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Judge says FTC's market analysis was flawed in Advocate-NorthShore case

After six days of testimony from insurance executives, hospital CEOs and industry experts, the federal government's attempt to block the proposed merger of Advocate Health Care and NorthShore University HealthSystem came down to one witness.

Steven Tenn was hired by the Federal Trade Commission to do an analysis of the Chicago area hospital market. He is well-qualified to evaluate the competitive effects of mergers. He has a doctorate in economics from the University of Chicago and even worked as an economist at the FTC.

The FTC relied on Tenn's expert opinion for a crucial part of its case, identifying the geographic market in which the merged hospitals might exercise monopoly power to raise health care prices. But U.S. District Judge Jorge Alonso said Tenn's analysis was "flawed" and the key reason the commission lost its challenge. The judge spent most of his 13-page decision, which was released late Monday, dissecting Tenn's rationale.

The FTC was concerned that an Advocate-NorthShore combination would reduce competition for consumers who live in Cook and Lake counties because the two systems have overlapping hospitals in that geographic area.

Tenn helped the commission define the relevant market. He constructed an area that included six of the merging hospitals — Lutheran General in Park Ridge, Condell Medical Center in Libertyville, Evanston Hospital, Skokie Hospital, Glenbrook Hospital in Glenview and Highland Park Hospital. Tenn's market also included Vista East Hospital in Waukegan, Northwest Community Hospital in Arlington Heights, Presence Resurrection Hospital in Chicago, Swedish Covenant Hospital in Chicago and Northwestern Lake Forest Hospital.

But he didn't count as competitors what he called "destination" hospitals, including academic medical centers such as Northwestern Memorial and Rush University Medical Center in Chicago. He also excluded hospitals such as Presence St. Francis in Evanston because it didn't overlap with more than one of the merging hospitals.

Advocate and NorthShore disagreed with Tenn's market, especially the exclusion of Northwestern Memorial. They argued that Northwestern has numerous outpatient facilities in Cook and Lake counties, which help drive admissions to its academic medical center.

Alonso agreed. The judge cited numerous witnesses who testified that physicians significantly influence a patient's choice of hospitals. Tenn's exclusion of destination hospitals ignores "the commercial realities of this industry," Alonso wrote.

The FTC plans to appeal Alonso's ruling. Pending the appeal, Advocate and NorthShore are not allowed to close their merger.

asachdev@tribpub.com

Twitter @ameetsachdev

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