A Federal Trade Commission administrative law judge ordered Evanston Northwestern Healthcare Corporation (ENH) to divest Highland Park Hospital, ruling that ENH's acquisition of Highland Park Hospital resulted in "substantially lessened competition" and higher prices for insurers and healthcare consumers for general acute care inpatient services sold to managed care organizations.
ENH acquired Highland Park in January 2000. The acquisition combined ENH's Evanston and Glenbrook Hospitals (located on Chicago's North Shore) with Highland Park, the nearest hospital to the north. According to the FTC's complaint, filed in 2004, the combination allowed ENH to become a more significant provider of health care services to health plans that needed hospitals in northeast Cook County and southeast Lake County, Illinois. ENH was thus able to impose price increases greater than that of other comparable hospitals.
Judge Stephen McGuire agreed, relying on both contemporaneous and post-acquisition evidence to find that the merger allowed ENH to "convert existing price methodologies to managed care organizations to much more favorable post-merger terms" than either Evanston or Highland Park could have achieved on their own. Numerous "hot documents" generated by the hospitals were cited in the opinion. Furthermore, ENH continued to unilaterally raise rates in 2002 and 2003, increases which could only be explained by the exercise of market power.
This was the first challenge to a consummated hospital merger resulting from the FTC's hospital merger retrospective. The ALJ rejected one of the FTC staff's more novel theories -- that there was no need to define a relevant market -- but agreed with the staff's rejection of the use of patient origin data to define a relevant geographic market.
Judge McGuire ordered ENH to divest Highland Park Hospital within 180 days from the entry of the order. The order also requires ENH to ensure that Highland Park Hospital remains competitive in the marketplace pending the divestiture, and to provide transitional services to the acquirer for up to one year after the divestiture.
The initial decision is subject to review by the full Commission and the parties have announced that they will appeal. A copy of the press release is available at this link.
http://www.jonesday.com/files/upload/Evanston%20PR.pdf
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