## Facts

- Evanston Northwestern Healthcare Corporation (ENH) operated Evanston Hospital and Glenbrook Hospital in Chicago’s North Shore suburbs.
- In January 2000, ENH acquired Highland Park Hospital, a nearby competing general acute-care hospital.
- Hospitals competed primarily to be included in managed care organization (MCO) provider networks; MCOs needed attractive local hospital options to sell plans to employers.
- The FTC investigated the consummated acquisition and, in February 2004, issued an administrative complaint alleging the acquisition substantially lessened competition in violation of Clayton Act § 7.
- The relevant product was general acute-care inpatient hospital services sold to MCOs.
- The relevant geographic market was a North Shore area in which the three hospitals were close substitutes for MCO network design and contracting.
- After the acquisition, ENH obtained price increases that exceeded those of comparison hospitals and were not adequately explained by cost changes or quality improvements.
- Internal materials and testimony indicated ENH and Highland Park officials expected the merger to increase bargaining leverage over payors and later linked post-merger price increases to that leverage.
- An FTC Administrative Law Judge found a § 7 violation and ordered divestiture; ENH appealed.

## Issues

1. Whether the consummated acquisition substantially lessened competition in the sale of general acute-care inpatient hospital services to MCOs in the relevant geographic market, in violation of Clayton Act § 7.
2. If a violation occurred, whether divestiture was required or whether a conduct remedy could adequately address the competitive harm several years after consummation.

## Decision

- The FTC affirmed the finding that the acquisition violated Clayton Act § 7.
- The FTC relied heavily on direct evidence of anticompetitive effects, including ENH’s post-merger price increases relative to comparable hospitals and evidence tying those increases to merger-created bargaining leverage.
- The FTC found claimed efficiencies and quality justifications insufficient because they were not adequately verified, not merger-specific, or did not offset demonstrated anticompetitive effects.
- The FTC vacated the divestiture order and remanded for a conduct remedy, finding divestiture unusually costly and disruptive given the length of post-merger integration.
- The FTC ordered a behavioral remedy designed to restore competition in MCO contracting by requiring separate and independent negotiating teams for (i) Evanston/Glenbrook and (ii) Highland Park, along with protections to prevent coordination and coercive tying in contracting.

## Legal Principles

- Clayton Act § 7 prohibits acquisitions whose effect “may be substantially to lessen competition” in a relevant product and geographic market.
- In hospital merger analysis, competition for inclusion in MCO networks is a central mechanism of rivalry, and market power may be shown by whether MCOs can credibly exclude a hospital (or hospital system) without losing plan sales.
- Direct evidence of post-merger price increases, especially when not explained by costs or quality and supported by internal admissions of increased leverage, can establish anticompetitive effects and market power.
- Efficiencies must be merger-specific and substantiated; unverified or non-merger-specific claims do not rebut evidence that a merger enabled supracompetitive pricing.
- Structural relief (divestiture) is generally preferred for unlawful mergers, including consummated mergers, but a conduct remedy may be used in an unusual case where divestiture would impose high separation costs after prolonged integration.
- A conduct remedy may target bargaining leverage by requiring independent contracting, limiting information sharing, and prohibiting conditioning or tying contract terms across competing facilities.

## Conclusion

The FTC concluded that ENH’s acquisition of Highland Park unlawfully increased bargaining leverage over MCOs and produced supracompetitive pricing in a North Shore hospital market, but, given the passage of time and integration costs, imposed a conduct remedy requiring separate contracting and anti-coordination safeguards rather than divestiture.


In re Evanston Nw. Healthcare Corp., Docket No. 9315 (F.T.C. Aug. 6, 2007)