Unhealthy Alliance: Hospitals Sharing Senior Leadership Increases Antitrust Risk

Collusion among rivals has long been considered the “supreme evil of antitrust.” It is not surprising, therefore, that antitrust scrutiny was applied to one hospital’s decision to employ the Chief Executive Officer of its only competing hospital while the CEO still remained employed by the competitor, without any effort to integrate the hospitals clinically or financially or any effort to implement effective screening measures to protect against the sharing of competitively sensitive information.

After an investigation by antitrust enforcers—the Federal Trade Commission and the Idaho Attorney General’s Office—a consent decree unwound the management-sharing agreement.

The moral of the story is clear: competitors should avoid sharing senior management without forming a joint venture or formal strategic alliance that is procompetitive and secures protection under competition laws. However, in underserved regions, where co-management arrangements are necessary to attract and retain senior leadership, healthcare providers should implement thoughtful safeguards to reduce the potential for anticompetitive sharing of sensitive information and regulator scrutiny.

Background

In 2017, Kootenai Health, located in Coeur d’Alene, Idaho, entered into a management agreement with a health care system located approximately 200 miles away, Syringa Hospital and Clinics of Grangeville, Idaho. Under the agreement, Syringa’s CEO would become a Kootenai employee while still working for Syringa.¹

Kootenai also agreed to recruit and employ other senior administrative staff for Syringa and agreed to provide a wide variety of services to Syringa, including, among other things, “fund raising; general management; physician recruitment; billing and collections advice; information technology; and financial planning and analysis.”²

Kootenai also promised to actively encourage the establishment of specialty clinics at Syringa by Kootenai-affiliated physicians.³ To facilitate the terms of this Agreement, Syringa gave Kootenai access to competitively sensitive, nonpublic information, including “wages; recruitment and hiring plans; strategic analysis and planning; market analysis and research; analysis of the competitive landscape; discussion of plans for potential geographic expansion...and drafts of audited financial statements and auditor reports.”⁴ Without fully merging or clinically and financially integrating, Kootenai and Syringa entered into further agreements, collaborations and affiliations.⁵

In 2020, Kootenai Health acquired two of Syringa’s hospital competitors—St. Mary’s Health (in Cottonwood) and Clearwater Valley Hospital (in Orofino).⁶ After the St. Mary’s acquisition and Kootenai’s employment of Syringa’s CEO, Kootenai effectively owned or controlled the only two hospitals in Idaho County, holding quarterly meetings among the CEOs of Syringa and St. Mary’s and Kootenai’s Chief Regional Operations Officer.⁷

The Investigation

In 2023, the Idaho Attorney General’s Office, in collaboration with the FTC, opened in investigation of Kootenai’s relationship with Syringa and its effective provider monopoly in Idaho County.

The investigation revealed that (1) Kootenai reassured Syringa that they would continue to work together—even after Kootenai acquired St. Mary’s; (2) Kootenai assured Syringa that it would consider impacts to Syringa in its decisions regarding recruiting and hiring key employees from Syringa; (3) Kootenai and Syringa entered into a no-poach/non-solicitation agreement; (4) Kootenai promised Syringa that it would not attempt to poach employees by raising the wages at St. Mary’s; and (5) Kootenai and Syringa discussed potentially decreasing Kootenai’s presence in Grangeville, where St. Mary’s and Syringa compete for physical therapy offerings.⁸

The Outcome

Although Kootenai and Syringa agreed to terminate their management agreement in December 2023, the Attorney General’s Office still took issue with the hospitals’ other collaborations and affiliations and the potential for future contracts between the hospitals.⁹

Ultimately, in May 2024, the hospitals entered a five-year consent decree designed to unwind their relationships that reduced the level of their competition.

First, Kootenai agreed to terminate the employments of the Syringa CEO and any other person employed by Kootenai on behalf or for the benefit of Syringa.¹⁰

Second, the hospitals agreed to—within 45 days—terminate “all agreements, contracts, arrangements, collaborations, and affiliations, formal or informal, between them” that had not been previously approved by the Attorney General.¹¹

Third, for any future agreements between the hospitals, the hospitals must provide 45-day notice for approval by the Attorney General.¹²

Fourth, each hospital agreed not to employ “any person on behalf or for the benefit of the other” or enter into agreements with no-poach/non solicitation provisions that would have the effect of otherwise restraining the labor market.¹³

Fifth, the hospitals may not share non-public information about labor compensation or other terms or conditions or employment.¹⁴

Finally, each hospital agreed to operate subject to regular compliance inspection and reporting obligations to the Attorney General.¹⁵

On May 16, 2024, the Attorney General announced the consent decree to conclude the investigation into potential violations of the state antitrust law.¹⁶

Conclusion

In a heightened antitrust environment where state and federal enforcers are looking closely at competition in the healthcare industry, the Kootenai/Syringa case sends a strong message to any health care competitors who might seek to enter into deeply collaborative agreements without financial or clinical integration or taking steps to protect against anticompetitive information sharing.

It is one thing for international car companies, like Nissan and Renault, to hire the same CEO after taking significant stakes in each other’s corporate entities. It is another story for one hospital system to place the CEO of its only regional rival on its payroll without appropriate safeguards. Concerns about such arrangements can be especially acute where a geographic area has limited healthcare competitors.

Balanced against this concern is the reality that, in traditionally underserved areas of the country—particularly those that qualify as Health Professional Shortage Areas or Medically Underserved Populations¹⁷—it can be difficult for health providers to find and retain qualified leadership. As a result, health systems and providers in these areas who need to share senior leadership in order to attract talent to rural areas should consider joint venture formation or other clinical and financial integration. This will reduce the antitrust risk that arises when senior executives at competitors have access to the kinds of sensitive information that provide opportunities for cost savings, increased efficiencies and improved quality of care. 

Antitrust enforcers recognize that “the sharing of information among competitors may be procompetitive and is often reasonably necessary to achieve the procompetitive benefits of certain collaborations.”¹⁸ If that information is current or forward-looking, however, and relates to prices, output or strategic plans, sharing can raise competition concerns. If affiliation or integration is not feasible, firewalls and other safeguards can help limit the potential antitrust risk so rural and underserved consumers, patients and the marketplace can benefit from the procompetitive benefits of executive-sharing arrangements.

_{¹ In re Atty. General’s Investigation of Kootenai Hosp. Dist., No. CV25-24-0249 (Dist. Ct. Id. May 9, 2024), https://business.cch.com/ald/Idaho-ConsentDecree(KootenaiSyringa)-05102024.pdf.}

_{² Id.}

_{³ Id. at 5.}

_{⁴ Id.}

_{⁵ Id.}

_{⁶ Id. at 6.}

_{⁷ Id.}

_{⁸ Id. at 7-8.}

_{⁹ Id. at 8-9.}

_{¹⁰ Id. at 12.}

_{¹¹ Id. at 12-13.}

_{¹² Id. at 13.}

_{¹³ Id. at 13-14.}

_{¹⁴ Id.}

_{¹⁵ Id. at 14-15.}

_{¹⁶ Attorney General Labrador Announces Consent Decree with Hospitals in Northern Idaho, Office of the Att’y Gen. (May 16, 2024), https://www.ag.idaho.gov/newsroom/attorney-general-labrador-announces-consent-decree-with-hospitals-in-northern-idaho/.}

_{¹⁷ 42 U.S.C. § 254e(a)(1) (HPSAs are defined to include (1) urban and rural geographic areas with shortages of health professionals, (2) population groups with those shortages, and (3) facilities with those shortages); 42 U.S.C. 254b(3)(a) (MUP “means the population of an urban or rural area designated by the Secretary as an area with a shortage of personal health services or a population group designated by the Secretary as having a shortage of such services.”)}

_{¹⁸ DOJ-FTC Antitrust Guidelines for Collaboration Among Competitors, § 3.31(b) (2000), https://www.ftc.gov/sites/default/files/documents/public_events/joint-venture-hearings-antitrust-guidelines-collaboration-among-competitors/ftcdojguidelines-2.pdf.}