Court Halts FTC’s Bid to Block Chicago-Area Hospital Merger

by Patterson Belknap Webb & Tyler LLP

On June 14, 2016, in FTC v. Advocate Health Care et al., No. 15-cv-11473, the District Court for the Northern District of Illinois denied the Federal Trade Commission’s attempt to stop the merger of Advocate Health Care Network and NorthShore University HealthSystem.  Advocate and NorthShore are two providers of general acute care inpatient hospital services in the North Shore area of Chicago.  In a brief order, the court denied the plaintiffs’ motion for preliminary injunction, funding that they have not met their burden of showing a likelihood of success on the merits of their antitrust claims.  The Court’s order also indicates that its memorandum opinion will be filed under seal because it contains “competitively sensitive information.” The Court will issue a public opinion after considering the parties’ proposed redactions, due on Friday.

The FTC filed an administrative complaint in December of last year alleging that the proposed Advocate-NorthShore merger violated Section 5 of the FTC Act and Section 7 of the Clayton Act.  Shortly thereafter, it also filed a complaint in the Northern District of Illinois seeking a temporary restraining order and preliminary injunction to halt the merger.  In a statement, the FTC claimed that the proposed merger would “eliminate the robust competition” between the two closely competitive hospital systems.

It further argued that the merger would create the largest hospital system in Chicago’s North Shore area, controlling over fifty percent of general acute care inpatient services, with the next largest competitor having only a fifteen percent market share.  The increase in market concentration rendered the merger presumptively unlawful under the Merger Guidelines.  In addition, the FTC claimed that the merged entity would have significantly increased bargaining power with health plans and health insurers, which would harm consumers both through higher prices and lower quality of care.  Because most consumers prefer to have at least one hospital owned by NorthShore or Advocate in their health care network, commercial payers will have little choice but to accept the reimbursement terms demanded by the merged system.

The District Court held a six-day hearing on the FTC’s request for a preliminary injunction in April of this year, after which and the parties submitted post-hearing briefs, along with proposed findings of fact and conclusions of law.  Among other things, the defendants argued that the FTC had improperly defined the geographic market, that it failed to show that Advocate and NorthShore were each other’s closest competitors, and that it failed to present evidence that the merger would lead to higher prices.  They also argued that the merger would allow them to create a joint “high performing network”—a low-cost insurance plan sold either through health plans or directly to employers and consumers. While the Court’s order derails the FTC’s challenge to the merger, the administrative proceedings may continue.

As we have previously discussed, the FTC has been aggressive in policing hospital mergers, with challenges to the Penn State Hershey-Pinnacle merger in Pennsylvania and Cabell Huntington Hospital’s acquisition of St. Mary’s Medical Center in West Virginia.  The FTC has faced resistance to its hospital merger challenges as of late, as the district court denied the FTC’s bid for a preliminary injunction in Pennsylvania, and the West Virginia case is on hold, partially as a result of the state’s legislation exempting hospital mergers from antitrust law.  The FTC did, however, successfully challenge St. Luke’s Health System’s purchase of a physician practice group in Idaho.  It remains to be seen whether the FTC will continue to pursue these cases aggressively.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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