Words Hurt: FTC Challenges Proposed Hospital Merger Using Parties’ Own Statements

The Federal Trade Commission (FTC or Commission) authorized action on November 6 to block the proposed merger of two hospitals located in Huntington, West Virginia. The FTC issued an administrative complaint alleging that the transaction would create a near monopoly for general acute care inpatient hospital services and outpatient surgical services in four counties in West Virginia and Ohio, claiming that such a tie-up would likely lead to higher prices and lower quality of care in the market.

According to the Commission’s complaint, Cabell Huntington Hospital, a nonprofit, 303-bed hospital, plans to acquire St. Mary’s Medical Center, a nonprofit, 393-bed Catholic hospital located three miles from Cabell. The FTC claims that Cabell and St. Mary’s are “intense, close competitors” in two relevant markets: (1) general acute care inpatient hospital services; and (2) outpatient surgical services.

Steve Weissman, Deputy Director of the Commission’s Bureau of Competition, said in a statement: “If this proposed acquisition goes forward, it would eliminate important competition that has yielded tremendous benefits for Huntington-area residents. The merged hospitals would have a market share of more than 75 percent, and local employers and residents are likely to face higher prices and reduced quality and service at the combined hospital.”

Post-acquisition, the FTC believes that the combined entity would account for more than 75 percent of the discharges in the four-county area for general acute care inpatient services and a “high share” of the market for outpatient surgical services. These “high market shares and the correspondent concentration levels render the Acquisition presumptively unlawful—by a wide margin—under the relevant case law” and the Department of Justice and FTC Horizontal Merger Guidelines.

Parties’ Internal Documents are FTC’s Swords

Hospitals considering a similar transaction should take note of the FTC’s reliance on the parties’ own statements in internal documents to establish the case. The FTC states that the Cabell CFO described St. Mary’s as Cabell’s “main competitor for all but our exclusive services,” and the two hospitals frequently describe Cabell and St. Mary’s as each other’s “main,” “primary,” or “strongest” competitor. The FTC also located a recent document in which the St. Mary’s CEO wrote that the combined entity “will control almost 90 [percent] of the market.” Furthermore, the Commission alleged that the two hospitals entered into anti-competitive agreements in the past, such as restrictive marketing agreements, to lessen the competition between them.

The hospitals attempted to avoid a merger challenge by entering into temporary agreements with the state attorney general and the area’s largest health plan to regulate conduct post-acquisition. The FTC, however, rejected the measure as a temporary salve that could not replicate the benefits of competition. The FTC also claims that new entry into the market is unlikely and insufficient to offset the transaction’s anti-competitive effects.

The Commission authorized its staff to seek a temporary restraining order and a preliminary injunction in federal court if, and when, necessary to prevent the parties from consummating the acquisition and to maintain the status quo pending the administrative proceeding. The FTC could not immediately pursue an action in federal court, because the parties are awaiting approvals from state authorities and the Catholic Church before they can close the transaction. An administrative trial is set for April 5, 2016.

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