Fearing that Reading Hospital System's proposed acquisition of Surgical Institute of Reading would "substantially reduce competition in the area surrounding Reading, Pennsylvania, and lead to reduced quality and higher healthcare costs for the area's employers and residents," the Federal Trade Commission announced it'll block the deal.

The FTC and the Pa. attorney general will file a complaint in federal district court seeking a preliminary injunction to stop the deal pending an administrative trial. The FTC has also issued an administrative complaint to begin a proceeding that'll determine the legality of the transaction, which was agreed on May 21, 2012.

Among the administrative complaint's allegations:

• Competition would be reduced in inpatient and outpatient orthopedic/spine surgical services; outpatient ENT surgical services; and outpatient general surgical services, giving Reading Hospital System as much as 71% market share.
• There would remain only 3 other "meaningful competitors for outpatient ortho/spine, 2 inpatient for ortho/spine, and 1 other for each of ENT and general surgery.
• Reading Health System would increase its "already-significant negotiating leverage, enabling it to raise the reimbursement rates it negotiates with commercial health plans," and increasing costs to local employers and their employees.
• Finally, "the acquisition also would eliminate important non-price competition … potentially leading to a decrease in the quality of existing facilities and services," says the FTC.

"The FTC is challenging this acquisition because it would lead to higher overall health care costs for employers and patients in the Reading area," said Richard Feinstein, director of the Bureau of Competition. "While [Surgical Institute of Reading] is not a full-service general acute-care hospital, it has injected important price and quality competition into the Reading area. That competition will be lost if this deal goes forward."

Reading Health System says it "strongly disagrees with the conclusions contained in the challenge" but has decided to not engage the government for cost reasons.

"Therefore, the parties have mutually agreed to terminate the transaction," says Clint Matthews, CEO and president of Reading Health System, in a statement. "We reach this conclusion with regret, because we believe the merger of these two strong, high-quality healthcare institutions clearly would have benefitted the community. … One of the primary reasons to affiliate with [Surgical Institute of Reading] … was to combine SIR's 'well-deserved reputation for quality, personalized care with the clinical and financial strength of The Reading Hospital.'

"In terms of the Reading Health System's quality, we have consistently earned regional and national recognition from objective third parties, including awards for clinical excellence and patient safety that have placed us among the top 5% of all hospitals in the nation. The whole intent of the acquisition was to bolster — not 'reduce' — quality."

Reading Health System is a comprehensive, not-for profit healthcare system that operates the 737-bed Reading Hospital and accompanying teaching facilities on a 36-acre, 22-building campus; it provides inpatient general acute care, tertiary services and outpatient care. Surgical Institute of Reading, which opened in April 2007, is a for-profit, physician-owned, 15-bed surgical specialty hospital that provides inpatient and outpatient surgical services.

At press time, Surgical Institute of Reading could not be reached for comment.

Stephanie Wasek

Updated to add statement from Reading Health System.