Federal antitrust enforcers last week released new merger guidelines that, while applying to corporations in all industries, will be particularly helpful to merging hospitals and other providers with market share problems.
The new federal guidelines put into print for the first time a description of how much weight the U.S. Justice Department and Federal Trade Commission will give "economic efficiencies" when considering the competitive effects of a proposed merger.
In attempting to gain antitrust clearance for their mergers, many corporations, particularly hospitals, often argue that the economic benefits of their proposed consolidation outweigh any anti-competitive risks. In making that argument, they typically promise to pass along savings to consumers through lower prices or better goods and services.
For example, two hospitals in Greensboro, N.C., are claiming their proposed merger, which would give them an acute-care monopoly in Greensboro, would generate more than $50 million in savings over the first five years of the deal (See story, p. 23). They expect to file for federal antitrust clearance shortly.
Antitrust attorneys said last week's revisions to the government's longstanding "horizontal merger guidelines" will give merging hospitals a better idea of how to prepare their efficiencies evidence and how the government will view their claims.
"We already take efficiencies into account in merger analysis and have done so for some time," said Joel Klein, acting assistant attorney general in charge of the Justice Department's antitrust division. "The revisions explain more thoroughly how we take efficiencies into account and what information we need from the merging parties to evaluate their claims."
For example, the revised guidelines state that economic efficiencies can include lower prices, improved quality or service, or new products. But, they say, other alleged efficiencies, such as research and development or management, capital and purchasing consolidation, are more likely to be treated skeptically by the agencies.
The new guidelines should prompt hospitals to become more sophisticated in using the efficiencies argument to rebut any charges that a merger will result in too much market concentration, said Kathleen Kenyon, an attorney with Davis Wright Tremaine.
But the bad news, said Raymond Jacobsen, head of the antitrust practice at McDermott Will & Emery, is that hospitals must be able to document and support any efficiency claims.
In fact, the text of the guidelines states that "efficiency claims will not be considered if they are vague or speculative or otherwise cannot be verified by reasonable means."
"It's got to be something that will stand up in court," said Charles Weller, a partner with Baker & Hostetler in Cleveland. "If you've got an employer who will say (on the stand), `This is why I support (the merger),' that's important."
Also, hospitals that have achieved promised savings in previous deals should use that information as supporting evidence of possible efficiencies of any new deals undergoing antitrust scrutiny, Jacobsen said.
"The next time you go in, they're going to give your claim more weight," Jacobsen said.
The revised guidelines will be particularly helpful in three-hospital markets in which the second- and third-biggest hospitals want to merge, Jacobsen said.
Before the revised guidelines, the agencies might have rejected such a deal because it resulted in too much market concentration. But because the merger of the second- and third-biggest hospital might result in a more efficient, competitive player in the market, the agencies might approve that deal under the new guidelines.