April 19, 2021

Volume XI, Number 109

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April 16, 2021

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FTC Abandons Appeal of Philadelphia Hospital Merger, Allowing Jefferson and Einstein to Proceed with Creation of 18-Hospital System

Back in December, we wrote about a district court ruling rejecting the Federal Trade Commission’s (“FTC”) motion to enjoin the proposed combination of Thomas Jefferson University (“TJU”) and Albert Einstein Healthcare Network (“Einstein”) that would create an 18-hospital system in the Philadelphia area. The FTC and the Pennsylvania Attorney General had alleged the merger would lead to TJU/Einstein controlling at least 60% of the inpatient GAC hospital services market in a portion of Philadelphia. Following the district court decision, the FTC quickly appealed to the Third Circuit Court of Appeals and filed an emergency motion for a stay pending appeal. Days later, a three-judge panel denied the government’s motion without comment.

On March 1, the parties announced that the FTC was dropping its opposition to the transaction, thus ending its appeal. The FTC’s vote to abandon the transaction was 4-0 and came after the Pennsylvania Attorney General had reached a separate deal with the parties.

With the FTC abandoning its appeal of the district court decision, this case represents the agency’s first loss in a hospital merger challenge since the late 1990s, a period during which the government lost seven straight cases. Starting in 2004, however, after refining its approach to hospital merger analysis, the FTC has had consistent success. That success has not always been at the district court level; twice in 2016 the FTC prevailed on appeal in the Third and Seventh Circuits after district courts had rejected challenges to hospital mergers in in Chicago1 and central Pennsylvania.2 Hence, the Commission’s “surrender” here is particularly notable. The Commission has not disclosed its reasoning, although some of it will likely emerge as it attempts to distinguish the decision in future cases (for example, in the trial scheduled for May in New Jersey in another hospital merger case). For now, the antitrust bar will likely speculate as to the FTC’s rationale.

We will offer some thoughts below.

No More Support from the Pennsylvania Attorney General

One factor that probably contributed to the FTC’s abandonment of its appeal is that the Pennsylvania Attorney General dropped the state’s opposition to the deal. Instead of moving forward on the appeal, the state reached a deal with the parties that included a commitment by Jefferson to invest $200 million over seven years in Einstein’s North Philadelphia facilities. While the parties had not advanced a failing firm defense, the record was clear that Einstein had financial difficulties which were affecting its physical plant. The $200 million Jefferson commitment to Einstein provided the Attorney General a “victory” while complicating the arguments that the FTC had been making.

Unwillingness to Risk a Favorable Third Circuit Precedent

The FTC’s astonishing string of appellate court wins challenging health care provider mergers (in the Third, Sixth, Seventh, Eighth, and Ninth Circuits) appeared to be at risk, and perhaps the FTC did not want to risk turning a district court loss with no precedential value into a “bigger” appellate defeat. In 2016, the FTC appealed a district court loss in the Middle District of Pennsylvania to its challenge to the proposed combination of Penn State Hershey Medical Center and PinnacleHealth System. The FTC won a reversal on appeal and ultimately succeeded in the parties abandoning the transaction. Importantly, the Third Circuit in PennState Hershey/Pinnacle supported the government’s typical use of the hypothetical monopolist test for geographic market definition, the test it continues to rely upon in all merger challenges, including this case.

On appeal, what may have been at stake for the agency was what to make of the passage from Brown Shoe, highlighted in both PennState Hershey/Pinnacle and Jefferson/Einstein, that a market’s geographic scope must correspond to the “commercial realities of the industry.” In part, the district court’s opinion in Jefferson/Einstein was a rebuke of the FTC’s reliance on diversion ratios, a measure of patient preference, when used to support the government’s geographic market definition. Diversion ratios measure the intensity of patient preferences for one facility or location over another, or what the economics literature calls the second stage of hospital competition (the stage at which hospitals compete, on quality, to attract patients). The relevant market definition allegation, however, centers around the first stage of competition where the hospitals compete to be included in an insurer’s hospital network. The district court found that insurer testimony in the case was mixed and was insufficient to marry the FTC’s economic arguments to the real-world facts on the ground. The FTC’s analysis of hospital mergers have increasingly been grounded on its economics work, and the Commission may have decided that it was better to just let the district court decision stand rather than risk an appellate court taking a fresh look at these issues on the record established in Jefferson/Einstein.

The reasons underlying the FTC’s decision to drop the case may become clearer during the May trial of the FTC’s challenge to the proposed acquisition of Englewood Healthcare by Hackensack Meridian Health in New Jersey, a case also pending in the Third Circuit where the Hershey decision remains the law of the Circuit. The merging parties will undoubtedly seek to use the Jefferson/Einstein opinion as persuasive authority wherever they can, attempting to force the government to prove that its econometric measures match up with real-world evidence supported by commercial insurer testimony. If the parties succeed at the district court level again, one would expect that the FTC could not allow two straight losses to stand, and would seek to see an appeal through to its ultimate conclusion.

For now, however, we would expect that the FTC will not back away from its economic analysis, and will work to strengthen its testimonial story in future cases.


FTC v. Advocate Health Care Network, et al., No. 16-2492 (7th Cir. 2016).

2 FTC v. Penn State Hershey Medical Center, et al., No. 16-2365 (3d Cir. 2016).

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©1994-2021 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.National Law Review, Volume XI, Number 61
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Bruce Sokler, Mintz Levin Law Firm, Washington DC, Health Care, Antitrust and Litigation Attorney
Member

Bruce is Chair of the Antitrust Section and in his over 30 years in private practice, he has developed extensive experience in both antitrust and communications regulation, including associated First Amendment and copyright law matters

In the antitrust area, Bruce’s practice includes antitrust counseling and representation in connection with federal and state governmental matters, as well as private antitrust litigation. He counsels and has represented Fortune 100 companies, not-for-profits, start-up entities, and domestic and international joint ventures. Bruce has been involved in...

202-434-7303
Joseph M. Miller Antitrust Attorney Mintz, Levin, Cohn, Ferris, Glovsky & Popeo
Member/Co-Chair

Joe is a seasoned antitrust attorney and Co-chair of the firm’s Antitrust Practice. He has nearly 30 years of experience that spans roles in private practice, as a general counsel, and with federal antitrust enforcement agencies. He focuses his practice on providing strategic transactional advice and representing clients in government investigations and merger reviews. Joe primarily works with clients in the health care industry.

His work includes representing health care companies before the FTC and DOJ in merger reviews, counseling them on the antitrust aspects of transactions,...

202.434.7434
Robert G. Kidwell Member Mintz DC Antitrust Health Care Enforcement & Investigations Communications Complex Commercial Litigation
Member

Rob’s Washington, DC-based competition and trade regulation practice involves counseling on the regulatory implications of business strategies, regulatory matters, policymaking, and litigation. He defends clients in complex litigation and in merger and regulatory reviews by the US Department of Justice, the Federal Trade Commission, the Committee on Foreign Investment in the US, and the Federal Communications Commission. Rob’s clients include media and telecommunications companies, health systems and providers, national retailers, trade associations, and life sciences and technology...

202-661-8752
Shawn Skolky, Mintz Levin Law Firm, Washington DC, Corporate and Litigation Law Attorney
Associate

Shawn advises on many aspects of antitrust and competition law, including antitrust counseling, merger review, and private antitrust litigation, including class actions. His consumer product safety practice focuses on helping companies seeking representation on product safety reporting obligations, recalls, regulatory compliance, product safety investigations, and enforcement matters involving the Consumer Product Safety Act (CPSA) and other federal and state product safety laws.

202-434-7345
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