Stepping up their scrutiny of hospital mergers and other deals, federal antitrust enforcers want to be told about transactions that involve the creation or acquisition of a limited-liability company.
Starting Feb. 1, the Federal Trade Commission and the antitrust division of the U.S. Justice Department will require parties to such deals to file a report with the proper agency under the Hart-Scott-Rodino Act, an antitrust law.
"(Limited-liability companies) are a relatively new form of business organization that are neither partnerships nor corporations, but hybrids that combine certain desirable features of both," the FTC said in its Oct. 13 notice of the change in the Federal Register.
"While at first these companies were used primarily as a vehicle for start-up enterprises, the use of (limited-liability companies) appears to have changed to a mechanism for combining competing businesses," the agency said.
The new interpretation means that the formation of a limited-liability company that joins two or more separately controlled businesses under common control is a reportable transaction under federal antitrust law.
"The agencies were becoming concerned that mergers of significant existing competition were taking place via limited-liability companies, and they were missing out on them," said Scott Perlman, an antitrust attorney with Mayer Brown & Platt in Washington. "They weren't even getting a look at them."
The change in policy gives the FTC and the Justice Department an opportunity to oppose any anti-competitive transactions, closing what has become a widening loophole in antitrust law.
Previously, major consolidations have occurred using limited-liability companies that were not required to be reported under the agencies' interpretation of federal law.
For example, Columbia/HCA Healthcare Corp. and Quorum Health Group recently completed a joint venture in Vicksburg, Miss. That deal, which gives the hospital chains a monopoly of hospital services in Vicksburg, was not reportable under the FTC's former policy.
Mark Horoschak, an antitrust attorney with Womble Carlyle Sandridge & Rice in Charlotte, N.C., who represented Columbia in the joint venture deal, said the policy change should not affect consolidation activity. Horoschak is a former FTC official.
The new policy still does not apply to joint operating agreements, which are treated as partnerships or contractual agreements and as such are not reportable under Hart-Scott-Rodino, said David Ettinger, an antitrust attorney with Honigman Miller Schwartz & Cohn in Detroit.