## Facts

- Penn State Hershey Medical Center (Hershey) and PinnacleHealth System (Pinnacle) were the two largest hospitals in the Harrisburg, Pennsylvania area and planned to merge in 2015.
- The FTC and the Commonwealth of Pennsylvania alleged the merger would substantially lessen competition in general acute care (GAC) inpatient hospital services sold to commercial health plans.
- The government defined the relevant geographic market as four counties around Harrisburg: Dauphin, Cumberland, Perry, and Lebanon.
- Hershey had a regional reputation and drew a large share of patients from outside the four-county area; Pinnacle was its main rival for commercially insured patients locally.
- The FTC brought an administrative challenge and, in parallel, sought a preliminary injunction in federal district court under FTC Act § 13(b) and Clayton Act § 16 to block the merger pending the administrative adjudication.
- After an evidentiary hearing, the district court denied injunctive relief, finding the proposed geographic market unproven and concluding claimed efficiencies and public-interest considerations weighed against an injunction.

## Issues

1. Whether the district court clearly erred in rejecting the government’s four-county geographic market for GAC inpatient services sold to commercial insurers.
2. Whether the government made a prima facie showing under Clayton Act § 7 that the merger would likely substantially lessen competition.
3. Whether the hospitals’ asserted efficiencies were cognizable and sufficient to rebut a prima facie case.
4. Whether the district court applied the correct preliminary-injunction standard under FTC Act § 13(b), including proper consideration of equities and the public interest.

## Decision

- The Third Circuit reversed and remanded with instructions to enter a preliminary injunction preventing consummation of the merger pending completion of the FTC’s administrative adjudication.
- The court held the district court’s geographic-market analysis was clearly erroneous because it relied too heavily on patient-flow evidence rather than insurer substitution options.
- The court found the government established a strong prima facie case based on high post-merger concentration and increased concentration within the four-county market.
- The court concluded the district court improperly credited long-term payer contracts as negating competitive harm in a forward-looking merger analysis.
- The court rejected the district court’s acceptance of the hospitals’ efficiencies evidence as speculative and not shown to be merger-specific, verifiable, and beneficial to consumers.
- The court held the equities and public interest favored preserving the status quo because consummation could moot administrative relief and later divestiture could be impracticable.

## Legal Principles

- In hospital-merger cases involving commercial health plans, geographic market definition should focus on insurers’ feasible alternatives and whether a hypothetical monopolist could profitably impose a SSNIP within the proposed area.
- Evidence that patients travel from outside an area, including for specialized or prestigious care, does not by itself defeat a geographic market for routine GAC inpatient services if insurers cannot practically substitute to outside hospitals.
- A strong structural presumption of anticompetitive effects arises when a merger produces a highly concentrated market and significantly increases concentration; defendants then bear the burden to rebut the presumption.
- Temporary contractual constraints (e.g., multi-year payer contracts) generally do not rebut a prima facie case where competitive effects must be assessed over the merger’s future competitive life.
- Any efficiencies consideration requires proof that efficiencies are merger-specific, verifiable, and likely to benefit consumers; speculative or non-cognizable efficiencies do not offset a strong prima facie showing.
- Under FTC Act § 13(b), the court assesses the Commission’s likelihood of ultimate success and weighs equities in the public interest, with emphasis on preserving the FTC’s ability to obtain effective administrative relief.

## Conclusion

The Third Circuit required a preliminary injunction blocking the Hershey–Pinnacle merger, holding that the government showed a likely § 7 violation in a properly defined four-county market and that the district court erred by relying on patient-flow data, temporary contracts, and inadequately supported efficiencies when applying the § 13(b) public-interest standard.


Fed. Trade Comm’n v. Penn State Hershey Med. Ctr., 838 F.3d 327 (3d Cir. 2016)