Columbia/HCA Healthcare Corporation will pay a $2.5 million civil penalty to settle Federal Trade Commission charges that it violated a 1995 FTC order to divest hospitals in Utah and Florida in a timely manner. The complaint also alleges that Columbia/HCA, based in Nashville, Tennessee, failed to honor a hold separate agreement relating to the Utah hospitals, and violated an earlier FTC order by failing to satisfy the conditions on which the Commission had approved its acquisition of a competing hospital chain.
"The $2.5 million civil penalty in this case is the FTC's largest settlement, and the second largest penalty, for failures to divest on time," said Robert Pitofsky, Chairman of the FTC. "It should send a strong message to industry that the FTC expects companies to abide by their obligations and will enforce its orders vigorously."
On October 5, 1995, the FTC gave final approval to a consent agreement with Columbia/HCA, settling charges that the company's $3 billion merger with Healthtrust, Inc. - The Hospital Company would impair hospital competition -- leading to higher prices, reduced services, or both -- in six different geographic areas in the United States. The merger involved more than 280 hospitals nationwide and was the largest hospital merger in U.S. history.
The final order, Docket No. C-3619, designed to restore the competition eliminated by the merger, required Columbia/HCA to divest seven hospitals, including Davis Hospital and Medical Center in Layton, Utah, and Pioneer Valley Hospital in West Valley City, Utah. Under the terms of the order, the divestitures were to be completed within nine months to entities that would operate them in competition with Columbia/HCA. Pending divestiture, Columbia/HCA was required to operate the hospitals separately from its other hospitals and to keep them marketable and viable.
The order also required Columbia/HCA to terminate within six months its joint venture to operate South Seminole Hospital with the Orlando Regional Health System, either by buying out Orlando Regional Health System's interest or by selling Healthtrust's interest. The FTC alleged that hospital competition in the Orlando area would be threatened if two major competitors in that market, Columbia/HCA and the Orlando Regional Health System, shared ownership of South Seminole Hospital, located in Longwood Florida, north of Orlando.
In its court complaint, the FTC charged that despite the requirement to divest South Seminole Hospital within six months, by April 1996, Columbia/HCA did not complete the divestiture. Ultimately, the FTC appointed a trustee to oversee the sale, which was completed on September 30, 1997. During the period between April 1996 and September 1997, Columbia/HCA was in violation of the FTC order and consumers of acute care hospital services in the Orlando, Florida area were denied the full benefits of competition, according to the complaint.
Columbia/HCA also was ordered to divest the Utah-based hospitals, Davis and Pioneer Valley, to Commission-approved buyers by January 1996, and to hold their assets and information separate, pending divestiture. The hold separate agreement prohibited receiving or using confidential information between Columbia/HCA and the Utah hospitals and required appointment of a separate three-member Board of Directors to administer them. Columbia/HCA appointed three board members, but then appointed two of them to positions on the Columbia/HCA board or to executive positions at Columbia/HCA. In addition, Columbia/HCA and the Utah hospitals had access to each other's confidential information, including financial information and operating plans. The FTC alleges that failure to comply with the hold separate agreement denied Utah consumers the benefits of competition.
The order required Columbia/HCA to divest Davis and Pioneer Valley hospitals within nine months of the final order, or by January 1996. The FTC complaint alleges that Columbia/HCA failed to comply with the order and did not divest the hospitals until May 1996. As a result, Utah consumers were denied the full benefits of competition in the acute care hospital services market.
Finally, Healthtrust, Inc. - The Hospital Company was required by a 1994 FTC order to obtain the Commission's approval before selling itself, or any assets, to a competitor. Pursuant to that order, Docket No. C-3538, the Commission, in approving Healthtrust's sale to Columbia/HCA, conditioned that approval on Columbia/HCA's compliance with the requirements and the hold separate agreement and divestiture order in C-3619. Columbia/HCA then purchased Healthtrust, and was, through its acquisition, bound by the Healthtrust order. The court complaint alleges that Columbia/HCA, when it violated the 1995 order, failed to satisfy the conditions upon which the Commission had granted its prior approval the acquisition of Healthtrust.
The Commission vote to accept the consent judgment was 4-0, with Commissioner Orson Swindle issuing a separate, concurring statement.
In the majority statement, Chairman Robert Pitofsky and Commissioners Sheila F. Anthony and Mozelle W. Thompson said, "We have voted to accept a $2.5 million civil penalty from Columbia/HCA Healthcare Corp. to settle charges that Columbia violated two Commission Orders by: (1) failing to divest in a timely manner two Utah Hospitals and its joint venture interest in South Seminole Hospital in Florida; and (2) violating a related Hold Separate Agreement governing assets it acquired in Utah as a result of its merger with Healthtrust, Inc. We write separately to express our strong concern about Columbia's apparent reckless disregard for its obligations under the two Commission Orders at issue. As a result, we believe the Commission would have been well within its rights to demand an even higher civil penalty.
"Accordingly, we will demand substantial civil penalties from companies that choose to ignore or otherwise wilfully or recklessly violate their obligations under Commission Orders. We also impress upon companies that the Commission expects them to abide by their obligations under Commission Orders and that the Commission will enforce its Orders, including the filing of lawsuits where necessary to obtain appropriate civil penalties."
In his separate, concurring statement, Commissioner Swindle said, "I did not join in the statement issued by my colleagues because I cannot simultaneously express both satisfaction and dissatisfaction with the $2.5 million civil penalty negotiated in this case. That penalty is inadequate in light of Columbia/HCA's prolonged and pronounced disregard for the requirements of two Commission divestiture orders and the Utah Hold Separate Agreement. A substantially higher penalty amount was warranted, and we should have pursued it aggressively.
"In their statement, my colleagues note 'Columbia's apparent reckless disregard for its obligations' and conclude that 'the Commission would have been well within its rights to demand an even higher civil penalty.' I could not agree more. Yet this leads me to conclude that the Commission should not have accepted this settlement. I do not believe that a promise to be more demanding in the future is an adequate substitute for pursuing the more substantial civil penalty that we all agree, at this moment, would have been appropriate.
"Considering my strong misgivings, then, one might ask why I voted to accept the $2.5 million civil penalty. When my effort to seek a higher penalty failed to garner the support of my colleagues, the choice came down to what was on the table or nothing. Given those alternatives, the choice was easy."
The proposed consent judgment was filed today. It is subject to court approval.
NOTE: This consent judgment is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent judgments have the force of law when signed by the judge.
Copies of the complaint, stipulation and proposed final judgment and documents associated with previous law enforcement actions with respect to Columbia/HCA and Healtrust are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
Bureau of Competition
(FTC File No. 961-0013)
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