The Federal Trade Commission (FTC) won another decisive victory yesterday in its effort to fight health care provider consolidation when the U.S. Court of Appeals for the Seventh Circuit reversed a district court’s decision denying the FTC’s request to enjoin a merger between Advocate Health Care Network and NorthShore University HealthSystem, both operators of hospital networks in Chicago’s northern suburbs. The decision should cause health care providers to examine even more carefully any consolidation efforts—even those that providers undertake to mitigate the effects of the Affordable Care Act.

In overturning the district court decision denying the FTC’s injunction preventing the merger, the Seventh Circuit forcefully rejected the district court’s analysis of the geographic market. The Court of Appeals endorsed the FTC’s use of the “hypothetical monopolist test”—the economic tool the FTC commonly uses in hospital merger cases. The test asks whether, in a given region, the merged entity could impose a profitable "small but significant non-transitory increase in price," which is "typically about 5%." The court found that, through use of this test, the FTC had proven that its proposed geographic area was correct.

In endorsing the FTC’s theory of the case, and finding a narrow geographic market, the court identified “three notable features” in markets for hospital services:

  • First, there tend to be only a few hospitals in a geographic market, given that patients prefer nearby hospitals.

  • Second, “patients vary in their hospital preferences,” based on doctor, reputation, location, and other factors, although some patients simply will not travel.

  • Third, “consumers do not directly pay the full cost of hospital care,” but, instead, insurance companies pay for much, if not most or all, of the cost.

Of additional note, the court excluded from the geographic market hospitals considered “academic centers,” concluding that community hospitals, which focus on general acute hospital care, like those involved in the proposed merger, are not similarly situated to academic centers. The court also made clear that the relevant buyers were insurers, not patients. And the evidence showed that insurers need either the Advocate or the North Shore hospitals in a network in order to offer a viable product. Notably absent from the decision was any discussion of the pressures facing health care providers, which has sparked the recent wave of consolidations. Unless the parties abandon the transaction, they will have to prevail in an administrative proceeding in front of the FTC in order to consummate the merger.

Ballard Spahr's Health Care and Antitrust Groups regularly counsel clients on mergers and other antitrust issues. If you are considering consolidation—or are concerned about how consolidation might affect your business—please call any member of our Health Care or Antitrust Groups. For access to a recording of our Health Care Group's May 10, 2016, webinar on this topic, “Let’s Make A Deal – Public and Private Antitrust Challenges to Health Care Combinations,” please contact Brittney McKeever at mckeeverb@ballardspahr.com. 


Copyright © 2016 by Ballard Spahr LLP.
www.ballardspahr.com
(No claim to original U.S. government material.)

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.

This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.



Related Practices