FTC Challenges Hospital Merger That Allegedly Led to Anticompetitive Price Increases

The Federal Trade Commission today issued an antitrust complaint against a corporation - which owns a system of hospitals in Cook and Lake counties, Illinois - that acquired a nearby hospital and shortly thereafter imposed allegedly anticompetitive price increases. According to the FTC, Evanston Northwestern Healthcare Corporation's (ENH) acquisition of Highland Park Hospital (Highland Park) resulted in significantly higher prices charged to health insurers and therefore in higher costs to purchasers of insurance and consumers of hospital services. The FTC's complaint asserts that the merger violated the Clayton Act, based on an analysis conducted under the Horizontal Merger Guidelines and on the actual competitive effects - in the form of higher prices actually charged by ENH after the merger. The FTC seeks a remedy to restore competition to the benefit of consumers seeking competitively-priced health care. The complaint also asserts that a physician group affiliated with the merged hospitals engaged in price fixing in violation of the FTC Act.

In January 2000, ENH acquired Highland Park in a transaction valued in excess of $200 million. This combined ENH's Evanston and Glenbrook Hospitals - located in Cook County, Illinois - with Highland Park, the nearest hospital to the north. With Highland Park added to its existing hospitals, ENH became a more significant provider of health care to payers who needed hospital access in northeast Cook County and southeast Lake County, Illinois. The Commission's complaint alleged that ENH was able to raise its prices far above price increases of other comparable hospitals as a result of the merger.

In addition to merging the ENH and Highland Park hospitals, the parties merged the Highland Park Independent Physician Group into ENH Medical Group. Post-merger, the resulting physicians' group negotiated prices not only for physicians who were employed by the ENH Medical Group but also for several hundred independent physicians not employed by ENH Medical Group, who were previously affiliated with Highland Park. The independent physicians for whom ENH Medical Group negotiated prices are not financially or clinically integrated with ENH or the ENH Medical Group. The alleged conduct therefore constitutes illegal price fixing among competing physicians or physician groups, thus denying commercial payers, employers, and individuals the benefits of competition in physician services.

In addition, the Commission's complaint charges that, following the merging of the hospitals and physician groups, ENH has offered to payers both hospital and physician services as a package. In many instances, ENH required commercial payers to agree to its terms for these services or face termination of their contracts.

The Commission vote to authorize staff to file the administrative part III complaint was 4-1, with Commissioner Pamela Jones Harbour dissenting.

NOTE: The Commission issues a complaint when it has "reason to believe" that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The complaint is not a finding or ruling that the respondents have actually violated the law. The administrative complaint marks the beginning of a proceeding in which the allegations will be ruled upon after a formal hearing by an administrative law judge.

Copies of the Commission's complaint are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC's Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave., N.W., Washington, DC 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws, which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.

FTC File No. 011-0234