Federal Trade Commission Rules Evanston Northwestern Merger Violated Antitrust Law

Revised Remedy Orders Separate Contracting, Not Divestiture of Highland Park Hospital

The federal antitrust enforcement agencies have lost more than a half-dozen merger cases in the courts over the last decade. The Federal Trade Commission ("FTC" or "Commission") responded to this adverse precedent by embarking on a retrospective analysis of hospital mergers, targeting the January 2000 merger of Evanston Hospital ("Evanston") and Highland Park Hospital ("Highland Park")ówhich formed the Evanston Northwestern Healthcare Corporation ("ENH"). The agency hoped to demonstrate the anticompetitive effects such mergers produce and to create new jurisprudence that would reinvigorate the hospital merger enforcement program. After more than three years of litigation, the full Commission issued an opinion and order on August 2, 2007, upholding the October 2005 conclusions of an administrative law judge ("ALJ"), that the merger violated Section 7 of the Clayton Act, 15 U.S.C. ß 18.

In the words of the opinion authored by FTC Chairman Deborah Majoras:

Considered as a whole, the evidence demonstrates that the transaction enabled the merged firm to exercise market power and that the resulting anticompetitive effects were not offset by merger-specific efficiencies. The record shows that senior officials at Evanston and Highland Park anticipated that the merger would give them greater leverage to raise prices, that the merged firm did raise its prices immediately and substantially after completion of the transaction, and that the same senior officials attributed the price increases in part to increased bargaining leverage produced by the merger.

Commissioner Rosch agreed with the decision but wrote a separate concurrence, which Commissioner Leibowitz joined, to emphasize his view that there was enough evidence to sustain liability without rigorously defining a relevant product or geographic market.

Although the ALJ decision had required the merged hospital to divest Highland Park, the full Commission rejected that remedy. Instead, it ordered the hospital to submit a proposal for structurally separated contracting to allow healthcare buyers (insurance companies) to choose whether or not to buy services from both hospitals. According to public reports, an appeal has not been ruled out by ENH. If one is filed, it will likely be before the Seventh Circuit and could stretch the resolution of the case out for another year.

Background

In the complaint to the...