The best ammunition the hospital industry had against obstructive antitrust enforcement evaporated on April 15, when the Federal Trade Commission announced the dismissal of its antitrust complaint against Ukiah (Calif.) Valley Medical Center.
Advocates of hospital antitrust relief, including the American Hospital Association and sponsors of federal antitrust relief legislation, repeatedly have cited the 5-year-old case against the 94-bed hospital as evidence of federal antitrust policy gone awry.
With the case dismissed and new guidelines in effect that would exempt similar transactions, it may be more difficult for the hospital industry to argue that it's being restrained by antitrust laws. That's particularly true in light of the current wave of hospital consolidations, antitrust observers said.
The FTC's action in Ukiah was "the right decision," said a legislative aide to Sen. Howard Metzenbaum (D-Ohio), chairman of the antitrust subcommittee of the Senate Judiciary Committee. Mr. Metzenbaum has opposed antitrust legislation for hospitals but has supported greater clarification of enforcement policies.
"Small hospitals with fewer than 100 beds should feel safe that they can do what they need to do," said the aide, who asked not to be named.
Under new healthcare antitrust enforcement guidelines issued last fall, the FTC and the Justice Department said they wouldn't challenge hospital mergers in which one hospital had fewer than 100 beds, had fewer than 40 patients per day and was more than 5 years old (Sept. 20, 1993, p. 3).
Even Thomas Campbell, the antitrust attorney who represented Ukiah Valley, acknowledged that a hospital transaction similar to the Ukiah deal likely would be immune from federal antitrust scrutiny under the new guidelines and that the FTC's dismissal of the case was a "real plus."
The Ukiah Valley case dates back to 1988, when Adventist Health System/West acquired 51-bed Ukiah General Hospital from HealthTrust-The Hospital Co. for $5.9 million and merged it with its 43-bed hospital in Ukiah, then known as Ukiah Adventist Hospital.
A year later, the FTC challenged the deal, saying it violated Section 7 of the Clayton Act, which bars acquisitions that may reduce competition. The FTC said the acquisition gave Adventist control of three of the five hospitals in a three-city market in Northern California. Adventist contended that the market was far larger, including 17 hospitals in 12 cities.
The hospital then mounted a series of parallel legal actions to sidetrack the agency's action, including two unsuccessful federal lawsuits challenging the FTC's jurisdiction in the case.
The merits of the antitrust complaint finally were heard by a federal administrative law judge, who dismissed the antitrust charges in December 1992. He said the acquisition didn't pose any anti-competitive threat because the hospitals operated in a market that included nine hospitals in four cities.
The FTC appealed the decision to the agency's five commissioners in Washington, who heard oral arguments in the case in April 1993. Their decision had been pending for more than a year.
In a 13-page opinion by Commissioner Mary Azcuenaga, the commissioners by a 5-0 vote affirmed the judge's decision and dismissed the FTC's antitrust complaint. Although they initially authorized the agency to a file the complaint, the commissioners said the FTC failed to prove that the Ukiah hospitals operated in the narrow market defined by agency investigators.
FTC Commissioners Deborah Owen and Dennis Yao said in a concurring 19-page opinion that the FTC's evidence of a threat to competition was "weak if not non-existent." They argued that Ukiah Valley could face legitimate competition from two hospitals in Santa Rosa, Calif., located nearly 70 miles away; that payers didn't oppose the acquisition; and that economic efficiencies generated by the consolidation would hinder the hospital from justifying any unreasonable price increases.