Delineation of Relevant Markets in Hospital Mergers
Pages | 17-58 |
17
CHAPTER II
DELINEATION OF RELEVANT MARKETS IN
HOSPITAL MERGERS
A. Introduction
Relevant market definition is a key issue in most hospital merger
matters. Although the 2010 Department of Justice (DOJ) and Federal
Trade Commission (FTC) Horizontal Merger Guidelines1 have generally
emphasized a focus on competitive effects analysis over formal market
definition, the delineation of relevant product and geographic markets
remains an important element of hospital merger cases. Indeed, in each
of the hospital merger challenges filed and decided since the 2010
Merger Guidelines were issued the FTC has alleged, and courts have
required the government to prove, relevant markets.
1.
Relevant Product Market Delineation
Both the government and the courts typically define hospital product
markets to comprise some cluster of hospital services provided to
patients.2 These cluster markets usually include inpatient general acute
care hospital services, but at times also have included psychiatric
hospital services, primary and secondary inpatient services, and
outpatient surgery services.3 Including other services in the same market
1. U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, HORIZONTAL MERGER
GUIDELINES (2010) [hereinafter MERGER GUIDELINES], available at
http://www.ftc.gov/os/2010/08/100819hmg.pdf.
2. See infra Part B of this chapter.
3. See, e.g., ProMedica Health Sys. v. FTC, 749 F.3d 559 (6th Cir. 2014)
(market included a cluster market of pri mary (but not OB) and sec ondary
inpatient services and a separate market for OB services); FTC v. Tenet
Health Care Corp., 17 F. Supp. 2d 937, 942 (E.D. Mo. 1998) (defendants
did not dispute FTC’s definition of a primary and secondary inpatient
services market), rev’d on other grounds, 186 F.3d 1045 (8th Cir. 1999);
FTC v. Butterworth Health Corp., 946 F. Supp. 1285, 1290-91 (W.D.
Mich. 1996) (specifically including normal childbirth, gynecology,
pediatrics, general medicine, and general surgical services), aff’d, 121
F.3d 708 (6th Cir. 1997); United States v. Mercy Health Servs., 902 F.
18 Health Care Mergers and Acquisitions Handbook
as inpatient general acute care services generally means that numerous
additional health care providers, many of which are non-hospital
providers, will be included within the relevant market. This, in turn,
diminishes the market share of the merging hospitals as well as overall
market concentration. Conversely, if the relevant product market is
limited to inpatient general acute care services the resulting market
shares of the merging parties and overall market concentration will be
higher. Sufficiently high market shares and market concentration may
result in a presumption of anticompetitive harm from the merger. Thus,
product market definition can bear heavily on ultimate outcomes.
The importance of product market definition is underscored by the
results in two cases from the late 1980s involving, respectively, hospital
mergers challenged by the government in Roanoke, Virginia, and
Rockford, Illinois. In United States v. Carilion Health System,4 the
district court upheld a merger of two hospitals in Roanoke, in part
because it included outpatient medical services within the relevant
product market. The court reasoned that because a significant number of
medical needs could be treated either on an inpatient or outpatient basis,
a significant number of patients could choose to have their health
problems treated in a hospital, clinic, or doctor’s office. Under this
expanded market definition, the estimated post transaction market share
of the merging hospitals was modest, and the court denied the
government’s attempt to block the merger.
In contrast, in United States v. Rockford Memorial Corp.,5 the
hospital merger did not withstand the government’s challenge. There, the
district court found that the hospitals provided a type of medical service,
characterized by overnight care and accessibility to a centrally located
variety of services that could not be provided by outpatient clinics. The
court found this type of medical care to constitute an economically
significant market and, accordingly, defined the relevant product market
Supp. 968, 976 (N.D. Iowa 1995) (specifically excluding inpatient
psychiatric care, substance abuse treatment, rehabilitation services, and
open-heart surgery), vacated as moot, 107 F.3d 632 (8th Cir. 1997);
United States v. Rockford Mem’l Corp., 717 F. Supp. 1251 (N.D. Ill.
1989) (specifically excluding outpatient services), aff’d, 898 F.2d 1278
(7th Cir. 1990); United States v. Carilion Health Sys., 707F. Supp. 840,
847-48 (W.D. Va.) (specifically including outpatient services), aff’d, 8 92
F.2d 1042 (4th Cir. 1989).
4. 707 F. Supp. 840 (W.D. Va.), aff’d, 892 F.2d 1042 (4th Cir. 1989).
5. 717 F. Supp. 1251.
Delineation of Relevant Markets in Hospital Mergers 19
to comprise inpatient acute care services only. Restricting its analysis of
market share to hospitals, the court concluded that the merger would
result in an impermissible increase in market power. Consequently, it
enjoined the merger under Section 7 of the Clayton Act.6
Both the Carilion and Rockford district court decisions were upheld
on appeal.7 In all but one subsequent hospital merger case decided in the
decade after Carilion and Rockford,8 the product market was defined, as
in Rockford, as acute care inpatient hospital services, although the issue
does not appear to have been contested in any of these decisions.9 The
product market issue was contested in United States v. Long Island
Jewish Medical Center10 and again in later cases.11
The government’s current approach and the recent trend in the case
law is to define the relevant product market cluster to include inpatient
general acute care services sold to commercial health plans.12 This
definition excludes outpatient services, psychiatric services, and
rehabilitation services and government payors (e.g., Medicare,
Medicaid). While product market definition is still contested in hospital
6. Id. at 1251.
7. United States v. Carilion Health Sys., 1989 U.S. App. LEXIS 21294 (4th
Cir. 1989) (per curiam unpublished opinion with limited precedential
value); Rockford Mem’l Corp., 898 F.2d 1278 (7th Cir. 1990).
121 F.3d 708 (6th Cir. 1997); see also United States v. Mercy Health
632 (8th Cir. 1997); FTC v. Freeman Hosp., 911 F. Supp. 1213 (W.D.
F.2d 1206 (11th Cir. 1991); Adventist Health Sys./West, 1994 FTC
LEXIS 54 (1994).
9. For example, in University Health, the district court noted that: “The
product that is involved here is acute in-patient [sic] hospital services or
such other term of art as the record might disclose. There is very little
dispute about that.” FTC v. Univ. Health, 1991 WL 117432, at *3 (S.D.
Ga. 1991), order vacated, 938 F.2d 1206 (11th Cir. 1991).
10. 983 F. Supp. 121 (primary and secondary care provided by anchor
hospitals vs. general acute care).
11. See, e.g., ProMedica Health Sys. v. FTC, 2014 U.S. App. LEXIS 7500
(6th Cir. 2014); Evanston Nw. Healthcare Corp., 2005 LEXIS 146, at
*270 (Initial Decision Oct. 20, 2005), aff’d, 2007 LEXIS 210 (2007).
12. See, e.g., FTC v OSF Healthcare Sys., 852 F. Supp. 2d 1069, 1075-76
(N.D. Ill. 2012); FTC v. ProMedica Health Sys., 2011 U.S. Dist. LEXIS
33434, at *146 (N.D. Ohio 2011).
To continue reading
Request your trial