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.

Federal Antitrust Agencies Issue Revised Guidance for Merging Competitors

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

The Federal Trade Commission and the Department of Justice announced today the issuance of revised Horizontal Merger Guidelines. The guidelines are intended to outline for merging parties, courts, and antitrust practitioners how the federal antitrust agencies evaluate the likely competitive impact of mergers and whether those mergers comply with U.S. antitrust law.

The guidelines have not been thoroughly overhauled since 1992. The 1992 guidelines were updated in 1997 to include a discussion of merger-specific efficiencies that might justify approval of a transaction (CCH Trade Regulation Reporter ¶13,104).

At the outset, the revised guidelines explain that the agencies seek to identify and challenge competitively harmful mergers while avoiding unnecessary interference with mergers that are either competitively beneficial or neutral.

The focus is on the competitive effects of a transaction. The revised guidelines detail the categories and sources of evidence that the antitrust agencies consider informative in predicting the likely adverse competitive effects of a merger.

Role of Market Definition, Market Concentration

The analysis need not start with market definition, according to the revised guidelines. “Evidence of competitive effects can inform market definition, just as market definition can be informative regarding competitive effects,” the guidelines explain.

The draft guidelines, which were released on April 20, had been criticized by some commentators for failing to recognize the significance of market definition in merger analysis.

Among the comments from the American Bar Association Section of Antitrust Law in response to the draft guidelines was a suggestion that the guidelines make clear that market definition remained a necessary element of merger analysis under Sec. 7 of the Clayton Act in order to be consistent with judicial precedent.

On the other hand, the American Antitrust Institute concluded that the guidelines draft “rightly downplays the centrality of market definition to the enforcement process.”

Recognizing the continuing need for market definition in merger analysis, the revised guidelines update the thresholds that determine whether a transaction warrants further scrutiny by the agencies. The Herfindahl-Hirschman Index (HHI) measures for market concentration have been raised in order to be more consistent with current agency practice.

Approach of Enforcers

The heads of both the FTC and the Department of Justice Antitrust Division said the revised guidelines more accurately reflect the methods their staffs use to review mergers than the earlier guidelines.

“The revised guidelines better reflect the agencies’ actual practices,” said Christine Varney, Assistant Attorney General in charge of the Department of Justice Antitrust Division. “The guidelines provide more clarity and transparency, and will provide businesses with an even greater understanding of how we review transactions.” Text of Varney's statement appears here on the Department of Jusitice website.

In a statement released this afternoon, FTC Chairman Jon Leibowitz called the revised guidelines “a clear and systematic description of the techniques the FTC and the Antitrust Division of the Department of Justice use to review mergers, and a document that has received bi-partisan and unanimous support from the Commission.”

Commissioner J. Thomas Rosch, however, issued a statement saying that the guidelines “are still flawed both as a description of how the staff (at the Commission at least) conducts ex ante merger review and what the Agencies should tell courts about merger analysis.”

“These Guidelines do not describe the way that the Bureau of Competition and enforcement staff at the Commission proceed today,” Rosch continued. “They also do not reflect the way that the courts proceed.”

Rosch questioned an “overemphasis on economic formulae and models.” He expressed concern that the revised guidelines create “the misimpression that non-price factors are far less significant than price factors to the Commission” and “fail to offer a clear framework for analyzing non-price considerations.”

Significant Advancements

Despite the criticisms, Rosch concurred with the issuance of the guidelines in light of significant advancements made by the revised guidelines. Rosch said that the revised guidelines corrected a misimpression of the 1992 guidelines that proof of market structure and shares were “gating items” without which competitive effects cannot be considered.

“The revised guidelines properly consider competitive effects first, and market definition second, thereby making clear that while market definition is important to assessing competitive effects and that the market must be defined at some point in the process, ultimately merger analysis must rest on the competitive effects of a transaction,” the commissioner said.

Rosch also pointed to the revised guidelines’ list of empirical evidence that might illuminate a transaction’s competitive effects as a substantial contribution.

2006 Commentary

The revised guidelines note that the “Commentary on the Horizontal Merger Guidelines,” which the agencies jointly issued in 2006 (CCH Trade Regulation Reporter ¶50,208), remains a valuable supplement to the guidelines. Some of the revisions reflect refinements and changes previously identified in the commentary.

The revised Horizontal Merger Guidelines are available here on the FTC website. They will appear at CCH Trade Regulation Reporter ¶13,100.

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.