Federal Trade Commission v. University Health, Inc.
938 F.2d 1206, 1991 U.S. App. LEXIS 16503 (1991)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Nonprofit hospitals are subject to antitrust scrutiny under Section 7 of the Clayton Act, with FTC enforcement jurisdiction defined by Section 11 of that Act, and a strong prima facie case of anticompetitive market concentration cannot be rebutted by speculative claims of efficiencies, the acquired firm's 'weak company' status, or the acquiring firm's nonprofit character.
Facts:
- University Health, Inc. (UHI), University Health Services, Inc. (UHS), and University Health Resources, Inc. (UHR) (collectively, University) planned to acquire the assets of St. Joseph Hospital, Augusta, Georgia, Inc. (St. Joseph).
- University Hospital, operated by UHS, is a nonprofit facility, and St. Joseph is a nonprofit entity owned by the Health Care Corporation of Sisters of St. Joseph of Carondelet (HCC).
- The proposed transaction involved University acquiring most of St. Joseph's assets and interests from HCC, in return for University's fifty-percent interest in Walton Rehabilitation Hospital and a cash settlement.
- A ten-year covenant not to compete was part of the agreement, requiring HCC to stay out of the general acute-care hospital market in the Augusta area and University to stay out of the rehabilitation hospital market.
- The Federal Trade Commission (FTC) was concerned that this acquisition would eliminate a patient-oriented, general acute-care hospital and significantly concentrate the market for in-patient services by acute-care hospitals in the Augusta area (Richmond and Columbia Counties, Georgia, and Aiken County, South Carolina).
- Following the proposed acquisition, University Hospital would control approximately forty-three percent of the relevant market, and only four hospitals would remain, with three sharing the remainder.
- Georgia's certificate of need law presented a substantial barrier to entry for new competitors and expansion by existing hospitals in the relevant market.
- St. Joseph was fiscally sound and enjoying its most profitable year, but appellees speculated, based on ambiguous evidence, that it would not be an effective competitor in the future due to limited services.
- The appellees argued the acquisition would generate efficiencies, such as eliminating duplicate expenses for capital outlays and administration, and 'wasteful competition' between the hospitals.
Procedural Posture:
- University and its affiliates filed a premerger notification with the Department of Justice and the FTC.
- The Federal Trade Commission (FTC) filed an action in the United States District Court for the Southern District of Georgia seeking a preliminary injunction to prevent the proposed acquisition.
- The appellees (University and St. Joseph) moved to dismiss the action, arguing that the FTC lacked jurisdiction to challenge asset acquisitions by nonprofit hospitals, but the district court denied this motion.
- The district court held a hearing on the FTC's motion for a preliminary injunction.
- The district court denied the FTC's request for a preliminary injunction, holding that the FTC had failed to demonstrate a likelihood of ultimate success in proving that the intended acquisition would substantially lessen competition.
- The FTC appealed the district court's judgment to the United States Court of Appeals for the Eleventh Circuit.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does Section 7 of the Clayton Act apply to asset acquisitions by nonprofit hospitals, and did the district court correctly apply the law in evaluating the Federal Trade Commission’s challenge to the proposed acquisition?
Opinions:
Majority - Chief Judge TJOFLAT
Yes, Section 7 of the Clayton Act applies to asset acquisitions by nonprofit hospitals, and the district court did not correctly apply the law in evaluating the FTC's Section 7 challenge, as the FTC demonstrated a likelihood of success on the merits and the equities favored an injunction. The court first clarified that the FTC's jurisdiction to enforce Section 7 of the Clayton Act against asset acquisitions by nonprofit hospitals is derived from Section 11 of the Clayton Act, not the narrower definition of 'corporation' in Section 4 of the FTCA. Section 11 grants the FTC authority over 'all other character of commerce' not regulated by other specified federal agencies, encompassing nonprofit hospitals. Citing United States v. Philadelphia Nat'l Bank, the court emphasized that Congress's intent in amending Section 7 was to explicitly enlarge the FTC's jurisdiction over corporate acquisitions, using Section 11 as the jurisdictional reference. Regarding the likelihood of ultimate success on the merits, the court found that the FTC established a strong prima facie case that the proposed acquisition would substantially lessen competition. The acquisition would result in an extremely concentrated market, with University Hospital controlling approximately forty-three percent, and an HHI increase of over 630 to approximately 3200, raising a presumption of illegality under Philadelphia Nat'l Bank. This case was further bolstered by the finding that Georgia's certificate of need law acts as a substantial barrier to entry and expansion, thereby facilitating collusion among remaining hospitals, as noted in Hospital Corp. of Am. v. FTC. Furthermore, the court rejected the appellees' attempts to rebut this presumption. It held that St. Joseph's alleged 'weak company' status was insufficient, as the appellees failed to make a substantial showing that its weakness would undermine the predictive value of market share statistics or that it could not be resolved by competitive means. St. Joseph was, in fact, fiscally sound. While acknowledging that an efficiency defense may be appropriate in certain circumstances, the court ruled that the appellees' claims of efficiencies were speculative and not proven in 'real terms,' as required by FTC v. Procter & Gamble Co. (Clorox), failing to demonstrate significant economies benefiting consumers. Lastly, the court rejected the argument that University Hospital's nonprofit status would preclude anticompetitive behavior, affirming that nonprofit entities are not implicitly exempt from antitrust laws and may still engage in non-profit maximizing but nonetheless anticompetitive conduct, citing National Collegiate Athletic Ass'n v. Board of Regents and United States v. Rockford Memorial Corp. Finally, balancing the equities, the court concluded that the public interest in effective antitrust enforcement outweighed the private harms of delaying the acquisition, especially since denying the injunction would 'unscramble the egg' difficult if the FTC ultimately prevailed, and the appellees' claims of St. Joseph's imminent collapse were speculative.
Analysis:
This case is a landmark decision clarifying the broad scope of FTC jurisdiction under the Clayton Act, definitively subjecting nonprofit hospitals to antitrust challenges under Section 7. It establishes a robust standard for rebutting a prima facie case of anticompetitive merger, demanding concrete evidence for 'weak company' or efficiency defenses and explicitly rejecting the notion that an acquiring firm's nonprofit status provides an implicit exemption from antitrust scrutiny. This ruling significantly impacts the healthcare industry, signaling that mergers, regardless of the entities' tax status or stated social benefits, will face stringent antitrust review if they threaten market competition. The emphasis on 'real terms' for efficiency defenses and the dismissal of speculative claims set a high evidentiary bar for future defendants seeking to justify horizontal mergers.
