On August 7, 2007, the Federal Trade Commission overruled its in-house judge’s previous decision to break up a seven year old hospital merger, allowing it to stay intact even though the deal caused prices to increase.
Evanston Northwestern Healthcare Corporation (ENH) acquired Highland Park Hospital in January 2000, and as a result, combined ENH’s Evanston and Glenbrook hospitals in Cook County Illinois. With Highland Park Hospital being the nearest hospital to the north, the Commission approved and issued a complaint in February 2004. The complaint alleged that subsequent to the acquisition, ENH was able to raise its prices charged to health insurers far above price increases of other comparable hospitals as a result of the transaction.
In October 2005, Chief ALJ McGuire issued an initial decision and order, ruling in favor of Commission staff, and ordering ENH to sell Highland Park within 180 days. According to Judge McGuire’s decision, which upheld Count I of the administrative complaint issued by the FTC, ENH’s acquisition of Highland Park resulted in “substantially lessened competition” and higher prices for insurers and healthcare consumers for general acute care inpatient services sold to managed care organizations in the geographic market defined by the ALJ. ENH later appealed the ALJ’s decision to the Commission.
The Federal Trade Commission affirmed the ALJ’s decision that the transaction violated Section 7 of the Clayton Act. The record “shows that senior officials at Evanston and Highland Park anticipated that the merger would give them greater leverage to raise prices, that the merged firm did in fact raise its prices immediately and substantially after completion of the transaction, and that the same senior officials attributed the price increases in part to increased bargaining leverage produced by the merger.”
Rather than break up the suburban Chicago hospital group, which was the original ruling of the ALJ and is the typical procedure in these types of cases, the FTC gave it one month to submit a detailed proposal to the FTC for implementing the injunctive relief imposed. While “structural remedies are preferred for Section 7 violations,” the Commission determined that “this is the highly unusual case in which a conduct remedy, rather than a divestiture, is more appropriate.” The Commission noted that the years elapsed between the merger’s closing and the conclusion of the litigation “would make a divestiture much more difficult, with greater risk of unanticipated costs and failures.” Therefore an injunctive order was imposed by the Commission requiring ENH to establish separate and independent negotiating teams; one for Evanston and Glenbrook Hospitals, and another for Highland Park. This would allow managed care organizations to negotiate separately again for those competing hospitals, and therefore reestablish competition between them.
Antitrust lawyers are surprised by the full Commission’s move to reverse McGuire’s original order to break up the Chicago hospitals, since it will necessitate ongoing federal monitoring. Clear-cut divestitures require no oversight after the sale is approved. Some even questioned whether the FTC’s action was sufficient.