In the Spring 2006 issue of Antitrust magazine, published by the ABA Section of Antitrust Law, Barry Harris and David Argue authored “FTC v. Evanston Northwestern: A Change from Traditional Hospital Merger Analysis?” In the article they review the recent decision by the Chief FTC Administrative Law Judge that the January 2000 merger of Highland Park Hospital with Evanston Hospital and Glenbrook Hospital to form Evanston Northwestern Healthcare Corporation (“ENH”) “substantially lessened competition in the product market of general acute inpatient services sold to managed care organizations” in a geographic market of seven hospitals. Despite contrary claims, the decision neither follows a “traditional Clayton 7 approach” nor is consistent with the standards outlined in the DOJ/FTC Horizontal Merger Guidelines.
The decision provides a different focus than previous hospital merger cases, but it does not represent a new approach to hospital merger analysis. The decision’s analysis, however, is problematic and inconsistent enough that it is unlikely to provide a reliable framework for future policy. Its finding that EHN unilaterally exercised market power is inconsistent with its other finding that the relevant antitrust market includes four non-ENH hospitals that are all closer competitors to individual ENH hospitals than the merging ENH hospitals are to each other. The two-stage competition model applied in the decision, when analyzed through a Guidelines framework, raises the question of patient preferences which is aptly addressed with patient origin data. Finally, the pricing analysis described in the decision does not appear to be sufficient to conclude that the merger allowed the hospitals to exercise market power.