AHA, AAMC Amicus Brief: Federal Trade Commission vs Hackensack Meridian Health, Inc, Et Al

INTRODUCTION

The FTC’s approach to defining the relevant geographic market in this case conflicts with settled law and economic principles, as well as business reality. In-deed, the FTC is attempting to do something that it has never directly attempted in hospital merger litigation—define a relevant geographic market based on where “commercially insured patients” live—“in Bergen County.” Op. 44.2 Because the FTC’s testifying expert defined a market of patients who live in Bergen County, settled antitrust law required the agency to show that the parties could “price dis-criminate” with respect to those patients—i.e., charge one (presumably higher) price to insurers for their members who reside in Bergen County and different (presumably lower) prices to their members who reside outside Bergen County. It is undisputed that the FTC never even attempted to carry that burden. That failure alone warrants reversal.

Even if the FTC had tried to make this unprecedented showing, however, it would have failed. It is not feasible for hospitals to charge patients different prices based on where they live, and it would make no real-world sense to even try. As one leading treatise explains, “[t]he contracts that hospitals negotiate with third-party payors constrain them to charge each payor’s patients the same set of prices, regardless of where the patients live or which company the patient works for.” Thomas McCarthy & Scott Thomas, Geographic Market Issues in Hospital Mergers, in ABA ANTITRUST SECTION, HEALTH CARE MERGERS AND ACQUISITIONS HAND-BOOK 50 (2003). And even if it were feasible for a hospital to charge different pa-tients (or their insurers) different prices based on where the patients live, any hospital that attempted such “redlining” in its pricing would likely be rebuked, swiftly and severely, by government regulators. Put simply, the price discrimination on which the FTC’s market definition rests is both practically and legally infeasible. Thus, the district court’s acceptance of the FTC’s relevant geographic market was legal error that compels reversal. See FTC v. Penn State Hershey Med. Ctr., 838 F.3d 327, 336–37 (3d Cir. 2016).

The FTC, of course, was (and is) well aware that it failed to carry its burden of proving a geographic market based on customer location. In the hope of avoiding this problem, the FTC’s testifying economist purported to validate her patient-based geographic market by running market definition tests for two different relevant geo-graphic markets. But this fallback effort was likewise deficient as a matter of law: it utilized and depended on the outputs of a model reported in an academic paper that analyzed hospital mergers that did not occur in New Jersey, much less in Bergen County. Tr. 961:11–20; Christopher Garmon, The Accuracy of Hospital Merger Screening Methods, 48 RAND J. ECON. 1068, 1080 (2017). Hospitals operate in local markets with varying supply and demand conditions, and under settled Third Circuit precedent, geographic markets are “[d]etermined within the specific context of each case” and “must correspond to the commercial realities of the industry being considered.” Penn State Hershey Med. Ctr., 838 F.3d at 338 (internal quotation marks and citation omitted).

If the Court were to endorse the FTC’s novel approach to market definition, its decision would open the floodgates to the FTC litigating (and threatening to litigate) hospital merger challenges based on artificially narrow markets that are unrelated to how hospitals actually negotiate prices with insurance companies. This in turn would allow the FTC to challenge transactions that pose no threat to competition, while making it harder for hospitals to allocate capital to procompetitive transactions—a result squarely at odds with the purpose of the antitrust laws.

View the entire amicus brief below