FTC, Nevada Condition Hospital Operator's Acquisition of Psychiatric Facilities on Divestitures

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Universal Health Services, Inc. completed its acquisition of Psychiatric Solutions, Inc., yesterday, after reaching settlements with the Federal Trade Commission and the State of Nevada resolving antitrust concerns.

Universal Health Services is one of the nation’s largest hospital management companies. It operates 25 general acute care hospitals and 102 behavioral health facilities located in 32 states, Washington, D.C., and Puerto Rico. Psychiatric Solutions operates 94 inpatient behavioral health facilities in 32 states, Puerto Rico, and the U.S. Virgin Islands.

Psychiatric Services Markets

The FTC alleged in its administrative complaint, announced on November 15, that the acquisition as proposed posed substantial antitrust concerns in three local markets for acute inpatient psychiatric services. The three acute inpatient psychiatric services markets are: (1) the State of Delaware; (2) the Las Vegas metropolitan statistical area; and (3) the Commonwealth of Puerto Rico.

The proposed acquisition also would have resulted in the combined entity controlling approximately 60 percent or more of the acute inpatient psychiatric beds in each of the affected markets.

The FTC proposed consent order would require the divestiture of four facilities that provide acute inpatient psychiatric care, as well as related outpatient clinics, contracts, commercial trade names, and real property, in the three markets. A Hold Separate Order requires the parties to maintain the viability of the divestiture assets until the facilities are transferred to a Commission-approved buyer.

Horizontal Merger Guidelines

In its Analysis to Aid Public Comment, the agency considered the competitive effects of the proposed acquisition in light of the 2010 joint Department of Justice/FTC Horizontal Merger Guidelines (CCH Trade Regulation Reporter ¶13,100).

The FTC noted that, under the recently revised guidelines, an acquisition is presumed to enhance market power or facilitate its exercise if it increases the Herfindahl-Hirschman Index (HHI) by more than 200 points and results in a post-acquisition HHI that exceeds 2,500 points.

The agency contends that the proposed acquisition far exceeds these thresholds, with the post-acquisition HHIs range from 3916 to 4942, and with an increase in HHI levels of 1428 to 2610 points above pre-acquisition levels.

State Enforcement

The State of Nevada also challenged the transaction. The state attorney general's office filed a complaint alleging violations of federal and state law in the federal district court in Las Vegas. The state's complaint also cites the 2010 Horizontal Merger Guidelines and its HHI thresholds.

Under a final judgment resolving the state's antitrust concerns, Universal Health Services is required to divest two local psychiatric hospitals—Montevista Hospital and Red Rock Behavioral Health Hospital. These are the same facilities that must be divested under the FTC consent order. In addition, the parties agreed to reimburse the attorney general its attorney fees and costs resulting from the investigation.

The case is State of Nevada v. Universal Health Services, Inc., Alan B. Miller, and Psychiatric Solutions, Inc., No. 2:10-cv-01984.

The FTC action is In the Matter of Alan B. Miller, Universal Health Services, Inc., and Psychiatric Solutions, Inc., FTC Docket No. C-4309.

Further details will appear in the CCH Trade Regulation Reporter.