04/06/2012 04:25 pm ET

Hospital Merger Blocked As Regulators Warn Of Higher Health Care Costs

Antitrust regulators have won a round in their fight to stop two Illinois hospitals from merging, a development the Federal Trade Commission says if passed will increase health care costs.

A U.S. District Court judge has sided, for now, with the Federal Trade Commission and temporarily blocked a deal between OSF HealthCare and Rockford Health System, two Illinois nonprofit hospital companies, The Wall Street Journal reports.

Richard Feinstein, the director of the agency's Bureau of Competition, said the court's ruling is a "victory for both competition and consumers" in a news release.

The Federal Trade Commission is targeting hospital mergers across the U.S. because of a fear that a flurry of activity in the sector will lead to higher prices for medical services. Hospitals, particularly nonprofits, seek mergers in order to streamline operations, cut operating costs, and gain bigger market share. But hospitals that control more of a local market can negotiate higher prices from insurance companies, which drives up health care spending, studies have shown.

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Rising health care costs already burden some consumers. Worker's health insurance premiums increased 9.3 percent to $2,764 in 2012, and 40 percent since 2007, according to the consulting firm Towers Watson and the trade organization National Business Group on Health.

Last year saw more hospital mergers and acquisitions than any time in the past decade as companies made 86 deals valued at $7.9 billion. All health care companies struggle with rising costs, and President Barack Obama's health care reform law is intensifying hospitals' need for efficiency. Not only did the law reduce Medicare payments to hospitals by $155 billion through 2019, it includes a variety of provisions that link how much health care providers get paid to their success in reducing wasteful spending.

The OSF HealthCare and Rockford Health System hospital merger in Illinois may still go through. The Federal Trade Commission has scheduled a hearing with another judge on April 17, the Journal reports.

Two Ohio hospital companies, however, were forced to undo their merger by the Federal Trade Commission last month. ProMedica Health System in Toledo struck a deal to acquire nearby St. Luke's Hospital in August 2010 and the Federal Trade Commission began efforts to block the merger soon afterward. The agency announced last month it had ordered the union be severed. It was a rare victory for the Federal Trade Commission, which failed all seven times it tried to halt hospital mergers between 1994 and 2000.

The Federal Trade Commission had less luck in its efforts to prevent the only two hospitals in the area around Albany, Georgia from merging. Phoebe Putnam Health System, a nonprofit network of facilities run by the Albany-Dougherty County Hospital Authority, moved ahead with its $198 million acquisition for Palmyra Medical Center from HCA, the largest for-profit hospital chain in the United States, after federal court ruled in their favor earlier this year. The Federal Trade Commission filed an appeal with the U.S. Supreme Court last month.