Last week was an exciting week in the world of merger challenges. Decisions were issued by federal courts regarding the Federal Trade Commission’s (FTC) efforts to preliminarily block two different mergers – one involving office supply retailers, the other, hospitals. The FTC was able to convince one judge that its case had merit, but not the other. And while we won’t know Judge Sullivan’s reasons for granting the preliminary injunction blocking the Staples/Office Depot merger (FTC v. Staples, No. 1:15-cv-02115 (D.D.C. May 10, 2016)) until later this month (the opinion is currently under seal), an apparent contradiction in the federal government’s policy towards healthcare consolidation may have tilted the scales against the FTC for Judge Jones in FTC v. Penn State Hershey Medical Center, No. 1:15-cv-02362 (M.D. Pa. May 9, 2016).
As is standard practice when the FTC decides to challenge a yet-to-be consummated merger, in both cases it filed a motion for preliminary injunction pursuant to Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), seeking to enjoin the parties from effectuating the transaction until the FTC has the opportunity to challenge the merger at an administrative proceeding. In evaluating the FTC’s motion for preliminary injunction, the court must consider the likelihood that the FTC will ultimately win on the merits while “balancing the equities.” Despite a healthy dose of skepticism among the legal community, and even seemingly Judge Sullivan at times, the FTC was able to convince the D.C. District Court that the evidence, and the equities, weighed in favor of granting its motion to preliminary block the merger of Staples, Inc. and Office Depot, Inc. We will never know, though, if the FTC would have ultimately been successful in challenging the merger on the merits because, following Judge Sullivan’s decision, the parties announced that they are abandoning the deal.
On the other hand, the Affordable Care Act and a couple of rate-maintenance agreements may have saved the day for the Penn State Hershey Medical Center/PinnacleHealth Systems deal. The two Pennsylvania hospital networks serve the south-central part of the Commonwealth. In evaluating the FTC’s presentation, the Court found that the FTC’s market definition was far too narrow and that it underestimated the willingness of Pennsylvanians to travel for quality medical care. Moreover, the Court discounted the FTC’s argument that the combination would raise prices for patients because the hospitals had entered into contracts with two major insurance providers to maintain their existing fee structures and rates for at least 5 years. The recent changes in the health care laws, though, may have been the final nail in the proverbial coffin – the Court recognized “a growing need for all those involved to adapt to an evolving landscape of healthcare, that includes…the institution of the Affordable Care Act…We find it no small irony that the same federal government under which the FTC operates has created a climate that virtually compels institutions to seek alliances such as the Hospitals intend here.” Penn State, No. 1:15-cv-02362 at 25 (M.D. Pa. May 9, 2016).
But just because the FTC has lost this battle, it does not necessarily mean that it has lost the war. Not only has it appealed the decision, but it is still free to challenge the merger in an administrative proceeding, and if successful there, the hospitals will have to unwind the deal. It will be interesting to see what effect, if any, Judge Jones’s decision has on the FTC’s challenges to healthcare mergers in the future.