How the FTC Blocked the PinnacleHealth and Penn State Hershey Merger in 2016

In 2016, the FTC blocked the PinnacleHealth System and Penn State Hershey Medical Center merger in Pennsylvania. The organization stepped in to block the highly publicized merger due to fear that it would significantly restrict competition for general acute care inpatient hospital services.

In 2015, Penn State Hershey Medical Center, located at 500 University Drive, Hershey, Pennsylvania 17033, and PinnacleHealth System, a medical services provider in Harrisburg, Pennsylvania, proposed a merger.

Why did this matter so much? Because at the heart of the issue was a fundamental question: Would this merger help patients through better care and reduced costs, or would it hurt them by reducing competition and raising prices?

The FTC believed it was the latter. And they weren’t about to let it happen.

Background of the Hospitals Involved

Penn State Hershey Medical Center

Founded in 1963, this institution is more than a hospital—it’s a cornerstone of research, education, and specialty care in Pennsylvania. As the primary teaching hospital for Penn State College of Medicine, it attracts top-tier physicians and medical students. Its wide range of services, from oncology to pediatrics, makes it a healthcare lifeline for thousands across the region.

With its location at 500 University Drive in Hershey, the center serves both urban and rural populations, offering critical services that are often not available at smaller hospitals.

PinnacleHealth System

Based in Harrisburg, PinnacleHealth had developed a reputation for excellence in acute care, community outreach, and preventative health. The system operated several hospitals and outpatient centers, serving a diverse demographic. It was viewed as a nimble, cost-efficient provider—one that was expanding rapidly in both size and service reach.

By 2015, it was clear that a merger between these two would create a healthcare titan in central Pennsylvania.

The Proposed Merger

Objectives of the Merger

On paper, the merger made strategic sense. The hospitals wanted to:

• Combine resources to reduce redundant administrative systems
• Improve patient outcomes through coordinated care
• Increase their collective negotiating power with suppliers and insurers
• Streamline access to specialty care and rural health services

Expected Benefits Claimed by the Hospitals

The two systems argued that they could eliminate overlapping services, reduce duplication of technologies, and use their larger scale to cut operational costs. For example:

• Shared electronic medical records could improve patient tracking
• Joint investments in telehealth could boost access for rural patients
• Bulk purchasing of medical supplies could lower costs

They also promised increased funding for medical research, better training for doctors, and faster deployment of innovation in patient care.

Concerns Raised by the FTC

But the FTC saw red flags. The agency wasn’t buying the rosy picture. It feared that this merger would:

• Give the new system undue dominance in the region
• Drive out smaller competitors
• Leave insurers with fewer options, increasing their costs
• Ultimately, pass those costs down to consumers

Their conclusion: what the hospitals called “efficiencies” could very well be a cover for monopolistic control.

FTC’s Legal Action

Filing in Middle District of Pennsylvania

The FTC took a bold step. It sued the two hospital systems in federal court, seeking a preliminary injunction to halt the merger before it could take effect. This kind of injunction is a legal tool used to pause actions that could cause irreversible damage—in this case, to market competition.

Core Argument: Anti-Competitive Impact

Increased Prices

According to FTC data, the new entity would control 60% or more of the market for inpatient general acute care services in the area. With fewer competitors to keep prices in check, the hospitals could raise rates for insurance companies—who, in turn, would likely raise premiums and deductibles for patients.

For example, if a surgical procedure previously cost $12,000 across competing hospitals, post-merger, the price could rise to $15,000 due to reduced competition—without any change in quality.

Reduced Consumer Choice

Patients would have fewer options for care, especially in smaller towns. Local physicians might be forced to work exclusively with the merged entity, reducing competition in both pricing and service innovation.

Moreover, with fewer health systems in the market, insurance networks would have less leverage in negotiating favorable terms. This would restrict the plans patients could choose from, leading to less personalized or affordable care.

The Court’s Ruling

Granting of Preliminary Injunction

In 2016, the Middle District of Pennsylvania sided with the FTC. The judge granted the injunction, stating the agency had presented a “reasonable probability” that the merger would substantially harm competition.

Reasonable Possibility Standard

This standard is key in antitrust law. It doesn’t require absolute certainty, just enough likelihood that the merger might lead to anticompetitive outcomes. The judge emphasized that delaying the merger was necessary to preserve the market status quo until a full review could take place.

Impact of the Ruling on the Merger

Faced with this injunction, PinnacleHealth and Penn State Hershey threw in the towel. Rather than dragging out a multi-year legal battle—complete with PR headaches—they terminated the merger agreement.

The Aftermath

Hospitals’ Decision to Abandon the Merger

Though disappointed, both systems accepted the ruling. They returned to operating independently, and each began seeking other ways to cut costs and improve care through partnerships or smaller acquisitions that wouldn’t trigger antitrust concerns.

Implications for the Healthcare Market in Central Pennsylvania

Competition remained intact. Patients in the region continued to benefit from multiple care options, and local insurers retained negotiating leverage to keep costs stable.

In essence, the FTC’s intervention helped preserve what it viewed as a healthy market ecosystem—one with choices, competition, and pressure to innovate.

Arguments from the Hospitals’ Side

Efficiency and Cost Savings

The hospitals stressed that consolidation wasn’t about control—it was about survival. With tightening budgets, staff shortages, and growing demand, they believed merging would:

• Reduce overhead costs
• Prevent service closures
• Stabilize staffing

They argued that these operational efficiencies would ultimately trickle down to the patient in the form of better, faster, and more affordable care.

Better Patient Care

The hospitals claimed a united system would improve:

• Care coordination (especially for chronic diseases)
• Faster referrals across specialties
• Shared access to specialists, labs, and imaging

For instance, instead of patients waiting weeks to be transferred between systems for advanced cardiac care, the merger would make those transitions nearly seamless.

Ignored Market Realities

They also criticized the FTC for relying too heavily on abstract models and failing to appreciate the unique challenges of central Pennsylvania—such as:

• Aging population
• High numbers of Medicaid and underinsured patients
• Geographic gaps in access to advanced care

FTC’s Broader Approach to Healthcare Mergers

History of FTC Interventions

The FTC has challenged hospital mergers before, but the Pinnacle-Hershey case marked a turning point. It showed the agency was willing to go beyond superficial reviews and challenge even non-national mergers that threatened regional competition.

Shift Toward Aggressive Oversight

Since 2016, the FTC has become increasingly assertive. It has:

• Established clearer guidelines for analyzing hospital overlaps
• Partnered with state attorneys general to scrutinize mergers
• Filed suits earlier in the merger process

Protecting Patient Access and Cost

At its core, the FTC’s mission is consumer protection. In healthcare, that means:

• Maintaining affordable insurance
• Preventing service monopolies
• Ensuring providers compete on quality, not just size

Central Themes in Healthcare Consolidation

Competition vs. Collaboration

While collaboration can lead to innovation, consolidation without guardrails can limit patient choice and inflate costs. Striking the right balance is crucial.

The Role of Market Power

Too much market power allows large systems to:

• Dictate prices
• Push out competitors
• Limit flexibility in care models

Balancing Access and Efficiency

Not all mergers are bad. Some lead to real gains in care quality. But every merger must be evaluated carefully to avoid sacrificing access and affordability in the name of efficiency.

💡 Lessons Learned

Legal and Strategic Implications for Hospitals

Health systems planning to merge must:

• Prepare thorough antitrust impact assessments
• Prove how the merger benefits patients directly
• Be ready to restructure deals to reduce market concentration

Consumer Advocacy and Public Interest

Patients and policymakers must stay informed. Public input and media coverage often shape the direction of these cases and remind regulators that the end goal is better patient outcomes—not bigger healthcare businesses.

Conclusion

The FTC’s successful challenge of the PinnacleHealth and Penn State Hershey merger underscores a clear message: healthcare mergers are not above scrutiny. While collaboration in medicine can drive innovation, it must never come at the cost of competition.

By blocking this deal, the FTC not only preserved local market balance but also sent a powerful signal to hospital systems across the country: Patient choice, price control, and competition still matter—and regulators are watching.

❓FAQs

Why did the FTC block the PinnacleHealth and Hershey merger?

Because it believed the merger would significantly reduce competition, giving the new entity too much market control and leading to higher healthcare costs.

What is a preliminary injunction in this context?

It’s a legal order to temporarily stop the merger while the courts determine whether it violates antitrust laws.

How does market power affect healthcare pricing?

Market power lets providers raise prices for insurers and patients because there’s less competitive pressure to keep costs down.

Does hospital consolidation always reduce competition?

Not always, but it often does—especially when the combined entity would dominate a local or regional market.

What should hospitals consider before merging?

Hospitals should assess competition risks, prepare consumer benefit reports, and engage with regulators early to avoid legal challenges.