PROVIDENCE, R.I. (WPRI) — Attorney General Peter Neronha on Thursday rejected the proposed merger of Rhode Island’s two largest hospital groups and joined a federal lawsuit to block the deal, in a stunning move that throws the future of the state’s most powerful health care institutions into turmoil.

Lifespan and Care New England announced plans to merge a year ago, arguing that by combining forces into an academic medical center affiliated with Brown University they could improve patient care and promote economic development. But they’ve faced pushback from those who fear the potential power of the new organization, which would control roughly 80% of inpatient hospital services in Rhode Island.

“Rather than putting the health care systems on stronger financial footing, the proposed merger would leave Rhode Island’s health care system in even greater financial peril,” Neronha wrote in his 150-page decision.

The attorney general said the combined market share of the two groups would give them an “extraordinary and unprecedented” level of dominance, citing it as a key reason for his rejection of the merger. He noted that the biggest hospital groups in Massachusetts and Connecticut — Mass General Brigham and Yale New Haven Health, respectively — control less than one-third of inpatient care in their states.

At a news conference, Neronha said of Lifespan and Care New England, “You put them together, what do you get? Number one, they’re not competing with one another. Number two, who can compete with them? … Competition is really important.”

Lifespan owns Rhode Island, Miriam, Newport and Bradley hospitals; Care New England owns Women & Infants, Kent and Butler. They employ more than 22,000 workers combined. Brown had agreed to contribute $125 million toward the new entity.

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The attorney general cited four key factors that drove his decision: the negative effects of a lack of competition on costs, care, and workers; the financial weakness of the merged organization; a lack of specifics from Lifespan and CNE about how they would achieve the stated benefits of the merger; and an inability to mitigate the concerns through regulations or approval conditions.

Neronha argued that if the merger was approved, “nearly all Rhode Islanders would see their health care costs go up, for health care that is lower in quality and harder to access, and Rhode Island’s health care workers would be harmed.”

Under the Hospital Conversions Act, there is a process to appeal the attorney general’s decision, although they would likely face an uphill legal battle. The organizations gave no indication Thursday whether they were considering that option.

At the same time as Neronha’s news conference, the Federal Trade Commission announced it had jointly filed a lawsuit with the attorney general to block what FTC officials said would be “an illegal merger” under federal law. The commission voted 4-0 in favor of authorizing the legal challenge, echoing the attorney general’s concerns.

“This proposed merger is a bad deal for patients who are likely to see higher hospital bills, lower quality of care, and fewer cutting-edge medical services,” said FTC Bureau of Competition Director Holly Vedova.

An administrative trial on the FTC complaint is scheduled to start July 20.

Neronha’s staff found that all the hospital mergers which the FTC has tried to block since 2004 involved smaller concentrations of market power than the Lifespan-CNE proposal would.

“When a system is so big, so dominant, that it is the only system that the vast majority of patients will go to for, say, inpatient care, that system no longer has to do the hard work to strive to be better than the alternative, because there is no alternative,” Neronha wrote.

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As an example, he pointed to when Care New England’s Kent Hospital created a partnership with Brigham & Women’s cardiologists to attract more patients needing complex heart procedures.

“Care New England saw its market share for those surgeries rise relative to Lifespan’s and, subsequently, Lifespan established a call center to improve its appointment scheduling operation and win back more patients,” he wrote.

Top officials at Lifespan, Care New England and Brown issued statements expressing disappointment in the decisions by Neronha and the FTC, but declining to spell out their next moves.

In a joint news release, hospital leaders said the FTC had signed off on a Lifespan-Care New England four times in the past, and said the agency as well as Neronha had ignored 30 proposed conditions they suggested could be put on the transaction “as a starting point to address concerns.”

Lawrence Aubin, chairman of Lifespan’s board of directors, warned “the status quo will not serve the health care needs of the people of Rhode Island,” and Care New England President and CEO Dr. James Fanale indicated they would “explore all options” moving forward.

“We can truly know that we did everything we could over the past few years to get this done,” added Fanale, who has attempted multiple mergers to stabilize Care New England’s finances over recent years. “We thought it was the right thing to do, but now we will need to move on to a new path forward.”

“A Rhode Island solution, that remains nonprofit, and creates the state’s first fully integrated academic health care system is what we seek to accomplish for the state and that remains our overriding goal,” added Lifespan President and CEO Dr. Timothy Babineau.

In an interview, Brown University President Christina Paxson said she felt the rejection of the merger was a missed opportunity to improve Rhode Island health care, and suggested Neronha had taken “a very narrow view” of the competitive implications of the deal.

“There are some markets where competition doesn’t necessarily lead to uniform benefits for all consumers,” Paxson said, adding that the decision had created “a lot of uncertainty.”

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She added, “My fear, and I’ve said this very publicly before, is that health care in Rhode Island goes the way of the banking industry, where the owners and the control of health care resides with organizations that are outside of the state. I don’t think that’s good for people.”

At the same time, Paxson reaffirmed Brown’s commitment to the state’s health care sector, citing its medical and public health schools. “There may be a lot of things we can do short of a merger that benefit people in Rhode Island and at least some of the things a merger would have accomplished,” she said.

The attorney general’s announcement came well ahead of the March 16 deadline for him to render a decision, and followed an extensive investigation as well as multiple public meetings. His office said it collected more than 3.6 million documents totaling over 11 million pages as part of its review.

During the news conference, Neronha criticized the hospital groups for failing to provide detailed information in a timely fashion. He said his office repeatedly asked for information that would outline how the merged entity would operate and what it would look like, but getting answers “proved elusive.”

He also dismissed the hospital groups’ argument that their services are more complementary than competitive, saying even their own submitted documents showed the two hospital groups see each other as their biggest competitors.

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“The proposed transaction is based on a financial paradox: that somehow by combining two organizations that each have significant and distinct financial challenges, Rhode Island would be left with one dominant and financially healthy system that can make substantial investments in prestigious initiatives, all while living up to the parties’ promises not to close facilities or cut services, or pass on those costs to consumers and workers,” he wrote in his decision.

The hospital groups are still awaiting a decision on the merger from the R.I. Department of Health, which like the attorney general must sign off on the deal under state law. A spokesperson said Health Department officials “will be meeting with the transacting parties to discuss next steps.”

The merger process has been expensive. Lifespan and Care New England said they have spent about $28.8 million on merger costs as of this week, including application fees, legal work and consultants, as well as footing the ball for the state’s regulatory review; Lifespan pegged the latter cost at about $3 million alone.

Neronha’s decision quickly evoked both praise and criticism.

United Nurses and Allied Professionals president Lynn Blais, whose union recently came out in support of the proposed merged, warned that Care New England is in “dire financial straits,” and that Neronha’s decision “opened the door” for Rhode Island hospitals to be sold to out-of-state groups.

“The people of Rhode Island can’t afford another buyer who wants to come in and suck every last nickel out of these hospitals in the interest of making a bigger profit for shareholders,” Blais said.

Blais also noted that then-Gov. Gina Raimondo intervened in 2019 to squelch Care New England’s proposed takeover by Boston-based Mass General Brigham — then known as Partners — and urge the organization to instead make another attempt to merge with Lifespan.

“State leaders shot down the not-for-profit Partners/Care New England merger. Now they’ve shot down the not-for-profit, Lifespan/Care New England Rhode Island-based solution that ensured protections for workers and patients,” Blais said. “We understand what they’re against. Now it’s time for them to clarify what they’re for. Time is running out.”

The leader of another union that represents hospital workers — Patrick Quinn, executive vice president of SEIU Local 1199NE — was more sanguine. “Though we think the Care New England/Lifespan merger could have been a positive development, we do not have access to all the information that Attorney General Neronha used to make his decision to best benefit Rhode Islanders,” Quinn said.

House Minority Leader Blake Filippi, the top Republican in the R.I. House of Representatives, praised the attorney general for his decision, thanking him for “coming down on the right side — the side of the people.”

“The proposed Lifespan-Brown-CNE health care monopoly was prescription for disaster — a merger we would live and die with for generations,” Filippi tweeted.

House Speaker Joe Shekarchi and Senate President Dominick Ruggerio, who recently penned a joint letter to the FTC and attorney general’s office in support of the proposed merger, issued separate statements thanking the hospitals, Brown and the attorney general for their work. Ruggerio said he would “review the decision before taking any further steps.”

Shekarchi urged the hospital groups and Brown to “immediately terminate their exclusivity agreement and explore all options available to them in the marketplace.”

Gov. Dan McKee spokesperson Alana O’Hare said the governor is reviewing the decisions.

“Our administration looks forward to working with all health care parties in the state to ensure Rhode Islanders have access to quality care,” O’Hare said.

U.S. Sen. Sheldon Whitehouse, who has been supportive of the merger in the past, expressed concern about what comes next. He said the goal should be “a hospital system that delivers affordable, first-rate care.”

“I believe that this merger, done right with guardrails I’ve recommended, could be a powerful tool to achieve those goals the best way: with health care reforms that improve care and keep Rhode Islanders healthier,” Whitehouse said in a statement. “I’m interested to see how those responsible for these decisions will protect us against what seems now to be a likely, if not inevitable, consequence: loss of local control over our hospitals due to out-of-state acquisitions.”

Ted Nesi (tnesi@wpri.com) is a Target 12 investigative reporter and 12 News politics/business editor. He co-hosts Newsmakers and writes Nesi’s Notes on Saturdays. Connect with him on Twitter and Facebook

Eli Sherman (esherman@wpri.com) is a Target 12 investigative reporter for 12 News. Connect with him on Twitter and on Facebook.

Steph Machado (smachado@wpri.com) is a Target 12 investigative reporter covering Providence, politics and more for 12 News. Connect with her on Twitter and on Facebook.

Tim White, Tolly Taylor and Kim Kalunian contributed to this report.