U.S. v. Long Island Jewish Medical Center, CV 97-3412(ADS).

• Citation: 983 F.Supp. 121
• Decision Date: 23 October 1997
• Docket Number: No. CV 97-3412(ADS).,CV 97-3412(ADS).
• Parties: UNITED STATES of America, Plaintiff, v. LONG ISLAND JEWISH MEDICAL CENTER and North Shore Health System, Inc., Defendants.
• Court: U.S. District Court — Eastern District of New York

983 F.Supp. 121

UNITED STATES of America, Plaintiff, v. LONG ISLAND JEWISH MEDICAL CENTER and North Shore Health System, Inc., Defendants.

No. CV 97-3412(ADS).

United States District Court, E.D. New York.

October 23, 1997.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

U.S. Department of Justice, Antitrust Division, Washington, D.C. by Steven Kramer, Mark J. Botti, Michael S. Spector, Richard S. Martin, Thomas Horton, David C. Jordan, William F. Berlin, John P. Wunderil, Gregory Asciolla, Trial Attorneys, Antitrust Division, for U.S.

Collier Shannon Rill & Scott, Washington, D.C., William Bradford Reynolds, James F. Rill, Jeffrey W. Brennan, Mary Jean Fell, Paul Cuomo, of Counsel, for Defendants Long Island Jewish Medical Center and North Shore Health System, Inc.

Winston & Strawn, New York City, Anthony J. D'Auria, Michael Sibarium, Jay Levine, Frank Supik, Pamela A. Rons, of Counsel, for Defendant North Shore Health System, Inc.

Stroock & Stroock & Lavan, New York City, Bruce H. Schneider, Albert M. Appel, Edward P. Grosz, Woo Jung Cho, Claude Szyfer, of Counsel, for Defendant Long Island Jewish Medical Center.

MEMORANDUM DECISION AND ORDER

SPATT, District Judge.

According to one hospital chairman, "one of every seven dollars spent in the United States, one trillion dollars, is spent on health care." (Tr. at 1872).¹ In the past decade, the soaring cost of health care has inspired new and innovative methods of providing more affordable medical treatment. Included in these new methods are the full panoply of managed care organizations, affiliated hospitals and alternative outpatient facilities. Managed care companies of various types, sell health plans to employers, unions, governmental bodies and individuals, providing their members with a network of physicians, hospitals and other health care providers. Another sign of the times is the proliferation of hospital mergers. Hospitals form together to achieve savings in costs, provide more diverse medical services and increase their bargaining power with the managed care organizations. "Indeed, the need for merger and consolidation has become more pressing in light of the drastic changes imposed upon the cost structure of the health care industry."²

Further complicating this fast-evolving health care economic picture is the deregulation of hospital rates by the State of New York, which was effective January 1, 1997. The impact of this deregulation was to greatly intensify the competition between hospitals physician groups, managed care plans and consumers to negotiate hospital rates and to obtain patients.

These burgeoning, multifaceted and diverse managed care plans contract with huge numbers of consumers en masse, including large corporate employers and unions. This presents the question of identifying the "consumers" of medical care; namely, are the consumers in this antitrust context the members of various managed care plans, or are the "consumers" the managed care organizations themselves? Also, what is the relevant geographic market of premier hospitals in a heavily populated urban-suburban area, in this case Queens. Nassau and Suffolk Counties, in the shadow of the world-renown hospitals located in Manhattan? These questions are among the many complex issues facing the Court in the resolution of this antitrust litigation.

In this case, the defendants Long Island Jewish Medical Center ("LIJ") and North Shore Health Systems, Inc. ("North Shore" or "NSHS") have agreed to merge. The United States of America (the "Government" or the "plaintiff") commenced this antitrust action to prevent this merger. The Government alleges that the proposed merger "may tend substantially to lessen competition in violation of Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18." The Government seeks the following relief:

1. That the agreement to implement the proposed transaction between North Shore and LIJ Medical Center be adjudged a violation of Section 7 of the Clayton Act, as amended, 15 U.S.C. § 18, and Section 1 of the Sherman Act. 15 U.S.C. § 1;

2. That preliminary and permanent injunctions be issued preventing and restraining the defendants and all persons acting on their behalf from entering into or carrying out any agreement, understanding, or plan, the effect of which would be to allow North Shore and LIJ Medical Center to discuss or agree on terms offered to managed care plans or to negotiate or contact jointly with managed care plans; ...

LIJ and NSHS are not-for-profit hospitals. NSHS is made up of nine hospitals, one in Queens County³, five in Nassau County, two in Suffolk County and one in Staten Island. North Shore Manhasset ("NSM") is the major hospital in the North Shore network. LIJ is located in the most easterly portion of Queens County near its border with Nassau County NSM is located in Manhasset in the northwesterly portion of Nassau County. The two hospitals are approximately two miles apart. The defendants concede that both hospitals are quality teaching hospitals which provide high-level training programs for their physicians, conduct important research in the biomedical sciences, and deliver primary, secondary and tertiary care. (See Def. Pre-Hearing Mem. of Law at 2). Inpatient acute care services are generally divided into three categories: primary, secondary and tertiary. Primary/secondary services include all non-complex care including obstetrics. tonsillectomies, pneumonia, gallbladder removal and a variety of general surgical procedures. Tertiary care includes the most specialized, complex and expensive procedures, such as heart surgery, complicated orthopedic surgery, advanced cancer treatment, high risk obstetric services, neonatal care. neurosurgery, and burn care. It is also conceded that, prior to the merger agreement, these two major hospitals were active competitors.

During the hearing conducted by the Court on the plaintiff's motion for a preliminary injunction, the parties agreed that the plenary trial of this action on the merits was to be advanced and consolidated with the hearing. See Fed.R.Civ.P. 65(a)(1); Able v. United States, 44 F.3d 128, 132 (2d Cir.1995) ("[F]ortunately, Federal Rule of Civil Procedure 65(a)(2), which allows consolidation of a preliminary injunction hearing with a trial on the merits of a permanent injunction, provides a means of ensuring prompt consideration of the full merits of plaintiff's claims rather than the "likelihood" of their success"); K-Mart Corp. v. Davis, 756 F.Supp. 62, 63 (D.P.R.1991).

The trial was held from August 11, 1997 to August 27, 1997, a period of thirteen trial days with closing arguments on September 26, 1997. At the trial eighteen witnesses testified and more than 300 exhibits were introduced. Because this decision is rendered on an expedited basis, there is no need to decide the preliminary injunction phase. Rather, the Court will render a decision on the case in chief, namely, the Government's request for a permanent injunction, based on a violation of Section 7 of the Clayton Act, 15 U.S.C. § 18.

I. THE TRIAL — FINDINGS OF FACT

This opinion and order includes the Court's findings of fact and conclusions of law as required by Fed.R.Civ.P. 52(a) and 65(d). See Rosen v. Siegel, 106 F.3d 28, 32 (2d Cir.1997); Colonial Exchange, L.P. v. Continental Cas. Co., 923 F.2d 257 (2d Cir.1991).

A. The Hospitals

Long Island Jewish Medical Center is a not-for-profit voluntary hospital sponsored by the Federation of Jewish Philanthropies. This medical center consists of three institutions: LIJ, a 450 bed acute care adult facility; Schneider's Children Hospital, a 150 bed acute care facility; and Hillside Hospital, a psychiatric wing consisting of 220 beds. Dr. David Dantzker its President and Chief Executive Officer. Dr. Dantzker and others at the hospital have described its network as an "anchor site" and as a "premier" hospital.

LIJ is also an academic teaching hospital primarily affiliated with the Albert Einstein School of Medicine, with missions of medical education and research. It is committed to treat all patients "who walk through the door, regardless of their ability to pay or the source of the reimbursement." The profile of the patient population at LIJ as categorized by the types of payer is as follows: 30 percent Medicare, 20 percent Medicaid, 20 percent classic indemnity insurance carriers, and 30 percent various types of managed care insurance carriers.

Fifty percent of the LIJ patient population resides in Queens, thirty percent in Nassau, and the balance in Suffolk, Manhattan and Westchester. The primary competitors of LIJ in the psychiatric field are the Nassau County Medical Center and the Elmhurst Hospital in Queens. In pediatrics, LIJ competes "with almost every hospital on Long Island that has an in-patient pediatric service," which includes most of the hospitals, such as Winthrop University Hospital ("Winthrop") in Nassau, New York Hospital of Queens ("New York Hospital Queens"), Good Samaritan Hospital in Suffolk, and, in addition, the Manhattan hospitals.

North Shore Manhasset opened in 1953. John Gallagher is the President and CEO. He joined the hospital's administrative staff in 1962, when the hospital had 169 beds. Since then, the hospital's capacity has increased to 705 beds. According to Gallagher, NSM has four goals: (1) to render the highest quality of care, (2) to become a leading teaching center for Long Island; (3) to continue its commitment to research, and (4) to aid the poor through community service and outreach programs. NSM is an academic teaching hospital affiliated with New York University School of Medicine.

The charitable mission of the hospital has been evident since its inception: its clinics opened the very same day as the hospital. Prior to the introduction of Medicaid in 1966, NSM's attending physicians were committed to treating the poor without charge. In addition, the hospital administers 150 to 200...