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On Monday morning, the Federal Trade Commission quietly added a sentence to its webpage devoted to the Commission’s challenge to a proposed merger of two healthcare systems in the northern suburbs of Philadelphia, Thomas Jefferson University and the Albert Einstein Healthcare Network:
The Commission’s vote to voluntarily dismiss its appeal to Circuit 3 of the district court’s decision refusing a preliminary ban on the merger of Thomas Jefferson University and Albert Einstein health care network was 4-0 .
The unanimous decision stuck in stone that for the first time in the 21st century, the FTC dropped litigation to ban a hospital merger after failing to get a preliminary injunction from the district court.1 While the result shows that healthcare provider transactions can overcome opposition from state and federal antitrust authorities, healthcare providers should expect aggressive enforcement to continue.
As recently as yesterday, the FTC announced the end of its investigation into the proposed merger between Atrium Health Navicent, Inc. and Houston Healthcare System, Inc., as the parties abandoned the deal. The announcement comes shortly after two hospital systems in Memphis, Tenn., Abandoned a proposed merger when the FTC filed a lawsuit to block their $ 350 million transaction.
Definition of the Central market in hospital merger litigation
The Jefferson-Einstein case should be somewhat encouraging for hospitals and health systems in competitive urban areas. The main battleground, as in most hospital mergers, was market definition.
The FTC defines geographic markets using the Hypothetical Monopoly Test (HMT), which assesses whether a hypothetical hospital hospital services monopolist could profitably raise prices if they controlled hospitals in a defined geographic area. If so, this area is a relevant geographic market for assessing the competitive effects of the merger on the basis of market shares and concentration levels or actual effects.
The application of the HMT by the Commission has produced strange geographic markets in urban areas. For example, the map below shows the market that passed the HMT in the FTC case challenging the proposed merger of the Advocate Health Care Network and NorthShore University Health System in the Chicago area:
In Jefferson-Einstein, the district court found that the FTC’s alleged markets in the North Philadelphia area had overtaken the HMT. The judge nonetheless ruled that the FTC had failed to meet its onus because the alleged geographic markets “did not match the business realities of Southeastern Pennsylvania’s competitive healthcare industry.”2 In particular, the district judge was not convinced that the testimony of the commercial insurers supported the deals that the FTC had proposed.
It will be important to monitor the FTC’s reaction to the decision. The Commission argued on appeal that the results of the HMT should be sufficient to bear the burden of the FTC: “Courts must consider ‘business realities’ when formulating and applying the hypothetical monopolist test … A court cannot however not dismiss the undisputed results of a test. which already incorporates the “commercial realities” of the healthcare market. “3
While the FTC appears committed to its current approach to market definition, expect it to focus more on the substance and credibility of the payer’s testimony in upcoming hospital merger litigation. Next, the FTC is challenging the proposed merger of New Jersey hospital systems, Hackensack Meridian Health, Inc. and Englewood Healthcare, which is scheduled for trial in June 2021.
FTC remains engaged in law enforcement in healthcare
The Commission’s decision to drop the Jefferson-Einstein appeal was not very surprising, given the 3rd Circuit’s denial of the FTC’s request to stop the merger while the appeal was pending.4 The parties were free to make the deal and begin to integrate while the appeal was pending, and reached a deal with the Pennsylvania attorney general in January 2021 to drop his challenge to the transaction in exchange for a commitment to invest at least $ 200 million in Einstein’s facilities. . Even if the FTC had won the appeal, it could have resulted in a protracted litigation over whether (and how) to “unravel the eggs.”5
The FTC’s first loss in two decades comes as the FTC pledged to enforce aggressive healthcare antitrust laws. Acting President Rebecca Slaughter and Commissioner Christine Wilson have both said openly that the Commission closely scrutinizes every hospital merger.
The FTC also recently authorized a retrospective on consolidating physician groups in healthcare systems.6 It should be noted that after the FTC conducted a retrospective of hospital mergers in the early 2000s, it emerged with a new approach to analyzing and challenging hospital mergers, which fueled the long streak of hospital mergers. victories which is now over.
With that story in mind, it would be a mistake to read the FTC bending its hand in Philadelphia as a sign of a less aggressive enforcement to come. On the contrary, expect redoubled health care law enforcement efforts, including increased attention to physician transactions.
FOOTNOTES
1 A few years ago, when the FTC initially lost two preliminary injunction proceedings in hospital merger cases at the district court level, the 7th and 3rd Circuit both ordered the pending mergers. call. The FTC ultimately won both of those appeals and prevented hospital mergers in the northern suburbs of Chicago and the greater Harrisburg, Pennsylvania area. See Federal Trade Commission v. Penn State Hershey Medical Center, 838 F.3d 327 (3d Cir. 2016); Federal Trade Commission v. Advocate Health Care Network, 841 F.3d 460, 476 (7th Cir. 2016).
2 Notice of Memorandum, Federal Trade Commission and Commonwealth of Pennsylvania v. Thomas Jefferson University and Albert Einstein Healthcare Network, Civil Action No. 20-01113, Dkt. No.277, at p. 3 (ED Pa. December 8, 2020).
3 Federal Trade Commission Emergency Motion for Injunction Pending Appeal, FTC v. Thomas Jefferson University, # 20-3499 (3d Cir. December 11, 2020).
4 Order Denying Federal Trade Commission Emergency Motion for Injunction Appeal, FTC v. Thomas Jefferson University, # 20-3499 (3d Cir. December 22, 2020).
5 For example, the FTC spent years challenging Phoebe Putney Health System’s acquisition of Palmyra Park Hospital in Albany, Ga., And resolved the case without divestiture, fearing that Georgia’s laws on certificates of necessity effectively prevent the FTC from obtaining this remedy. https://www.ftc.gov/enforcement/cases-proceedings/111-0067/phoebe-putney-health-system-inc-phoebe-putney-memorial.
6 https://www.ftc.gov/news-events/press-releases/2021/01/ftc-study-impact-physician-group-healthcare-facility-mergers.
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