Brief Fact Summary. An administrative law judge (ALJ) found that Evanston Northwestern Healthcare Corp (ENH) (Defendant) violated federal antitrust law when it acquired Highland Park Hospitals, as the transaction lessened competition considerably in the Northern Illinois market for acute-care inpatient services. The ALJ ordered Defendant to divest itself of Highland Park Hospital. Defendant appealed.
Synopsis of Rule of Law. Where a health care corporation's acquisition of a hospital lessens competition considerably in the Northern Illinois market for acute-care inpatient services, divestiture is not warranted seven years after the merger.
The knowledge of an adverse claim to, or lien upon property, does not, of itself, indicate bad faith in a purchaser, and is not even evidence of it, unless accompanied by some improper means to defeat such claim or lien.
View Full Point of LawIssue. Where a health care corporation's acquisition of a hospital lessens competition considerably in the Northern Illinois market for acute-care inpatient services, is divestiture warranted seven years after the merger?
Held. [Commissioner not stated in casebook excerpt.] No. Where a health care corporation's acquisition of a hospital lessens competition considerably in the Northern Illinois market for acute-care inpatient services, divestiture is not warranted seven years after the merger. The evidence shows that the transaction enabled the merged firm to exercise market power that was not offset by merger-specific efficiencies, that senior Evanston and Highland Park senior officials anticipated the merger would give them greater leverage for raising prices, that the merged firm did raise its prices immediately and considerably after completion of the transaction, and that the same senior officials attributed the price increases in part to increased bargaining leverage the merger had produced. Clearly Defendant violated § 7 of the Clayton Act, and an administrative law judge reasonably ordered the divestiture of Highland Park from ENH (Defendant), because divestiture is the preferred remedy for challenges to unlawful mergers. It is, however, impractical seven years after the merger, as substantial costs would be incurred to achieve divestiture, and it would upset the efficiencies now in place in the combined facility. A better, if inferior, remedy at this point is to require Defendant to establish independent negotiating teams—one for Defendant's Evanston and Glenbrook hospitals, and another for Highland Park—to allow managed care organizations to negotiate separate contracts for the hospitals. The injunction remedy is not ideal, but it will allow managed care organizations to negotiate separately again for these competing hospitals, thereby reintroducing competition between them for the business of managed care organizations.
Discussion. The traditional remedy in a merger case is divestiture, and the proposed remedy in this case—independent contract negotiating teams—could be impractical as there are difficulties associated with protecting against sharing of information, deliberately or not, about the separate managed care contracting efforts. Nevertheless, Plaintiff arguably had no choice but to reject divestiture. It would have been a real challenge to undo the merger after seven years.