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From Antitrust Law Daily, June 15, 2016

FTC unable to block merger of Chicago-area hospital systems pending administrative trial

By Jeffrey May, J.D.

The federal district court in Chicago has denied the FTC’s request for a preliminary injunction blocking the proposed merger of Advocate Health Care Network and NorthShore University HealthSystem—two of the leading providers of general acute care inpatient hospital services in Chicago’s northern suburbs. The court found that the FTC and the State of Illinois did not meet their burden of showing that there is a likelihood that they will succeed on the merits of their antitrust claims (FTC v. Advocate Health Care Network, June 14, 2016, Alonso, J.).

The court did not elaborate on the reasons for its decision. A public version of the court's opinion detailing the court's reasoning will not be released until after the parties have an opportunity to propose redactions of competitively-sensitive information.

This is the second loss in a row for the FTC in hospital merger challenges. Just last month, the agency was denied a preliminary injunction, blocking a challenge to Penn State Hershey Medical Center’s proposed merger with PinnacleHealth System in Pennsylvania. The U.S. Court of Appeals in Philadelphia has granted the FTC’s request for an injunction pending appeal in that case. Administrative proceedings in that matter could commence after the Third Circuit renders its judgment on the Commission’s appeal.

Market definition was dispositive to the outcome in the Pennsylvania case. Like the merging parties in the Pennsylvania case, Advocate and NorthShore argued that the FTC’s relevant market was improperly drawn.

In December 2015, the FTC filed an administrative complaint and a court action seeking a preliminary injunction, following a 15-month investigation of the combination of Advocate and NorthShore. The transaction is valued at approximately $2.2 billion.

Relevant market. The FTC defined the relevant product market as general acute care (GAC) inpatient hospital services. GAC services include a broad cluster of medical and surgical diagnostic and treatment services offered by both Advocate and NorthShore that typically require an overnight hospital stay. Outpatient services are not included.

The relevant geographic market was limited to northern Cook County and southern Lake County, defined as the "North Shore Area." Under the FTC's market definition, the merging parties own and operate more than half the GAC hospitals located within the North Shore Area.

Advocate is the largest hospital system in the Chicago metropolitan area, according to the FTC. Two of Advocate’s hospitals, Advocate Lutheran General Hospital and Advocate Condell Medical Center, were identified by the agency as within the North Shore Area.

The FTC alleges that NorthShore owns and operates four GAC hospitals. Three of these GAC hospitals—Evanston Hospital, Glenbrook Hospital, and Skokie Hospital—are in northern Cook County, and the fourth—Highland Park Hospital—is in southern Lake County. According to the FTC, NorthShore’s four hospitals compete with Advocate’s hospitals, particularly Advocate Condell and Advocate Lutheran General.

Advocate’s response. Advocate announced today that the judge’s decision "paves the way for the creation of Advocate NorthShore Health Partners (ANHP)." According to Advocate, the ANHP, the parent company for both organizations, will be the 11th largest not-for-profit health care system in the United States.

The FTC can still appeal the decision and seek emergency relief pending appeal as it did in the Pennsylvania hospital merger case. The agency also has the authority to pursue administrative proceedings, despite the setback in federal court. Earlier this month, the Commission granted a continuance in the administrative action, pushing back the commencement of the evidentiary hearing to July 11. Further delays are likely in light of yesterday’s decision.

This is Case No. 1:15-cv-11473.

Attorneys: James Thomas Greene for the FTC. Blake Lee Harrop, Attorney General's Office, for State of Illinois. John Robert Robertson (Hogan Lovells) and Robert Walter McCann (Drinker Biddle & Reath LLP) for Advocate Health Care Network. Dan K. Webb (Winston & Strawn LLP) for Northshore University Healthsystem.

Companies: Advocate Health Care Network; Northshore University Healthsystem

MainStory: TopStory AcquisitionsMergers Antitrust FederalTradeCommissionNews IllinoisNews

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