## Facts

- Hospital Corporation of America (HCA), a large for-profit hospital chain, acquired Hospital Affiliates International (HAI) (about $650 million) and, four months later, Health Care Corporation (HCC) (about $30 million) through stock transactions in 1981–1982.
- Before the transactions, HCA owned one acute-care hospital in the Chattanooga, Tennessee area; after the transactions (including associated management contracts), HCA owned or managed five of eleven acute-care hospitals in the Chattanooga urban area and seven of fourteen in the six-county Chattanooga metropolitan area.
- The FTC alleged the acquisitions increased concentration in general acute-care hospital services in the Chattanooga area, raising risks of reduced competition and coordinated conduct among hospitals.
- An Administrative Law Judge found the acquisitions unlawful and ordered divestiture and forward-looking restrictions; HCA appealed to the full Commission.

## Issues

1. What are the relevant product and geographic markets for evaluating the acquisitions under Clayton Act § 7 in the hospital industry?
2. Whether the acquisitions may substantially lessen competition or tend to create a monopoly in the relevant market, in violation of Clayton Act § 7.
3. Whether the same conduct constitutes an unfair method of competition under FTC Act § 5.
4. Whether divestiture and forward-looking acquisition restrictions are appropriate and reasonably tailored remedies.

## Decision

- The Commission affirmed that the relevant product market was general acute-care hospital services and that the relevant geographic market was the Chattanooga area reflected by local patient and physician hospital choices.
- The Commission held HCA’s acquisitions violated Clayton Act § 7 because the transactions significantly increased concentration and HCA’s control of local acute-care hospitals, creating a substantial likelihood of anticompetitive effects.
- The Commission also found the acquisitions violated FTC Act § 5 as an unfair method of competition.
- The Commission ordered HCA to:
  - Divest North Park Hospital and Diagnostic Center Hospital (and associated medical office buildings) to separate Commission-approved buyers.
  - Terminate its management contract with Downtown General Hospital and divest related real estate to a Commission-approved acquirer.
  - Comply with prior-approval or prior-notice requirements for certain future hospital acquisitions in the Chattanooga area and for specified acquisitions meeting defined conditions.

## Legal Principles

- Clayton Act § 7 prohibits acquisitions whose effect may be substantially to lessen competition or tend to create a monopoly; actual anticompetitive effects need not be shown if the probability is sufficiently established.
- Relevant-market definition in hospital merger review can treat general acute-care inpatient hospital services as a distinct product market and can use a local geographic market based on patient travel and physician admitting patterns.
- High post-merger market shares and increased concentration are strong prima facie evidence of likely competitive harm, especially when market conditions suggest susceptibility to coordinated interaction.
- Claims that hospital differentiation or sophisticated third-party payors will prevent market power may be rejected when structural indicators and market conditions indicate likely anticompetitive effects.
- Post-acquisition changes subject to strategic manipulation may be given little weight in assessing competitive effects.
- Anticompetitive acquisitions may be challenged under both Clayton Act § 7 and FTC Act § 5, and the FTC may order structural relief (divestiture) and forward-looking restrictions to prevent recurrence.

## Conclusion

The FTC concluded that HCA’s acquisitions unlawfully increased concentration in Chattanooga-area acute-care hospital services, violating Clayton Act § 7 and FTC Act § 5, and imposed divestitures, termination of a management relationship, and future acquisition controls to restore and protect competition.


In re Hospital Corp. of Am., 106 F.T.C. 361 (1985)