FTC Continues Active Enforcement With Decision To Block Hospital Merger In Toledo, Ohio

Although the challenging and dynamic environment facing many hospitals and the requirements of the Affordable Care Act might suggest that the Federal Trade Commission ("FTC") will displace or rethink traditional antitrust analysis for hospital mergers, the FTC recently made clear that any hospital merger resulting in high market shares faces a steep uphill climb to win FTC approval. During the same week that the constitutionality of the Affordable Care Act was being argued before the Supreme Court, the FTC, on March 28, 2012, announced its decision to block ProMedica Health System acquisition of St. Luke's Hospital ("ProMedica" and "St. Luke's"). To view the decision, please click here. The ProMedica decision continues the agency's active enforcement in the hospital area. In March 2012, the Solicitor General, at the request of the FTC, filed a petition for certiorari in the Phoebe Putney case, seeking to have the Supreme Court consider whether the State Action Defense protects, from antitrust scrutiny, an otherwise anti-competitive acquisition by a government-owned hospital, where the hospital is leased to and operated by a private entity. To view Phoebe Putney, please click here. In addition, the agency obtained a preliminary injunction blocking a hospital acquisition in Rockford, Illinois pending an administrative trial. To view an FTC statement on this ruling, please click here.

Background

In May 2010, ProMedica and St. Luke's entered into an agreement whereby St. Luke's became part of the ProMedica System. Internal St. Luke's documents made clear that one of the reasons for the affiliation was to improve the rates that St. Luke's was able to negotiate with Managed Care Organizations ("MCOs"). In July 2010, the FTC began an investigation of the transaction. In August 2010, the parties entered into a "hold separate" agreement that allowed the deal to close but prevented ProMedica from renegotiating health-plan contracts or raising the rates it charged to health plans. In January 2011, the FTC issued an administrative complaint against ProMedica challenging the acquisition, and the FTC also filed suit in the U.S. District Court for Northern District of Ohio seeking a temporary restraining order and preliminary injunction to maintain the parties hold separate agreement, which was set to expire. In March 2011, the court entered a preliminary injunction ordering the parties to maintain the hold separate agreement pending the outcome of the...