Fed. Trade Comm'n v. Penn State Hershey Med. Ctr.

• Decision Date: 09 May 2016
• Docket Number: Civil Action No.: 1:15–cv–2362
• Parties: Federal Trade Commission and Commonwealth of Pennsylvania, Plaintiffs, v. Penn State Hershey Medical Center and PinnacleHealth System, Defendants.
• Court: U.S. District Court — Middle District of Pennsylvania

185 F.Supp.3d 552

Federal Trade Commission and Commonwealth of Pennsylvania, Plaintiffs,

v.Penn State Hershey Medical Center and PinnacleHealth System, Defendants.

Civil Action No.: 1:15–cv–2362

United States District Court, M.D. Pennsylvania.

Signed May 9, 2016

Gerald A. Stein, Geralyn J. Trujillo, Jared P. Nagley, Jonathan W. Platt, Nancy Turnblacer, Ryan F. Harsch, Theodore Zang, William H. Efron, Federal Trade Commission, New York, NY, James P. DeAngelo, McNees Wallace & Nurick, Tracy W. Wertz, Aaron L. Schwartz, James A. Donahue, III, Jennifer A. Thomson, Keli M. Neary, Pennsylvania Office of Attorney General, Harrisburg, PA, James W. Frost, Lynda Lao, Peggy Bayer Femenella, Wesley G. Carson, Federal Trade Commission, Washington, DC, for Plaintiffs.

Adrian Wager–Zito, Christopher N. Thatch, Geoffrey D. Oliver, Julia E. McEvoy, James E. Day, Kenneth W. Field, Toby G. Singer, William D. Coglianese, Jon G. Heintz, Joseph M. Cardosi, Kevin M. Comeau, Michael A. Gleason, Hang Kristie Xian, Jones Day, Washington, DC, Gerald A. Stein, Federal Trade Commission, New York, NY, James P. DeAngelo, Kimberly A. Selemba, McNees Wallace & Nurick, Tracy W. Wertz, Pennsylvania Office of Attorney General, Harrisburg, PA, for Defendants.

MEMORANDUM OPINION AND ORDER

John E. Jones III, United States District Judge

Before the Court is a motion by Plaintiffs, Federal Trade Commission ("FTC") and the Commonwealth of Pennsylvania, pursuant to Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), for a preliminary injunction enjoining Defendants, Penn State Hershey Medical Center ("Hershey") and PinnacleHealth System ("Pinnacle") (collectively, "the Hospitals"), from taking any steps towards consummating their proposed merger pending the completion of the FTC's administrative trial on the merits of the underlying antitrust claims. For the reasons that follow, the Motion for Preliminary Injunction shall be denied.

I. BACKGROUND¹

Penn State Hershey Medical Center is a 551–bed hospital located in Hershey, Pennsylvania. It is a leading academic medical center ("AMC") and the primary teaching hospital of the Penn State College of Medicine. (DX1160–009). Hershey offers a broad array of high-acuity services, and tertiary and quaternary care, including bone-marrow transplants, neurosurgery, and specialized oncologic surgery.² Hershey operates central Pennsylvania's only specialty children's hospital, one of the Commonwealth's three Level I trauma centers, and the only heart-transplant center outside Philadelphia and Pittsburgh. (DX0190–005; DX0527–010; DX1160–009; DX0803–002).

PinnacleHealth System is a not-for-profit health system with 646 licensed beds across three campuses: Harrisburg Hospital and Community General Osteopathic Hospital, both in Harrisburg, and West Shore Hospital in Cumberland County, Pennsylvania. (DX0196–001–002). All three of Pinnacle's hospitals are community hospitals focused on cost-effective acute care, although Pinnacle offers some higher-level services including open-heart surgery, kidney transplants, chemotherapy and radiation oncology. (Tr., pp. 523:15–525:22).

The Hospitals signed a Letter of Intent of their proposed merger in June of 2014, and received final board approval in March of 2015. (PX00643). In April of 2015, the Hospitals notified the FTC of their proposed merger and executed a "Strategic Affiliation Agreement" one month later. (PX00390–011; PX01338).

Following an investigation, on December 7, 2015, the FTC issued an administrative complaint alleging that the Hospitals' proposed merger violates Section 7 of the Clayton Act and Section 5 of the FTC Act. A merits trial in the FTC administrative proceeding is scheduled to commence on May 17, 2016. On December 9, 2015, Plaintiffs filed their Complaint in this action. (Doc. 4). The Hospitals filed their Answer on January 11, 2016. (Doc. 41). The instant Motion for Preliminary Injunction was filed on March 7, 2016 and was subsequently briefed by the parties. (Docs. 82, 96, and 102).

Following a period of expedited discovery, the Court conducted a five-day evidentiary hearing commencing on April 11, 2016. The Court heard testimony from 16 witnesses, including two economists, and admitted thousands of pages of exhibits into evidence. Following the hearing, both sides filed post-hearing briefs. (Docs. 129 and 130). This matter is thus fully ripe for our review.

II. ANALYSIS

A. Standard of Review for Preliminary Injunctive Relief

When the FTC has reason to believe that "any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced by the Federal Trade Commission," including Section 7 of the Clayton Act, it is authorized by § 13(b) of the FTC Act to "bring suit in a district court of the United States to enjoin any such act or practice." 15 U.S.C. § 53(b). The district court may grant a request for preliminary injunctive relief "[u]pon a proper showing that, weighing the equities and considering the Commission's likelihood of ultimate success, such action would be in the public interest." Id. Therefore, "in determining whether to grant a preliminary injunction under section 13(b), a district court must (1) determine the likelihood that the FTC will ultimately succeed on the merits and (2) balance the equities." FTC v. United Health, Inc., 938 F.2d 1206, 1217 (11th Cir.1991) ; see also FTC v. Click4Support, 2015 U.S. Dist. LEXIS 153945, *12–13 (E.D.Pa. Nov. 10, 2015) (noting that while the Third Circuit has not expressly adopted this standard, several other circuits have done so, as well as the District of New Jersey); FTC v. Millennium Telecard, Inc., 2011 WL 2745963, *2, 2011 U.S. Dist. LEXIS 74951, *6–7 (D.N.J. Jul. 12, 2011).

B. Section 7 of the Clayton Act

Section 7 of the Clayton Act prohibits mergers whose effect "may be substantially to lessen competition, or to tend to create a monopoly." 15 U.S.C. § 18. Section 7 is "designed to arrest in its incipiency ... the substantial lessening of competition from the acquisition by one corporation" of the assets of a competing corporation. United States v. E.I. du Pont de Nemours & Co., 353 U.S. 586, 589, 77 S.Ct. 872, 1 L.Ed.2d 1057 (1957). To be sure, "Congress used the words ‘may be substantially to lessen competition’ to indicate that its concern was with probabilities, not certainties." Brown Shoe Co. v. United States, 370 U.S. 294, 323, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962). "Ephemeral possibilities" of anticompetitive effects are not sufficient to establish a violation of Section 7, United States v. Marine Bancorp., Inc., 418 U.S. 602, 623, 94 S.Ct. 2856, 41 L.Ed.2d 978 (1974) (quotation marks omitted), nor will "a fair or tenable chance of success on the merits ... suffice for injunctive relief." FTC v. Tenet Health Care Corp., 186 F.3d 1045 (8th Cir.1999) (citation omitted).

The first step in a Clayton Act analysis is "[t]he determination of the relevant market." E.I. du Pont, 353 U.S. at 593, 77 S.Ct. 872. "A relevant market consists of two separate components: a product market and a geographic market." Id. (citing Morgenstern v. Wilson, 29 F.3d 1291, 1296 (8th Cir.1994) ). "Without a well-defined relevant market, an examination of a transaction's competitive effects is without context or meaning." FTC v. Freeman Hosp., 69 F.3d 260, 268 (8th Cir.1995). Thus, "[i]t is ... essential that the FTC identify a credible relevant market before a preliminary injunction may properly issue," because a merger's effect cannot be properly evaluated without a well-defined relevant market. Tenet Health, 186 F.3d at 1051. Courts have observed that "[a] monopolization claim often succeeds or fails strictly on the definition of the product or geographic market." FTC v. OSF Healthcare Sys., 852 F.Supp.2d 1069, 1075 (N.D.Ill.2012) (quoting Tenet Health, 186 F.3d at 1052 ); see also Morgenstern, 29 F.3d at 1296. The FTC bears the burden of defining a valid market. See FTC v. Lundbeck, Inc., 650 F.3d 1236, 1239–40 (8th Cir.2011).

A relevant product market is a "line of commerce" affected by a proposed merger, see Brown Shoe Co., 370 U.S. at 324, 82 S.Ct. 1502, and is defined by determining "whether two products can be used for the same purpose, and if so, whether and to what extent purchasers are willing to substitute one for the other." U.S. v. H & R Block, 833 F.Supp.2d 36, 51 (D.D.C.2011) (citations and quotations omitted). In the matter sub judice, the parties agree that the relevant product market is general acuity services ("GAC") sold to commercial payors. GAC services comprise a broad cluster of medical and surgical services that require an overnight hospital stay. (Doc. 82, pp. 7–8; Doc. 96, p. 7).

"The relevant geographic market is the area in which a potential buyer may rationally look for the goods or services he or she seeks." Hanover 3201 Realty, LLC v. Vill. Supermarkets, Inc. , 806 F.3d 162, 183–84 (3d Cir.2015) (quoting Eichorn v. AT & T Corp. , 248 F.3d 131, 147 (3d Cir.2001) (citing Pa. Dental Ass'n v. Med. Serv. Ass'n of Pa. , 745 F.2d 248, 260 (3d Cir.1984) ). Determination of the relevant geographic market is highly fact sensitive. Tenet Health , 186 F.3d at 1052 (citing Freeman Hosp. , 69 F.3d at 271, n. 16 ). "This geographic market must ‘conform to commercial reality,’ " Eichorn , 248 F.3d at 147 (quoting Acme Mkts., Inc. v. Wharton Hardware & Supply Corp. , 890 F.Supp. 1230, 1239 (D.N.J.1995) (citing Brown Shoe Co. , 370 U.S. at 336, 82 S.Ct. 1502 )), and can be determined "only after a factual inquiry into the commercial realities faced by consumers." Tenet Health , 186 F.3d at 1052 (citing Flegel v. Christian Hosp. Northeast–Northwest , 4 F.3d 682, 690 (8th Cir.1993). Further, the Department of Justice and Federal Trade Commission's Horizontal Merger Guidelines "provides guidance" in defining a geographic market. Atl. Exposition Servs. Inc. v. SMG , 262 Fed.Appx. 449, 452 (3d Cir.2008) The most recent version of the Merger Guidelines defines a relevant geographic...