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FTC's challenge to New Jersey health system merger is flawed, hospital groups say

The Federal Trade Commission's legal attempt to block two New Jersey health systems from combining is sprinkled with errors, hospital groups claimed in a Sept. 22 court filing.

The groups filed an amicus brief in response to the FTC's antitrust lawsuit against Edison, N.J.-based Hackensack Meridian Health and Englewood (N.J.) Health that currently is in the U.S. Court of Appeals for the 3rd Circuit.

The New Jersey health system defendants signed a definitive agreement to merge in October 2019, and the FTC filed a lawsuit in December 2020 aiming to block the deal. The FTC claimed the proposed deal would eliminate close competition between the two healthcare providers and that the merged system would control half of the acute care hospitals in Bergen County, N.J.

A New Jersey federal court in August granted the FTC's request for a preliminary injunction against the transaction. The court's decision permitted the FTC to pursue an administrative case against the deal.

Less than one month later, on Aug. 26, Hackensack Meridian and Englewood Health appealed the lower court's decision. 

In their amicus brief in support of the health system defendants, the American Hospital Association and Association of American Medical Colleges urge the appeals court to reverse the lower court's decision. 

The two hospital groups argue that there were several failures and "legal errors" in the FTC's case. In particular, the groups argue that the FTC's approach to defining the geographic market conflicts with settled law and economic principles. 

The hospital groups claim that the FTC is attempting to define the relevant geographic market for assessing competitive effects as where patients live instead of the locations of the hospitals, when it is undisputed that hospitals can't discriminate in their pricing to insurers based on where patients live. 

"Put simply, the price discrimination on which the FTC's market definition rests is both practically and legally infeasible. Thus, the district court's acceptance of the FTC's relevant geographic market was legal error that compels reversal," the hospital groups argue. 

The hospital groups also argue that the New Jersey district court incorrectly determined that the FTC could establish a likely price increase above competitive levels by relying on a study of changes in patients' willingness to pay. The hospital groups say the study was based on an analysis of 28 hospital mergers, none of which were in New Jersey.

"If the Court were to endorse the FTC's novel approach to market definition, its decision would open the floodgates to the FTC litigating (and threatening to litigate) hospital merger challenges based on artificially narrow markets that are unrelated to how hospitals actually negotiate prices with insurance companies," the hospital groups claim. "This in turn would allow the FTC to challenge transactions that pose no threat to competition, while making it harder for hospitals to allocate capital to procompetitive transactions—a result squarely at odds with the purpose of the antitrust laws."

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