Case: 21-2603 Document: 91 Page: 1 Date Filed: 11/05/2021
`
`No. 21-2603
`
`IN THE UNITED STATES COURT OF APPEALS
`FOR THE THIRD CIRCUIT
`
`FEDERAL TRADE COMMISSION,
`
`Plaintiff-Appellee
`
`V.
`
`HACKENSACK MERIDIAN HEALTH, INC. AND
`ENGLEWOOD HEALTHCARE FOUNDATION,
`
`Defendants-Appellants
`
`On Appeal from the United States District Court for the
`District of New Jersey, Case No. 2:20-cv-18140
`The Honorable John Michael Vazquez
`
`BRIEF OF THE STATES OF PENNSYLVANIA, CALIFORNIA,
`COLORADO, CONNECTICUT, DELAWARE, IDAHO, ILLINOIS,
`INDIANA, MARYLAND, MASSACHUSETTS, MICHIGAN,
`MINNESOTA, NEBRASKA, NEVADA, NEW HAMPSHIRE, NEW
`MEXICO, NEW YORK, NORTH CAROLINA, NORTH DAKOTA,
`OREGON, RHODE ISLAND, VIRGINIA, WASHINGTON,
`WISCONSIN, THE DISTRICT OF COLUMBIA, AND THE
`TERRITORY OF GUAM AS AMICUS CURIAE IN SUPPORT OF
`THE APPELLEE
`_______________
`
`
`JOSH SHAPIRO
`Attorney General of Pennsylvania
`James A. Donahue, III
`Executive Deputy Attorney General
`
`ROB BONTA
`Attorney General of California
`Renuka George
`Senior Assistant Attorney General
`
`

`

`Case: 21-2603 Document: 91 Page: 2 Date Filed: 11/05/2021
`
`Emilio Varanini
`Supervising Deputy Attorney General
`455 Golden Gate Avenue, 11th Floor
` San Francisco, CA 94102
` Tel: (415) 510-3541
` Email: Emilio.Varanini@doj.ca.gov
`
`*Tracy W. Wertz
`Chief Deputy Attorney General
`Jennifer A. Thomson
`Senior Deputy Attorney General
`Abigail U. Wood
`Deputy Attorney General
`14th Floor Strawberry Square,
`Harrisburg, PA 17120
`Tel: (717) 787-4530
`Email: twertz@attorneygeneral.gov
`*Counsel of Record for Amici Curiae
`
`[Additional Counsel Listed on Next Page ]
`
`

`

`Case: 21-2603 Document: 91 Page: 3 Date Filed: 11/05/2021
`
`PHILIP J. WEISER
`Attorney General
`State of Colorado
`1300 Broadway, 10th Floor
`Denver, Colorado 80203
`Tel: 720-508-6000
`
`WILLIAM TONG
`Attorney General of Connecticut
`165 Capitol Avenue
`Hartford, Connecticut 06106
`Tel: (860) 571-1258
`
`KATHLEEN JENNINGS
`Attorney General of the State of
`Delaware
`Delaware Department of Justice
`820 N. French Street
`Wilmington, DE 19801
`Tel: (302) 577-8600
`
`LAWRENCE G. WASDEN
`Attorney General
`State of Idaho
`700 W. Jefferson Street, Ste. 210
`P.O. Box 83720
`Boise, Idaho 83720-0010
`Tel: (208) 334-4114
`
`KWAME RAOUL
`Attorney General
`State of Illinois
`100 W. Randolph St.
`Chicago, Illinois 60601
`Tel: (312) 814-3000
`
`THEODORE E. ROKITA
`Attorney General of Indiana
`Office of the Attorney General
`200 West Washington Street,
`Room 219
`Indianapolis, IN 46204
`Tel: (317) 234-2271
`
`BRIAN E. FROSH
`Attorney General of Maryland
`200 Saint Paul Place
`Baltimore, Maryland 21202
`Tel: (410) 576-6300
`
`MAURA HEALEY
`Attorney General of Massachusetts
`One Ashburton Place
`Boston, MA 02108
`Tel: (617) 727-2200
`
`DANA NESSEL
`Michigan Attorney General
`P.O. Box 30212
`Lansing, Michigan 48909
`Tel: (517) 335-3977
`
`KEITH ELLISON
`Attorney General
`State of Minnesota
`102 State Capitol
`75 Rev. Dr. Martin Luther King Jr.
`Blvd.
`St. Paul, MN 55155
`Tel: (651) 296-3353
`
`

`

`Case: 21-2603 Document: 91 Page: 4 Date Filed: 11/05/2021
`
`DOUGLAS J. PETERSON
`Attorney General
`State of Nebraska
`2115 State Capitol
`Lincoln, NE 68509
`Tel: (402) 471-3811
`
`AARON D. FORD
`Attorney General of Nevada
`100 North Carson Street
`Carson City, NV 89701
`Tel: (775) 684-1100
`
`JOHN M. FORMELLA
`New Hampshire Attorney General
`N.H. Dept. of Justice
`33 Capitol Street
`Concord, NH 03301
`Tel: (603) 271-3658
`
`HECTOR BALDERAS
`New Mexico Attorney General
`408 Galisteo St.
`Santa Fe, NM 87501
`Tel: (505) 490-4060
`
`LETITIA JAMES
`Attorney General of New York
`28 Liberty Street
`New York, NY 10005
`Tel: (212) 416-6312
`
`JOSHUA H. STEIN
`Attorney General
`State of North Carolina
`114 W. Edenton Street
`Raleigh, NC 27603
`Tel: (919) 716-0045
`
`WAYNE STENEHJEM
`North Dakota Attorney General
`Office of Attorney General
`1720 Burlington Drive, Suite C
`Bismarck, ND 58504-7736
`Tel: (701) 328-5570
`
`ELLEN F. ROSENBLUM
`Attorney General of Oregon
`1162 Court Street NE
`Salem, OR 97301
`Tel: (503) 378-4402
`
`PETER F. NERONHA
`Rhode Island Attorney General
`150 South Main Street,
`Providence, RI 02903
`Tel: (401) 274-4400
`
`MARK HERRING
`Attorney General of Virginia
`202 North 9th Street
`Richmond, VA 23219
`Tel: (804) 786-2071
`
`

`

`Case: 21-2603 Document: 91 Page: 5 Date Filed: 11/05/2021
`
`PETER B. GONICK
`Deputy Solicitor General
`Office of the Attorney General
`PO Box 40100
`Olympia, WA 98504-0100
`Tel: (360) 753-6245
`
`JOSHUA L. KAUL
`Attorney General of Wisconsin
`Wisconsin Department of Justice
`Post Office Box 7857
`Madison, Wisconsin 53707-7857
`Tel: (608) 261-1221
`
`KARL A. RACINE
`Attorney General for the District of
`Columbia
`400 6th Street, NW, Suite 8100
`Washington, D.C. 20001
`Tel: (202) 727-6287
`
`LEEVIN T. CAMACHO
`Attorney General for the Territory of
`Guam
`Office of the Attorney General
`590 South Marine Corps Dr.
`Ste 901
`Tamuning, Guam 96913
`Tel: (671) 475-3324
`
`

`

`Case: 21-2603 Document: 91 Page: 6 Date Filed: 11/05/2021
`
`TABLE OF CONTENTS
`
`TABLE OF AUTHORITIES.....................................................................................ii
`
`IDENTITY AND INTEREST OF AMICUS CURIAE............................................1
`
`SUMMARY OF ARGUMENT.................................................................................2
`
`ARGUMENT ............................................................................................................3
`
`I.
`
`II.
`
`III.
`
`IV.
`
`HEALTHCARE COMPETITION IS A MATTER OF LOCAL
`CONCERN......................................................................................................3
`
`PROVIDER CONSOLIDATION HAS RESULTED IN LARGE
`HEALTHCARE PROVIDERS WITH MARKET POWER WHO HAVE
`BEEN ABLE TO RAISE PRICES TO PAYORS AS A CONDITION FOR
`THEIR INCLUSION IN PAYORS’ NETWORKS........................................6
`
`THE DISTRICT COURT CONDUCTED A PROPER ANALYSIS AND
`CORRECTLY APPLIED THE TWO-STAGE MODEL OF
`COMPETITION TO DEFINE THE RELEVANT GEOGRAPHIC
`MARKET........................................................................................................9
`THE PURPORTED BENEFITS ARE NOT EXTRAORDINARY AND DO
`NOT OUTWEIGH THE LIKELY ANTICOMPETITIVE EFFECTS OF
`THIS PROPOSED MERGER.......................................................................12
`
`CONCLUSION ......................................................................................................18
`
`CERTIFICATE OF COUNSEL..............................................................................20
`
`CERTIFICATE OF SERVICE................................................................................21
`
`
`
`

`

`Case: 21-2603 Document: 91 Page: 7 Date Filed: 11/05/2021
`
`TABLE OF AUTHORITIES
`
`CASES
`
`California v. Providence Group et al., Case No. 3:21-cv-07331
`
`(N.D. Cal. Sept. 21, 2021)……………………………………………….......4
`
`Commonwealth v. Geisinger Med. Ctr.,
`
`No. 1:13 CV-02647-YK (M.D. Pa. Nov. 1, 2013)…………………………..4
`
`Commonwealth v. Urology of Central Pennsylvania, Inc.,
`No. 1:11-CV01625-JEJ (M.D. Pa. Aug. 31, 2011)………………………...17
`
`FTC v. Advocate Health Care Network,
`
`841 F.3d 460, 473–74 (7th Cir.2016)……………………………………4, 11
`
`FTC v. Penn State Hershey Med. Ctr.,
`
`838 F.3d 327 (3d Cir. 2016)…………………………………………...passim
`
`F.T.C. v. H.J. Heinz Co.,
`246 F.3d 708, 721–22 (D.C. Cir. 2001) …………………………………15
`
`In the Matter of Evanston N.W. Healthcare Corp.,
`
`No. 9315, 2007 WL 2286195 at *73 (F.T.C. Aug. 6, 2007)…………15, 16
`
`Massachusetts v. Beth Israel Lahey Health, Inc.,
`
`No. 2018-3703 (Massachusetts Superior Court, November 29, 2018)……...4
`
`Medtronic, Inc. v. Lohr,
`
`518 U.S. 470, 475 (1996)……………………………………………………3
`
`New Hampshire v. Concord Hospital, Inc., et al.,
`
`No. 217-2021-cv-00225 (New Hampshire Superior Court April 20, 2021)...4
`
`People of the State of California v. Sutter Health,
`
`No. CGC 18-565398 (Cal. App. S.F. Ct., 2021)…………………………4, 8
`
`
`
`

`

`Case: 21-2603 Document: 91 Page: 8 Date Filed: 11/05/2021
`
`St. Alphonsus Med. Ctr.-Nampa Inc. v. St. Luke's Health Sys., Ltd.,
`
`778 F.3d 775, 784 n.10 (9th Cir. 2015)………………………………....9, 16
`
`Washington v. Franciscan Health System,
`
`No. 3:17-cv-05690 (W.D. Wa. May 13, 2019)……………………………...4
`
`OTHER AUTHORITIES
`
`Antitrust Applied: Hospital Consolidation Concerns and Solutions:
`Hearings before the Subcommittee on Competition Policy, Antitrust and
`Consumer Rights, of the Senate Judiciary Committee, (May 19, 2021)
`(testimony of Professor Martin Gaynor), available at
`https://www.judiciary.senate.gov/imo/media/doc/Gaynor_Senate_Judiciary_
`Hospital_Consolidation_May_19_2021.pdf..........................................7-8, 17
`
`Areeda and Hovenkamp, ANTITRUST LAW FOURTH EDITION,
`volume 4 para 971f at 44 (2016)…………………………………………...15
`
`Arnold and Whaley, Who Pays for Health Care Costs?
`The Effect of Health Care Prices on Wages, RAND, Santa Monica, CA
`(2020)………………………………………………………………………..6
`
`Boozary, Reinhard, and Jha, The Association Between Hospital Concentration and
`Insurance Premiums in ACA Marketplaces, 38 HEALTH AFFAIRS 68, 671
`(2019)………………………………………………………………………..7
`
`Capps, Kmitch, Zabinski, and Zayats, The Continuing Saga of Hospital Merger
`Enforcement, 82 ANTITRUST L.J. 441, 484 (2019)…………………………10
`
`Charles Thompson, Penn State Health shows off newest pearl in growing
`strand of midstate hospitals, Sept. 22, 2021, available at
`https://www.pennlive.com/business/2021/09/penn-state-health-shows-off-
`newest-pearl-in-growing-strand-of-midstate-hospitals.html.........................16
`
`Examining the Impact of Health Care Consolidation:
`Hearings before the Subcommittee on Oversight and Investigations of the
`Committee on Energy and Commerce of the House of Representatives, 115th
`Congr. 99 (February 14, 2018) (Testimony of Professor Martin Gaynor)…..8
`
`iii
`
`

`

`Case: 21-2603 Document: 91 Page: 9 Date Filed: 11/05/2021
`
`Fulton, Health Care Market Concentration Trends in the United States:
`Evidence and Policy Reponses, HEALTH AFFAIRS 36, No. 9 at 1531
`(2017)………………………………………………………………………..7
`
`Glenn Melnick and Katya Fonkych, Hospital Prices Increase in California,
`Especially Among Hospitals in the Largest Multi-hospital Systems, 53 J. of
`Healthcare Purchasing and Financing, 1-7 available at
`https://journals.sagepub.com/doi/full/10.1177/0046958016651555...............5
`
`Gudiksen et al, Preventing Anticompetitive Contracting Practices in
`Healthcare Markets, SOURCE ON HEALTHCARE PRICE AND COMPETITION at
`22 (September 2020), available at
`https://sourceonhealthcare.org/profile/preventing-anticompetitive-
`contracting-practices-in-healthcare-markets/..................................................5
`
`Heaps et al, Public Transportation in the US: A Driver of Health and Equity,
`HEALTHAFFAIRS (July 29, 2021), available at
`https://www.healthaffairs.org/do/10.1377/ hpb20210630.810356/full/……..
`
`Ioannis Pashakis, UPMC Pinnacle West Shore to finish expansion in November,
`Aug. 19, 2020, available at https://www.cpbj.com/upmc-pinnacle-west-
`shore-finish-expansion-november.................................................................17
`
`Nicolas C. Petris Center on Healthcare Markets and Consumer Welfare,
`School of Public Health, University of California, Berkeley, Consolidation
`in California’s Health Care Market 2010-2016: Impact on Prices and ACA
`Premiums, at 9 (Mar. 31, 2018), available at https://petris.org/wp-
`content/uploads/2018/03/CA-Consolidation-Full-Report_03.26.18.pdf.........5
`
`Steve Tenn, The Price Effect of Hospital Mergers:
`A Case Study of the Sutter-Summit Transaction, FEDERAL TRADE
`COMMISSION WORKING PAPER NO. 293, 1–2 (Nov. 2008)
`available at https://www.ftc.gov/sites/default/files/documents/reports/price-
`effects hospitalmergers% C2%A0-case-study-sutter-summit-
`transaction/wp293_0.pdf……………………………………………………1
`
`The Impact of Hospital Consolidation on Medical Costs,
`NCCI Insights, July 11, 2018, available at
`https://www.ncci.com/Articles/Pages/II_Insights_QEB_Impact-of-Hospital-
`Consolidation-on-Medical-Costs.aspx#.......................................................13
`
`iv
`
`

`

`Case: 21-2603 Document: 91 Page: 10 Date Filed: 11/05/2021
`
`U.S. Dep’t of Justice & FTC,
`Horizontal Merger Guidelines……………………………………………..12
`
`2 HEALTH CARE AND ANTITRUST L.,
`Analyzing hospital mergers—Unilateral effects, § 12:14 (2021)…………...8
`
`v
`
`

`

`Case: 21-2603 Document: 91 Page: 11 Date Filed: 11/05/2021
`
`IDENTITY AND INTEREST OF AMICUS CURIAE
`
`Pursuant to Fed. R. App. P. 29(a), the Commonwealth of Pennsylvania and the State
`
`of California respectfully submit this brief, joined by the States of Colorado, Connecticut,
`
`Delaware, Idaho, Illinois, Indiana, Maryland, Massachusetts, Michigan, Minnesota,
`
`Nebraska, Nevada, New Hampshire, New Mexico, New York, North Carolina, North
`
`Dakota, Oregon, Rhode Island, Virginia, Washington, Wisconsin, the District Of
`
`Columbia, and the Territory of Guam (hereinafter States). The States have a strong interest
`
`in ensuring the availability of affordable and accessible quality healthcare for their
`
`citizens. This interest is best served by protecting vibrant competition in local healthcare
`
`markets. Mergers that substantially increase provider market share in local markets lead to
`
`increased healthcare costs in local communities and raise the overall cost of healthcare
`
`within the States.1 Moreover, the States have a responsibility for safeguarding competition
`
`in their respective state healthcare markets. This responsibility positions them uniquely to
`
`elucidate on the appropriate standards to apply in healthcare merger reviews under the
`
`federal antitrust law.
`
`1 See, e.g., Steve Tenn, The Price Effect of Hospital Mergers: A Case Study of the Sutter-
`Summit Transaction, FEDERAL TRADE COMMISSION WORKING PAPER NO. 293,
`1–2 (Nov. 2008) available at
`https://www.ftc.gov/sites/default/files/documents/reports/price-effects-hospitalmergers%
`C2%A0-case-study-sutter-summit-transaction/wp293_0.pdf
`1
`
`

`

`Case: 21-2603 Document: 91 Page: 12 Date Filed: 11/05/2021
`
`SUMMARY OF ARGUMENT
`
`States plays a significant role in reviewing healthcare transactions and
`
`understanding the impact of consolidation in our states. This role uniquely situates the
`
`States to offer views on the impact of anticompetitive healthcare provider mergers and
`
`conduct within our respective states. It is this knowledge and experience in healthcare
`
`markets, which supports why the States respectfully ask this Court to affirm the district
`
`court’s opinion and uphold the preliminary injunction.
`
`The States know the importance of maintaining vibrant competitive healthcare
`
`markets to control costs while ensuring quality healthcare is affordable and available to
`
`our States’ citizens. Many of the States have seen the growth of large healthcare systems
`
`through the systematic acquisition of hospitals and physician groups, while experiencing
`
`the effects of the systems’ increased bargaining power in negotiations between insurers
`
`and providers regarding insurance plan networks offered to employers in our States. These
`
`same potential bargaining effects and concerns correctly formed the basis of the district
`
`court’s conclusion that: (1) Employers and their employees want access to healthcare that
`
`is geographically convenient to the employees; (2) For insurers to compete effectively for
`
`employers’ business, the commercial health insurers must offer provider networks of
`
`hospitals and physician groups that are located near the homes of their employees; (3)
`
`Most employees are unwilling or unable to travel great distances for medical care; and (4)
`
`The employee demand for nearby network healthcare providers enhances the bargaining
`
`2
`
`

`

`Case: 21-2603 Document: 91 Page: 13 Date Filed: 11/05/2021
`
`power of large healthcare systems. Taken together, mergers increasing the bargaining
`
`power of large healthcare systems result in higher prices without any substantial
`
`improvements in quality for consumers.
`
` The two-stage model of competition used by Plaintiff-Appellee Federal Trade
`
`Commission (“FTC”) to assess the market impact of Defendants-Appellants’ merger
`
`properly focuses on the price effects of the increased bargaining leverage that Defendants-
`
`Appellants would gain from their merger. The localized geographic market resulting from
`
`this methodology accurately models the market dynamic that we see in our States today
`
`and is consistent with this Court’s decision in FTC v. Penn State Hershey Med. Ctr., 838
`
`F.3d 327 (3d Cir. 2016). Further, the district court properly evaluated the evidence
`
`presented regarding the harm that would be caused by the merger, and regarding any
`
`potential benefits and efficiencies, in its decision to preliminary enjoin the merger.
`
`For all these reasons, the district court reached the correct result based on the proper
`
`antitrust analysis of this merger.
`
`ARGUMENT
`
`I.
`
`HEALTHCARE COMPETITION IS A MATTER OF LOCAL CONCERN
`
`Healthcare is viewed traditionally as a local matter falling well within the police
`
`powers of the States. See, e.g., Medtronic, Inc. v. Lohr, 518 U.S. 470, 475 (1996). The
`
`“inherently local” preference for healthcare services is recognized in the federal circuit
`
`courts, which have concluded that “patients generally have a strong preference for local
`3
`
`

`

`Case: 21-2603 Document: 91 Page: 14 Date Filed: 11/05/2021
`
`hospitals, at least for GAC [General Acute Care] services”. FTC v. Advocate Health Care
`
`Network, 841 F.3d 460, 473–74 (7th Cir. 2016); Hershey, 838 F.3d at 341.
`
`Competition is an important piece of a robust local healthcare market; thus the
`
`States frequently review healthcare transactions under both state and federal antitrust laws.
`
`Indeed, recent history has seen numerous examples of States reviewing healthcare
`
`transactions under state and federal antitrust laws.2 Through these reviews, the States
`
`have acquired a sophisticated understanding of their local hospital markets. Accordingly,
`
`we have come to see how large healthcare systems can acquire market power and
`
`successfully impose price increases on payors without risking significant patient defection
`
`to markets located farther away, because patients prefer to receive their care locally. See,
`
`
`2 See, e.g., California v. Providence Group et al., Case No. 3:21-cv-07331 (N.D. Cal.
`Sept. 21, 2021) (California Attorney General settles lawsuit brought under federal antitrust
`law against prospective merger of skilled nursing facility operators with divestiture of
`facility); People of the State of California v. Sutter Health, No. CGC 18-565398 (Cal. Sup.
`S.F. Ct. August 27, 2021) (Final Judgment entered for consent decree on antitrust action
`against Sutter Health for anticompetitive conduct in leveraging providers with market
`power to charge higher prices system-wide); New Hampshire v. Concord Hospital, Inc., et
`al., No. 217-2021-cv-00225 (New Hampshire Superior Court April 20, 2021) (New
`Hampshire Attorney General settles lawsuit brought as parens patriae on behalf of and to
`protect the health and welfare of its citizens and its general economy from proposed
`hospital acquisition.); Washington v. Franciscan Health System, No. 3:17-cv-05690 (W.D.
`Wa. May 13, 2019) (Washington Attorney General settles antitrust lawsuit challenging
`health system’s anticompetitive contract affiliation with a multi-specialty physician
`practice); Massachusetts v. Beth Israel Lahey Health, Inc., No. 2018-3703 (Massachusetts
`Superior Court, November 29, 2018) (Massachusetts Attorney General enters Assurance
`of Discontinuance addressing proposed hospital merger); Commonwealth v. Geisinger
`Med. Ctr.,, No. 1:13 CV-02647-YK (M.D. Pa. Nov. 1, 2013) (Pennsylvania Attorney
`General settles antitrust lawsuit involving health system’s acquisition of community
`hospital and its employed physicians).
`
`
`
`4
`
`

`

`Case: 21-2603 Document: 91 Page: 15 Date Filed: 11/05/2021
`
`e.g., Tenn, The Price Effect of Hospital Mergers: A Case Study of the Sutter-Summit
`
`Transaction, , supra, at 2–3.
`
`The States have seen the consequences of acquisitions that substantially lessen
`
`competition in local provider markets. The wave of hospital consolidation over the past
`
`decades has resulted in market concentration and the creation of large healthcare systems
`
`that wield substantial market power to the detriment of patients.3 Once these systems
`
`acquire one or more providers with market power that are must-haves for insurers, not
`
`only can they charge higher prices to insurers for those providers, but also they can force
`
`the insurers to pay higher prices for all of the other provider-members of the system.
`
`These systems impose system-wide price increases through all or nothing contracting,
`
`where an insurer must contract with either every provider in a system, no matter the cost,
`
`or risk having to market economically unviable networks that lack must-have providers
`
`within that system. See, e.g., Gudiksen et al, Preventing Anticompetitive Contracting
`
`Practices in Healthcare Markets, SOURCE ON HEALTHCARE PRICE AND COMPETITION at 22
`
`(September 2020), available at https://sourceonhealthcare.org/profile/preventing-
`
`3 See, e.g., Nicolas C. Petris Center on Healthcare Markets and Consumer Welfare, School
`of Public Health, University of California, Berkeley, Consolidation in California’s Health
`Care Market 2010-2016: Impact on Prices and ACA Premiums, at 9 (Mar. 31, 2018),
`available at https://petris.org/wp-content/uploads/2018/03/CA-Consolidation-Full-
`Report_03.26.18.pdf; Glenn Melnick and Katya Fonkych, Hospital Prices Increase in
`California, Especially Among Hospitals in the Largest Multi-hospital Systems, 53 J. of
`Healthcare Purchasing and Financing, 1-7 (available at
`https://journals.sagepub.com/doi/full/10.1177/0046958016651555).
`5
`
`

`

`Case: 21-2603 Document: 91 Page: 16 Date Filed: 11/05/2021
`
`anticompetitive-contracting-practices-in-healthcare-markets/. In addition to insurers,
`
`increased healthcare costs are also detrimental to employers: employers may need to
`
`reduce their workforce or workforce’s hours, forego expansion or expand or relocate
`
`employees to other areas with lower healthcare costs. See Arnold and Whaley, Who Pays
`
`for Health Care Costs? The Effect of Health Care Prices on Wages, RAND, Santa
`
`Monica, CA (2020).
`
`In view of those realities, the States submit that the district court properly enjoined
`
`the merger on a preliminary basis, and in particular, submit that hospitals with market
`
`power (and healthcare systems that include such hospitals) can and successfully do raise
`
`the prices charged to payors as the condition for their inclusion in payors’ networks. In
`
`evaluating the anticompetitive impact of the proposed merger, the district court properly
`
`used the two-stage model of competition to assess the anticompetitive effect of the merger
`
`as well as properly considered the prior anticompetitive conduct of the healthcare system
`
`at issue. Moreover, the district court properly found that the claimed benefits do not
`
`amount to extraordinary efficiencies that offset the likely anticompetitive effects of this
`
`hospital merger.
`
`II.
`
`PROVIDER CONSOLIDATION HAS RESULTED IN LARGE
`HEALTHCARE PROVIDERS WITH MARKET POWER WHO HAVE
`BEEN ABLE TO RAISE PRICES TO PAYORS AS A CONDITION FOR
`THEIR INCLUSION IN PAYORS’ NETWORKS
`
`There is a general correlation between market concentration, higher prices, and
`
`higher health insurance premiums. In fact, some studies have found price increases
`
`6
`
`

`

`Case: 21-2603 Document: 91 Page: 17 Date Filed: 11/05/2021
`
`exceeding twenty percent when mergers occur in concentrated markets. E.g., Fulton,
`
`Health Care Market Concentration Trends in the United States: Evidence and Policy
`
`Reponses, HEALTH AFFAIRS 36, No. 9 at 1531 (2017). Additional research has found that
`
`hospital markets with high hospital concentrations also had higher premiums than hospital
`
`markets with low hospital concentrations. Boozary, Reinhard, and Jha, The Association
`
`Between Hospital Concentration and Insurance Premiums in ACA Marketplaces, 38
`
`HEALTH AFFAIRS 68, 671 (2019). Thus, hospitals facing less competition have an ability
`
`to charge higher prices to private payors, without accompanying them with gains in
`
`efficiency or quality. Further, lack of competition can harm the quality of care that is
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`provided. For example, Professor Gaynor’s testimony points to several studies involving
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`cardiac care. One study shows that risk-adjusted one year mortality for Medicare heart
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`attack (acute myocardial infarction, or AMI) patients is significantly higher in more
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`concentrated markets. Other studies found that hospital mergers in New York state and
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`California led to increases in mortality for patients suffering from heart attacks, failure or
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`heart disease. Hospital market concentration is strongly associated with multiple measures
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`of negative patient satisfaction. See Antitrust Applied: Hospital Consolidation Concerns
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`and Solutions: Hearings before the Subcommittee on Competition Policy, Antitrust and
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`Consumer Rights, of the Senate Judiciary Committee, 11-12 (May 19, 2021) (testimony of
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`Professor Martin Gaynor), available at
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`7
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`Case: 21-2603 Document: 91 Page: 18 Date Filed: 11/05/2021
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`https://www.judiciary.senate.gov/imo/media/doc/Gaynor_Senate_Judiciary_Hospital_Con
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`solidation_May_19_2021.pdf.
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`Once a provider has obtained market power, it may be incentivized to maintain or
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`enhance it, leading to an increased risk of anticompetitive conduct. Dominant providers
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`can exert market power through various contracting provisions with insurers. For
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`example, a dominant health system can require that insurers contract with all the dominant
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`system’s hospitals and physicians in order to get access to any part of the system. They
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`can also demand higher payment rates for the entire system. See People of the State of
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`California v. Sutter Health, No. CGC 18-565398 (Cal. Sup. S.F. Ct. August 27, 2021)
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`(court granting final judgment in settlement of claims that such anticompetitive conduct
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`led to higher prices); see also 2 HEALTH CARE AND ANTITRUST L., Analyzing hospital
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`mergers—Unilateral effects, § 12:14 (2021) (discussing negotiation process between
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`commercial health plans and providers generally and noting the phenomenon of “must
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`have” providers for commercially viable network plans); cf. Horizontal Merger Guidelines
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`§ 6.2 (2010) (“A merger between two competing sellers prevents buyers from playing
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`those sellers off against each other in negotiations. This alone can significantly enhance
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`the ability and incentive of the merged entity to obtain a result more favorable to it . . .”).
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`Quality can also be impacted negatively in concentrated markets as hospitals face
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`less competition. See Examining the Impact of Health Care Consolidation: Hearings
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`before the Subcommittee on Oversight and Investigations of the Committee on Energy
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`8
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`Case: 21-2603 Document: 91 Page: 19 Date Filed: 11/05/2021
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`and Commerce of the House of Representatives, 115th Cong. 99 (February 14, 2018)
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`(Testimony of Professor Martin Gaynor).
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`III. THE DISTRICT COURT CONDUCTED A PROPER ANALYSIS AND
`CORRECTLY APPLIED THE TWO-STAGE MODEL OF COMPETITION
`TO DEFINE THE RELEVANT GEOGRAPHIC MARKET
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`The district court properly defined the relevant geographic market as Bergen
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`County. Op. 35-36. The States urge this Court to sustain the district court’s application of
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`the two-stage model of competition to define the relevant geographic market and reject the
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`Appellants’ argument that price discrimination must also be used. Hospital. Brief. 25-32.
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`In reaching the decision, the district court properly defined the relevant geographic
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`market as the county for the purpose of assessing the competitive effects of this merger.
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`Courts commonly use the “hypothetical monopolist test” to define a relevant geographic
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`market for examining the effects of a merger. See Hershey, 838 F.3d at 342 (“A common
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`method employed by courts and the FTC to determine the relevant geographic market is
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`the hypothetical monopolist test”—“if a hypothetical monopolist could impose a small but
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`significant non-transitory increase in price (‘SSNIP’) in the proposed market, the market is
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`properly defined.”). Changes in payor provider bargaining positions, as the hypothetical
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`monopolist test measures, properly predict the geographic area where a merger may have
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`anticompetitive effects. St. Alphonsus Med. Ctr.-Nampa Inc. v. St. Luke's Health Sys., Ltd.,
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`778 F.3d 775, 784 n.10 (9th Cir. 2015). The district court properly followed this approach,
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`9
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`Case: 21-2603 Document: 91 Page: 20 Date Filed: 11/05/2021
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`using the two-stage model of competition in defining the relevant geographic market as
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`Bergen County, and the area in which a hypothetical monopolist could raise prices for
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`hospital services.
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`The two-stage model of competition looks at the impact on payors and patients and
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`recognizes that patient non-price preferences are important to the bargaining on price and
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`access between insurers and providers. See, e.g., Hershey, 838 F.3d at 342; see also
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`Capps, Kmitch, Zabinski, and Zayats, The Continuing Saga of Hospital Merger
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`Enforcement, 82 ANTITRUST L.J. 441, 484 (2019) (noting appellate courts’ “consistent and
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`strong recognition” of the two-stage model). In the first stage of competition, hospitals
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`compete to be included in an insurance plan’s hospital network based on price, quality,
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`and accessibility. In the second stage, patients choose hospitals within a provider network
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`put together by their insurers based on non-price considerations such as ease of access.
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`See, Hershey, 838 F.3d at 342. Patients are relevant to the analysis to the extent that their
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`behavior affects the relative bargaining positions of insurers and hospitals as they
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`negotiate rates. Id. Patients, in large part, do not feel the impact of price increases;
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`insurers do. It is not until insurers pass on those price increases to patients in the form of
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`higher premiums that patients feel the impact of the price increases. Even then those
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`increases will be spread among many insured patients. Id. Looking only at insurers or
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`only at patients in isolation will not give an accurate picture of a hospital market, you have
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`to look at them in combination.
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`10
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`Case: 21-2603 Document: 91 Page: 21 Date Filed: 11/05/2021
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`Under the two-stage model, the relevant geographic market accounts for patient
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`preferences. It also reflects that the more options insurers have for choosing among
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`providers in building a network that caters to patient preferences, the more insurers can
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`obtain a better price. Conversely, the fewer the options insurers have in choosing among
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`providers to cater to patient preferences, the more the remaining providers can command a
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`higher price. Under the two-stage model, providers with market power, can raise prices
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`for insurers without having to price discriminate between the substantial number of
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`patients living close by those providers versus those living farther away. This holds true
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`even if there are a substantial number of patients who travel to those hospitals from farther
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`away and have other options. See, e.g., Hershey, 838 F.3d at 339–41.
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`In applying the two-stage model, the district court correctly focused on insurer
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`testimony that insurers could not successfully market health plans in Bergen County
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`without access to Bergen County hospitals. The insurers recognized that individuals
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`prefer to receive care close to home and that they must consider the preferences of Bergen
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`County residents in the construction of their networks (Op. 38-40). See Hershey, 838 F.3d
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`at 352 (crediting “extensive testimony by payors that ‘there would be no network’ without
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`Hershey and Pinnacle.”); Advocate, 841 F.3d at 460, 464, 471 (“Insured patients are
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`usually not sensitive to retail hospital prices, while insurers respond to both prices and
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`patient preferences…”).
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`11
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`Case: 21-2603 Document: 91 Page: 22 Date Filed: 11/05/2021
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`The district court also correctly factored in the prior history of the acquiring
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`healthcare system in successfully implem