Can Cleveland Clinic Health System be trusted: whether a proposed merger or acquisition by Cleveland Clinic Health System will substantially impair the competitive health care market in Northeast Ohio resulting in a violation of federal antitrust statutes.

• Author: Polito, Matthew T.

1. INTRODUCTION II. OVERVIEW OF THE RELEVANT ANTITRUST LAWS A. The Sherman Act 1. Discussion of the Rule of Reason 2. Application of the Per Se Rule B. The Clayton Act 1. Discussion of Seminal Antitrust Case: Brown Shoe Co. v. United States 2. Eight Factors Established by Brown Shoe Co. v. United States 3. Application of Section 7 of the Clayton Act to Not-For-Profit Hospitals III. THE GOVERNMENT'S PRIMA FACIE CASE A. Definition of the Relevant Market 1. Relevant Product Market 2. Relevant Geographic Market a. Elzinga-Hogarty Two-Part Test 3. Market Concentration IV. CLEVELAND CLINIC HEALTH SYSTEM (CCHS) AND ITS SUBSIDIARIES A. CCHS Affiliates B. Major Competitors C. Recent Developments V. ANALYSIS AND APPLICATION OF CURRENT LAW TO A POTENTIAL ACQUISITION BY CCHS OF ANOTHER LOCAL AREA HOSPITAL VI. CONCLUSION "It cannot be helped, it is as it should be, that the law is behind the times." (1)

1. INTRODUCTION

   Changes in the health care industry and increasing costs of health care create incentives for hospitals to consider hospital mergers. From 1981 to 1991, as many as 195 hospitals underwent mergers. (2) The next decade demonstrated a drastic upsurge of hospital mergers, from 18 in 1993 to 735 in 1995. (3) This rise in mergers may stem from economic reasons, but also may be attributable to the federal government's difficulties in enjoining such mergers under the antitrust laws. This article will demonstrate that Cleveland Clinic Health System's (CCHS) recent mergers and acquisitions have increased market concentration, giving CCHS undue market control, and triggering serious antitrust concerns justifying further investigation by the Federal Trade Commission (FTC).

   A network of not-for-profit hospitals, CCHS provides acute-care health care services to Northeast Ohio. CCHS claims that its mergers and hospital combinations create a service for the people of Northeast Ohio with which no other health system in the area can compete. (4) CCHS consists of Euclid Hospital, Fairview Hospital, Hillcrest Hospital, Huron Hospital, Lakewood Hospital, Lutheran Hospital, Marymount Hospital, South Pointe Hospital, Cleveland Clinic Children's Hospital Rehabilitation, and The Cleveland Clinic. (5) Also affiliated with CCHS are Ashtabula County Medical Center and Grace Hospital. (6) These hospital affiliates take part in numerous programs provided by CCHS, but have not yet been legally merged into CCHS. (7)

   This article analyzes the implications of the Clayton Antitrust Act (8) (Clayton Act) and the Sherman Antitrust Act (9) (Sherman Act) as they pertain to the CCHS. Part One provides background analysis of these two statutes, and the application of those statutes to mergers in the health care industry. Part Two discusses the elements needed to prove the government's prima facie case. This consists of a discussion of a relevant market, which includes the product and geographic markets. This section also contains a description and analysis of market concentration, measured by the Herfindahl-Hirschman Index (HHI). Part Three provides further background information on the CCHS hospital affiliates, and discusses CCHS' recent acquisition activities. Part Four analyzes whether these recent activities amount to a violation of antitrust laws, warranting further investigation by the FTC. This section also provides a description and analysis of two possible defenses that CCHS may raise.

2. OVERVIEW OF THE RELEVANT ANTITRUST LAWS

   Antitrust laws, in general, help to maintain a competitive market, and in turn protect the consumer from unwarranted price increases, (10) The Federal Trade Commission (FTC) and the Department of Justice (DOJ) are the federal agencies charged with enforcing the Clayton Act (11) and the Sherman Act. (12) These two statutes preserve competition and protect consumers from unfair price increases. (13) Similarly, the antitrust laws afford protection to existing competitors as well as potential competitors attempting to enter the market. (14)

   1. The Sherman Act

      In 1890, Congress passed the Sherman Act, the first federal antitrust statute enacted in the United States. (15) Its purpose is to prevent competitors from creating monopolies through mergers, thus driving up prices. (16) The framers of the Sherman Act did not intend to restrain competent business decisions of any given company or individual, absent the intent to monopolize. (17) The Sherman Act allows for a great deal of freedom to contract or otherwise, absent the intent to monopolize, but collaborative action through combinations and mergers raises a different problem. The Act prohibits such action when it tends to lessen or destroy competition in any given market, to which the consumer has sought protection. (18) This gives companies the ability to exercise business judgment without being concerned about potential violations of the antitrust laws. As long as these decisions are not for the purpose of monopolizing then the company in question is exempt from prosecution under the Sherman Act. (19) In 1890, Congress intended to use the Commerce Clause of the United States Constitution to its full potential to have it reach the substantive prohibitions of the Sherman Act, thus creating a competitive business market under the fullest use of Congressional power permitted by the Constitution to regulate interstate and foreign commerce. (20)

      The Sherman Act embraces a distinct economic theory, i.e., that uninhibited competition better regulates prices and production than even the most enlightened merger. (21) Nevertheless, the Sherman Act does not apply to monopolies in and of themselves. (22) The Sherman Act's purpose is to restrict and restrain activities and combinations that inhibit or affect interstate commerce. (23)

      The Sherman Act will not be used to prevent normal growth of any particular business; the size of a company itself is not a violation of the Act. (24) As long as a company gains expanse through lawful means, and violates no other law to perpetuate company growth, the company will not trigger the Sherman Act. (25) The Act however does not necessarily look to the form or the means of the merger, but looks at the intended results to be achieved by such merger. (26) It is irrelevant whether the means used to achieve the illegal end are themselves legal or illegal. (27) If the company's means perpetuate a conspiracy to eliminate competition, then such activity is within the scope of what the Act prohibits. (28)

      Sherman Act decisions are highly fact specific. (29) Courts closely analyze the facts of each case because the Sherman Act does not provide any definitions for its terms. (30) Despite the absence of these definitions, congressional intent analysis indicates that the terms "contract," "combination," or "conspiracy in restraint of trade or commerce," may be interpreted and given the same meaning attributed to these words through common law. (31) In applying this rule to potential antitrust cases, district courts and circuit courts often hold that each case arising under the Act must be resolved based on the facts presented in the record of each case. (32) Therefore, each new case that arises must be factually distinguished from any prior case being examined as precedent. (33) Consequently, cases arising under the Sherman Act will be relatively difficult to prove, as precedent will be limited. With each case primarily fact driven, it will be difficult, although not impossible, to locate cases on point.

      Although the Sherman Act seeks to protect a competitive market, its role is not a cure-all for all wrongs committed in the marketplace. (34) A literal approach to section one of the Sherman Act would prohibit every contact, combination, or conspiracy that restrained trade. (35) If courts used this standard, section one would prohibit nearly every contract or combination concerning trade, because in some sense every agreement or merger concerning trade will in some way restrain trade. (36) Therefore, courts interpret this section of the Sherman Act to prohibit only those contracts or combinations that unreasonably restrain competitions

      1. Discussion of the Rule of Reason

         The United States Supreme Court held in Continental T. V., Inc. v. GTE Sylvania, Inc., (38) that the most widely used standard in the application of the Sherman Act is the rule of reason. (39) Under the requirements of the rule of reason the finder of fact must consider all of the circumstances surrounding an activity to determine whether such activity should be prohibited as an unreasonable restraint on trade. (40) Certain situations that arise however, will be considered violative of the Sherman Act absent any contemplation of the situation's reasonableness. (41) Using the rule of reason in every case would be time consuming and expensive, thus expenses have been saved and time spent on litigation reduced by the recognition of per se rules. (42)

         Before 1975, courts generally held that members of the medical profession and other "learned professions" were exempt from antitrust laws. (43) The exemption stemmed from the Supreme Court view that involvement in "learned professions" was not interstate in nature, and therefore did not fall within the scope of the Sherman Act. (44) The Supreme Court restricted this exemption in the case of American Medical Association v. United States. (45) In that case, the Court considered whether the medical profession participated in "trade" or "commerce" within the scope of the Sherman Act. (46) But, the Court refused to answer the question, stating "the calling or occupation of the individual physicians charged as defendants is immaterial if the purpose and effect of their conspiracy was ... obstruction and restraint of the business of Group Health." (47) The court will no longer concentrate on the status of the person participating in the prohibited conduct, but will focus instead on the status of the target of such restraint. By recognizing...