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A hospital group in northern Illinois on Friday was ordered by federal regulators to sell off a hospital it bought in 2000 despite previously winning approval for the acquisition from antitrust agencies. The order was issued by an administrative law judge of the Federal Trade Commission. The FTC brought the case against Evanston Northwestern Healthcare Corp. after determining that the purchase of Highland Park Hospital resulted in increased costs to consumers and “substantially lessened competition” in the local market for general acute inpatient services. While the divestiture of a single hospital — purchased by Evanston for $200 million — isn’t likely to cause shock waves through the health care industry, a government-ordered sale is significant because it demonstrates clear willingness on the part of antitrust regulators to unwind previously approved deals if harm to consumers is later demonstrated. “Although attacking consummated mergers should not be the norm, given the status of the hospital industry and the clear evidence of anti-competitive price increases, I thought the challenge was necessary,” said former FTC Chairman Timothy J. Muris, who was heading the agency when the complaint was filed. FTC economists argued that as a result of eliminating Highland Park as a competitor, Evanston was able to increase its prices 11 percent to 18 percent above what the market otherwise would have permitted. Administrative Law Judge Stephen J. McGuire also noted that even Evanston’s own experts calculated that its post-merger price increases were 9 percent to 10 percent higher than what it would have been able to demand absent the merger. “The empirical evidence … ruled out explanations for the price increases other than market power,” McGuire wrote. Prices charged by a merged entity need not exceed those of its competitors to violate the nation’s antitrust laws. In this case, a 5 percent increase in prices is sufficient to show market power and increased costs to consumers. Furthermore, the FTC proved that the parties sought to merge in order to reduce competition. “The evidence further establishes that Evanston wanted to merge with Highland Park in no small part to eliminate a competitor within the geographic market. The merger was seen by Evanston as an opportunity to join forces and grow together rather than compete with each other,” the opinion states. Muris said Friday’s decision proved the government is still in the business of ensuring hospital competition. “When we issued the complaint, I thought the evidence would support finding that the merger was anti-competitive and divestiture was appropriate,” said Muris, now a professor at George Mason University School of Law. Prior to this case, the FTC and its sister antitrust agency, the Department of Justice’s Antitrust Division, brought and lost seven cases against hospital mergers over the past decade. While still chairman, Muris said it was important to bring a strong case in the industry to clarify and correct some of the shortcomings — largely economic analysis — that were the Achilles’ heel of these cases. The previous unsuccessful hospital cases were brought in federal courts, however, and whether the FTC has addressed those legal problems sufficiently to win an eventual appeal at the federal level is an open question. At the moment, this matter remains with the FTC. If Evanston Northwestern Healthcare appeals this case, it will be reviewed by the agency commissioners themselves. If they affirm McGuire’s ruling, only then would the case be appealed to a federal appeals court. An order to unwind a merger that went through antitrust regulators’ Hart-Scott-Rodino Act review is sure to raise alarm bells across American industry. But Muris suggested that not all consummated mergers are susceptible to subsequent divestiture requirements. This case, he said, was a matter that clearly demonstrated consumer harm in the health care industry, one of the largest sectors of the economy. McGuire’s order states that Highland Park Hospital must be sold within six months, though that will be delayed if the case is appealed. The divestiture is required to restore competition, the order states, because the FTC’s evidence “establishes that ENH exercised its enhanced post-merger market power and obtained post-merger price increases substantially above its pre-merger prices and significantly larger than price increases obtained by other comparison hospitals.” Evanston Northwestern Healthcare argued that the price increases that occurred after the merger were “a result of its learning about demand for its services and that its pre-merger prices at Evanston were, on average, below market.” However, McGuire wrote, “the court finds these arguments without merit.” Copyright �2005 TDD, LLC. All rights reserved.

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