Cert denied, substantially anticompetitive hospital merger set to unravel

The merger between two Ohio hospitals, which was deemed to be substantially anticompetitive by the Federal Trade Commission (FTC) and later, the Sixth Circuit, must now undergo divestiture as a result of the U.S. Supreme Court’s denial of the hospital system’s petition for writ of certiorari. Despite the hospital system’s argument in ProMedica Health System, Inc. v. Federal Trade Commission that the FTC decision would have a “drastic and effectively outcome-determinative impact on countless hospital mergers,” the Court declined to hear the case.

Background

In 2010, two of the four hospital systems in Lucas County, Ohio, ProMedica Health System, Inc. and St. Luke’s Hospital, merged. As a result of the merger, ProMedica gained a market share above 50 percent in the primary and second service market, and above 80 percent in the obstetrical market. The FTC challenged the merger under Section 7 of the Clayton Act (15 U.S.C. §18) on the basis that it would adversely affect competition. The FTC then ordered ProMedica to divest St. Luke’s. ProMedica filed a petition with the Sixth Circuit Court of Appeals to review the FTC decision, which was denied.

The Sixth Circuit first determined that the relevant markets included, (1) a cluster of primary and secondary inpatient services, known as the “General Acute Care” (GAC) market, which did not include, (2) a separate market for obstetrical (OB) services. The court utilized the Herfindahl-Hirschman Index (HHI) to measure market concentration before and after the hospital merger. A merger can be presumed to be anticompetitive if it increased the HHI by over 200 points. The merger at issue increased the HHI for the GAC market by 1,078 points and the HHI for the OB market by 1,323 points, which raised a presumption of illegality. The strong correlation between market share and price, and the further concentration of markets that were already highly concentrated supported the FTC’s presumption of illegality. Finally, ProMedica did not rebut the presumption by arguing that the merger would benefit consumers. Instead, the evidence suggested that ProMedica and St. Luke’s were direct competitors, and therefore, a merger would give ProMedica the ability to raise rates. The Sixth Circuit therefore determined that the FTC properly presumed that the merger was substantially noncompetitive and that ProMedica failed to rebut that presumption (see Ohio hospital merger deemed substantially anticompetitive, ordered to divest, Health Law Daily, April 23, 2014). ProMedica then filed a petition for certiorari before the U.S. Supreme Court.

Patient Protection and Affordable Care Act

In urging the U.S. Supreme Court to grant its petition, ProMedica argued, among other things, that the implementation of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) and associated federal mandates require “economies of scale and encourage greater integration among health care providers,” which can be difficult for small hospitals because they cannot access the capital necessary to meet the ACA’s goals to improve quality and contain cost. As a result, many smaller hospitals seek to enter into mergers. ProMedica then argued that the Sixth Circuit’s decision would create a “virtual irrebuttable presumption of anticompetitive harm,” which will drastically impact many such hospital mergers and allow the FTC to have a “near veto over almost any proposed hospital merger.” ProMedica’s petition was denied, leaving the Sixth Circuit’s order of divestiture intact.