Claims proposed deal would threaten competition in I-680 corridor, leading to higher prices and reduced incentive to improve quality of care for patients; John Muir Health assessing options, issues response

The Federal Trade Commission today, Friday, Nov. 17, 2023, sued to block John Muir Health’s proposed $142.5 million deal to acquire sole ownership of San Ramon Regional Medical Center, LLC from current majority owner Tenet Healthcare Corporation, saying the deal will drive up health care costs. (See related article)

The Commission issued an administrative complaint and authorized a lawsuit in federal court alleging the proposed acquisition will eliminate head-to-head competition between John Muir Health (John Muir) and nearby San Ramon Regional Medical Center (San Ramon Medical). John Muir and San Ramon Medical operate in California’s I-680 corridor, which spans Contra Costa and Alameda Counties in the San Francisco Bay Area.

The deal would allow John Muir to demand higher rates at its two hospitals as well as San Ramon Medical for inpatient general acute care services (GAC), which are a broad range of essential medical, surgical, and diagnostic services that require an overnight hospital stay. The elimination of competition between John Muir and San Ramon Medical would also reduce incentives for these hospitals to invest in quality improvements.

“San Ramon Regional Medical Center has played an important role in ensuring Californians in the I-680 corridor have access to quality, affordable care for critical health care services, such as cardiac surgery and childbirth,” said Henry Liu, Director of the FTC’s Bureau of Competition. “John Muir’s acquisition of San Ramon Medical would increase already high health care costs in the area and threaten to stall quality improvements that help advance care for all patients.”

The FTC and the California Attorney General’s office closely cooperated throughout the investigation and will jointly file a complaint in federal district court.

John Muir Health, a non-profit corporation headquartered in Walnut Creek, California, operates two hospitals that provide inpatient GAC services along the I-680 corridor. Dallas-based Tenet operates 61 general acute care hospitals and hundreds of outpatient facilities nationally, including numerous facilities in California.

Currently, Tenet operates San Ramon Medical and holds a 51% interest in the medical center, while John Muir owns a 49% non-operating interest in San Ramon Medical. Under the terms of the proposed deal, John Muir would acquire Tenet’s remaining interest in San Ramon Medical and would become its sole owner and operator.

The complaint alleges that the proposed deal would allow John Muir to control more than 50% of the market for inpatient GAC services sold to commercial insurers and their enrollees in the I-680 corridor, eliminating competition between John Muir and San Ramon Medical to provide better services, high-quality care, and access that benefits patients in this region. Currently, San Ramon Medical is a lower-priced competitor seeking to offer inpatient GAC services in the I-680 corridor to enrollees. John Muir’s hospitals are close competitors to San Ramon Medical in terms of both patient preference and geographic location, according to the complaint. The proposed acquisition would lead to higher insurance premiums, co-pays, deductibles, and other out-of-pocket costs, or reduced benefits for commercial health insurance enrollees, the complaint alleges.

In addition to filing an administrative complaint, FTC staff will also ask a federal court to issue a temporary restraining order and preliminary injunction to prevent John Muir from taking control of San Ramon Medical pending the agency’s administrative proceeding.

The Commission vote to issue the administrative complaint and authorize staff to seek a temporary restraining order and preliminary injunction was 3-0. The federal court complaint and request for preliminary relief will be filed jointly with the California Attorney General in the U.S. District Court for the Northern District of California to halt the transaction pending an administrative proceeding. A public version of the complaint will be available and linked to this news release as soon as possible.

John Muir Health Assessing Options Following FTC Challenge of Acquisition

In response John Muir Health spokesman Ben Drew issued the following statement:

Today, John Muir Health (JMH) and Tenet Healthcare learned that the Federal Trade Commission (FTC) has decided to challenge JMH’s agreement with Tenet to acquire sole ownership of San Ramon Regional Medical Center (SRRMC). JMH has owned a 49% interest in SRRMC since 2013 and, under the proposed agreement, would acquire the remaining 51% interest from Tenet.

 

“We are disappointed by the FTC’s decision, and are discussing our options and next steps, including challenging the decision in court,” said Mike Thomas, president and CEO of John Muir Health. “We believe the proposed acquisition would benefit our community, caregivers and patients, as well as John Muir Health, San Ramon Regional Medical Center, and Pleasanton Diagnostic Imaging.”

For now, SRRMC will continue to operate under the current joint venture structure between JMH and Tenet with Tenet managing the operations of the hospital. Pleasanton Diagnostic Imaging (PDI), which is also part of the proposed agreement, will remain operated by United Surgical Partners International (USPI).

After announcing the agreement in January, JMH and Tenet learned in late March that the FTC intended to conduct a more in-depth review of the transaction. As part of the FTC’s review process, JMH and Tenet submitted a large volume of documents and data, as well as expert testimony on the Bay Area health care market and letters of support from local community leaders and government officials.

By acquiring SRRMC and PDI, JMH would be able to further enhance care for the community by:

• Integrating SRRMC and PDI onto JMH’s version of Epic, the electronic health record used in the health system’s inpatient and outpatient facilities and by nearly 1,000 physicians and healthcare providers throughout the community.
• Extending JMH’s quality enhancement and population health programs to SRRMC and the surrounding community.
• Making investments in facilities and enhanced services at SRRMC to reduce the number of patients leaving the community for their care.

Acquiring SRRMC is consistent with JMH’s history and would further the health system’s mission to improve the health of the communities it serves with quality and compassion. In 1997, John Muir Medical Center and Mt. Diablo Medical Center came together along with the John Muir Physician Network to create John Muir Health to better serve the community.

“We appreciate the patience of John Muir Health, San Ramon Regional Medical Center and Pleasanton Diagnostic Imaging-affiliated employees and physicians throughout this process,” continued Thomas. “Once we determine our course of action, we will communicate with all impacted audiences.”

NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The issuance of the administrative complaint marks the beginning of a proceeding in which the allegations will be tried in a formal hearing before an administrative law judge.

The Federal Trade Commission works to promote competition, and protect and educate consumers. You can learn more about how competition benefits consumers or file an antitrust complaint.

Allen D. Payton contributed to this report.