FTC Challenges Consummated Acquisition of St. Luke’s by ProMedica

On January 6, 2011 the Federal Trade Commission challenged the consummated acquisition of rival St. Luke's Hospital (“St. Luke's”) in Lucas County, Ohio by ProMedica Health System, Inc. (“ProMedica”).
In an administrative complaint, the FTC alleges that the deal will reduce competition and allow ProMedica to raise prices for general acute-care and inpatient obstetrical services, significantly harming patients and local employers and employees. According to a separate complaint, filed in federal district court on January 7, 2011, the Commission is seeking an order requiring ProMedica to preserve St. Luke's as a separate, independent competitor during the FTC's administrative proceeding and any subsequent appeals. The action in federal district court will be brought jointly with the Attorney General of the State of Ohio. ProMedica, a not-for-profit healthcare system headquartered in Toledo, Ohio with 2009 revenues of $1.6 billion, already operates three general acute-care hospitals in Lucas County. On August 31, 2010, the company acquired control of St. Luke's, a formerly independent, not-for-profit general acute-care hospital in Maumee, Ohio.

According to the FTC, at the time of the acquisition, St. Luke's was widely recognized as a high-quality, low-cost hospital and generated revenues of approximately $156 million in 2009. The FTC's complaint alleges that ProMedica's acquisition of St. Luke's threatens to substantially harm competition. Specifically, the FTC alleges that the acquisition reduces the number of general acute-care hospital competitors in Lucas County from four to three, leaving ProMedica to face only Mercy Health Partners and The University of Toledo Medical Center (“UTMC”). According to the FTC's complaint, after acquiring St. Luke's, ProMedica has a market share approaching 60 percent for general acute-care services in Lucas County. Meanwhile, in the market for inpatient obstetrical services in Lucas County – in which UTMC does not compete – the FTC charges the acquisition leaves only one competitor to ProMedica, increasing ProMedica's market share to more than 80 percent.

Additionally, the complaint charges that ProMedica's acquisition of St. Luke's eliminates significant price and non-price competition between the two firms in both the general acute-care and inpatient obstetrical markets; and that the acquisition vests ProMedica with the ability to demand higher rates for services performed at its other hospitals as well because the addition of St. Luke's to the ProMedica hospital system has made ProMedica a “must-have” system for health plans seeking to do business in Lucas County. The Commission votes approving both the administrative and federal district court complaints were 5-0. The evidentiary hearing is scheduled before an Administrative Law Judge at the FTC, beginning on May 31, 2011.

This is another consummated health care merger challenged by the FTC following only a month after its announced lawsuit seeking to undo Laboratory Corporation's acquisition of Westcliff Medical Laboratories Inc. With the FTC, even a done deal is never done. Consummation is irrelevant to the watchful eye of the FTC. Any deal, at any time will be scrutinized and challenged if warranted. Merging parties should be aware of the ongoing and continuing risks of post acquisition review.

The FTC is serious about enforcing the antitrust laws against consummated mergers. It also demonstrates that completed deals that slipped beneath the agency's radar screen initially for any reason are fair game even if the FTC learns about them later. It also demonstrates that the FTC has a particular interest in post-acquisition competitive effects of consummated mergers. Therefore, parties to a consummated deal that raise significant antitrust issues and avoided HSR scrutiny, for whatever reason, should proceed with reasonable caution and closely monitor post-acquisition conduct. Moreover, corporate and private counsel should be aware of the likely consequences and the risks of consummating transactions that raise significant competitive issues. The risks may include: defending against costly and lengthy government investigations and/or litigation; reorganizing to the government's demands of possible divestitures even after integration has taken place; and disgorgement of profits gained from the alleged anticompetitive merger.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com