The Federal Trade Commission is considering filing an antitrust lawsuit against the proposed acquisition of 201-bed Cape Coral (Fla.) Hospital by 602-bed Lee Memorial Hospital, Fort Myers, Fla., sources said last week.
At deadline, FTC investigators were taking affidavits from people involved in and affected by the proposed transaction, and the hospitals were preparing to defend their deal using a 7-year-old Florida law that they say exempts them from antitrust scrutiny.
FTC officials would neither confirm nor deny the existence of an investigation into the matter.
James Nathan, president and chief executive officer of Lee Memorial, said, however, that the agency was expected to hold a hearing this week to determine whether it wants to challenge the merger. Among the commission's options, sources close to the probe said, are charging the hospitals with a violation of Section 7 of the Clayton Act, which bars acquisitions that may reduce competition.
Earlier this month, the two hospitals reached their agreement, which would create a two-hospital system that would control about 67% of the admissions in the five-hospital Lee County market (April 11, p. 16).
Columbia/HCA Healthcare Corp., which failed in its attempt to acquire Cape Coral, operates two of the other five hospitals in the county. A lawyer representing competing physicians and hospitals in Lee County said Columbia and others have filed affidavits opposing the merger on grounds it will lessen competition and give Lee Memorial dominance over managed-care plans.
"Lee will have an 85% market share in obstetrics, which is very important in managed-care contracting," said Scott Megregian, an attorney with Howrey and Simon, Washington.
Mr. Nathan said the FTC inquiry wasn't unexpected given the resulting market share involved, and he predicted that the hospitals would prevail if the agency tried to block the sale.
"As a state public agency with special authorization to own and operate hospitals and other healthcare organizations, Lee Memorial should be well-positioned to resolve the concerns of the FTC or win any legal challenges," Mr. Nathan said.
Mr. Nathan said the hospitals planned to close the non-cash deal April 20, barring action by the FTC to block the merger. He said the hospitals were committed to completing the merger, even though costs to fight similar challenges have been estimated to reach $500,000 a month.
"It is hard to know how long and how expensive this effort to respond to the FTC inquiries might be and what damage might accrue (to the hospitals) in the interim," Mr. Nathan said.
A special law passed by the Florida Legislation in 1987 allows Lee Memorial to acquire property and otherwise conduct business like a privately owned hospital. Lee Memorial also contends that the law exempts it from federal antitrust scrutiny under the legal doctrine of state action immunity. Under the doctrine, activities that are authorized by state law and actively monitored by the state are exempt from federal antitrust laws.
Because Lee Memorial is a public hospital, it wasn't required to file any pre-merger notification documents with the federal government as typically required by the Hart-Scott-Rodino Act.