The Reading Health System and the Surgical Institute of Reading have called off their plans to join forces.
The move comes just days after the Pennsylvania attorney general and the Federal Trade Commission challenged the merger. The agencies said the deal would be bad for patients because it would reduce competition in the area.
Reading Health System officials said they disagree with that assumption, but they said the costs associated with fighting the challenge in court would not be justified.
The groups announced their intent to merge in May.