## Facts

- Highland Park Hospital merged with Evanston Hospital and Glenbrook Hospital in the Evanston, Illinois area, forming Evanston Northwestern Healthcare Corporation (ENH).
- The transaction was consummated in January 2000, eliminating Highland Park as an independent hospital competitor in the area.
- The challenged services were general acute-care inpatient hospital services sold to managed care organizations (MCOs) through negotiated network contracts and reimbursement rates.
- Over the next four years after the merger, ENH raised prices for hospital services significantly above the area’s premerger levels.
- ENH’s rate increases were faster and higher than those of comparable hospital systems providing comparable services.
- FTC complaint counsel assembled evidence that ENH’s post-merger pricing was made possible by ENH’s increased market power following the merger, rather than by ordinary cost or market changes.
- ENH defended the transaction by pointing to certain facility and service upgrades and by offering evidence that some prices were below broader market benchmarks.
- The FTC issued an administrative complaint alleging that the merger violated § 7 of the Clayton Act (and, by extension, § 5 of the FTC Act) and proceeded before an FTC Administrative Law Judge (ALJ).

## Issues

1. Whether ENH’s consummated merger substantially lessened competition in a properly defined product and geographic market for general acute-care inpatient hospital services sold to MCOs, in violation of § 7 of the Clayton Act (as enforced through § 5 of the FTC Act).
2. Whether ENH’s post-merger price increases and contracting experience constituted direct evidence that the merger created market power and harmed competition.
3. Whether ENH proved cognizable, merger-specific efficiencies or quality-related justifications sufficient to rebut or outweigh the evidence of anticompetitive effects.
4. What remedy was appropriate for an unlawful, already-completed hospital merger, including whether divestiture was necessary to restore competition.

## Decision

- The ALJ found that the merger violated § 7 of the Clayton Act by substantially lessening competition for general acute-care inpatient hospital services sold to MCOs in the relevant area.
- The ALJ credited direct evidence that ENH raised prices materially after the merger, and that the increases exceeded ENH’s prior trend and increases at comparator hospitals.
- The ALJ rejected ENH’s explanations for the price increases, concluding that the evidence did not show that claimed improvements or other justifications accounted for the magnitude and timing of the pricing changes.
- The ALJ ordered structural relief, requiring ENH to divest Highland Park Hospital (subject to FTC approval of a buyer) within a specified time after the order became final.

## Legal Principles

- Section 7 of the Clayton Act prohibits an acquisition when its effect “may be substantially to lessen competition,” including in a retrospective challenge to a consummated merger.
- In hospital-merger cases involving MCO contracting, market definition and competitive effects may be shown through payor testimony and evidence about whether plans can market a competitive product without including particular hospitals in network.
- Direct evidence of competitive effects—such as sustained, merger-linked price increases—can support a finding of market power and competitive harm, even apart from structural concentration measures.
- Efficiency and quality defenses must be supported by evidence and tied to the merger; generalized investments or upgrades that do not explain the challenged price effects do not defeat liability.
- Divestiture is a standard remedy for unlawful horizontal mergers when feasible, because it can restore the premerger competitive structure more reliably than ongoing conduct controls.

## Conclusion

In the Matter of Evanston Northwestern Healthcare Corp. held that ENH’s completed merger of Highland Park Hospital with its Evanston-area hospitals substantially lessened competition for general acute-care inpatient services sold to MCOs, as shown by significant post-merger price increases not adequately justified by merger-specific benefits, and the ALJ ordered divestiture to restore competition.


In the Matter of Evanston Northwestern Healthcare Corp., 2005 F.T.C. LEXIS 146 (2005)