The proposed sale of two Columbia/HCA Healthcare Corp. hospitals in Florida to a competing public hospital district faces stiff opposition from a third hospital system and possible antitrust scrutiny.
But Columbia and Daytona Beach, Fla.-based Halifax Community Health System have loaded their legal and financial team with former healthcare antitrust officials from the Federal Trade Commission, hoping to tip the balance in their favor.
Last month, Halifax signed an agreement to buy Columbia's 214-bed Atlantic Medical Center-Daytona in Daytona Beach and 119-bed Atlantic Medical Center-Ormond in nearby Ormond Beach for $28 million (April 19, p. 16). Halifax operates 575-bed Halifax Medical Center in Daytona Beach.
At the time, representatives of both Columbia and Halifax said they didn't anticipate any antitrust objections, even though the acquisition would give Halifax control of three of the Daytona Beach area's four hospitals.
The most recent data from the Florida Agency for Health Care Administration show that Halifax has a 41% market share based on patient discharges, which would swell to 53.7% with the addition of Atlantic Daytona's 7.8% and Atlantic Ormond's 4.9% market shares.
But last week rival Memorial Health Systems, a three-hospital, private not-for-profit system asked the Florida attorney general's office to review the sale, alleging it would reduce patient choice and violate unspecified state and federal antitrust laws.
Memorial, based in Ormond Beach, operates Memorial Hospital, a 205-bed hospital in that city, just north of Daytona Beach.
Halifax officials defended the acquisition, saying public hospitals have antitrust protection under the "state action immunity" doctrine. Under that legal doctrine, organizations and activities that are created or approved by a state and actively monitored by the state are exempt from federal antitrust scrutiny.
The Halifax system and Columbia are counting on antitrust law precedents like the 1994 case of Lee Memorial Health System of Fort Myers, Fla., in which the public hospital system successfully argued in federal court that it was exempt from federal antitrust laws. The FTC had challenged Lee Memorial's acquisition of 201-bed Cape Coral (Fla.) Hospital, a private not-for-profit hospital. Cape Coral pulled out of the sales agreement and was sold to Naples, Fla.-based Health Management Associates instead.
"Lee Memorial argued it had the statutory authority to make the acquisition," said the system's antitrust attorney, Toby Singer, in the Washington office of Jones, Day, Reavis & Pogue. Singer is a former FTC healthcare antitrust official. "The Federal Trade Commission and Department of Justice didn't like that immunity, and the FTC argued that the statute doesn't create automatic immunity. The FTC lost. The interesting twist here is that the Florida attorney general supported the hospital in that case."
Singer said every public hospital statute is different.
"The answer turns on the particular statute setting up public hospital districts. Plaintiffs have not been very successful on this issue in Florida," she said.
However, in March, the 5th U.S. Circuit Court of Appeals in New Orleans ruled that antitrust immunity for public hospitals isn't always automatic (March 29, p. 10). In that case, an outpatient surgery center challenged the contracting practices of a local public hospital district in Louisiana.
"Until the Louisiana case, only in one case out of a dozen did courts of appeals find in favor of plaintiffs," Singer said. "So the issue is not dead, as a lot of people might have thought."
John Cusack, a Chicago-based antitrust lawyer with Gardner, Carton & Douglas, said Halifax can benefit from state action immunity only if state law specifically allows it to acquire other hospitals.
Halifax spokesman John Evans said hospital counsel advised that the state law allows the acquisition and provides immunity from antitrust actions.
And to help it make that case, Columbia has retained Mark Horoschak as its outside antitrust counsel. Horoschak headed the FTC's healthcare antitrust division when the agency lost the Lee Memorial case. He now practices at Charlotte, N.C.-based Womble Carlyle Sandridge & Rice. Horoschak declined comment.
In Halifax's corner, is Robert Leibenluft, who replaced Horoschak at the FTC but recently when into private practice. Leibenluft is the outside antitrust counsel for Salomon Smith Barney, the New York-based investment banking firm that put the two-hospital sale together. He also declined comment.
Charles Koval, Memorial's vice president of legal affairs, said his system's board is concerned about protecting patient choice. But other facts suggest another motive.
In its fiscal year ended Sept. 30, 1998, Memorial lost about $1.2 million on total net revenues of about $170.6 million.
And the system has offered to buy the Ormond Beach facility from Columbia for the same terms as Halifax's offer rather than press its case to the state attorney general. That would give Memorial a monopoly on acute-care services in Ormond Beach.
"We're waiting for their response," Koval said.
That could be a long time coming.
"Ormond is considerably more valuable than the Daytona Beach hospital," said Halifax's Evans.
Columbia spokesman Jeff Prescott said Halifax should resolve the dispute, adding that Columbia's sole goal is to sell the hospitals.
Figures from the Florida Agency for Health Care Administration show the two Columbia hospitals lost nearly $5.5 million combined in 1997.
Richard Feinstein, who replaced Leibenluft as assistant director of the FTC's healthcare products and services division of its Bureau of Competition, said he couldn't comment on the Halifax case.
Also declining comment was Kimberly King, an assistant antitrust lawyer in the state attorney general's office, who acknowledged that the attorney general is aware of the proposed acquisition.