FTC Challenges Consummated Hospital Merger in Illinois and Related Physician Pricing Actions

The Federal Trade Commission issued an antitrust complaint on February 10th against Evanston Northwestern Healthcare Corporation ("ENH") and an associated physician organization based on ENH's January 2000 acquisition of Highland Park Hospital and alleged price fixing by the physician group.

The acquisition resulted in the combination of three hospitals in the Evanston, Illinois, area. The Commission alleges that this combination has led to significantly higher prices for hospital services, resulting in increased costs for insurance purchasers and consumers of hospital services. After the merger, ENH developed a single system to negotiate prices for all three hospitals, and prices then increased by as much as 190%, according to the complaint. The Commission noted that there were no apparent efficiencies that resulted from the acquisition, and entry into the relevant market likely would not negate the combination's anticompetitive effects.

The complaint alleges that the ENH Medical Group has engaged in price fixing, in violation of the FTC Act. The ENH physician group negotiates fees and other service terms of behalf of about 900 physicians, both salaried and unsalaried. The complaint alleges that fees-for-service rates that ENH negotiated on behalf of these physicians increased dramatically after the acquisition and that ENH's actions amounted to price fixing.

The Commission is seeking a remedy that will correct the purported anticompetitive effects and restore competition in the relevant market. In particular, the Commission may require the divestiture of the Highland Park Hospital and its associated assets and require the medical group to cease contracting on behalf of non-salaried physicians.

The Evanston complaint is the first law enforcement action taken by the Commission as a result of its "retrospective hospital merger" investigation initiative, and the first hospital merger case brought by the Commission in over five years. The government had been defeated in a series of hospital merger challenges, and commenced a number of investigations of already consummated hospital mergers, anticipating that if it found evidence of actual post-merger anticompetitive effects this would help its chances in litigation.