In a significant ruling for the healthcare industry, the United States District Court for the Western District of North Carolina has allowed Novant Health's acquisition of two Community Health Systems (CHS) hospitals to proceed, despite the Federal Trade Commission's (FTC) efforts to block the transaction. This decision sheds light on how antitrust laws apply when a hospital decides to exit the market and the implications for public interest and competition.

Background

The case centers on Novant Health, Inc.’s purchase of Lake Norman Regional Medical Center (LNR) and Davis Regional Psychiatric Hospital (Davis) from Community Health Systems, Inc. The FTC raised concerns that this acquisition would substantially lessen competition in an already concentrated market. The Charlotte metropolitan area, where these hospitals are located, is dominated by two major health systems: Atrium Health and Novant.

Key Points from the Court's Decision

Market Conditions and Competitive Dynamics

• Concentration of Market: The Charlotte area is already highly concentrated with Atrium and Novant controlling the majority of hospitals. Atrium has nine hospitals, while Novant has seven.
• Struggles of LNR and Davis: LNR has faced declining services and investment, making it less competitive. Davis was converted to a behavioral health facility in 2022 due to financial struggles.
• Potential Closure Without Sale: CHS indicated that without the sale, it would continue to underinvest in LNR, leading to potential closure especially with new competition from Atrium's planned hospital in Cornelius, North Carolina.

FTC's Argument and the Court’s Analysis

• FTC's Stance: The FTC argued that the merger exceeds its “Merger Guidelines” indicating a presumption of anti-competitive effects.
• Economic Realities: The court noted that while market share and concentration levels post-merger would be high, LNR's competitive presence is already minimal. Thus, the merger is unlikely to substantially lessen competition.
• Public Interest Considerations: The court emphasized the need to balance public equities. Novant committed not to raise prices at LNR for three years and to enhance medical services and staff support.

Defendants' Arguments

• Enhancing Competition: Novant argued that acquiring LNR would help it better compete with Atrium, especially with the upcoming Atrium Lake Norman hospital.
• Investment and Service Improvement: Novant committed to investing in LNR and improving its services, which CHS is unlikely to do.

Conclusion

The court ruled that blocking the merger would not serve the public interest, given the likely closure of Davis and LNR's deteriorating position without new investment. By allowing the merger, Novant can potentially enhance competition with Atrium and improve healthcare services in the region.

Implications

This decision highlights the complexities of antitrust law in healthcare, especially in markets with dominant players and struggling competitors. It underscores the importance of evaluating the real-world implications of mergers beyond just market concentration metrics, considering factors like investment, service quality, and long-term viability of healthcare facilities.

The bill forsees the introduction of Article 22/A:

(1) The Competition Authority may, taking into account the criteria set out in paragraph (2), determine in a competition supervision procedure that an undertaking is of fundamental importance for competition and consumers across markets (hereinafter referred to as a "fundamental undertaking").
(2) In order to qualify as a fundamental undertaking, the following shall be examined in particular
(a) its market share,
(b) its financial strength or access to other resources,
(c) its vertical integration or its activities in otherwise related markets,
(d) its access to competitively relevant information,
(e) the essential importance for consumers or the economy of the services it provides or the goods it produces or distributes; or
(f) any activity which is relevant to third parties or consumers in order to gain access to supply and sales markets, whereby it can influence the business of third parties.

The bill also makes it clear that the rules on competition supervision procedures apply, so there will be the possibility of court review. The GVH has three month to decide a case under Article 22/A. During an investigation the investigator might order interim measures which can be reviewed by the Competition Council.
The Competition Council can impose several obligations on undertakings deemed to be fundamental.

In its decision adopted in the procedure pursuant to Article 22/A (1), the acting Competition Council

(a) may prohibit an undertaking of fundamental importance
(aa) to treat its own offer more favourably than that of its competitors,
(ab) to use for its own purposes data collected from its customers without their explicit consent, or to combine data collected by it with data from other sources relevant for competition without the explicit consent of the parties concerned,
(ac) to impede the interoperability of products and services or the portability of data,

(b) impose an information obligation on an undertaking of significant importance to provide information on the performance, quality or success of the service it provides to its customers,

(c) where the fundamental undertaking is unable to perform its functions or is in a situation where it is in imminent danger of being unable to meet its obligations, to maintain or restore the level of operations necessary to ensure security of supply, taking into account the principle of gradual reduction,
(ca) may require the owners of the essential undertaking to sell all or part of the essential undertaking,
(cb) may require the assets necessary for the continuous and secure supply, trade and production of the essential services to be transferred to a designated service provider for operation at a cost-based charge and to provide the records and data necessary for the exercise of the activity,
(cc) initiate the election or appointment of another person to a senior position in the management body of the essential undertaking having management powers,
(cd) suspend the voting rights attached to ownership interests,
(ce) require the transfer of ownership interests to other owners,
(cf) require the board of directors to convene a general meeting and to call upon it to discuss specific items on the agenda and to take specific decisions.

Budapest, 1 February 2024 - The Hungarian Competition Authority (GVH) has closed another major public procurement cartel. The GVH found that between 2011 and 2014, seven major road salt distributors in Hungary engaged in anti-competitive collusion and collusion in seven tenders, most of which were public procurement tenders. The national competition authority imposed fines totalling around HUF 400 million on six companies, four of which admitted the infringement. Restrictions of competition in the context of public procurement procedures are considered to be the most serious competition law infringements and the GVH therefore gives priority to the elimination of public procurement cartels.

Just four months ago, at the beginning of October 2023, the GVH announced that a large number of road painting and road signage companies had divided the domestic market between themselves between 2012 and 2014. The national competition authority imposed fines of around 300 million HUF on 17 companies for a series of collusive practices covering the whole country, with some of those responsible also facing criminal sanctions.

The Competition Authority has now closed another similar cartel case. The national competition authority opened an investigation in 2014 after it found that major road salt distributors in Hungary had colluded on the prices to be submitted in public tenders for the purchase of anti-slip materials and divided the tenders among themselves. The competition monitoring procedure showed that the companies concerned agreed on their bid prices, the winning bidder and the allocation of some tenders between them in seven tenders, mostly public tenders, between 2011 and 2014. These included the procurement of Magyar Közút Zrt., Fővárosi Közterület-fenntartó Zrt. and tenders in Székesfehérvár and Gödöllő. In two cases, the illegal negotiations were conducted through intermediaries.

The GVH was forced to suspend the complex cartel proceedings investigating a significant number of companies and a large number of tenders, as the collusion under investigation not only entailed competition authority consequences, but also criminal proceedings were pending in relation to certain public procurement contracts. The GVH waited for a total of around 3.5 years for the final conclusion of the criminal proceedings, which also necessitated a reassessment of the available evidence. In several of the tenders under investigation, the Metropolitan Court of Budapest also found in its final judgment that a cartel offence had been committed.

In its assessment of the infringements committed, the Competition Council of the GVH considered as a particularly aggravating circumstance that they were aimed at allocating procurement procedures involving public funds and that the companies' senior officials were also involved. However, the competition authority took into account the cooperation of some of the participants as a mitigating circumstance, as four of the six undertakings fully admitted the infringement, waived their right to appeal and undertook to implement a compliance programme, in the framework of a so-called settlement procedure.

The Competition Council of the GVH finally imposed fines of HUF 139 million on MAGYAR PLASTIROUTE Kft, HUF 112.4 million on SOLINWEST 2000 Kft, HUF 74.4 million on SZABOLCS-MAG 98 Kft, HUF 42 million on "TRANSIT-SPEED" Kft, HUF 24 million on Kelet-Trans 2000 Kft and HUF 8 million on Agrochimtranspack Kft, i.e. a total of HUF 399.8 million.

The case registration number: VJ/76/2014.

Press release was translated automated.