October 21, 2019

October 21, 2019

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2016 Antitrust Case Law And FTC Action Highlight Agency's Approach To Hospital Mergers

In 2016, the Federal Trade Commission prevailed in litigation before the Third and Seventh Circuit Courts of Appeal related to two high-profile hospital mergers. In both cases, the courts of appeal overturned the federal district courts' decisions denying preliminary injunctions to stop the mergers. In another matter, the FTC dropped its complaint after the State of West Virginia enacted a statute that immunized certain hospital mergers from antitrust laws, and its hospital authority approved the hospital merger under the statute.

The decisions by the Third and Seventh Circuit Courts of Appeal and the FTC's abandonment of the FTC's challenge of the West Virginia merger provide guidance for healthcare providers about how courts and the enforcement agencies analyze mergers between hospitals under the antitrust laws. Key takeaways include:

  1. When evaluating the relevant geographic market, courts and enforcement agencies will likely view specialized hospitals and academic institutions differently from local general acute care hospitals. The fact that some patients travel long distances for specialty care may not rebut the agencies' argument that "general acute care services are inherently local."

  2. The decisions from the Third and Seventh Circuits confirm that the FTC continues to use the hypothetical monopolist test in evaluating the relevant market for healthcare transactions. 

  3. The agencies' and the courts' approaches to mergers differ from jurisdiction to jurisdiction, and parties to healthcare mergers and acquisitions should consult with antitrust counsel who can examine their transactions.

  4. In addition to considering the impact of hospital mergers on consumers, hospitals looking to merge or enter into similar transactions need to consider the impact on insurers. If insurers oppose a merger and testify that they are unable to offer a network without at least one of the merging parties, the merging parties may have an uphill battle in getting the green light from the regulators and the courts.

  5. Private arrangements between hospitals and insurers to curb price increases after a merger will typically not turn an anticompetitive merger or acquisition into a procompetitive one, but agreements between hospitals and state officials may be relevant in some jurisdictions, like West Virginia. 

  6. A merger's efficiencies need to be carefully considered by counsel and the parties. To help defend a merger, efficiencies need to be merger-specific, i.e., not available to the parties individually absent the merger, and parties to a merger may be required to show that cost savings or other benefits will be passed on to payors and patients. 

  7. Hospitals should evaluate whether their state statutes immunize their transactions, and consider the potential enforceability of such statutes if challenged by the FTC.

  8. Merging parties should consult antitrust counsel with experience in healthcare transactions to assess antitrust risk and, if necessary, to prepare a defense to a regulatory challenge.

The two recent decisions by the Third and Seventh Circuit Courts of Appeal and the FTC’s action in another hospital merger are summarized here.

© Polsinelli PC, Polsinelli LLP in California

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About this Author

Gregory M. Bentz, Polsinelli, antitrust laws attorney, business trade disputes lawyer
Senior Partner

For over 30 years Greg Bentz has advised and advocated for our clients. He is equally at home in both the courtroom and the boardroom. Greg has a strong substantive knowledge of the antitrust laws and all types of business disputes. His understanding of legal, business, and financial principles allows him to efficiently assist clients in reaching their business objectives.

816-374-0517
Dennis Palmer, Polsinelli Law Firm, Commercial Litigation Attorney
Shareholder

Dennis Palmer uses his experience to assist clients to evaluate options and help resolve disputes to achieve client objectives, often without cost and delay of prolonged litigation. Dennis is an experienced trial lawyer who has obtained many successful verdicts and judgments at trial, summary judgments and dismissal of actions for clients in federal and state courts in a variety of complex actions. He has represented insurers of health care and disability benefits, manufacturers of various products, computer software companies, as well as franchisors and franchisees and other publicly traded and privately owned companies and individuals in complicated civil cases — including antitrust, ERISA, and contract disputes. He has been lead counsel in several class action cases. In addition, he has handled numerous actions to obtain injunctive relief to enforce covenant not to compete provisions and other post-termination restrictions and enforcing rights under trademark and other intellectual property laws.

816-374-0593
G. Gabriel Zorogastua, Polsinelli, Antitrust litigation lawyer, Hospital mergers Attorney
Shareholder

Gabriel Zorogastua helps clients through all steps of litigation, including initial pleadings, discovery, summary judgment, trial, and appeals.  He represents universities, health care entities, financial institutions, and other businesses in federal and state court litigation in contract, tort, product liability, property damage, and antitrust disputes.  Gabe also helps clients resolve disputes through alternative resolution methods like mediation.

816-374-0537