Diagnosing the FTC ’ s Merger Enforcement in the Healthcare Industry

The healthcare industry has seen a flurry of merger activity in 2009. But, consolidation in this industry is not new, and the Federal Trade Commission (FTC or Commission) has been closely scrutinizing healthcare transactions for years. These transactions, however, come at a juncture when the antitrust enforcement agencies are poised for more aggressive antitrust review and also when healthcare reform—and the call for more affordable healthcare—dominate the news. So, while it should come as no surprise that the FTC will be aggressive in its enforcement activities relating to potentially anticompetitive healthcare consolidations, the question remains as to how the FTC may effectuate such an objective. The FTC’s long and aggressive enforcement history with regard to hospital consolidations provides an ideal backdrop for tracing the FTC’s merger policy in the broader healthcare context. From the 1990s when the antitrust authorities had little success in challenging hospital transactions1 to the FTC’s most recent successes in Inova Health Systems Foundation2 and Carilion Clinic,3 the FTC has sharpened its approach in challenging these transactions in an effort to increase its likelihood of success. The 1990s and Early 2000s Since the early 1990s, the antitrust agencies have been aggressive in challenging local hospital mergers. In a span of about 12 years, federal and state antitrust authorities brought seven hospital merger cases.4 But, despite the antitrust authorities’ efforts and concerns, they found little success. In all of these cases, the authorities approached the analysis in the traditional manner that emphasized a narrow relevant geographic market and argued that high market share and few competitors would lead to increased healthcare costs. Many courts, however, rejected the government’s narrowly defined geographic markets, finding that competition was not static and patients either already did travel or would travel to other nearby hospitals if prices increased.5 For example, in Federal Trade Commission v. Tenet Healthcare Corporation, the court stated “[t]he FTC’s contention that the merged hospitals would have eighty-four percent of the market for inpatient primary and secondary services within a contrived market area that stops just short of including a regional hospital . . . that is closer to many patients than the Poplar Bluff hospitals, strikes us as absurd.”6 After defining the relevant geographic market, the courts then looked to the competitive effects of the transaction. In doing so, a number of courts gave credit to the parties’ arguments regarding their nonprofit status and their commitment to the community. In United States v. Long Island Jewish Medical Center, the court found that the hospitals already “provide millions of dollars worth of free medical care” and that “the trustees of the merging business entities include successful business and religious leaders who are not compensated for their services.”7 The court further stated that “the same profit-maximizing incentives driving private companies are less central to the merging hospitals’ progress,” which all “support defendants’ contention that community service not profit maximization, is the hospitals’ mission.”8 Finally, a handful of courts also found merit in defendants’ arguments that managed care organizations’ buyer power was capable of shifting business to competing hospitals.9 The Retrospective and Evanston Northwestern Healthcare After this string of defeats, in August of 2002, the FTC announced the formation of the Merger Litigation Task Force that, among other things, would be “responsible for reinvigorating the Commission’s hospital