A merger two years in the making between Inova Health System and Prince William Health System was halted on Friday, with both sides citing the threat of action by the Federal Trade Commission.
The two systems jointly announced they were canceling plans to merge, saying that fighting the FTC challenge could take as long as two years and that the delay would disrupt service in the communities they serve.
The organizations termed the FTC challenge as forcing "unusual process changes" that would have delayed completion of the merger.
The FTC voted unanimously in mid-May to authorize its staff to seek a temporary restraining order and preliminary injunction in federal district court to block the deal, saying it will pursue a full administrative trial on the acquisition.
The action is being pursued jointly with Virginia's Attorney General's Office.
Inova and Prince William originally responded to the FTC action by saying they intend to vigorously pursue the combination of the organizations.
However, on Friday, the short statement from both organizations said they would continue to operate separately.
"Though the decision is a difficult one to make, both health systems will move forward independently and continue to fulfill their not-for-profit community missions of building high-quality, accessible and sophisticated healthcare services for the communities they serve," the statement said.
Inova and Prince William Health System both operate hospitals in northern Virginia. Inova owns five hospitals in northern Virginia, including hospitals in Fairfax, Fair Oaks, Loudoun and Alexandria, while Prince William Health System operates Prince William Hospital in Manassas and a physician office and outpatient surgical center in Haymarket. The systems announced the proposed merger in April 2006 and entered into an agreement to merge the following August.
The administrative complaint filed by the FTC charges that the proposed acquisition would violate federal antitrust laws by reducing competition for general acute care inpatient hospital services in northern Virginia, and it alleges that consumers in that part of the state "will pay higher prices and lose the benefits of non-price competition."
"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," said Jeffrey Schmidt, director of the FTC's Bureau of Competition." If Inova acquires Prince William Health System, this vital competition will be lost, healthcare prices will increase, and many residents will be forced to accept reduced healthcare coverage or no coverage at all."
The acquisition would have given Inova control over approximately 73 percent of the licensed beds in northern Virginia in six separate hospitals, and the chain would face competition from only four other independent hospitals in the region.
The decline in competition would have made it harder for health plans to negotiate because it would have stifled the availability of independent competitive alternatives, the FTC said. That has the potential to lead to higher healthcare costs for employers, health plan enrollees and consumers, especially in areas serviced by Prince William Health System.
The merger agreement would have included $200 million in capital and resources to improve Prince William facilities.