to come in and suck every last nickel out of these hospitals in the interest of making a bigger profit for shareholders,” Blais said.

House Minority Leader Blake Filippi, the top Republican in the R.I. House of Representatives, praised the attorney general for his decision, thanking him for “coming down on the right side — the side of the people.”

“The proposed Lifespan-Brown-CNE healthcare monopoly was prescription for disaster — a merger we would live and die with for generations,” Filippi tweeted.

House Speaker Joe Shekarchi and Senate President Dominick Ruggerio, who recently penned a joint letter to the FTC and attorney general’s office in support of the proposed merger, issued separate statements thanking the hospitals, Brown and the attorney general for their work. Ruggerio said he would “review the decision before taking any further steps.”

Shekarchi urged the hospital groups and Brown to “immediately terminate their exclusivity agreement and explore all options available to them in the marketplace.”

Gov. Dan McKee spokesperson Alana O’Hare said the governor is reviewing the decisions.

“Our administration looks forward to working with all health care parties in the state to ensure Rhode Islanders have access to quality care,” O’Hare said.

Tim White and Tolly Taylor contributed to this report.