F.T.C. v. Tenet Healthcare Corp.
| Decision Date | 30 July 1998 |
| Docket Number | No. 4:98CV709 CDP.,4:98CV709 CDP. |
| Citation | 17 F.Supp.2d 937 |
| Parties | FEDERAL TRADE COMMISSION, et al., Plaintiffs, v. TENET HEALTHCARE CORPORATION, et al., Defendants. |
| Court | U.S. District Court — Eastern District of Missouri |
Garry R. Gibbs, Steven Osnowitz, Gary H. Schorr, Geoffrey Oliver, Robert F. Leibenluft, Federal Trade Commission, Washington, DC, Penny G. Newman, F. Martin Dajani, Attorney General of Missouri, Kansas City, for Federal Trade Commission, State of Missouri, By and through its Attorney General, Jeremiah W. (Jay) Nixon, plaintiffs.
G. Keith Phoenix, Managing Partner, Sandberg and Phoenix, St. Louis, George T. Manning, Darryl R. Marsch, Adrian Wager-Zito, L. Trammell Newton, Jr., Charles A. James, Jones and Day, Washington, DC, Thomas Demitrack, Jones and Day, Cleveland, OH, for Tenent Healthcare Corporation, Poplar Bluff Physicians Group, Inc. dba Doctors Regional Medical Center, defendants.
Plaintiffs Federal Trade Commission (FTC) and the State of Missouri seek a preliminary injunction under § 13(b) of the Federal Trade Commission Act (FTC Act), 15 U.S.C. § 53(b), to enjoin the proposed merger of the only two commercial hospitals in Poplar Bluff, Missouri. Lucy Lee Hospital is already owned by defendant Tenet Healthcare Corporation, which wishes to purchase Doctors Regional Medical Center (DRMC), currently owned by defendant Poplar Bluff Physicians Group, Inc. Both plaintiffs contend that the proposed merger would substantially lessen competition between acute care hospitals in the Poplar Bluff area in violation of § 7 of the Clayton Act, 15 U.S.C. § 18. The State of Missouri also alleges violations of the Missouri antitrust statute, Mo.Rev.Stat. § 416.031 (1994). Plaintiffs ask this Court to enjoin the proposed merger until completion of FTC administrative proceedings.
Plaintiffs filed separate actions in April 1998, which were consolidated for expedited discovery and hearing. Because Tenet and DRMC agreed to refrain from closing on the proposed acquisition until five days after entry of this order, plaintiffs did not seek a temporary restraining order. The Court held a five-day hearing on the request for preliminary injunction.
Based on all of the evidence and the arguments presented, the Court concludes that the plaintiffs have met their burden of showing that the FTC is likely to succeed on the ultimate issue of whether the merger would have the effect of substantially lessening competition in the relevant market. Accordingly, having weighed the equities and considered the public interest, the Court will issue the preliminary injunction.
On April 2, 1997, defendant Tenet Healthcare Corporation, which currently owns Lucy Lee Hospital, entered into an agreement to acquire DRMC by purchasing all of the voting shares of the Poplar Bluff Physicians Group, Inc., for $40.5 million. Except for a hospital owned and operated by the Veterans Administration, Lucy Lee and DRMC are the only two hospitals in Poplar Bluff, Missouri. They are both general acute care hospitals providing primary and secondary care services.
Poplar Bluff is the county seat of Butler County, located in Southeast Missouri. Poplar Bluff has a population of approximately 17,000 persons, while Butler County has approximately 40,000 persons. Poplar Bluff, the largest city in a several-county area, has a number of manufacturing operations and operates as the cultural and economic center of the surrounding area. Driving distances to the next largest cities in any direction — which include Sikeston and Cape Girardeau, Missouri, to the east and northeast, and Jonesboro, Arkansas, to the southeast — are generally in excess of one hour. Like most rural areas in the United States, the region is not wealthy, and has a large number of lower income and elderly residents.
Lucy Lee has 201 licensed beds, 185 of which are staffed. Lucy Lee operates ten out-patient clinics in the surrounding counties. Most of these out-patient clinics are staffed by a nurse practitioner, and physicians are on site only during limited hours. Some of the clinics are not opened or staffed on a full-time basis. Lucy Lee's average daily census in 1994 was 75, in 1995 was 76, and in 1996 was 104.
DRMC has been a for-profit hospital during its entire existence, but has changed hands several times. In 1990, its current owners, a group of physicians who had previously and were then practicing at DRMC, purchased the hospital for approximately $20 million. DRMC has 230 licensed beds, 187 of which are staffed. The evidence shows that DRMC's average daily census in 1994 was 106, in 1995 was 99, in 1996 was 95, and in 1997 was 77. DRMC, like Lucy Lee, operates several rural health clinics and a mobile clinic in surrounding counties. Like Lucy Lee's clinics, these clinics are staffed by nurse practitioners who work under the supervision of physicians available only on a part-time basis.
There are four small rural hospitals within fifty miles of Poplar Bluff. None of these has more than 50 staffed beds. Each of these hospitals has few admitting doctors and provides only a very basic level of primary care services and limited, if any, secondary care services.1 Also approximately fifty miles away is Tenet-owned Twin Rivers Medical Center in Kennett, Missouri, which has 118 staffed beds, 20 admitting physicians on staff and an average daily census of 44 patients.
Within a sixty-five "air" mile radius of Poplar Bluff (which can be up to 95 driving miles) there are fourteen other hospitals, ranging in size from tertiary care hospitals (in Cape Girardeau, Missouri, and Jonesboro, Arkansas) to small primary-care hospitals.
St. Louis, Missouri, is approximately 145 driving miles from Poplar Bluff and has a large number of hospitals, ranging from primary care to quaternary care hospitals. Both Barnes-Jewish-Children's Hospital in St. Louis, a major teaching hospital affiliated with Washington University Medical School, and Tenet-owned St. Louis University Hospital, also a major teaching hospital, provide all levels of care including the highest level of specialized care such as organ transplants. Similarly, Memphis, Tennessee, approximately 150 miles from Poplar Bluff, has Baptist Memorial Hospital, a major hospital which also provides highly specialized care.
The parties agree that managed care organizations have a very significant, if not determinative, effect on patients' selection of hospitals. During the hearing, the parties presented testimony and written evidence from numerous third-party payors, including commercial health insurance plans, network providers, and self-insured companies offering health insurance to employees. Most of the third-party payors in the Poplar Bluff region offer their participants some version of a preferred provider organization (PPO) health plan. A standard PPO arrangement requires the participant to make a co-payment, typically 20% of the cost, and to pay a deductible, which might range anywhere from $100 to $500. The PPOs provide their participants with incentives to use in-network health care providers by reimbursing a lower percentage of the fees, such as 60% or 70%, if the individual chooses to use an out-of-network provider. Although the percentages for the PPO payments varied, the general scheme is the same.
There are few true Health Maintenance Organizations (HMOs) currently operating in Southeast Missouri. Hospitals and major providers in the area have been very resistant to managed care generally, and especially to HMOs. The evidence showed, however, that managed care is thriving in Southeast Missouri and that numerous PPOs contract with and obtain discounts from various health care providers. It is reasonable to expect that HMOs, along with other forms of managed care, will increase in the area as they have in the rest of the country and state.
The evidence showed that Lucy Lee and DRMC have a long history of competing with one another, and actively compete for thirdparty payor contracts. The large employers, health care networks, and insurance companies have been very successful in negotiating discounts with the Poplar Bluff hospitals. The payors attribute their success in obtaining hospital discounts to the fierce competition between the two hospitals. Several witnesses testified that the rates they were able to obtain in Poplar Bluff were significantly lower than rates elsewhere in the country or the state. To counter the significant payor testimony presented by plaintiffs, defendants presented one representative from a large national corporation with a manufacturing facility in the region, who strongly disagreed with plaintiffs' witnesses. This witness credibly testified that he believed his company would be able to continue to negotiate savings from the merged entity, and that efficiencies from the merger would benefit competition. This witness's company, however, provides an impressive benefit package to its work force in an attempt to hire quality employees, keep them with the company, and avoid unionization. Because of this, the company is uniquely sensitive about providing a very high level of services, a very low co-payment, and maximum provider choice for its employees. As a nationwide company with thousands of employees, it understandably gains a competitive advantage in negotiating with major suppliers such as Tenet, because it can negotiate contracts in more than one location. In contrast, many of plaintiffs' witnesses owned much smaller local companies, and these witnesses believed that their negotiating power would be greatly diminished if there were only one hospital provider available in the area. It is clear that the competitive pressures between the two hospitals in the past has benefited the consumers of the region and has kept prices significantly lower than those in other areas.
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