On March 22, 2022, the Third Circuit upheld a district court decision granting a preliminary injunction against Hackensack Meridian Health’s plan to acquire Englewood Healthcare, pending the outcome of an administrative trial by the Federal Trade Commission. The decision aligns with the FTC’s view that the acquisition would reduce available alternatives for inpatient general acute care services in Bergen County, likely leading to an increase in premium and out-of-pocket costs and reducing the quality of care in the area.
The decision is the latest in a series of FTC enforcement actions against hospital mergers. Prior to the year 2000, the antitrust agencies had a dismal record in challenging hospital mergers. In the early 2000’s, the FTC launched a project to rethink the government’s approach to such mergers. Since then, the FTC has racked up victory after victory in hospital merger challenges, winning nearly all of its cases except for a handful where state government intervention essentially blocked federal antitrust enforcement. The FTC’s winning streak was recently halted by its loss in its challenge against Jefferson Health’s acquisition of Albert Einstein Healthcare network, but its victory before the Third Circuit in this case shows that the FTC’s approach to hospital mergers remains effective.
Background of the Proposed Merger
- October 15, 2019: Hackensack, the largest healthcare system in New Jersey, announced plans to merge with Englewood Healthcare. Hackensack owns two of six hospitals in Bergen County, the largest county in NJ. Englewood is the third-largest provider of inpatient general acute care services in Bergen County, and owns one hospital in the area.
- December 3, 2020: The FTC filed an administrative complaint challenging the merger, and a lawsuit in New Jersey district court seeking a preliminary injunction against the merger pending the outcome of the administrative complaint (this is standard FTC procedure). The FTC alleged that the proposed acquisition would reduce competition for general acute care services in Bergen County and would enable Hackensack to increase prices and reduce quality of care available to patients.
- August 4, 2021: Following a seven-day evidentiary hearing on the FTC’s preliminary injunction motion, the NJ District Court issued a preliminary injunction to halt the merger.
- August 26, 2021: Hackensack and Englewood filed an appeal of the injunction with the Third Circuit Court of Appeals. In the appeal, the hospital systems argue that the district court erred in its evaluation of the likelihood of price increases, procompetitive benefits of the acquisition, and the geographic market.
The Third Circuit Decision
The Third Circuit court found that the FTC met its burden to establish that the merger “may” substantially lessen competition based on existing competition between the hospital systems, the additional leverage Hackensack would have post-merger, and Hackensack’s past behavior. The three-judge panel also rejected the defendants’ claims regarding the FTC’s definition of the geographic market, and found the proposed procompetitive benefits were outweighed by the potential anticompetitive harm.
The merger would lead to anticompetitive price increases.
The Court evaluated direct evidence examined by the district court and provided by the FTC, including statements from the hospital systems’ representatives, Englewood’s consultant, and insurers, all of which they found to indicate that Hackensack was Englewood’s main competitor, and the merger would reduce competition between the hospitals. The Court also reviewed expert analyses, including evidence of the correlation between a change in leverage and significant price increases, and previous Hackensack merger contracts, which the Court viewed as demonstrating Hackensack’s ability to raise rates.
Any procompetitive benefits are not significant enough to offset the likely anticompetitive effects.
In an effort to combat allegations of anticompetitive harm, the hospital systems claimed there would be procompetitive benefits from the merger. The panel, however, noted that the existence of procompetitive benefits does not imply the absence of anticompetitive harms. After evaluating the benefits raised by the parties, the panel either rejected them as merely speculative or non-merger-specific, or found that the procompetitive effects did not constitute significant economies that would benefit competition and patients in Bergen county.
The district court properly defined the geographic market.
The hospital systems claimed that the district court erred in defining the relevant geographic market because 1) the feasibility of price discrimination must be proven in a customer-based geographic market, and 2) the proposed market does not pass the hypothetical monopolist test because it does not consider the views of competing hospitals outside of Bergen County and the leverage of patients.
The Third Circuit agreed with the district court’s definition of the geographic market. It rejected the hospital systems’ claim that the feasibility of price discrimination must be proven in every customer-based geographic market, and stated it would not adopt such a “rigid requirement.” Instead, the panel explained that courts should consider “commercial realities” of the relevant industry. The panel also found no need to consider the views of competing hospitals outside of Bergen County, and no reason to believe their views should outweigh insurers’ interest in offering plans that include hospitals in Bergen County.
The Third Circuit’s decision stops the merger from moving forward, pending the result of the administrative trial which is scheduled to begin on April 22, 2022. Generally, in the wake of a loss in federal court such as this one, the parties abandon their deal rather than proceed through the administrative litigation process. We will see if that happens here. But as the FTC said, “[h]ospital executives hatching merger plans should take note.”
 FTC v. Hackensack Meridian Health, Englewood Healthcare Foundation, 3rd U.S. Circuit Court of Appeals No. 21-2603.
 Id. at 15.
 “Statement of FTC Office of Public Affairs Director Lindsay Kryzak on District Court’s Decision to Grant Preliminary Injunction Halting New Jersey Hospital Merger,” https://www.ftc.gov/news-events/news/press-releases/2021/08/statement-ftc-office-public-affairs-director-lindsay-kryzak-district-courts-decision-grant.