Antitrust Law Daily Wrap Up, ACQUISITIONS AND MERGERS NEWS: Commissioner Brill talks up FTC wins in hospital merger challenges, (Apr 16, 2015)

By Jeffrey May, J.D.

A recent uptick in the number of successful FTC merger challenges can be explained at least in part by the agency's willingness to aggressively pursue litigation once a problematic deal has been identified, according to FTC Commissioner Julie Brill. Speaking on a “Hot Topics” panel today at the American Bar Association Section of Antitrust Law meeting in Washington, D.C., Brill discussed agency wins in challenges to St. Luke’s Health System’s acquisition of Saltzer Medical Group in Idaho and ProMedica Health System's acquisition of St. Luke's Hospital in Toledo, Ohio.

“On some level our merger work is reactive,” said Brill. The government does not “call the shots” on what deals are made and brought to the government's attention, through the Hart-Scott-Rodino Act process or otherwise. However, when an anticompetitive transaction is identified, the agency will be prepared to litigate, according to the commissioner. Consumers pay a price when the agencies are not going after a merger that is anticompetitive “full bore,” Brill noted.

The recent successes, including the St. Luke's and ProMedica cases, follow a string of losses in the merger area in the 1990s for the federal agencies. Brill credits the FTC's merger retrospective from the early 2000s with turning around the agency's record. The study evaluated the effects of several consummated hospital mergers to determine whether any of them had resulted in higher prices.

In response to lessons learned from the study, the FTC moved to a so-called “willingness-to-pay” economic model. Under the willingness-to-pay model, if a merger among providers that are close substitutes increases the merged provider's leverage with health plans because of inadequate alternatives, the provider gains the ability to obtain supra-competitive pricing. Brill believes this model more accurately reflect the ways in which hospitals compete and, thus, its use has improved the agency's merger enforcement program.

Merger efficiencies. Despite criticism from some about the treatment of merger efficiencies in the Ninth Circuit decision in the St. Luke's case, Brill believes that the opinion was not a tremendous departure from where the law already stood. The district court judge in dicta had suggested that the acquisition would improve patient outcomes, but ultimately concluded that it violated the antitrust laws. On appeal, the Ninth Circuit rejected the efficiencies arguments of the merger parties.

“This was an acquisition that would lead to a highly concentrated market, with high barriers to entry,” Brill explained. She suggested that the agency would have looked at the deal very differently if the efficiencies were the result of the merger, adding that the agency brings in clinical experts to determine whether a merger is necessary to achieve purported efficiencies. Brill advised those in the hospital or physician acquisition space, that it is not enough to simply argue that the acquisition is needed to bring integrated care to patients.

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