A judge delivered the Federal Trade Commission a major setback Tuesday in one of its biggest hospital cases in years, and experts say the decision could embolden even more hospitals to consolidate.

The federal judge in Chicago declined to grant the FTC a preliminary injunction to temporarily stop a merger between Downers Grove, Illinois-based Advocate Health Care and Evanston, Illinois-based NorthShore University HealthSystem. The decision was the second loss in a row for the FTC, after years of scoring victories in cases involving mergers and acquisitions among hospitals, health systems and physician groups.

“Decisions like this are going to give others looking at mergers some hope that you're not necessarily dead in the water, that arguments around market efficiencies and population health management could really carry some weight,” said Roger Strode, a partner at Foley & Lardner L.L.P.who focuses on health care transactions.

In his order Tuesday, U.S. District Judge Jorge Alonso said the FTC had not shown a likelihood that it would ultimately win the case on its merits. Judge Alonso kept the opinion in the case under seal, saying it contains “competitively sensitive information.” He's giving the FTC and health systems until Friday to review the opinion and submit proposed redactions before it's publicly released.

The CEOs of Advocate and NorthShore praised the decision Tuesday in an interview with Modern Healthcare. Advocate CEO Jim Skogsbergh said a merger between the systems will lead to improvements for patients and lower overall costs of care.

Both leaders also emphasized that the decision's implications extend far beyond the Chicago area. The case has been watched closely across the country as health care systems continue to consolidate in deals they say will improve quality and lower costs but others claim is an attempt to boost their negotiating power with insurers.

“We really believe that today's decision is precedent-setting on both a national and regional level,” NorthShore CEO Mark Neaman said. “It's a real signal that as the landscape has, in fact, changed under the Affordable Care Act that health care delivery must change as well.”

Mr. Skogsbergh said he believes the decision will “encourage greater conversation in a lot of markets around the country.” An FTC victory, he said, would like have had a chilling effect on future mergers.

“Frankly, our industry is calling for this,” Mr. Skogsbergh said. “The ability to improve quality and lower cost — we believe transactions and relationships like this are going to be critical to that.”

Debbie Feinstein, director of the FTC's Bureau of Competition, called the ruling “disappointing” in a statement Tuesday and said the FTC will consider its options. The FTC may now appeal the matter to a higher court or continue its own administrative challenge, though it doesn't typically continue those proceedings without an injunction stopping the deal from moving forward pending the outcome.

Mr. Skogsbergh said the two systems are prepared to “close right away” once the deadline for the FTC to decide whether to appeal expires. He also said the systems are prepared to keep fighting if the FTC does appeal.

The FTC alleged that a combined NorthShore and Advocate would have enough bargaining leverage with insurers to increase prices because insurers would have a tough time creating marketable networks without Advocate and NorthShore hospitals. The FTC said a merger would lead to an 8%, or $45 million, price increase and the systems would control 60% of general-acute inpatient hospital services in Chicago's north suburbs if they combined.

The systems, however, said that if their market were properly defined that figure would be closer to 28%. Advocate has 12 hospitals and NorthShore has four. The systems also promised, that if allowed to unite, they'd offer a new insurance product that would cost 10% less than the lowest-priced comparable product available, saving consumers $210 million to $1.1 billion a year.

Arguments in the case focused largely on whether the FTC had correctly defined the systems' geographic market. The systems had argued that the FTC wrongly excluded competitors such as Northwestern Memorial Hospital, Rush University Medical Center and Presence Saint Francis Hospital.

Another chapter

The decision Tuesday followed another recent loss for the FTC in a hospital merger case. In May, a federal judge in Pennsylvania refused to grant the FTC a preliminary injunction to stop a merger between Penn State Hershey (Pennsylvania) Medical Center and PinnacleHealth System in Harrisburg, Pennsylvania. The FTC is appealing that decision.

The judge in that case chided the FTC in his opinion, saying: “Our determination reflects the health care world as it is, and not as the FTC wishes it to be. We find it no small irony that the same federal government under which the FTC operates has created a climate that virtually compels institutions to seek alliances such as the hospitals intended here.”

The FTC is in a tough position in light of those two losses and recent state efforts to protect consolidating hospitals, said Tim Greaney, a former assistant chief in charge of health care antitrust enforcement at the Justice Department.

“They have to pick their cases wisely and choose cases that are winnable,” Mr. Greaney said. “Now, there's a lot more uncertainty than there was a few weeks ago.”

Hospitals may be more willing to push the envelope on mergers, he said, now that it's less clear the government has the upper hand in the courts.

But Jeff Miles, an antitrust expert with law firm Ober Kaler, said he'd advise hospitals to see how the cases resolve.

After all, the FTC may appeal this Chicago-area decision, and many experts believe the government will ultimately prevail in the Pennsylvania case. More than three dozen prominent health economists and antitrust experts recently filed an amicus brief in that case siding with the FTC, saying the judge in that case used incorrect methodology to define the geographic market there.

“I'm not sure the final story has been written,” Miles said. “This is just chapter one.”

Lisa Schencker writes for Modern Healthcare, a sister publication of Business Insurance.