Not-for-profit providers contemplating mergers can take comfort from a federal appeals court ruling last week that upheld the antitrust defense of two Grand Rapids, Mich., hospitals.
But the hospitals aren't throwing a victory party yet. The Federal Trade Commission could proceed with an administrative hearing to try to block the union of two profitable rivals who control most inpatient services in Michigan's second-largest city.
The FTC also could appeal the denial of a preliminary injunction to the U.S. Supreme Court, although it's unlikely the nation's highest court would choose to hear it.
Last week, Blodgett Memorial Medical Center and Butterworth Health
System-parent of Butterworth Hospital-prepared to ask the FTC to drop its administrative complaint, which is set for a Nov. 12 hearing before a federal administrative law judge assigned to the FTC.
A big question is how the FTC will respond.
"The fact that the merger has now been reviewed and approved by two federal courts should be pretty persuasive," said Blodgett Chief Executive Officer Terry O'Rourke. "Hopefully, they'll realize there has been a fair hearing on this case and they should back off."
The hospitals hope the FTC repeats its action in the 1995 case of two Joplin, Mo., hospitals, where the FTC commissioners voted to dismiss an administrative complaint after an appellate court affirmed a lower court ruling against the FTC.
Without a court injunction, the hospitals are free to merge; articles of incorporation could be filed as soon as September, the hospitals said. It would be hard to undo the consolidation even if the FTC prevails before an administrative law judge.
On the other hand, unlike Joplin, the Grand Rapids case sets a troubling precedent for antitrust enforcers, and the FTC might feel compelled to use every means to quash it.
The Grand Rapids case is unique in hospital antitrust case law because the lower court agreed with the FTC that the merger on its face would violate federal antitrust law because it would result in a significant increase in the concentration of market power. But the federal district court judge denied the FTC's motion for a preliminary injunction against the hospitals anyway.
The judge ruled the merged organization would be unlikely to exercise its market power in a way that would hurt consumers chiefly because of its not-for-profit status, community board representation and a stated commitment to constrain prices.
"Here we have a standard of, if the judge decides it's a good monopoly, it's OK," said Robert Leibenluft, assistant director for healthcare in the FTC's Bureau of Competition. "I certainly don't see much in the (appellate) opinion to explain why the district court was correct."
Several antitrust attorneys expressed disappointment with the six-page opinion issued by the 6th U.S. Circuit Court of Appeals in Cincinnati, saying it failed to address key issues. The appellate opinion was unpublished, which means it cannot be cited as precedent in other cases.
However, the district court opinion can be cited. Now that it's been bolstered by an appellate court, other not-for-profits are likely to cite it in justifying their mergers.
"I think it will probably embolden other hospitals to try transactions that they wouldn't have tried previously, and it's going to make counseling by attorneys more difficult because it's going to make it more difficult to predict what a court will do," said Jeff Miles, a healthcare antitrust attorney in the Baltimore office of Ober, Kaler, Grimes & Shriver.