Case 2:20-cv-01113-GJP Document 277 Filed 12/08/20 Page 1 of 62
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF PENNSYLVANIA
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`
`
`FEDERAL TRADE COMMISSION et al.,
`Plaintiffs,
`
`
` CIVIL ACTION
` NO. 20-01113
`
`v.
`
`THOMAS JEFFERSON UNIVERSITY et
`al.,
`
`
`
`Defendants.
`
`
`PAPPERT, J.
`
`
`MEMORANDUM
`
`December 8, 2020
`
`
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`The Federal Trade Commission and Pennsylvania Office of Attorney General,
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`collectively the Government, seek to preliminarily enjoin a proposed merger between
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`Thomas Jefferson University and the Albert Einstein Healthcare Network pending an
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`administrative determination of whether the combination violates Section 7 of the
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`Clayton Act.
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`
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`The parties conducted extensive discovery and the Court held six days of
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`evidentiary hearings which included the testimony of twenty witnesses and the
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`presentation of voluminous documentary evidence. The Court also received from the
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`parties and reviewed additional documents, declarations, deposition transcripts and
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`other materials. Following the hearings, the parties submitted proposed findings of
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`fact and conclusions of law and the Court allowed the parties several hours of oral
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`argument.
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`
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`To obtain the relief it seeks, the Government must define a relevant geographic
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`market—that area where potential buyers look for the goods or services they want—
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`Case 2:20-cv-01113-GJP Document 277 Filed 12/08/20 Page 2 of 62
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`within which the likely competitive effects of the merger can be evaluated. That
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`market’s definition is dependent on the special characteristics of the industry involved
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`and the Court is required to take a pragmatic and factual approach in determining
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`whether the Government has done it correctly. Of greatest importance to this case, the
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`market’s geographic scope must “correspond to the commercial realities of the industry
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`at issue.” The healthcare industry’s market is represented by a “two-stage model of
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`competition.” In the first stage, hospitals compete to be included in an insurer’s
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`hospital network. In the second, hospitals compete to attract individual members of the
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`insurers’ plans.
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`This means that insurers, not patients seeking and receiving medical care, are
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`the payors—those who will most directly feel the impact of the increased price of care.
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`This is what the Third Circuit Court of Appeals has called the “commercial reality” of
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`the uniquely structured healthcare industry. Patients are not irrelevant to a hospital
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`system merger analysis; their choices and behavior can affect the bargaining leverage
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`that hospitals and insurers possess when they negotiate hospitals’ inclusion in insurers’
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`networks and the reimbursement rates insurers agree to pay hospitals. But as the
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`entities bearing the immediate impact of the cost of medical care, the insurers’
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`perspective is extremely important in deciding whether a merger will substantially
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`lessen the competition for healthcare in a proposed geographic market.
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`
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`The propriety of a relevant geographic market in this industry must therefore be
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`assessed “through the lens of the insurers.” To establish its prima facie case, the
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`Government must put forth enough evidence to prove that the insurers would not avoid
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`a price increase in any one of the Government’s proposed markets by looking to
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`2
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`Case 2:20-cv-01113-GJP Document 277 Filed 12/08/20 Page 3 of 62
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`hospitals outside those markets.
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`The Government has not met this burden. It contends that a combination of its
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`expert’s econometric algorithm and testimony primarily from two (of the region’s four)
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`major commercial insurers shows that its geographic markets correspond to the
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`commercial realities of southeastern Pennsylvania’s competitive healthcare industry.
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`But the expert’s calculations alone do not do so, and the insurers’ testimony is neither
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`unanimous, unequivocal nor supported by the record as a whole. Their conclusory
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`assertions that they would have to succumb to a price increase for services in the
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`Government’s proposed markets instead of looking to healthcare providers outside
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`those markets are not credible.
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`
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`The Court denies the Government’s request for a preliminary injunction.
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`I
`
`A
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`On September 14, 2018, Jefferson and Einstein signed a System Integration
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`Agreement, (JX0078), pursuant to which Jefferson will become Einstein’s sole member
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`and ultimate parent. (Pls.’ Proposed Findings of Fact (“FF”) ¶ 3); (Defs.’ FF ¶ 5.) On
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`February 27, 2020, the FTC initiated an administrative proceeding seeking to
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`permanently enjoin the proposed merger. A merits trial in that action is presently
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`scheduled to begin on March 8, 2021. See Order Granting Continuance, In re Thomas
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`Jefferson University et al., File No. 181 0128, Dkt. No. 9392 (FTC Nov. 6, 2020).
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`Seeking to pause the merger and preserve the status quo pending the administrative
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`proceeding’s outcome, the Government filed this lawsuit requesting a preliminary
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`injunction under Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), and Section 16 of the
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`3
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`Case 2:20-cv-01113-GJP Document 277 Filed 12/08/20 Page 4 of 62
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`Clayton Act, 15 U.S.C. § 26. (Compl. at 1–2, ECF No. 7.) The System Integration
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`Agreement expires on the later of December 31, 2021 or, in the event of an appeal from
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`this decision, sixty days after a final decision by the Court of Appeals. (Pls.’ FF ¶ 3);
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`(JX0078-045.)
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`B
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`Jefferson and Einstein operate in a densely populated, major metropolitan
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`region. There are abundant healthcare options in southeastern Pennsylvania,
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`including fifty-one hospitals dedicated to general acute care (“GAC”), children’s
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`specialty care, orthopedics and cancer care. (Capps Rpt. App’x G.1 ¶ 544.)
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`Philadelphia’s healthcare market is less consolidated than others around the country.
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`See (Sept. 14, 2020 Hr’g Tr. (Markowitz (Reg’l Director Operations and Mktg., Cigna))
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`65:7–24, ECF. No. 250). In 2018, Jefferson and Einstein were just two of thirteen
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`health systems providing inpatient GAC services in the region.1 (Capps Rpt. App’x G
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`Fig. 41.)
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`i
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`Jefferson includes a nonprofit health system operating fourteen hospitals with
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`2,885 licensed beds in Pennsylvania and New Jersey. (Capps Rpt. ¶ 105.) Jefferson
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`hospitals providing inpatient GAC services include its flagship, Thomas Jefferson
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`University Hospital (“TJUH”) in Philadelphia and Abington Hospital and Abington-
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`Lansdale Hospital in Montgomery County.2 (Defs.’ FF ¶ 1.) Jefferson provides
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`In 2019, American Academic Health System stopped operating after closing Hahnemann
`1
`University Hospital and selling St. Christopher’s Hospital for Children to Drexel University and
`Tower Health. (Capps Rpt. App’x G Fig. 41.)
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`Jefferson’s system also includes Bucks Hospital, Cherry Hill Hospital (NJ), Frankford
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`Hospital, Jefferson Hospital for Neuroscience, Methodist Hospital, Stratford Hospital (NJ),
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`inpatient rehabilitation services in a twenty-three-bed unit at Abington Hospital and at
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`the ninety-six-bed freestanding inpatient rehabilitation facility (“IRF”) Magee
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`Rehabilitation Hospital, which is in Philadelphia. See (Pls.’ FF ¶ 1); (Defs.’ FF ¶ 1);
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`(Ramanarayanan Rpt. ¶ 64, Ex. 3). Jefferson also operates urgent care centers,
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`outpatient centers, testing and imaging centers and a cancer center.3 (Capps Rpt.
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`¶ 105.)
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`ii
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`Einstein is a non-profit health system which includes three GAC hospitals: its
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`548-bed Einstein Medical Center Philadelphia (“EMCP”) in North Philadelphia, the
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`sixty-seven-bed Einstein Medical Center Elkins Park (“EMCEP”) in southeastern
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`Montgomery County and its 191-bed Einstein Medical Center Montgomery (“EMCM”)
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`in East Norriton, Montgomery County. See (Capps Rpt. ¶¶ 114–128); (Pls.’ FF ¶ 2);
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`(Defs.’ Answer to Compl. ¶ 35, ECF No. 51).
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`EMCP accounts for seventy percent of Einstein’s revenues. See (Sept. 16, 2020
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`Hr’g Tr. (Freedman (CEO, Einstein)) 106:21–23, ECF No. 252). However, Einstein’s
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`Torresdale Hospital and Washington Township Hospital (NJ). See Jefferson Health, We Are
`Jefferson, at 3 (Jan. 2020), https://hospitals.jefferson.edu/content/dam/health/PDFs/general/aboutus/
`We-Are-Jefferson-1-08-20.pdf. (last visited Dec. 7, 2020).
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`Outpatient services are used by health systems to “feed inpatient services in the total
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`continuum of care.” (JX0034, Buongiorno (EVP and CFO, Main Line Health) Dep. Tr. 159:11–12);
`see also (Sept. 29, 2020 Hr’g Tr. (Meyer (President Jefferson Health, Senior EVP Thomas Jefferson
`University (“TJU”)) 69:5–13 (explaining hospitals attract inpatients at outpatient locations “through
`the affiliation purchase or recruitment and employment of primary care doc[tor]s that they place into
`specific communities”)); (Capps Rpt. ¶ 63 (“[H]ospitals located outside of, but not overly far from, a
`given geography can attract patients from that area [through] local affiliated or owned medical
`groups . . . within the geography. These medical groups can act as ‘front doors’ that steer patients to
`the associated system’s hospital . . .”)); (Sep. 29, 2020 Hr’g Tr. (Klasko) 55:24–25 (“[M]ore, and more,
`and more, and more things are going to be moving to [an] outpatient environment.”)); (Id. at 22:15–
`25 (“[T]he whole definition of what a hospital is . . . is changing rapidly.”)).
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`commercially insured population is declining and many of EMCP’s commercially
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`insured patients arrive through the hospital’s Emergency Department. (Defs.’ FF ¶ 30.)
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`EMCP is viewed as a “safety net hospital” because it has one of the highest percentages
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`of government-insured inpatients—eighty seven percent or more—among large
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`hospitals in the United States. (Defs.’ FF ¶ 30.) Among the more than 800 large GAC
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`hospitals in the United States, only sixteen recently had a comparable percentage of
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`government-insured patients and six of those were government-operated. (Capps Rpt.
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`¶ 87.) Medicare and medical assistance coverage “do not cover the cost” of patient care
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`because government reimbursement rates do not keep up with Einstein’s inflationary
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`costs. (Sept. 16, 2020 Hr’g Tr. (Freedman) 185:6–11.) Einstein concluded that it should
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`seek a strategic partner in order to create scale to allow for savings that could improve
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`its financial situation driven by its payor mix. See (id. at 115:17–116:6).
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`Einstein also provides inpatient rehabilitation services through MossRehab at
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`its EMCP and EMCEP locations. (Pls.’ FF ¶ 2); (Defs.’ FF ¶ 2.) MossRehab at Elkins
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`Park is a 130-bed freestanding IRF. See (Smith Rpt. ¶ 69); (Ramanarayanan Rpt. ¶ 64,
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`Ex. 3.) MossRehab also has inpatient beds at Jefferson’s Frankford and Bucks
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`Hospitals and at Doylestown Hospital. (Pls.’ FF ¶ 2); (Smith Rpt. ¶ 69);
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`(Ramanarayanan Rpt. ¶ 64, Ex. 3.)
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`iii
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`Other area health systems include the University of Pennsylvania Health
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`System–also known as Penn Medicine. In southeastern Pennsylvania, Penn Medicine
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`includes six acute care hospitals and hundreds of outpatient facilities. (Capps Rpt.
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`¶ 130.) It also operates facilities in Lancaster County and New Jersey. (Id.) The 821-
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`bed Hospital of the University of Pennsylvania (“HUP”) in Philadelphia’s University
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`City is Penn Medicine’s largest hospital offering GAC services. (Id. at ¶ 131.) Penn
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`Presbyterian Medical Center, with 331 staffed beds, also in University City, provides
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`GAC services as well. (Id. at ¶ 133.) Pennsylvania Hospital, with 567 beds located in
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`Center City, is Penn Medicine’s second-largest Philadelphia hospital providing GAC
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`services. (Id. at ¶ 134.)
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`Penn Medicine is in the process of opening “The Pavilion,” an additional facility
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`with more GAC beds, across the street from HUP. (Id. at ¶ 132.) The new facility is
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`expected to give Penn Medicine a 250-bed net inpatient gain. (Id.) The health system
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`also provides GAC services at Chester County Hospital, a 275-bed suburban community
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`hospital, and recently replaced an existing outpatient location in Delaware County at
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`Penn Medicine Radnor with a new facility from which outpatients requiring inpatient
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`care are anticipated to turn to Penn Medicine’s Philadelphia hospitals. (Id. at ¶¶ 136–
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`37); (JX0065, Gustave (SVP Bus. Dev., Penn Medicine) Dep. Tr. 73:18–74:5.) In
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`addition, Good Shepherd Penn Partners manages a fifty-eight-bed inpatient
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`rehabilitation unit, the Penn Institute for Rehabilitation Medicine, which is licensed
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`through HUP in Philadelphia. (Ramanarayanan Rpt. ¶ 64, Ex. 3.)
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`Main Line Health is a nonprofit health system with four hospitals offering GAC
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`services: 370-bed Lankenau Medical Center in Wynnewood, Montgomery County, its
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`largest; 287-bed Bryn Mawr Hospital, also in Montgomery County; 231-bed Paoli
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`Hospital, in eastern Chester County; and 204-bed Riddle Hospital, to Philadelphia’s
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`southwest in Delaware County. (Capps Rpt. ¶¶ 138–142); (Smith Rpt. ¶ 60.) Main
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`Line Health also operates a 148-bed freestanding IRF at Bryn Mawr Rehabilitation
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`Hospital (“Bryn Mawr Rehab”) in Chester County. See (Ramanarayanan Rpt. ¶ 64, Ex.
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`3).
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`Tower Health operates six GAC hospitals in southeastern Pennsylvania: 148-bed
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`Chestnut Hill Hospital in Philadelphia County; 232-bed Pottstown Hospital in western
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`Montgomery County; 139-bed Phoenixville Hospital in northern Chester County, just
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`across the Montgomery County border; 714-bed Reading Hospital in Berks County; and
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`171-bed Brandywine Hospital and sixty-three-bed Jennersville Hospital in western
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`Chester County. (Capps Rpt. ¶¶ 145–151); (Smith Rpt. ¶ 60.) Phoenixville Hospital
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`also has fourteen inpatient rehabilitation beds. See (Ramanarayanan Rpt. ¶ 64, Ex. 3).
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`Tower also operates twenty-two urgent care locations, including two in Montgomery
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`County in Plymouth Meeting and Conshohocken. (JX0027, Ahern (EVP Business
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`Development & Strategy, Tower Health) Dep. Tr. 16:4–5, 140:4–7.) Tower owns St.
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`Christopher’s Hospital for Children, a 188-bed hospital in North Philadelphia that
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`provides GAC services to children. (Smith Rpt. ¶ 60.)
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`Temple Health, a subsidiary of Temple University, is a nonprofit health system.
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`(Capps Rpt. ¶ 165.) Its hospitals include Temple University Hospital, Temple
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`University Hospital – Jeanes Campus (“Jeanes”), Fox Chase Cancer Center, Temple
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`University Hospital – Episcopal Campus and Temple University Hospital –
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`Northeastern Campus. (Id.) Temple University Hospital, the system’s largest with 732
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`beds, is in North Philadelphia. (Id. at ¶ 166); (Smith Rpt. ¶ 60.) Jeanes is a 146-bed
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`hospital in northeast Philadelphia. (Capps Rpt. ¶ 167); (Smith Rpt. ¶ 60.) The
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`Episcopal Campus, in Philadelphia’s Kensington neighborhood, is largely a behavioral
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`health facility, but has an emergency room and offers other medical services. (Id. at
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`¶ 168.) Temple’s Northeastern Campus was formerly an impatient hospital, but now
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`serves as an outpatient facility. (Id.)
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`Trinity Health Mid-Atlantic also runs several GAC hospitals in the region. St.
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`Mary Medical Center in Langhorne, Bucks County, with 373 beds, is its largest area
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`hospital. (Id. at ¶ 157.) Nazareth Hospital, with 231 beds, is in northeast Philadelphia.
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`(Id. at ¶ 156.) It has twenty inpatient rehabilitation beds. (Ramanarayanan Rpt. ¶ 64,
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`Ex. 3.) Mercy Fitzgerald, with 183 beds, is in Delaware County. (Capps Rpt. ¶ 155.) It
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`has ten inpatient rehabilitation beds. See (Ramanarayanan Rpt. ¶ 64, Ex. 3). Trinity
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`has also operated 157-bed Mercy Philadelphia Hospital in southwest Philadelphia,
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`although it is slated to stop offering services there, with some services shifting to other
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`area providers and others moving to Mercy Fitzgerald. (Capps Rpt. ¶ 154.) In 2018,
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`the Mercy Health System and St. Mary formed a clinical affiliation with Penn
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`Medicine, facilitating access to Penn Medicine services when required by their patients.
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`(Id. at ¶ 159); (JX0065, Gustave Dep. Tr. 53:18–54:16.) Trinity also operates a fifty-bed
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`IRF at St. Mary Rehabilitation Hospital (“St. Mary Rehab”) in Bucks County.
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`(Ramanarayanan Rpt. ¶ 64, Ex. 3.)
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`Grand View Health operates Grand View Hospital, a 169-bed GAC hospital in
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`Bucks County. (Capps Rpt. ¶ 173.) Grand View has fourteen inpatient rehabilitation
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`beds. See (Ramanarayanan Rpt. ¶ 64, Ex. 3). In 2019, Grand View announced a $210
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`million, 170,000 square foot expansion to include a new emergency department,
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`intensive care unit beds and private inpatient rooms. (Capps Rpt. ¶ 174.) Grand View,
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`like St. Mary and Mercy Health, has also entered into a joint clinical partnership with
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`Penn Medicine, part of Penn’s effort to “attract tertiary volume to come down to the
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`Penn hospitals.” (JX0065, Gustave Dep. Tr. 53:14–21, 54:13–16.)
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`The Prime Healthcare Foundation runs the nonprofit Suburban Community
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`Hospital, a 126-bed hospital in Montgomery County. (Capps Rpt. ¶ 175.) Prime
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`Healthcare also operates two for-profit hospitals in the area, Roxborough Memorial
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`Hospital in Philadelphia and Lower Bucks Hospital in Bucks County. (Id.)
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`Holy Redeemer Health System, a nonprofit health system, operates one GAC
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`hospital, Holy Redeemer, with 242 beds in Montgomery County along with ambulatory
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`care sites in Bucks County, eastern Montgomery County and northeast Philadelphia.
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`(Id. at ¶ 160.)
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`Doylestown Hospital, with 232 beds in Bucks County, is the sole hospital in
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`Doylestown Health’s nonprofit system. (Id. at ¶ 162.) It recently underwent a $100
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`million expansion, adding beds and other services. (Id. at ¶ 164.) Its oncology
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`programs are part of a clinical partnership with Penn Medicine. (Id.)
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`Cancer Treatment Centers of America, Philadelphia operates a twenty-two-bed
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`cancer hospital in North Philadelphia. (Smith Rpt. ¶ 60.)
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`In addition to the hospital-affiliated IRFs identified above, the Kessler Institute
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`for Rehabilitation (“Kessler Marlton”) operates a sixty-one-bed freestanding IRF in New
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`Jersey. See (Ramanarayanan Rpt. ¶ 64, Ex. 3). Rehabilitation services are also offered
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`in the area at a number of skilled nursing facilities (“SNFs”) that are not directly tied to
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`the region’s health systems. Area SNF operators include Genesis Healthcare. See (id.
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`at ¶ 103). Genesis operates thirty-eight SNFs in Pennsylvania, four of which are
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`PowerBack Rehabilitation facilities, “designed to provide short-stay skilled
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`nursing . . . to deliver a comprehensive rehabilitation regimen in accommodations
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`specifically designed to serve high-acuity patients.” See (id.). The Pennsylvania
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`PowerBack facilities are in Center City Philadelphia (PowerBack-Lombard, 150 beds),
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`Montgomery County (PowerBack-Hatboro, 109 beds) and Chester County (PowerBack-
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`Phoenixville, twenty-two beds and PowerBack-Exton, 120 beds). (See id. at ¶ 103
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`n.240). Rehab at Shannondell operates a 120-bed SNF on the campus of a senior
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`assisted living community in Montgomery County. See (id. at ¶ 103). Also, Abramson
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`Senior Care offers senior short-term rehabilitation services at the Abramson Residence
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`and the Birnhak Transitional Care center at Lankenau, both in Montgomery County.
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`See (id.).
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`C
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`The region’s commercial health insurance market is far more consolidated than
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`the provider market. Jefferson’s Chief Executive Officer Dr. Stephen Klasko
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`characterized the area as having “the worst externalities of any city in the country” for
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`healthcare systems because there is “pretty much a monopolistic type insurance
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`situation with a few insurers.” See (Sept. 29, 2020 Hr’g Tr. (Klasko (CEO, Jefferson))
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`19:21–20:2, ECF No. 261). The region has only four major commercial health insurance
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`providers: Independence Blue Cross (“IBC”), Aetna, Cigna and United Healthcare
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`(“United”). See (Capps Rpt. ¶¶ 177–191). Because healthcare provider competition in
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`the area is extensive, Klasko explained that commercial insurers “especially the big
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`ones, United, Aetna, IBC, of course, and Cigna, they could just say fine, we won’t [keep
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`a provider in-network]” and not suffer negative repercussions. (Sept. 29, 2020 Hr’g Tr.
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`(Klasko) 27:3–7.)
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`IBC is the area’s dominant commercial insurer, with more than fifty percent
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`market share covering approximately 1.3 million lives and coverage agreements with
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`every area health system. (Defs.’ FF ¶ 74); see also (Sept. 14, 2020 Hr’g Tr.
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`(Staudenmeier (VP Provider Contracting, IBC)) 62:14–21); (id. (Markowitz) at 61:11–
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`13); (PX5008, Staudenmeier Decl. ¶ 3); (JX0064, Winings (VP Network Management,
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`United) Dep. Tr. 281:12–15); (JX0062, Morris (VP Provider Networks, Aetna) Dep. Tr.
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`115:16–116:19, 124:10–17); (DX0127-002); (DX0405-003); (DX0317-10). At the
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`evidentiary hearing, IBC could not identify a single health system that has been out of
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`its coverage network for longer than six months. See (Sept. 14, 2020 Hr’g Tr.
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`(Staudenmeier) 110:25–111:2). IBC has “a very strong market position” because there
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`are significantly more other hospital options than other insurance options. (Sept. 14,
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`2020 Hr’g Tr. (DeAngelis (CFO, Jefferson)) 307:10–25.) All other major commercial
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`insurers in southeastern Pennsylvania recognize IBC as the prevailing player in the
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`commercial insurance market. See (Sept. 14, 2020 Hr’g Tr. (Markowitz) 61:14–18);
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`(JX0062, Morris Dep. Tr. 124:15–17); (JX0064, Winings Dep. Tr. 142:7–12).
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`According to Aetna and United, healthcare providers fear IBC will retaliate
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`against them if they partner with other payors by reducing benefits or terminating its
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`relationships with them. See (JX0062, Morris Dep. Tr. 113:5–22 (explaining Jefferson
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`and Penn had expressed concerns “about IBC retaliating” if they made certain coverage
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`arrangements “with Aetna or any other carrier”)); (DX0442-003 (“IBC dominant player
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`and all health systems have a ‘fear’ of Blue retribution if they were to align themselves
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`in any way with another pay[o]r based on history.”)); (JX0064, Winings Dep. Tr. 283:4–
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`16 (explaining health systems had concerns about partnering with United out of fear
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`that “IBC would either terminate them from the network” or make “meaningful and
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`impactful” rate reductions)).
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`Multiple witnesses testified that neither Jefferson nor Einstein can afford being
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`out of IBC’s network. (Defs.’ FF ¶ 94.) At Jefferson, payments from IBC comprise
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`approximately fifty-eight percent of commercial GAC revenues,4 roughly fifty percent of
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`its total commercial insurance reimbursements and approximately twenty percent of its
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`total revenue. See (Capps Rpt. Fig. 2); (Sept. 14, 2020 Hr’g Tr. (DeAngelis) 289:6–14).
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`An IBC short-term financial analysis showed that if Jefferson were not included in
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`IBC’s network, the resulting harm to Jefferson could amount to tens of millions of
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`dollars. See (Sept. 14, 2020 Hr’g Tr. (Staudenmeier) 111:16–112:6). It determined that
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`cutting Jefferson out of its network would not impact its network adequacy from a
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`regulatory standpoint. (Id. at 108:24–109:3.)
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`IBC accounts for approximately fifty-seven percent of Einstein’s commercial
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`GAC revenues and approximately nineteen percent of the system’s hospital revenues.
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`See (Capps Rpt. Fig. 2); (Sept. 30, 2020 Hr’g Tr. (McTiernan (SVP Clinical and Provider
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`Management, Health Partners Plans, formerly at Einstein and IBC)) 60:22–23, ECF
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`No. 262). An IBC analysis contemplating Einstein’s termination from its network
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`showed that Einstein would lose tens of millions of dollars from termination and IBC
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`would have sufficient network access and adequacy from a regulatory standpoint
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`without Einstein. See (DX0329-008, -010).
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`Aetna covers approximately 550,000 to 650,000 lives in the Philadelphia area.
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`Percent estimates of IBC’s contribution to Jefferson and Einstein commercial GAC revenues
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`includes “the pay[o]r designation for plans associated with the Blue Cross and Blue Shield
`Association that are not classified as IBC.” (Capps Rpt. ¶ 177 n.206.) According to Dr. Capps, IBC
`itself accounts for forty percent of Jefferson’s commercial GAC revenue and forty-four percent of
`Einstein’s commercial GAC revenue. See (id. at Fig. 2).
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`Case 2:20-cv-01113-GJP Document 277 Filed 12/08/20 Page 14 of 62
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`See (Capps Rpt. ¶ 184). It is the second largest commercial payor for both Jefferson and
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`Einstein. See (id.). Aetna accounts for approximately twenty-five percent and twenty-
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`nine percent of Jefferson and Einstein’s commercial GAC revenues, respectively. See
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`(id. at Fig. 2). Its reimbursement payments constitute eight to ten percent of
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`Jefferson’s total revenue and approximately seven percent of Einstein’s hospital
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`revenues. See (Sept. 14, 2020 Hr’g Tr. (DeAngelis) 289:15-22); (Sept. 30, 2020 Hr’g Tr.
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`(McTiernan) 60:18–19).
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`United is even smaller, covering approximately 300,000 lives in Philadelphia and
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`Montgomery counties. See (PX5007, Winings Decl. ¶ 2). It accounts for roughly six
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`percent of both Jefferson and Einstein’s commercial GAC revenues, three to four
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`percent of Jefferson’s total revenue and one to two percent of Einstein’s hospital
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`revenue. See (Capps Rpt. Fig. 2); (Sept. 14, 2020 Hr’g Tr. (DeAngelis) 289:23-290:1);
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`(Sept. 30, 2020 Hr’g Tr. (McTiernan) 60:19–20). United excludes Jefferson from some of
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`its commercial products and has been able to successfully market them. (Defs.’ FF
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`¶ 86.) It considered terminating its contracts with Einstein in early 2020 and
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`determined that, for most of its plans, it could do so without creating patient access
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`issues. (Id. at ¶ 87.)
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`Of the four primary commercial insurers in southeastern Pennsylvania, Cigna is
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`the smallest, covering approximately 200,000 lives and six percent of the commercial
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`healthcare market in the five-county Philadelphia area. See (PX5006, Markowitz Decl.
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`¶ 2). Cigna accounts for approximately five percent of both Jefferson and Einstein’s
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`commercial GAC revenues, one and a half to two percent of Jefferson’s total revenue
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`and less than one percent of Einstein’s hospital revenue. See (Capps Rpt. Fig. 2); (Sept.
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`14, 2020 Hr’g Tr. (DeAngelis) 289:23-290:1); (Sept. 30, 2020 Hr’g Tr. (McTiernan)
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`58:12–15).
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`D
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`The Government proposes three relevant markets in which to assess the
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`proposed merger’s competitive effects. Two of the proposed markets are for inpatient
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`GAC services sold to commercial insurers and their members and the third is for
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`inpatient acute rehabilitation services sold to commercial insurers and their members.
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`(Pls.’ FF ¶ 14.) Each proposed product market has different geographic boundaries.
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`i
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`
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`GAC services include a broad cluster of medical, surgical, and diagnostic services
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`that require an overnight hospital stay. (Pls.’ FF ¶ 15.) The parties agree that GAC
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`services is a relevant product market. See (id. at ¶ 16); (Oct. 26, 2020 Oral Arg. Tr.
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`257:9–10, ECF No. 273). Insurers include local GAC hospitals in their networks
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`because patients prefer to receive GAC services near their homes.5 (Pls.’ FF ¶ 21.)
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`The FTC does something in this case that it has never attempted in an effort to
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`block a merger in the healthcare industry—allege multiple geographic markets for the
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`same product, here GAC services. See (Oct. 26, 2020 Oral Arg. Tr. at 180–81). The
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`Government includes three of the same hospitals in overlapping markets, magnifying
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`their competitive significance. See (Smith Rpt. Figs. 3 and 4); (Capps Rpt. ¶¶ 35–36);
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`While insurers agreed that patients prefer to seek care “close to home,” when asked to define
`5
`the boundaries of “close to home” care, insurers could not do so. See (JX0064, Winings Dep. Tr.
`72:14–75:16 (“close to home” depends on access standards required by the Department of Health or
`other entities and how far patients are willing to travel, but United has not studied how far patients
`are willing to travel for GAC services)); (JX0070, Staudenmeier Dep. Tr. 175:5–9 (no objective
`standard in mind for statement that patients “generally prefer to receive care close to home for most
`routine inpatient and outpatient services”)).
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`(id. at App’x G.1 ¶ 544 (noting Abington, Chestnut Hill and Roxborough Memorial are
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`included in both alleged GAC markets)).
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`a
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`
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`The Government first attempts to define what it terms the “Northern
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`Philadelphia Area” market, in which it includes eleven hospitals: Einstein’s EMCP and
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`EMCEP; Jefferson’s Abington and Frankford Hospitals; Prime’s Roxborough Memorial
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`Hospital; Temple University Hospital; Jeanes; Tower Health’s Chestnut Hill Hospital;
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`Fox Chase Cancer Center; Cancer Treatment Centers of America, Philadelphia; and St.
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`Christopher’s Hospital for Children. (Pls.’ FF ¶ 23.) Notably, Abington sits on the edge
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`of the market at its far northern end. (Capps Rpt. ¶ 35.) This market does not include,
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`among others, Penn Medicine’s three Philadelphia hospitals, notwithstanding that the
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`area from which the hospitals draw seventy-five percent of their patients—the Patient
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`Service Area (“PSA”)—for all three of Penn Medicine’s hospitals includes EMCP. (Defs.’
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`FF ¶ 27); see also (Capps Rpt. ¶ 37 (defining “patient service areas”)). It also excludes
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`Holy Redeemer Hospital, (Defs.’ FF ¶¶ 26, 28), even though its PSA encompasses North
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`Philadelphia. (Defs.’ FF ¶ 28.)
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`b
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`
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`The Government’s proposed “Montgomery Area” market for GAC services also
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`includes Jefferson’s Abington Hospital, Prime’s Roxborough Memorial Hospital and
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`Tower Health’s Chestnut Hill Hospital along with seven other hospitals: Jefferson’s
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`Abington Lansdale Hospital; Einstein’s EMCM; Main Line Health’s Bryn Mawr and
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`Paoli Hospitals; Prime’s Suburban Community Hospital; Tower Health’s Phoenixville
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`Hospital; and Physician’s Care Surgical Hospital. (Pls.’ FF ¶ 26.) Abington sits on the
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`Case 2:20-cv-01113-GJP Document 277 Filed 12/08/20 Page 17 of 62
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`edge of this market as well, this time at its far eastern end. (Capps Rpt. ¶ 35.) The
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`market does not include, among others, Lankenau Hospital, Pottstown Hospital, Grand
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`View, Doylestown Hospital, Jeanes or any Penn Medicine facility. (Defs.’ FF ¶¶ 14, 23–
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`24); (Capps Rpt. Fig. 42.)
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`c
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`While Einstein aspires to compete with Jefferson, (PX2146-011), Jefferson
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`identifies its primary competition as Penn Medicine, Main Line Health, Temple
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`University and Tower Health. See (Sept. 29, 2020 Hr’g Tr. (Meyer) 63:7–11). It does
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`not consider Einstein to be “a primary competitor for commercial patients because their
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`commercial pay[o]r mix is so small. And their commercial payer mix comes almost
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`entirely from their emergency room . . . . we don’t compete with them for elective cases
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`because less than 1 percent of their volume is actually that kind of elective commercial
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`case.” (Id. at 63:17–64:5.) EMCM is not a primary competitor for Jefferson’s Abington
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`Hospital because I-476 acts as a dividing line for where patients seek care—Abington is
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`east of I-476 and EMCM is west of I-476. See (id. at 65:13–66:6); see also (Sept. 30,
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`2020 Hr’g Tr. (Merlis (EVP Strategic Partnerships, Strategic Ventures and Innovation,
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`Jefferson) 119:9–15); (Capps Rpt. ¶¶ 37–38, 41–42). Jefferson sees Abington’s primary
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`competitors as Grand View Hospital and Doylestown Hospital, Holy Redeemer
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`Hospital, “maybe to a much smaller extent Chestnut Hi