FTC Granted Injunction Against Completed Hospital Acquisition

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The FTC was entitled to an order preliminarily enjoining a not-for-profit health care delivery system controlling three hospitals in the area of Toledo, Ohio, from acquiring an additional hospital in the same county, the federal district court in Toledo has ruled.

The proposed combination could be presumed unlawful based on concentration thresholds, the court found. Largely on the strength of that conclusion, the court decided that a balancing of the equities favored injunction.

Because the acquisition had already been consummated when the agency launched its antitrust challenge to the deal in January, the court issued an order requiring the health care system to preserve the acquired hospital as a separate, independent competitor during the FTC's administrative proceeding and any subsequent appeals.

Market Concentration, Share

The Herfindahl-Hirschman Index levels--a mathematical/statistical tool used by the federal antitrust enforcement agencies to measure market concentration --and market shares of the parties far exceeded levels found to be unlawful by the U.S. Supreme Court and other courts.

Moreover, a duopoly, as in the inpatient obstetrical services market involved in the case, was presumptively unlawful in and of itself, the court noted.

Likelihood of Harm

The defending health care system failed to rebut adequately the presumption of likely harm resulting from the combination. It acknowledged that prices would increase significantly post-merger. No timely, likely, or sufficient entry or expansion in the relevant markets was forthcoming.

The defendant did not meet its burden of proving that its asserted deficiencies were verifiable, not attributable to reduced output of quality, merger-specific, and sufficient to outweigh the transaction's anticompetitive effects.

Rejected by the court were contentions that the hospital it acquired constituted either a failing firm or a flailing firm. Also unavailing were arguments that recent rate negotiations proved that the defendant would seek only reasonable price increases in the future and that the acquired hospital's prices were subcompetitive or otherwise unreasonable in some way.

Likelihood of Success, Public Interest

Preliminary injunctive relief had never been denied in an FTC enforcement action in which the agency demonstrated a likelihood of success on the merits, the court observed. The public interest in effective FTC enforcement was paramount. If the benefits of a merger were available after the trial on the merits, they did not constitute public equities weighing against a preliminary injunction.

Moreover, in a preliminary injunction action under Sec. 13(b) of the FTC Act, the agency was not required to show irreparable harm. Court-ordered relief was necessary to preserve the possibility of meaningful relief and to prevent interim harm, the court concluded.

FTC Deadline

The court said that it expected the FTC to act expeditiously in completing its action. At the American Bar Association Section of Antitrust Law Spring Meeting in Washington, D.C. on April 1, FTC Bureau of Competition Director Richard Feinstein pointed out that Judge Katz had given the agency a November 30 deadline. He noted that the trial in the matter was set to begin on May 31 but was not certain what actions Judge Katz would take if the matter was not completed by the deadline.

Chairman's Comments

FTC Chairman Jon Leibowitz told attendees of the ABA Antitrust Law Spring Meeting on April 1 that he was very pleased with the decision. Chairman Leibowitz mentioned that Judge Katz cited extensively to the Department of Justice/FTC Horizontal Merger Guidelines (CCH Trade Regulation Reporter ¶13,100).

In addition, Chairman Leibowitz noted that the decision is the first preliminary injunction win in an FTC hospital merger challenge since a federal district court in Missouri temporarily blocked the merger of the only two commercial hospitals in Poplar Bluffs, Missouri (1998-2 Trade Cases ¶72,227). That decision was reversed by the U.S. Court of Appeals in St. Louis (1999-2 Trade Cases ¶72,578), however, and the FTC eventually dismissed that matter.

The March 29 decision is FTC v. Promedica Health System, Inc., 2011-1 Trade Cases ¶77,395.

Agency Heads Discuss Revisions to Merger Guidelines at ABA Antitrust Meeting

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

Antitrust practitioners reviewing proposed revisions to the federal antitrust agencies’ Horizontal Merger Guidelines should have a better understanding of current agency practice, according to federal antitrust enforcers speaking April 23 at an enforcement roundtable during the American Bar Association’s Section of Antitrust Law Spring Meeting in Washington, D.C.

The proposed revisions to the guidelines, which outline how the federal antitrust agencies evaluate the likely competitive effects of mergers in order to determine compliance with U.S. antitrust law, were released on April 20 in anticipation of the meeting. The proposed revised guidelines appear at CCH Trade Regulation Reporter ¶ 50,252.

Reflection of Agency Practice

Christine Varney, Assistant Attorney General in charge of the Department of Justice Antitrust Division, told meeting attendees at the enforcement roundtable that, while the proposed revised guidelines are not all that different in substance from the current 1992 guidelines, the 1992 guidelines do not reflect the actual practice at the agencies. This latest update is an effort to be transparent, according to Varney.

The antitrust chief reminded attendees that each transaction is viewed on the facts of that transaction. She noted the importance of direct evidence of a potential merger’s competitive effects in evaluating a merger. The role of direct evidence in merger analysis is reflected in the proposed updated guidelines, Varney said.

FTC Chairman Jon Leibowitz also described the proposed revisions to the guidelines as an effort to explain to practitioners and judges what the agencies are doing when evaluating the competitive effects of mergers.

Leibowitz discussed the role of direct evidence of competitive effects in actions challenging Evanston Northwestern Healthcare Corporation’s 2000 acquisition of Highland Park Hospital and Western Refining, Inc.’s proposed acquisition of rival energy company Giant Industries, Inc., in 2007. He suggested that the judge in the latter case took a mechanistic view of the Horizontal Merger Guidelines in rejecting the FTC’s request for a preliminary injunction blocking Western Refining’s acquisition of Giant Industries.

Market Concentration

The proposed updates also raise the Herfindahl-Hirschman Index (HHI) measures for market concentration in order to be more consistent with current agency practice, Leibowitz explained. As a result, mergers that would have appeared to be highly concentrated under the 1992 guidelines, based on HHI measures, would be considered only moderately concentrated under the proposed revised updates.

According to the guidelines, mergers that cause a significant increase in concentration and result in highly concentrated markets are presumed to be anticompetitive.

Merger Enforcement

Both agency heads took the opportunity to tout recent merger enforcement activity. Chairman Leibowitz said that the FTC was on “a little bit of a winning streak” in the merger enforcement area. He pointed to the decision of CCC Information Services Inc. to abandon its merger with Mitchell International Inc., in light of the agency’s challenge to the transaction.

The federal district court in Washington, D.C. had granted the FTC’s request for a preliminary injunction (PI) to block the transaction pending administrative litigation. The 2009 decision was the agency’s first PI win since 2003, according to the Commissioner.

Assistant Attorney General Varney discussed the Antitrust Division’s recent settlement with Ticketmaster Entertainment, Inc. In order to proceed with its proposed acquisition of concert promoter Live Nation, Inc., ticket seller Ticketmaster was required to license ticket software and divest a subsidiary ticketing business. In addition, behavioral remedies were imposed on Ticketmaster.

Varney told attendees that the agency’s preference was for structural relief, but that sometimes there is a need for both structural and behavioral remedies.

Canada Competition Bureau Merger Procedures

Canada Competition Commissioner Melanie Aitken, who was also on the roundtable panel, discussed recent changes to the merger review process north of the border. Aitken said that the changes “make for a far more effective merger review process.”

While she described the process as “Made in Canada,” Aitken noted that the reforms, which have to do with process and not substance, bring the merger review process more in line with U.S. practice. For instance, the two-stage review process replicates the second request process utilized by the federal antitrust agencies in the United States. Aitken said that the changes make coordination with her counterparts in the United States easier.

Review of Horizontal Merger Guidelines Likely to Result in Update: Antitrust Division Official

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

A joint review of the Horizontal Merger Guidelines by the federal antitrust agencies is likely to result in an update of the guidelines, said Molly S. Boast, Deputy Assistant Attorney General at the Department of Justice Antitrust Division, on February 8.

Boast made the remark during the Practising Law Institute’s “Antitrust & the Deal, 2010” program in New York City.

The Antitrust Division and the Federal Trade Commission are working together to determine whether the Guidelines (CCH Trade Regulation Reporter ¶13,104), which were issued in 1992 and revised in 1997 to add an efficiencies discussion, should be updated to reflect current practice and economic thinking.

The process has included five workshops, which were conducted over the last two months, as well as an internal review of staffers at the agencies.

A majority of the workshop participants and the staff—but not an overwhelming majority—have expressed a preference for an update, Boast noted. She did not offer a publication date for the update.

One of the goals of the guidelines is to provide transparency or insight into how the government conducts its merger analysis. According to Boast, the current guidelines do not reflect precisely how things are done at the agencies.

A consensus has developed around a need for a flexible analysis under the guidelines. There is a growing view that merger analysis should not be based on a rigid, sequential approach.Methods for determining market concentration could also be updated, according to Boast.

An update could revise the Herfindahl-Hirschman Index (HHI) thresholds to express accurately how the agencies use HHIs. There could be a move to deemphasize HHIs, the official suggested.