Markets Wired

The Federal Trade Commission today issued its final opinion and order to restore the competition that was lost when Evanston Northwestern Healthcare Corporation (ENH) in suburban Chicago, Illinois, acquired its competitor, Highland Park Hospital. The order sets out the specific requirements for the remedy the Commission ordered in its August 2007 liability decision.

In 2007, the Commission affirmed an October 2005 ruling by an administrative law judge that found that ENH’s acquisition of Highland Park Hospital was anticompetitive and violated federal antitrust law. The Commission’s remedy required ENH to establish separate, independent negotiating teams “to allow MCOs [managed care organizations] to negotiate separately again for those competing hospitals, thus re-injecting competition between them for the business of MCOs.” The Commission noted that it lacked sufficiently detailed information about ENH’s contract negotiations to craft a precise order and asked ENH to submit a detailed proposal to implement the Commission’s order.

After reviewing ENH’s proposal and comments from complaint counsel, the Commission today issued an Order that, among other things, requires ENH to establish separate negotiating teams for both inpatient and outpatient services at Evanston and Highland Park; requires ENH to use separate negotiations as its status quo approach to negotiations with payors unless a payor specifically elects to opt out and negotiate for all ENH hospitals jointly; and, prohibits the Evanston and Highland Park negotiating teams from engaging in the negotiations when a payor elects to negotiate jointly for all ENH hospitals.

In order to ensure the effectiveness of the remedy, the Order also requires ENH, at the request of a payor, to submit disputes as to prices and/or terms obtained by a payor as a result of the separate negotiations, first, to mediation and, if that is not successful, to binding arbitration in accordance with the American Arbitration Association’s Commercial Arbitration Rules. Under the Order, a single, mutually agreed upon arbitrator will be selected, and the arbitrator shall determine fair and reasonable prices and/or terms, assuming competition between the hospitals as it would have existed but for the anticompetitive merger. Unless the parties agree to an alternative manner of arbitration, the order requires Final Offer Arbitration, whereby each party submits its best and final offer to an arbitrator, who is then required to choose what he or she believes is the best offer (sometimes referred to as “baseball-style arbitration”). Additional provisions relating to the arbitration may be found in the Order.

The Order also requires ENH to give prior notification to the Commission for any future acquisitions of hospitals that it may make within the Chicago Metropolitan Statistical Area for the next 10 years. The Order terminates in 20 years.