Judge Denies FTC Injunction Enjoining Merger of Two Hospitals Pending Agency Approval

Today in the Eastern District of Pennsylvania, Judge Gerald J. Pappert denied the Federal Trade Commission (FTC) a preliminary injunction that would block a merger between two healthcare providers, Thomas Jefferson University (Jefferson) and Einstein Healthcare Network (Einstein), pending an administrative determination of the legality of the merger by the FTC. 

The court explained that the Clayton Act prevents mergers “where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to less competition….” While the FTC retains ultimate say over whether a merger is prohibited, the FTC may attempt to stay any merger via a preliminary injunction granted  by a federal district court pending a final FTC agency decision. To receive an injunction, the FTC must have “reason to believe that a (merger) is violating, or is about to violate the Clayton Act” and prove to the court that the final agency hearing is likely to return a ruling that the merger is indeed illegally anticompetitive. 

The court ruled that the FTC failed to provide evidence defining the market or the services that the merger between Jefferson and Einstein would affect, in violation of the Clayton Act. If anything, the court proclaimed, Jefferson and Einstein need this merger just to become competitive with other healthcare providers in the region, as both healthcare providers lack a substantial amount of patients carrying commercial insurance albeit maintaining a hefty amount of government-insured patients.

The issue with disproportionate amounts of government-insured patients, the judge analyzed, is that government reimbursement rates for medical care proves to be far less than reimbursement rates from private insurers. Without more commercial dollars, the opinion elaborated, healthcare costs at Jefferson and Einstein only continue to inflate, making private insurers even less likely to include the hospital in commercial insurance networks. 

Judge Pappert further elaborated on how the FTC incorrectly defined the market and the service areas where the merger may promote anticompetitive activity. First, the FTC defined the market areas as being the locations where medical services could be received generally in two loosely-defined geographical areas: Philadelphia area, consisting of most of the city of Philadelphia, and the Montgomery area, consisting of suburban areas in Montgomery County that are adjacent to but not contained within the Philadelphia area. This is incorrect, the court noted, as the properly defined market for the merger is the healthcare provider locations within those same two regions where commercial insurance dollars will situate both before and after the merger.

Second, the court noted that the FTC relied heavily on evidence labeling the product/service at issue being “acute rehabilitation services.” However, the judge also disagreed with this definition of the service as most private insurers rarely considered whether a healthcare provider offered any type of affordable “acute rehabilitation services” when deciding to place said provider within a commercial insurance network. 

The judge dismissed the FTC’s request for a preliminary injunction and allowed the merger to proceed. Judge Pappert wrote that the FTC “has not shown that there is a credible threat of harm to competition during the time between the denial of the preliminary injunction and the final (agency) adjudication of the (merger’s) merits…and (the court) cannot justify enjoining this transaction….”

The healthcare providers are represented by Hogan Lovells and Faegre Drinker Biddle & Reath.