[Federal Register Volume 86, Number 45 (Wednesday, March 10, 2021)]
[Notices]
[Pages 13735-13750]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-04953]
[[Page 13735]]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Evangelical Community Hospital, et ano. Proposed
Final Judgment and Competitive Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment,
Stipulation, and Competitive Impact Statement have been filed with the
United States District Court for the Middle District of Pennsylvania in
United States of America v. Evangelical Community Hospital and
Geisinger Health, Civil Action No. 4:20-cv-01383-MWB. On August 5,
2020, the United States filed a Complaint alleging that Geisinger's
partial acquisition of Evangelical would violate Section 1 of the
Sherman Act, 15 U.S.C. 1 and Section 7 of the Clayton Act, 15 U.S.C.
18. The proposed Final Judgment requires Geisinger and Evangelical to
amend the transaction to cap Geisinger's ownership interest in
Evangelical at a 7.5% passive interest and to eliminate additional
entanglements between the two competing hospitals.
Copies of the Complaint, proposed Final Judgment, and Competitive
Impact Statement are available for inspection on the Antitrust
Division's website at http://www.justice.gov/atr and at the Office of
the Clerk of the United States District Court for the Middle District
of Pennsylvania. Copies of these materials may be obtained from the
Antitrust Division upon request and payment of the copying fee set by
Department of Justice regulations.
Public comment is invited within 60 days of the date of this
notice. Such comments, including the name of the submitter, and
responses thereto, will be posted on the Antitrust Division's website,
filed with the Court, and, under certain circumstances, published in
the Federal Register. Comments should be submitted in English and
directed to Eric D. Welsh, Chief, Healthcare and Consumer Products
Section, Antitrust Division, Department of Justice, 450 Fifth Street
NW, Suite 4100, Washington, DC 20530.
Suzanne Morris,
Chief, Premerger and Division Statistics, Antitrust Division.
United States District Court for the Middle District of Pennsylvania
United States of America, Plaintiff, V. Geisinger Health, and
Evangelical Community Hospital, Defendants.
Civil Action No.:
Complaint
The United States of America brings this civil antitrust action to
enjoin Geisinger Health's partial acquisition of Evangelical Community
Hospital. Defendants' agreement creates substantial financial
entanglements between these close competitors and reduces both
hospitals' incentives to compete aggressively. As a result, this
transaction is likely to substantially lessen competition and
unreasonably restrain trade, resulting in harm to patients in the form
of higher prices, lower quality, and reduced access to high-quality
inpatient hospital services in central Pennsylvania.
I. Introduction
1. Geisinger and Evangelical are, respectively, the largest health
system and largest independent community hospital in a six-county
region in central Pennsylvania. For many patients in this region,
Geisinger and Evangelical are close substitutes for the provision of
inpatient general acute-care services. As the CEO of Evangelical
explained in an interview describing the transaction with Geisinger,
``if you don't get your care here [at Evangelical], you get it there
[at Geisinger].''
2. Geisinger competes for virtually all of the services that
Evangelical provides, with Geisinger also offering some high-end,
specialized services that Evangelical does not offer. This competition
between Geisinger and Evangelical has improved the quality,
availability, and price of inpatient general acute-care services in the
region.
3. In late 2017, Evangelical announced to Geisinger and other
industry participants that it was considering selling itself or
entering into a strategic partnership with another hospital system or
healthcare entity. This announcement raised concerns for Geisinger,
which had long feared that Evangelical could partner with a hospital
system or insurer to compete even more intensely with Geisinger. A more
effective competitor could put Geisinger's revenues at risk.
4. In an effort to forestall that outcome and eliminate existing
competition from Evangelical, Geisinger sought to acquire Evangelical
in its entirety, making a bid for its rival that was substantially
larger than any comparable offer. During negotiations, however, both
Geisinger and Evangelical recognized that a merger between the two
hospitals would likely be blocked on antitrust grounds. So instead,
Defendants tried a strategy to avoid antitrust scrutiny.
5. On February 1, 2019, Defendants agreed to a partial
acquisition--self-styled as a ``Collaboration Agreement.'' As part of
this agreement, Geisinger acquired a 30% interest in Evangelical. In
exchange, Geisinger pledged to provide $100 million to Evangelical for
investment projects and intellectual property licensing.
6. The $100 million pledge, however, was not made altruistically
and is certainly not without strings. The partial-acquisition agreement
ties Geisinger and Evangelical together in a number of ways,
fundamentally altering their relationship as competitors and curtailing
their incentives to compete independently for patients. Patients and
other purchasers of healthcare in central Pennsylvania likely will be
harmed as a result of this diminished competition.
II. Jurisdiction and Venue
7. This Court has subject-matter jurisdiction under Section 4 of
the Sherman Act, 15 U.S.C. 4, Section 15 of the Clayton Act, 15 U.S.C.
25, and 28 U.S.C. 1331, 1337, and 1345.
8. Defendants are engaged in activities that substantially affect
interstate commerce. Defendants provide healthcare services for which
employers, insurers, and individual patients remit payments across
state lines. Defendants also purchase supplies and equipment that are
shipped across state lines, and they otherwise participate in
interstate commerce.
9. Venue is proper under Section 12 of the Clayton Act, 15 U.S.C.
22, and under 28 U.S.C. 1391(b) and (c).
10. This Court has personal jurisdiction over each Defendant.
Geisinger and Evangelical are both incorporated in the Commonwealth of
Pennsylvania with their principal place of business located in the
Middle District of Pennsylvania.
III. Defendants and the Agreement
11. Geisinger Health is an integrated healthcare provider of
hospital and physician services. Geisinger operates 12 hospitals in
Pennsylvania and New Jersey and owns physician practices throughout
Pennsylvania, with a significant presence in the central and
northeastern portions of the state. Geisinger also operates urgent-care
centers and other outpatient facilities in Pennsylvania and New Jersey.
As of April 2020, the Geisinger system employed approximately 32,000
employees, including 1,800 physicians.
12. Geisinger's flagship hospital, Geisinger Medical Center, is
located in Danville, Pennsylvania, and is licensed to accommodate 574
overnight patients. Geisinger operates three other hospitals in the
area: Geisinger Shamokin (70 beds), Geisinger Jersey Shore (25 beds),
[[Page 13736]]
and Geisinger Bloomsburg (76 beds). In addition, Geisinger operates
several urgent-care centers and other outpatient facilities within the
area.
13. Geisinger also operates Geisinger Health Plan, an insurance
company that sells commercial health insurance, Medicare, and Medicaid
products. Geisinger Health Plan has approximately 600,000 members.
14. Geisinger has a history of acquiring community hospitals in
Pennsylvania. From 2012 to 2017, Geisinger acquired six hospitals in
Pennsylvania. Three of the four hospitals that Geisinger owns in the
area, Shamokin, Jersey Shore, and Bloomsburg, were formerly independent
hospitals, and two of those hospitals were the subject of previous
antitrust challenges.
15. Evangelical Community Hospital is an independent community
hospital in Lewisburg, Pennsylvania. The hospital is licensed to
accommodate 132 overnight patients. As of December 2018, Evangelical
employed approximately 1,800 individuals and had 170 physicians on
staff. Evangelical also owns a number of physician practices in central
Pennsylvania and operates an urgent-care center and several other
outpatient facilities.
A. Defendants Are Close Competitors in Central Pennsylvania
16. Geisinger and Evangelical both provide inpatient general acute-
care services to patients in central Pennsylvania and together provide
care for the vast majority of patients living in Danville and
Lewisburg, Pennsylvania, and the surrounding communities.
17. Defendants are particularly close competitors in the six-county
area in central Pennsylvania comprised of Union, Snyder,
Northumberland, Montour, Lycoming, and Columbia counties.
18. This six-county area has benefitted from competition between
Geisinger and Evangelical. Geisinger and Evangelical are each other's
closest competitor for many services and compete on dimensions that
include quality, scope of services, and price. According to a Geisinger
Health Plan executive, Geisinger and Evangelical ``care for the same
people and populations.'' Geisinger and Evangelical recognize that they
compete closely to provide inpatient general acute-care services, which
include orthopedics, women's health, cardiac, and general surgery
services. Geisinger and Evangelical also recognize that they compete to
win patients at the expense of the other.
19. The competition between Geisinger and Evangelical to attract
patients is reflected in their plans for capital investments. When
planning for the future, competition between Geisinger and Evangelical
affects the capital investments each chooses to make. For example, in
2016, when Evangelical's CEO was explaining to the hospital's board why
she recommended constructing a new orthopedic facility, she said that
Evangelical was ``vulnerable to GMC [Geisinger Medical Center] in
orthopedics.'' Similarly, in considering capital expenditures for
certain improvements to its facilities in 2018, Geisinger cited
Evangelical's competitive activities.
20. Geisinger and Evangelical also compete against each other in
their negotiations with insurers. For example, insurers have used
Evangelical's lower prices for inpatient general acute-care services to
negotiate lower prices for those services from Geisinger.
21. Geisinger and Evangelical also have engaged in direct price
competition for members of several religious communities that include
Amish and Mennonite practitioners, who Defendants refer to as the
``Plain Community.'' Members of the Plain Community generally pay their
medical bills directly and do not rely on any form of health insurance.
In 2018, for example, an Evangelical physician obtained, and circulated
to Evangelical executives, Geisinger's then-current Plain Community
discount program. After learning about Geisinger's newly lowered
prices, Evangelical lowered its prices in response, and Evangelical's
CFO sent a letter to members of the Plain Community with the new
pricing ``[s]o that they would know that our rates were lower.''
Evangelical's CEO observed that Plain Community business ``has recently
become more competitive as Geisinger has significantly reduced its
prices,'' prompting Evangelical ``to reduce its prices to the Plain
Community in order to remain competitive.''
B. Recognizing That a Full Merger Would Create an Illegal ``Monopoly,''
Geisinger Proposed a Partial Acquisition That Would Increase
Coordination
22. As early as 2016, Geisinger had identified that ``[a]lignment''
with Evangelical would provide it with ``[d]efensive positioning
against expansion by [UPMC] and/or affiliation with [another]
competitor.'' When Geisinger learned that Evangelical had engaged in a
process to find a strategic partner or acquirer, Geisinger was
concerned that Evangelical would partner with a different hospital
system.
23. Geisinger would have strongly preferred to fully acquire
Evangelical and initially submitted a bid for a full acquisition, as it
has done in the past with other community hospitals. Given the
competition described above, however, Defendants quickly recognized
that a full acquisition would likely violate the antitrust laws.
Evangelical's CEO explained in a video interview that ``the state and
federal government looks at these kinds of things for antitrust . . .
and you can't create a monopoly. And so you know the reality of it is
even if they wanted to, Geisinger would not have been able to acquire
us.'' Geisinger's documents similarly note that a full acquisition of
Evangelical ``[p]resented serious anti-trust concerns.''
24. Instead of a full merger, Geisinger and Evangelical concocted
the complicated partial-acquisition agreement at issue in this case, in
part, to avoid antitrust scrutiny. After the letter of intent for the
agreement was signed, for example, a senior employee at Geisinger wrote
that the agreement was ``[k]inda smart really'' because it ``[d]oes not
require AG [Attorney General] approval.'' Nevertheless, the Antitrust
Division learned of the agreement and opened an antitrust investigation
shortly after the agreement was executed.
25. Initially, Defendants' partial-acquisition agreement was
replete with provisions evidencing Geisinger's intent to substantially
limit competition by controlling its close competitor and replacing
competition with ``cooperation'' (as would occur in a full merger),
such as Geisinger's right to appoint six members to the Evangelical
board of directors, the potential for Geisinger to fund revenue lost by
Evangelical, proposed joint ventures in areas where Defendants
historically competed, and Geisinger's right to have a say in who would
be Evangelical's Chief Executive Officer. As a senior Geisinger
employee testified, ``one of Geisinger's objectives was to integrate .
. . to the fullest extent possible.''
26. Defendants twice amended their partial-acquisition agreement in
response to some of Plaintiff's concerns. Nevertheless, the provisions
of the transaction illuminate Geisinger's motivation for doing this
deal, which survives despite these amendments. More importantly, the
anticompetitive effects of the agreement also survive. The amendments
simply do not rectify the fundamental problems with the agreement:
Geisinger has acquired a significant ownership interest in its close
competitor and imposed significant entanglements between the
[[Page 13737]]
two, likely leading to an impermissible substantial lessening of
competition between Geisinger and Evangelical.
27. As with a full merger, this partial-acquisition transaction
would lessen competition between Geisinger and Evangelical as they
cooperate and look for ``wins'' for both firms. As Evangelical's CEO
described in an interview discussing the deal, ``there's an economic
principle called co-opetition. And you can cooperate, and you can
compete. And as long as both sides find wins, it works.'' Such
statements are predictive of how these close competitors are likely to
behave if this transaction is allowed to proceed: They will coordinate
their activity to ``find wins'' at the expense of robust competition.
Consumers will be on the losing end of this bargain as prices increase
and access to high-quality services is diminished.
C. The Transaction Is Likely to Substantially Lessen Competition
Between Geisinger and Evangelical
28. Defendants' transaction links Geisinger and Evangelical
together in a number of ways that fundamentally alter the relationship
between them, reducing their incentives to attract all patients away
from each other by competing on the quality, scope, and availability of
inpatient general acute-care services. The agreement also is likely to
lead Geisinger to raise prices to commercial insurers and other
purchasers of inpatient general acute-care services, resulting in harm
to the consumer.
29. Financial entanglement. Under the agreement, Geisinger has
acquired a 30% interest in Evangelical, its close rival. In exchange,
Geisinger has committed to pay $100 million to Evangelical over the
next several years and is poised to remain a critical source of funding
to Evangelical for the foreseeable future. The $100 million consists of
$90 million in cash--$88 million of which is earmarked for specified
projects approved by Geisinger and $2 million of which is for
unspecified projects that Geisinger must approve--and $10 million in
attributed value for intellectual property that Geisinger would license
to Evangelical.
30. These financial arrangements establish an indefinite
partnership between Evangelical and Geisinger. As a senior Geisinger
employee put it, through this investment, Evangelical is ``tied to us''
so ``they don't go to a competitor.'' As a result, Evangelical is
likely to avoid competing to enhance the quality or scope of the
services it offers, which would attract patients from Geisinger, its
part owner.
31. This financial entanglement also reduces Geisinger's incentives
to compete by investing in improvements that would attract patients
from Evangelical. If Geisinger expands its services or improves the
quality of its services in areas in which it competes with Evangelical,
it would attract patients at Evangelical's expense, reducing the value
of Geisinger's 30% interest in Evangelical.
32. Thus, as a result of this transaction, both Defendants have the
incentive to pull their competitive punches--incentives that would not
exist in the absence of the agreement.
33. Improper influence. The agreement also gives Geisinger
influence over Evangelical, including over its ability to partner with
others in the future. The agreement gives Geisinger rights of first
offer and first refusal with respect to any future joint venture,
competitively significant asset sale, or change-of-control transaction
by Evangelical, which ensures that Geisinger will have the opportunity
to interfere if Evangelical attempts to enter into any of these
transactions with a healthcare entity other than Geisinger. These
rights deter collaborations between Evangelical and other entities that
compete with Geisinger because Geisinger is given advance notice and is
able to delay or prevent the collaboration. Such collaborations are and
have been an important dimension of quality competition among
hospitals. For example, if Evangelical wanted to enter into a joint
venture with a health system to enhance its cardiology services to
better compete against Geisinger, Geisinger would receive advance
notice and could exercise its rights of first offer or first refusal to
attempt to prevent this competition.
34. Geisinger can also improperly influence Evangelical through its
right to approve Evangelical's use of funds. The agreement allocates
funds to Evangelical for specific projects or service-line initiatives
in specified amounts (e.g., $20 million for women's health
initiatives), including $2 million for ``other mutually agreeable
Strategic Project Investment projects.'' In addition, if Evangelical
wants to spend any funds originating from Geisinger for purposes other
than those described in the agreement, it needs Geisinger's approval.
The transaction affords Geisinger the right to withhold that approval
if it believes that the project would enable Evangelical to compete in
a way that Geisinger does not like.
35. Less independent expansion and more anticompetitive
cooperation. For years, Evangelical has independently expanded in a
number of service lines that compete for patients against service lines
offered by Geisinger. The agreement, however, lessens Evangelical's
incentives to expand because it likely will not want to bite the hand
that feeds it by disrupting its relationship with Geisinger.
Evangelical instead may seek to cooperate with Geisinger, effectively
agreeing not to compete. For example, after the transaction with
Geisinger, an Evangelical executive deleted recommendations to
independently expand Evangelical's orthopedic offerings from a draft of
Evangelical's three-year strategic plan and instead focused on
Evangelical's partnership with Geisinger in this area. Orthopedics is a
service line in which Evangelical historically has competed closely
with Geisinger, to the benefit of patients who need orthopedic care.
Even though Defendants claim to have abandoned the joint venture
involving orthopedic services that was originally described in the
partial-acquisition agreement, if this transaction is not rescinded or
enjoined, they are more likely to avoid competition with each other as
a result of their financial and other entanglements.
36. Sharing of competitively sensitive information. Further
facilitating coordination, the transaction provides the means for
Geisinger and Evangelical to share competitively sensitive information
by enabling ongoing interactions between them. For example, the
agreement provides the opportunity and means for Defendants to share
competitively sensitive information when Evangelical requests that
Geisinger disburse funds for strategic projects under the agreement
because the agreement requires that these requests be ``supported by
appropriate business plans.'' This request necessarily would require
sharing competitively sensitive information.
37. The transaction also requires Evangelical to inform Geisinger
about any strategic partnerships, joint ventures, or other major
transactions with other hospital systems before those transactions are
executed. In addition, Geisinger's approval rights over certain
Evangelical capital improvements provide additional opportunities for
Defendants to inappropriately share competitively sensitive
information. These requirements will give Geisinger advance notice of
its competitor's strategic moves and will facilitate discussions
between Geisinger and Evangelical about Evangelical's strategic plans.
38. Evangelical has publicly stated that it already has cooperative
[[Page 13738]]
relationships with Geisinger, which increases the likelihood that
Defendants will share such competitively sensitive information. In
fact, Defendants have already shared important competitive information
as part of the agreement. In discussions regarding joint ventures,
Evangelical's CEO sent her counterpart at Geisinger a document that
detailed her thinking on Evangelical's strategic growth options. The
transaction continues to contemplate joint ventures between the
Defendants, and the inappropriate sharing of competitively sensitive
information is likely to continue.
39. Increased prices. The transaction also creates incentives for
Geisinger to raise prices to commercial insurers and other purchasers
of inpatient general-acute care services. Because Geisinger now owns
30% of Evangelical, it benefits when patients choose Evangelical
instead of Geisinger because the value of its ownership interest in
Evangelical increases. This ability to partially recover the value of
lost patients through its ownership of Evangelical gives Geisinger
greater bargaining leverage in negotiations with insurers and the
ability to set higher prices for patients who lack insurance.
D. Defendants Have a History of Picking and Choosing When To Compete
With Each Other, Which This Partial Acquisition Will Exacerbate,
Deepening Coordination at the Expense of Competition
40. Although Geisinger and Evangelical are competitors for patients
in central Pennsylvania, they have previously engaged in coordinated
behavior, picking and choosing when to compete and when not to compete.
This tendency to coordinate their competitive behavior is reflected by
Evangelical's CEO's view of ``co-opetition.''
41. Defendants' prior acts of coordination, which are beneficial
only to themselves, reinforce their dominant position for inpatient
general acute-care services in central Pennsylvania. Defendants'
coordination comes at the expense of greater competition and has taken
various forms:
Leaders from Defendants have had ``regular touch base
meetings,'' in which they discussed a variety of topics, including
strategic growth options.
Geisinger has shared with Evangelical the terms of its
loan forgiveness agreement, which Geisinger uses as an important tool
to recruit physicians.
Geisinger and Evangelical established a co-branded urgent-
care center in Lewisburg that included a non-compete clause. As
Evangelical's head of marketing explained to the board, the venture
allowed Evangelical ``to build volume to our urgent care with Geisinger
as a partner rather than potentially as a competitor.''
42. More concerning, senior executives of Defendants entered into
an agreement not to recruit each other's employees--a so-called no-
poach agreement. Defendants' no-poach agreement--an agreement between
competitors, reached through verbal exchanges and confirmed by email
from senior executives--reduces competition between them to hire
hospital personnel and therefore directly harms healthcare workers
seeking competitive pay and working conditions. Defendants have
monitored each other's compliance with this unlawful agreement, and
deviations have been called out in an effort to enforce compliance. For
example, after learning that nurses at Evangelical were being recruited
by Geisinger via Facebook, the CEO of Evangelical wrote to her
counterpart at Geisinger, asking: ``Can you please ask that this
stop[?] Very counter to what we are trying to accomplish.'' After
receiving the message, the Geisinger executive forwarded the email to
Geisinger's Vice President of Talent Acquisition, instructing her to
``ask your staff to stop this activity with Evangelical.'' Defendants'
no-poach agreement works to insulate Defendants' businesses from
competition for healthcare professionals.
43. This history of coordination between Defendants increases the
risk that the additional entanglements created by the partial-
acquisition agreement will lead Geisinger and Evangelical to coordinate
even more closely at the expense of consumers when it is beneficial for
them to do so. Moreover, this history makes clear that Defendants'
self-serving representations about their intent to continue to compete
going forward--despite all of the entanglements created by the partial-
acquisition agreement--cannot be trusted.
IV. The Relevant Market
A. Inpatient General Acute-Care Services are a Relevant Product Market
44. A relevant product market in which to analyze the effects of
the partial-acquisition agreement is the sale of inpatient general
acute-care services. This product market encompasses a broad cluster of
inpatient medical and surgical diagnostic and treatment services
offered by both Geisinger and Evangelical that require an overnight
hospital stay, including many orthopedic, cardiovascular, women's
health, and general surgical services.
45. It is appropriate to evaluate the agreement's likely effects
across the cluster of inpatient general acute-care services. These
specific services are not substitutes for each other (e.g., obstetrics
care is not a substitute for hip replacement surgery), but it is
appropriate to consider them within one relevant product market because
the services are offered to patients under similar competitive
conditions by similar market participants. There are no practical
substitutes for this cluster of inpatient general acute-care services.
46. The relevant market excludes outpatient services and
specialized services that are offered by Geisinger but not Evangelical
because these services are offered under different competitive
conditions than inpatient general acute-care services. Outpatient
services are services that generally do not require an overnight
hospital stay, and some outpatient services are provided in settings
other than hospitals. Health plans and the vast majority of patients
who use inpatient general acute-care services would not switch to
outpatient services in response to a price increase. Similarly, the
relevant market excludes the more specialized services that are offered
by Geisinger but not Evangelical, such as certain advanced cancer
services and organ transplants. These services treat medical conditions
that require more specialized medical training or equipment, so
patients have a different set of competitive options for them.
B. The Six-County Area in Central Pennsylvania is a Relevant Geographic
Market
47. The relevant geographic market is no larger than the six-county
area that comprises the Pennsylvania counties of Union, Snyder,
Northumberland, Montour, Lycoming, and Columbia (the ``six-county
area''). This area encompasses the cities of Danville and Lewisburg,
where Geisinger Medical Center and Evangelical are respectively
located. The hospitals are approximately 17 miles apart. The map below
illustrates the relevant geographic market and the locations of the
hospitals in it.
[[Page 13739]]
[GRAPHIC] [TIFF OMITTED] TN10MR21.002
48. The Horizontal Merger Guidelines (``Merger Guidelines'') issued
by the U.S. Department of Justice and Federal Trade Commission set
forth the relevant test for geographic market definition: Whether a
hypothetical monopolist of the relevant services within the geographic
area could profitably impose a small but significant and non-transitory
increase in price (here, reimbursement rates for inpatient general
acute-care services). If so, the boundaries of that geographic area are
an appropriate geographic market.
49. In this case, a hypothetical monopolist of inpatient general
acute-care services within the six-county area could profitably impose
a small but significant and non-transitory increase in the price of
inpatient general acute-care services for at least one hospital in the
six-county area. In general, patients choose to seek care close to
their homes or workplaces, and residents of the six-county area also
prefer to obtain inpatient general acute-care services locally. Thus,
the availability of these services outside of the six-county area is
not sufficient to prevent a hypothetical monopolist from profitably
imposing a price increase.
50. In addition, health plans that offer healthcare networks in the
six-county area do not consider hospitals outside of that area to be
reasonable substitutes in their networks for hospitals within that
area. Because residents of the six-county area strongly prefer to
obtain inpatient general acute-care services from within the six-county
area, a health plan that did not have hospitals in the six-county area
likely could not successfully market a network to employers and
patients in the area. Thus, a health plan would not exclude from its
network a hypothetical monopolist of all inpatient general acute-care
services in the six-county area in response to a small but significant
price increase.
V. Anticompetitive Effects
A. The Market for Inpatient General Acute-Care Services in Central
Pennsylvania is Highly Concentrated
51. Market concentration is one useful indicator of the level of
competitive vigor in a market and of the likely competitive effects of
a transaction involving competitors. The more concentrated a market,
and the more a transaction would increase concentration in a market,
the more likely it is that a transaction--even a partial acquisition--
will result in a meaningful reduction in competition.
52. Geisinger currently accounts for approximately 55% of inpatient
general acute-care services provided in the six-county area.
Evangelical accounts for approximately 17% of that market. Defendants
together thus account for approximately 71% of the relevant market.
Defendants' internal documents report shares that are consistent with
these shares for inpatient general acute-care services in general and
for many service lines. The other competitor of significance in the
six-county area is the University of Pittsburgh Medical Center
(``UPMC''), which operates two hospitals in Williamsport and Muncy.
UPMC also used to operate a hospital in Sunbury, but that hospital
permanently closed on March 31, 2020.
53. The shares of total discharges of patients receiving inpatient
general acute-care services from hospitals in the six-county area
between the fourth quarter of 2018 and third quarter of 2019 are shown
in the table below. These shares likely understate the Defendants'
current shares because they include discharges from UPMC's Sunbury
hospital, which has now closed, and some patients who would have used
Sunbury are likely to choose Defendants' hospitals instead.
------------------------------------------------------------------------
Hospital system Share (%)
------------------------------------------------------------------------
Geisinger................................................... 54.6
Evangelical................................................. 16.7
UPMC........................................................ 26.7
Community Health System..................................... 2.0
------------------------------------------------------------------------
54. As these shares illustrate, the relevant market is highly
concentrated. The Merger Guidelines measure market concentration by
using the Herfindahl-Hirschman Index (``HHI''), which is calculated by
summing the square of
[[Page 13740]]
individual firms' market shares. Under the Merger Guidelines, a market
is considered to be highly concentrated if the HHI is above 2,500.
Defendants' partial-acquisition agreement would operate in a market
that is already highly concentrated, with an HHI of 3,979.
55. Under the Merger Guidelines, a merger that significantly
increases concentration in a highly concentrated market is presumed to
be unlawful. A full merger between Geisinger and Evangelical would
trigger the presumption of illegality under the Merger Guidelines by a
wide margin, resulting in a post-merger HHI of 5,799 and an increase of
1,820. A partial acquisition that creates the incentive and ability for
two close competitors to coordinate in such a highly concentrated
market poses a similar danger to consumers.
B. The Partial Acquisition Will Diminish Evangelical's and Geisinger's
Incentives To Compete Against Each Other for Patients
56. Geisinger is by far the largest health system in the six-county
region and within central Pennsylvania. It already enjoys a competitive
advantage over its smaller competitors. By allowing Geisinger to
partially acquire Evangelical and creating substantial entanglements
between the two hospitals, the agreement will likely substantially
lessen competition as Evangelical will have less incentive to compete
for patients against the Geisinger behemoth--its financial partner--
than it would have had it remained independent and not partnered with
its closest competitor.
57. Similarly, the transaction reduces Geisinger's incentives to
compete for patients against Evangelical. Any patient that Geisinger
attracts from Evangelical will diminish the value of Geisinger's
interest in Evangelical, and Geisinger will also benefit from
increasing coordination with its close rival.
58. Competition between hospitals like Geisinger and Evangelical
benefits patients in a number of ways, including by providing
convenient access to high quality services. Hospitals also compete to
be included in health insurers' networks.
59. Hospitals compete to attract patients to their facilities by
offering high quality care, a broad scope of services, amenities,
convenience, customer service, and attention to patient satisfaction.
To provide these services, hospitals expand service lines, hire
specialists, family care physicians, and nurses, purchase modern
equipment and technology, open specialized facilities, and continuously
make other improvements. These investments improve access to
healthcare, lower wait times, and improve the quality of care for all
patients, including Medicare, Medicaid, and uninsured patients.
60. Anticompetitive effects arising out of this transaction are
likely to occur from the combination of Geisinger's influence over
Evangelical, Defendants' reduced incentives to expand and improve
services, and the facilitation of information sharing and coordination
between Geisinger and Evangelical. These anticompetitive effects are
likely to lead to a reduction in the quality, scope, and availability
of inpatient general acute-care services.
C. The Partial Acquisition Is Also Likely To Lead to Increased Health
Insurance Prices
61. Hospitals compete for patients not only through the quality of
the services they offer, but also through participation in health
insurers' networks. Hospitals and insurers negotiate prices (called
reimbursement rates) as part of their negotiations about whether, and
under what conditions, a hospital will be included in an insurer's
network. The bargaining positions of a hospital and an insurer during
these negotiations depend on whether there are other nearby, comparable
hospitals that are available to the insurer. Competition among
hospitals limits any individual hospital's leverage with insurers and
enables insurers to negotiate lower reimbursement rates and other terms
that reduce healthcare costs. Less costly care benefits patients and
their employers in the form of lower premiums, copays, and deductibles.
62. Even if Geisinger and Evangelical continue to negotiate
separately with commercial health insurers, the partial-acquisition
agreement creates incentives for Geisinger to increase its rates and
enhances its ability to do so. Geisinger's incentive to raise its rates
flows from its 30% interest in Evangelical. Before the partial
acquisition, Geisinger did not benefit from patients going to
Evangelical. With the agreement, Geisinger's 30% ownership of
Evangelical now allows Geisinger to benefit when patients choose
Evangelical because the value of Geisinger's ownership interest
increases as a result of the profits that Evangelical earns. This
dynamic gives Geisinger an incentive to raise its reimbursement rates
to commercial insurers because the agreement increases Geisinger's
bargaining leverage, allowing it to profitably impose a price increase.
The agreement will thus result in higher healthcare costs for
consumers.
63. Similarly, Geisinger's 30% interest in Evangelical reduces its
incentive to compete aggressively with Evangelical on prices to the
Plain Community. In the six-county area, hospitals compete directly on
discounted prices offered to the Plain Community. Members of the Plain
Community usually do not have commercial insurance and pay for medical
services out of pocket. With the partial acquisition, if Geisinger
raises prices to Plain Community members and some of those members
choose Evangelical instead as a result, Geisinger still captures 30% of
the value of the profits generated from the patients who chose
Evangelical. In addition, the entanglements between Geisinger and
Evangelical are likely to cause Evangelical to avoid directly competing
against Geisinger on the prices it offers to the Plain Community,
resulting in higher prices for those patients.
VI. Absence of Countervailing Factors
64. Geisinger's acquisition of a 30% stake in its close competitor
is not reasonably necessary to achieve any of the benefits that
Defendants tout in connection with this transaction. For example,
Defendants claim the partial-acquisition agreement will improve
Evangelical's electronic medical records system. But Evangelical could
have licensed Geisinger's electronic medical records software without
this transaction, and Defendants were in discussions to do so long
before this transaction was under consideration.
65. Evangelical also could have obtained funds for capital
improvements from sources other than Geisinger, its closest competitor.
At the time Evangelical executed the agreement with Geisinger, it was
in a strong financial position, had been profitable for the last five
years, and already had decided that it had the financial wherewithal to
move forward on the major capital improvement project that now has been
funded in part by its competitor and partial owner.
66. Finally, Evangelical's placement in the most favored tier of
Geisinger Health Plan's commercial insurance products does not require
the partial-acquisition agreement. To the contrary, agreements between
hospitals and insurers that offer favorable placement in commercial
insurance products in exchange for favorable rates are common and do
not require the entanglements created by the partial-acquisition
agreement.
67. For these reasons, there are no transaction-specific
efficiencies that outweigh the likely competitive harms
[[Page 13741]]
of the proposed transaction; indeed, there are no transaction-specific
efficiencies to weigh against the harm.
68. In addition, entry or expansion into the relevant market is
unlikely to eliminate the anticompetitive effects of the partial-
acquisition agreement because entry and expansion are not likely to be
timely, likely, or sufficient to offset the agreement's anticompetitive
effects. The construction of a new hospital that offers inpatient
general acute-care services would require significant time,
expenditures, and risk. Moreover, the six-county area is unlikely to
attract greenfield entry by a new hospital due to declining demand for
inpatient general acute-care services and low population growth.
Indeed, no new hospitals have been built in the six-county area for
more than 10 years, and UPMC's Sunbury hospital closed in March 2020.
69. Enjoining the partial-acquisition will not require undue
disruption of Defendants' businesses. Geisinger and Evangelical have
not implemented many of the provisions of the agreement because, on
October 1, 2019, they entered into a hold-separate agreement with the
United States to maintain the status quo pending an investigation of
the agreement by the Antitrust Division. The hold-separate agreement
requires Geisinger and Evangelical to cease certain activities
contemplated by the agreement, including making most expenditures,
integrating IT systems, and planning joint ventures. The hold-separate
agreement remains in force until this Court makes a final decision.
VII. Violations Alleged
Count I
(Section 1 of the Sherman Act)
70. Plaintiff alleges and incorporates paragraphs 1 through 69 of
this complaint as if set forth fully herein.
71. Geisinger and Evangelical have market power in the sale of
inpatient general acute-care services in the six-county area.
72. The partial-acquisition agreement is an agreement between
Defendants to unreasonably restrain trade. The partial-acquisition
agreement is a contract, combination, or conspiracy within the meaning
of Section 1 of the Sherman Act, 15 U.S.C. 1.
Count II
(Section 7 of the Clayton Act)
73. Plaintiff alleges and incorporates paragraphs 1 through 72 of
this complaint as if set forth fully herein.
74. The partial-acquisition agreement likely substantially lessens
competition in the relevant geographic market for inpatient general
acute-care services in violation of Section 7 of the Clayton Act, 15
U.S.C. 18.
75. Among other things, the partial-acquisition agreement has and
is likely to continue to cause Defendants:
(a) To coordinate their competitive behavior with respect to
inpatient general acute-care services;
(b) to increase their prices for inpatient general acute-care
services to insurers, self-paying patients, and other purchasers of
healthcare; and
(c) to reduce quality, service, and investment with respect to
inpatient general acute-care services or to diminish future
improvements in these areas.
VIII. Request for Relief
76. Plaintiff requests that:
(a) The agreement between Geisinger and Evangelical be adjudged to
violate Section 1 of the Sherman Act, 15 U.S.C. 1, and Section 7 of the
Clayton Act, 15 U.S.C. 18;
(b) the Court order (i) Defendants to rescind or be enjoined
permanently from carrying out the subject agreement; (ii) Geisinger to
divest to Evangelical its 30% ownership interest in Evangelical; and
(iii) Defendants be permanently enjoined and restrained from carrying
out any other transaction that would allow Geisinger to partially
acquire Evangelical;
(c) Plaintiff be awarded the costs of this action; and
(d) Plaintiff be awarded any other relief that the Court deems just
and proper.
Dated: August 5, 2020
Respectfully submitted,
FOR PLAINTIFF UNITED STATES OF AMERICA:
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Makan Delrahim
Assistant Attorney General for Antitrust.
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Bernard A. Nigro, Jr.
Principal Deputy Assistant Attorney General.
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Kathleen S. O'Neill.
Senior Director of Investigations & Litigation.
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Eric D. Welsh
Chief, Healthcare and Consumer Products Section.
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Lee F. Berger
Cecilia Cheng
Chris S. Hong
David C. Kelly
Garrett Liskey
Natalie Melada
David M. Stoltzfus
Attorneys for the United States, U.S. Department of Justice,
Antitrust Division, 450 5th Street NW, Suite 4100, Washington, DC
20530, Tel.: (202) 598-2698, Email: [email protected].
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David J. Freed
United States Attorney.
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Richard D. Euliss
Assistant Unites States Attorney, DC 999166, United States
Attorney's Office, 228 Walnut Street, 2nd Floor, P.O. Box 11754,
Harrisburg, PA 17108-1754, Phone: 717-221-4462, Fax: 717-221-4493,
[email protected].
United States District Court for the Middle District of Pennsylvania
United States of America, Plaintiff, vs. Evangelical Community
Hospital and Geisinger Health, Defendants.
Civil Action No.: 4:20-cv-01383-MWB
[Proposed] Final Judgment
Whereas, Plaintiff, United States of America, filed its Complaint
on August 5, 2020, the United States and Defendants, Geisinger Health
and Evangelical Community Hospital, by their respective attorneys, have
consented to the entry of this Final Judgment without trial or
adjudication of any issue of fact or law, without this Final Judgment
constituting any evidence against or admission by any party regarding
any issue of fact or law, and without Defendants admitting liability,
wrongdoing, or the truth of any allegations in the Complaint;
And whereas, Defendants agree to be bound by the provisions of this
Final Judgment pending its approval by the Court;
And whereas, the purpose of the proposed Final Judgment is to
preserve competition for hospital services in central Pennsylvania and
to ensure Evangelical and Geisinger remain independent competitors;
And whereas, Defendants agree to undertake certain actions and
refrain from certain conduct for the purpose of remedying the
anticompetitive effects of the Collaboration Agreement, as alleged in
the Complaint.
Now therefore, before any testimony is taken, without trial or
adjudication of any issue of fact or law, and upon consent of the
parties, it is ordered, adjudged, and decreed:
I. Jurisdiction
The Court has jurisdiction over the subject matter of and each of
the parties to this action. The Complaint states a claim upon which
relief may be granted against Defendants under Section 7 of the Clayton
Act, 15 U.S.C. 18 and Section 1 of the Sherman Act, 15 U.S.C. 1.
[[Page 13742]]
II. Definitions
A. ``Amended and Restated Collaboration Agreement'' means the
``Amended and Restated Collaboration Agreement'' entered into by
Geisinger and Evangelical on February 18, 2021.
B. ``Back Office Systems'' means the following computer systems and
their functional substitutes: Spok/WebXchange (electronic phonebook);
Digital Control Systems/Micros (food services registers); Lawson
Accounts Payable; Lawson Activities Mgmt (project accounting and
activities-based costing); Lawson Asset Mgmt (depreciation and
reporting requirements); Lawson General Ledger; Allscripts (data
transfer); and Axiom.
C. ``Collaboration Agreement'' means the document titled
``Collaboration Agreement'' entered into by Evangelical and Geisinger
on February 1, 2019.
D. ``Covered Person'' means (i) each employee or agent of each
Defendant who has duties and responsibilities for overseeing the
implementation of information technology systems that Geisinger may
provide to Evangelical under Paragraph V.B. of this Final Judgment;
(ii) the Chief Executive Officers of Defendants and each of their
direct reports; and (iii) each director (including each member of the
Boards of Directors) of each Defendant.
E. ``Defendants'' means Geisinger and Evangelical.
F. ``Epic'' means Epic Systems Corporation, a medical software
company based in Verona, Wisconsin.
G. ``Evangelical'' means Defendant Evangelical Community Hospital,
a non-profit community hospital located in Lewisburg, Pennsylvania, its
successors and assigns, and its subsidiaries, divisions, groups,
affiliates, partnerships, and joint ventures, and their directors,
officers, managers, agents, and employees.
H. ``Existing Financial Payment'' means the combined payments of
twenty million, three hundred thirty-four thousand twenty-three dollars
($20,334,023.00) paid by Geisinger to Evangelical, directly or
indirectly.
I. ``Executive Leadership Personnel'' means any President, Chief
Executive Officer, Chief Financial Officer, Chief Information Officer,
Chief Operating Officer, Chief Strategy Officer, Chief Nursing Officer,
Chief Human Resources Officer, Controller, Director, Executive Vice
President, Vice President, and any other person with any direct or
indirect input, influence, or control over any strategic or competitive
decision.
J. ``Geisinger'' means Defendant Geisinger Health, a regional non-
profit corporation with its headquarters in Danville, Pennsylvania, its
successors and assigns, and its subsidiaries, including Geisinger
Health Plan, divisions, groups, affiliates, partnerships, and joint
ventures, and their directors, officers, managers, agents, and
employees.
K. ``Including'' means including but not limited to.
L. ``Miller Center Joint Venture'' means the Miller Center for
Recreation and Wellness, a Pennsylvania non-profit corporation
operating a recreation and wellness center in Lewisburg, Pennsylvania.
M. ``Ownership Interest'' means the seven-and-one-half percent
(7.5%) ownership interest in Evangelical that Evangelical transferred
to Geisinger in exchange for the Existing Financial Payment, based on
Evangelical's valuation as of January 25, 2021.
N. ``Person'' means any natural person, trade association,
corporation, company, partnership, joint venture, firm, association,
proprietorship, agency, board, authority, commission, office, or other
business or legal entity, whether private or governmental.
O. ``Pre-Existing Joint Ventures'' means the Keystone Accountable
Care Organization, LLC, an organization of doctors, hospitals, and
other healthcare providers that provides coordinated care to Medicare
patients and Evangelical-Geisinger, LLC, the joint venture between
Evangelical and Geisinger to provide student health services to
Bucknell University.
III. Applicability
This Final Judgment applies to Defendants, as defined above, and
all other Persons in active concert or participation with any of them
who receive actual notice of this Final Judgment by personal service or
otherwise.
IV. Prohibited Conduct
A. The Collaboration Agreement and all amendments, modifications,
addenda or supplements, are null and void, with the exception of the
Amended and Restated Collaboration Agreement.
B. Geisinger must not, directly or indirectly:
1. Appoint any directors to the Board of Directors of Evangelical;
2. make any financial contribution, payment, or commitment to
Evangelical that would result in Geisinger obtaining any equity
interest in Evangelical in excess of the Ownership Interest;
3. make any loan or extend any line of credit to Evangelical;
4. maintain or obtain any management, leadership, committee, board
or other position at or with Evangelical that provides Geisinger with
any direct or indirect input, influence, or control over any strategic
or competitive decision to be made by Evangelical, except for any such
positions within Pre-Existing Joint Ventures or the Miller Center Joint
Venture;
5. maintain or obtain any right of first offer or right of first
refusal with respect to any proposal or offer involving Evangelical,
including offers or proposals to acquire, affiliate or enter into a
joint venture with Evangelical, or otherwise influence or seek to
influence any decision to be made by Evangelical with respect to any
proposal or offer involving Evangelical and any other party;
6. approve, reject or otherwise influence Evangelical's use of any
funds or provide a guaranty to Evangelical against any financial losses
that Evangelical may incur; or
7. license to Evangelical any information technology system owned,
used, or licensed by Geisinger, without the prior written consent of
the United States, in its sole discretion.
C. Evangelical must not, directly or indirectly, appoint any
directors to the Board of Directors of Geisinger, including to the
Board of Directors of Geisinger Health Plan.
D. Except for the verification of dates of employment and the
checking of references for new hires, Defendants must not consult with,
provide advice to, or seek to influence, directly or indirectly, each
other regarding the decision to appoint or employ any Executive
Leadership Personnel, except for such positions within Pre-Existing
Joint Ventures or the Miller Center Joint Venture.
E. Defendants must not enter into a joint venture unless the United
States, in its sole discretion, has consented in writing. Defendants
must not renew, extend, or amend the term of the Miller Center Joint
Venture unless the United States, in its sole discretion, has consented
in writing. Defendants may renew or extend the term of a Pre-Existing
Joint Venture, but may not amend a Pre-Existing Joint Venture unless
the United States, in its sole discretion, has consented in writing.
F. Defendants must not amend, supplement, terminate, or modify the
Amended and Restated Collaboration Agreement, or any portion of it,
without the prior written consent of the United States, in its sole
discretion. Defendants must provide at least sixty (60) days written
notice to the United States of any intent to enter into or execute any
amendment, supplement, or
[[Page 13743]]
modification to the Amended and Restated Collaboration Agreement.
G. Defendants must not provide each other with non-public
information, including any non-public financial information of either
Defendant or information about any strategic projects under
consideration by either Defendant; provided however that nothing herein
will be construed to prevent Geisinger and Evangelical from disclosing
to each other non-public information necessary for the care and
treatment of patients or as required for the payment for the care and
treatment of patients.
V. Permitted Conduct
A. Evangelical must not use the Existing Financial Payment for any
purpose other than the following permitted uses:
1. Assisting Evangelical's PRIME patient room improvement project
(approximately $17 million); and
2. sponsoring the Miller Center Joint Venture (approximately $3.3
million).
B. Notwithstanding Paragraph IV.B.7. above, Geisinger may provide
Evangelical with information technology systems and support under the
following terms and conditions:
1. Geisinger may provide to Evangelical Geisinger's electronic
medical record systems (Epic and related embedded clinical systems),
including a license to the embedded Geisinger intellectual property, at
a cost of no less than 15% of the incremental increase in cost to
Geisinger resulting from Evangelical's use of these same systems;
2. Geisinger may provide Evangelical with electronic medical record
systems support for the systems identified in Paragraph V.B.1. at a
cost of no less than 15% of the incremental increase in cost to
Geisinger for the support for these same systems; and
3. Geisinger may provide additional Back Office Systems to
Evangelical at commercially reasonable rates.
VI. Required Conduct
A. Within ten (10) days of entry of this Final Judgment, each
Defendant must appoint an Antitrust Compliance Officer and identify to
the United States the Antitrust Compliance Officer's name, business
address, telephone number, and email address. Within forty-five (45)
days of a vacancy in a Defendant's Antitrust Compliance Officer
position, that Defendant must appoint a replacement, and must identify
to the United States the replacement Antitrust Compliance Officer's
name, business address, telephone number, and email address. A
Defendant's initial or replacement appointment of an Antitrust
Compliance Officer is subject to the approval of the United States in
its sole discretion.
B. Each Antitrust Compliance Officer must:
1. Within thirty (30) days of entry of this Final Judgment, furnish
a copy of this Final Judgment and the Competitive Impact Statement to
all Covered Persons;
2. within thirty (30) days after entry of this Final Judgment, in a
form and manner to be approved by the United States in its sole
discretion, provide all Covered Persons with reasonable notice of the
meaning and requirements of this Final Judgment and the antitrust laws;
3. annually train all Covered Persons on the meaning and
requirements of this Final Judgment and the antitrust laws;
4. brief and distribute a copy of this Final Judgment and the
Competitive Impact Statement to any person who succeeds to a position
of a Covered Person within thirty (30) days of such succession;
5. obtain from each Covered Person, within thirty (30) days of that
person's receipt of this Final Judgment, a certification that he or she
(i) has read and, to the best of his or her ability, understands and
agrees to abide by the terms of this Final Judgment; (ii) is not aware
of any violation of this Final Judgment that has not been reported to
the relevant Defendant's Antitrust Compliance Officer; and (iii)
understands that any person's failure to comply with this Final
Judgment may result in an enforcement action for civil or criminal
contempt of court against any Defendant and/or any person who violates
this Final Judgment;
6. maintain a record of certifications received pursuant to this
Section;
7. annually communicate to all Covered Persons and all other
employees that they must disclose to the Antitrust Compliance Officer,
without reprisal, information concerning any potential violation of
this Final Judgment or the antitrust laws; and
8. by not later than ninety (90) calendar days after entry of this
Final Judgment and annually thereafter, file written reports with the
United States affirming that Defendant is in compliance with its
obligations under Section VI of this Final Judgment, including the
training requirements under Paragraph VI.B.3.
C. Immediately upon the Antitrust Compliance Officer's learning of
any violation or potential violation of any of the terms of this Final
Judgment, a Defendant must take appropriate action to investigate and,
in the event of a violation, must cease or modify the activity so as to
comply with this Final Judgment. Each Defendant must maintain all
documents related to any potential violation of this Final Judgment for
the term of this Final Judgment.
D. Within thirty (30) calendar days of the Antitrust Compliance
Officer's learning of any potential violation of any of the terms of
this Final Judgment, a Defendant must file with the United States a
statement describing the potential violation, including a description
of (1) any communications constituting the potential violation, the
date and place of the communication, the persons involved in the
communication, and the subject matter of the communication; and (2) all
steps taken by the Defendant to remedy the potential violation.
E. Each Defendant must have its CEO or Chief Financial Officer and
its General Counsel certify in writing to the United States, no later
than ninety (90) calendar days after this Final Judgment is entered and
then annually on the anniversary of the date of the entry of this Final
Judgment, that the Defendant has complied with the provisions of this
Final Judgment. The United States, in its sole discretion, may approve
different signatories for the certification.
VII. Firewall
A. Defendants must implement and maintain reasonable procedures to
prevent competitively sensitive information from being disclosed, by or
through implementation and execution of the obligations in this Final
Judgment or the Amended and Restated Collaboration Agreement or through
Geisinger's provision of information technology systems and support to
Evangelical as permitted in Paragraph V.B., between or among employees
of Geisinger and Evangelical.
B. Defendants must, within forty-five (45) business days of the
entry of the Stipulation and Order, submit to the United States a
document setting forth in detail the procedures implemented to effect
compliance with this Section VII. Upon receipt of the document, the
United States will inform Defendants within thirty (30) business days
whether, in its sole discretion, it approves of or rejects Defendants'
compliance plan. Within ten (10) business days of receiving a notice of
rejection, Defendants must submit a revised compliance plan. The United
States may request that this Court determine whether Defendants'
proposed compliance plan fulfills the requirements of this Section VII.
[[Page 13744]]
VIII. Compliance Inspection
A. For the purposes of determining or securing compliance with this
Final Judgment, or of any related orders such as any Stipulation and
Order, or of determining whether this Final Judgment should be modified
or vacated, and subject to any legally recognized privilege, from time
to time, authorized representatives of the United States, including
agents and consultants retained by the United States, shall, upon
written request of an authorized representative of the Assistant
Attorney General in charge of the Antitrust Division, and on reasonable
notice to Defendants, be permitted:
(1) Access during Defendants' office hours to inspect and copy, or
at the option of the United States, to require Defendants to provide
electronic copies, of all books, ledgers, accounts, records, data, and
documents in the possession, custody, or control of Defendants,
relating to any matters contained in this Final Judgment; and
(2) to interview, either informally or on the record, Defendants'
officers, employees, or agents, who may have their individual counsel
present, regarding such matters. The interviews will be subject to the
reasonable convenience of the interviewee and without restraint or
interference by Defendants.
B. Upon the written request of an authorized representative of the
Assistant Attorney General in charge of the Antitrust Division,
Defendants shall submit written reports or responses to written
interrogatories, under oath if requested, relating to any of the
matters contained in this Final Judgment as may be requested.
C. No information or documents obtained by the means provided in
Section VIII will be divulged by the United States to any person other
than an authorized representative of the executive branch of the United
States, except in the course of legal proceedings to which the United
States is a party (including grand jury proceedings), for the purpose
of securing compliance with this Final Judgment, or as otherwise
required by law.
D. If at the time that Defendants furnish information or documents
to the United States, Defendants represent and identify in writing the
material in any such information or documents to which a claim of
protection may be asserted under Rule 26(c)(1)(G) of the Federal Rules
of Civil Procedure, and Defendants mark each pertinent page of such
material, ``Subject to claim of protection under Rule 26(c)(1)(G) of
the Federal Rules of Civil Procedure,'' then the United States shall
give Defendants ten (10) calendar days' notice prior to divulging such
material in any legal proceeding (other than a grand jury proceeding).
IX. Notifications
For purposes of this Final Judgment, any notice or other
communication required to be provided to the United States shall be
sent to the person at the address set forth below (or such other
addresses as the United States may specify in writing to Defendants):
Chief, Office of Decree Enforcement and Compliance, U.S. Department of
Justice, Antitrust Division, 950 Pennsylvania Avenue NW, Room 3207,
Washington, DC 20530, Email: [email protected].
X. Retention of Jurisdiction
This Court retains jurisdiction to enable any party to this Final
Judgment to apply to this Court at any time for further orders and
directions as may be necessary or appropriate to carry out or construe
this Final Judgment, to modify any of its provisions, to enforce
compliance, and to punish violations of its provisions.
XI. Enforcement of Final Judgment
A. The United States retains and reserves all rights to enforce the
provisions of this Final Judgment, including the right to seek an order
of contempt from the Court. Defendants agree that in any civil contempt
action, any motion to show cause, or any similar action brought by the
United States regarding an alleged violation of this Final Judgment,
the United States may establish a violation of the decree and the
appropriateness of any remedy therefore by a preponderance of the
evidence, and Defendants waive any argument that a different standard
of proof should apply.
B. The Final Judgment should be interpreted to give full effect to
the procompetitive purposes of the antitrust laws and to restore all
competition harmed by the challenged conduct. Defendants agree that
they may be held in contempt of, and that the Court may enforce, any
provision of this Final Judgment that, as interpreted by the Court in
light of these procompetitive principles and applying ordinary tools of
interpretation, is stated specifically and in reasonable detail,
whether or not it is clear and unambiguous on its face. In any such
interpretation, the terms of this Final Judgment should not be
construed against either party as the drafter.
C. In any enforcement proceeding in which the Court finds that
Defendants have violated this Final Judgment, the United States may
apply to the Court for a one-time extension of this Final Judgment,
together with such other relief as may be appropriate. In connection
with any successful effort by the United States to enforce this Final
Judgment against a Defendant, whether litigated or resolved prior to
litigation, that Defendant agrees to reimburse the United States for
the fees and expenses of its attorneys, as well as any other costs
including experts' fees, incurred in connection with that enforcement
effort, including in the investigation of the potential violation.
XII. Expiration of Final Judgment
Unless this Court grants an extension, this Final Judgment shall
expire ten (10) years from the date of its entry, except that after
five (5) years from the date of its entry, this Final Judgment may be
terminated upon notice by the United States to the Court and Defendants
that the continuation of this Final Judgment is no longer necessary or
in the public interest.
XIII. Public Interest Determination
Entry of this Final Judgment is in the public interest. The parties
have complied with the requirements of the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16, including making copies available to the
public of this Final Judgment, the Competitive Impact Statement, any
comments thereon, and the United States' responses to comments. Based
upon the record before the Court, which includes the Competitive Impact
Statement and any comments and responses to comments filed with the
Court, entry of this Final Judgment is in the public interest.
Date:
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[Court approval subject to procedures of Antitrust Procedures and
Penalties Act, 15 U.S.C. 16]
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United States District Judge
United States District Court for the Middle District of Pennsylvania
United States Of America, Plaintiff, vs. Evangelical Community
Hospital, and Geisinger Health, Defendants.
Civil Action No.: 4:20-cv-01383-MWB
Competitive Impact Statement
The United States of America, under Section 2(b) of the Antitrust
Procedures and Penalties Act, 15 U.S.C. 16(b)-(h) (the ``APPA'' or
``Tunney Act''), files this Competitive Impact Statement relating to
the proposed Final Judgment submitted for entry in this civil antitrust
proceeding.
[[Page 13745]]
I. Nature and Purpose of the Proceeding
Defendant Geisinger Health (``Geisinger'') and Defendant
Evangelical Community Hospital (``Evangelical'') entered into a
partial-acquisition agreement (the ``Collaboration Agreement'') dated
February 1, 2019, pursuant to which Geisinger would, among other
things, acquire 30% of Evangelical. The United States filed a civil
antitrust Complaint on August 5, 2020, seeking to rescind and enjoin
the Collaboration Agreement. The Complaint alleged that the likely
effect of Geisinger's partial acquisition of Evangelical would be to
substantially lessen competition and unreasonably restrain trade in the
market for the provision of inpatient general acute-care services in a
six-county region in central Pennsylvania, in violation of Section 1 of
the Sherman Act, 15 U.S.C. 1, and Section 7 of the Clayton Act, 15
U.S.C. 18.
Before Defendants responded to the Complaint, the United States
filed a Stipulation and Order and proposed Final Judgment, which are
designed to remedy the loss of competition alleged in the Complaint.
Under the proposed Final Judgment, which is explained more fully below,
Geisinger is required to cap its ownership interest in Evangelical at
7.5%, and Defendants are required to eliminate other entanglements
between them that would allow Geisinger to influence Evangelical.
Defendants are also each required to establish robust antitrust
compliance programs.
The United States and Defendants have stipulated that the proposed
Final Judgment may be entered after compliance with the APPA. Entry of
the proposed Final Judgment will terminate this action, except that the
Court will retain jurisdiction to construe, modify, or enforce the
provisions of the proposed Final Judgment and to punish violations
thereof.
II. Description of Events Giving Rise to the Alleged Violation
A. Defendants
Geisinger is a non-profit corporation organized and existing under
the laws of the Commonwealth of Pennsylvania with its headquarters in
Danville, Pennsylvania. Geisinger is a regional healthcare provider of
hospital and physician services that operates twelve hospitals and owns
physician practices throughout central Pennsylvania. It also operates a
health insurance company, Geisinger Health Plan, which offers
commercial health insurance, Medicare, and Medicaid products.
Geisinger's annual revenue in 2019 was approximately $7.1 billion.
Evangelical is a non-profit corporation organized and existing
under the laws of the Commonwealth of Pennsylvania with its
headquarters in Lewisburg, Pennsylvania. Evangelical operates a 132-bed
independent community hospital, owns a number of physician practices,
and operates an urgent-care center and several other outpatient
facilities in central Pennsylvania. Evangelical's annual revenue in
2019 was approximately $259 million.
B. The Collaboration Agreement
On February 1, 2019, Geisinger and Evangelical entered into the
Collaboration Agreement, pursuant to which Evangelical agreed to give
Geisinger a 30% ownership interest. In exchange, Geisinger agreed to
pay $100 million to Evangelical over the next several years for, among
other things, Geisinger-approved investment projects, future investment
projects that Geisinger had the right to approve, and intellectual
property licensing.
Furthermore, Geisinger's contemplated investment in Evangelical
would not have been passive: The Collaboration Agreement created
additional entanglements between these two competitors and provided
Geisinger with opportunities to influence Evangelical. For example, the
Collaboration Agreement gave Geisinger rights of first offer and first
refusal with respect to any future joint venture, competitively
significant asset sale, or change-of-control transaction by
Evangelical. It also gave Geisinger the right to approve Evangelical's
use of certain funds provided by Geisinger. Additionally, the
Collaboration Agreement provided mechanisms for Geisinger and
Evangelical to share competitively sensitive information, such as
requiring Evangelical to disclose business plans when requesting
disbursement of certain funds and requiring Evangelical to inform
Geisinger about planned transactions with other hospital systems before
any such transactions were executed.
The Collaboration Agreement originally included other provisions
granting Geisinger additional influence over Evangelical, which
Defendants eliminated through several amendments during the course of
the United States' investigation but before the United States filed its
Complaint. For example, the Collaboration Agreement originally included
provisions that gave Geisinger the right to appoint six individuals to
Evangelical's board of directors as well as certain consultation rights
on the appointment of Evangelical's chief executive officer. It also
contained provisions that required Defendants to discuss and work
toward joint ventures in service lines where they have historically
competed, such as women's health and musculoskeletal care, and also
required Geisinger to compensate Evangelical for certain financial
losses.
C. Anticompetitive Effects of the Partial Acquisition
Defendants are two of the largest hospitals in a six-county region
in central Pennsylvania. The vast majority of consumers of inpatient
general acute-care services in and around Danville and Lewisburg,
Pennsylvania, rely on Geisinger and Evangelical for their care.
Together, the two hospitals account for approximately 71% of this six-
county market and are each other's closest competitors for many
services. Geisinger and Evangelical compete head-to-head for patients--
including through investment in high-quality facilities and services,
in negotiations with insurers, and through discounts to uninsured
patients--and consumers have benefited from this competition through
increased quality of care, broader availability, and lower costs.
As alleged in the Complaint, the partial acquisition of Evangelical
by Geisinger resulting from the Collaboration Agreement would have
created significant entanglements between Defendants, likely leading to
increased coordination between them, higher prices, lower quality, and
reduced access to inpatient general acute-care services in central
Pennsylvania.
1. The Relevant Market
As alleged in the Complaint, the provision of inpatient general
acute-care services is a relevant product market. Inpatient general
acute-care services encompass a broad cluster of inpatient medical and
surgical diagnostic and treatment services that require an overnight
hospital stay, including many orthopedic, cardiovascular, women's
health, and general surgical services. The relevant market excludes
outpatient services, which generally do not require an overnight
hospital stay and are provided in settings other than hospitals. The
vast majority of patients who use inpatient general acute-care services
would not switch to outpatient services in response to a price
increase. The relevant market also excludes more specialized services,
such as advanced cancer services and organ transplants, which
Evangelical does not offer.
As alleged in the Complaint, the relevant geographic market for the
sale of inpatient general acute-care services
[[Page 13746]]
is no larger than the six-county area that comprises the Pennsylvania
counties of Union, Snyder, Northumberland, Montour, Lycoming, and
Columbia. This area includes the cities of Danville and Lewisburg,
where Geisinger Medical Center and Evangelical are respectively
located. In general, patients choose to seek medical care close to
their homes or workplaces, and residents of the six-county area alleged
in the Complaint also generally prefer to obtain inpatient general
acute-care services locally. As a result, health insurers that offer
healthcare networks in the six-county area generally do not consider
hospitals outside of that area to be reasonable substitutes in their
networks for hospitals within that area. Because residents in the six-
county area strongly prefer to obtain inpatient general acute-care
services from within the six-county area, a health plan that did not
have hospitals within the six-county area likely could not successfully
attract employers and patients in the area.
2. The Effects of the Collaboration Agreement on Competition
Geisinger and Evangelical are, respectively, the largest health
system and largest independent community hospital in a six-county
region in central Pennsylvania. For many patients in this region,
Geisinger and Evangelical are close substitutes for the provision of
inpatient general acute-care services
Robust competition between hospitals is important to American
consumers. Hospitals such as Geisinger and Evangelical compete to be
included in health insurers' networks and to attract patients by
offering high-quality care, lower prices, and increased access to
services. Geisinger and Evangelical, like other hospitals, also compete
to provide superior amenities, convenience, customer service, and
attention to patient satisfaction and wellness. The Collaboration
Agreement would negatively impact all of those facets of competition to
the detriment of consumers in central Pennsylvania.
a. The Collaboration Agreement Would Create Financial Entanglements
Between Defendants
Under the Collaboration Agreement, Geisinger would have acquired a
30% interest in Evangelical, its close rival. In exchange, Geisinger
committed to pay $100 million to Evangelical over the next several
years and would have remained a critical source of funding to
Evangelical for the foreseeable future. This arrangement would
establish an indefinite partnership between Evangelical and Geisinger,
fundamentally altering their relationship as competitors and curtailing
their incentives to compete independently for patients. As a result,
Evangelical would be likely to avoid competing to enhance the quality
or scope of the services it offers because they would attract patients
from Geisinger, its part owner. It would also reduce Geisinger's
incentives to compete by investing in improvements that would attract
patients from Evangelical. For example, if Geisinger were to expand its
offerings or improve the quality of its services in areas in which it
competes with Evangelical, it would attract patients at Evangelical's
expense, reducing the value of Geisinger's 30% interest in Evangelical.
As a result of the partial acquisition, both Defendants would have an
incentive to pull their competitive punches.
If implemented, the Collaboration Agreement would also likely lead
to Geisinger raising prices to commercial insurers and other purchasers
of inpatient general acute-care services, resulting in harm to
consumers. Before the partial acquisition, in the event of a
contracting disagreement with an insurer, Geisinger risked losing
patients to Evangelical, and this risk of loss disciplined the pricing
that Geisinger negotiated with insurers. The same disciplining effect
would occur when Geisinger raised prices to uninsured patients: In
response to a price increase, Geisinger risked the uninsured patient
moving to Evangelical for care, a result which would keep Geisinger
from raising price. After it secured a 30% ownership interest in
Evangelical, Geisinger would benefit to some degree when patients
choose Evangelical over Geisinger for inpatient general acute-care
services, since greater profits for Evangelical would increase the
value of Geisinger's ownership interest in Evangelical. This ability to
recapture a significant portion of the value of lost patients through
its ownership of Evangelical would give Geisinger increased market
power to charge higher prices to uninsured patients and greater
bargaining leverage in negotiations over reimbursement rates with
insurers. Insurers who pay higher reimbursement rates to Geisinger
would pass along higher healthcare costs to consumers.
b. The Collaboration Agreement Would Give Geisinger Undue Influence
Over Evangelical
The Collaboration Agreement would give Geisinger the ability to
influence and exert control over Evangelical and how Evangelical
competes in central Pennsylvania. In addition to the influence gained
by virtue of Geisinger's $100 million investment and 30% ownership
interest in Evangelical, the Collaboration Agreement would give
Geisinger influence over Evangelical's ability to partner with others
in the future. Geisinger would have rights of first offer and first
refusal with respect to several types of transactions that Evangelical
may wish to pursue, including any future joint venture between
Evangelical and another entity, any competitively significant asset
sale by Evangelical, and any transaction involving a change-of-control
of Evangelical. These provisions would provide Geisinger with advance
notice of Evangelical's competitive plans and the opportunity to
interfere with Evangelical's ability to engage in such transactions,
and thus deter potentially procompetitive collaborations between
Evangelical and other healthcare entities that compete with Geisinger--
arrangements that could otherwise benefit patients and the community.
The Collaboration Agreement would also enable Geisinger to
influence Evangelical through Geisinger's right to approve or deny
Evangelical's use of certain funds provided by Geisinger, as Geisinger
could withhold that approval if the expenditure threatened Geisinger's
business. The Collaboration Agreement also included other
entanglements, such as providing Evangelical with perpetual licenses to
Geisinger's IT systems at no cost to Evangelical and proposing joint
ventures in service lines such as women's health and musculoskeletal
care, where Geisinger and Evangelical have historically competed.
Maintaining these entanglements would reduce the incentives for
Geisinger and Evangelical to compete aggressively on the quality,
scope, and availability of inpatient general acute-care services.
c. The Collaboration Agreement Would Enable the Sharing of
Competitively Sensitive Information
The Collaboration Agreement also provided the means and opportunity
for Defendants to share competitively sensitive information. Under its
terms, Evangelical was required to inform Geisinger about partnerships,
joint ventures, and transactions with other healthcare entities before
those transactions were executed so that Geisinger would have the
opportunity to invoke its rights of first refusal or first offer. The
Collaboration Agreement further required that, when Evangelical
requested that Geisinger disburse funds from its $100 million
commitment for strategic projects, Evangelical would be required to
provide Geisinger with
[[Page 13747]]
supporting business plans, and Geisinger could grant or withhold
approval for certain capital projects. These requirements would enable
Geisinger to secure important forward-looking information about
Evangelical's plans to compete with Geisinger. Requiring Evangelical to
give Geisinger a preview of its future competitive endeavors would
likely soften competition between Geisinger and Evangelical, diminish
Evangelical's incentives to innovate and expand, and impede
Evangelical's ability to enter into strategic alliances with others to
compete with Geisinger in the future.
d. Entry or Expansion Is Difficult
Entry of new competitors or expansion of existing competitors is
unlikely to prevent or remedy the anticompetitive effects of the
Transaction. The construction of a new hospital that offers inpatient
general acute-care services in the relevant geographic market would
require significant time, expenditures, and risk. In the six-county
region where Defendants compete, no new hospitals have been built for
more than ten years, and one closed in March 2020. Entry by a new
hospital in the relevant market is unlikely due to declining demand for
inpatient general acute-care services and low population growth.
III. Explanation of the Proposed Final Judgment
The purpose of the proposed Final Judgment is to remedy the loss of
competition alleged in the Complaint and to ensure Evangelical and
Geisinger remain independent competitors. The relief required by the
proposed Final Judgment will remedy the loss of competition alleged in
the Complaint by ensuring that Evangelical remains an independent
competitor in the market for inpatient general acute-care services in
central Pennsylvania. The proposed Final Judgment will restore
competition by: (1) Capping Geisinger's ownership interest in
Evangelical; (2) preventing Geisinger from exerting control or
influence over Evangelical; and (3) prohibiting Geisinger and
Evangelical from sharing competitively sensitive information--all of
which will restore Defendants' incentives to compete with each other on
quality, access, and price. At the same time, the proposed Final
Judgment permits Evangelical to use Geisinger's passive investment for
specific projects that will benefit patients and the community.
Finally, Defendants are required to institute antitrust compliance
programs.
A. Reduction of Ownership Interest and Investment
First and foremost, the proposed Final Judgment caps Geisinger's
ownership interest in Evangelical to a 7.5% passive investment.
Paragraph IV.A. renders the Collaboration Agreement, including its
provision for Geisinger to obtain a 30% ownership interest in
Evangelical, null and void. In its place, Defendants have entered into
an Amended and Restated Collaboration Agreement that is consistent with
the terms of the proposed Final Judgment. Paragraph IV.B.2. prohibits
Geisinger from increasing its ownership interest in Evangelical above
the 7.5% cap that was obtained in exchange for the approximately $20.3
million already paid by Geisinger to Evangelical, and Paragraph IV.B.3.
prohibits Geisinger from making any loan or providing any line of
credit to Evangelical. Paragraph V.A. of the proposed Final Judgment
permits Evangelical to use the $20.3 million it has already received
from Geisinger only for two specified projects, improving Evangelical's
patient rooms and sponsoring a local center for recreation and
wellness. Under Paragraph IV.F., Defendants may not amend the Amended
and Restated Collaboration Agreement without the consent of the United
States.
In addition, by limiting Geisinger's ownership interest in
Evangelical and prohibiting Geisinger from making any loans to
Evangelical, Paragraphs IV.B.2. and IV.B.3. of the proposed Final
Judgment restore Geisinger's incentives to compete on price in
negotiations with commercial insurers. Limiting the ownership interest
and prohibiting loans substantially reduces any bargaining leverage
Geisinger would gain from recapturing the profits from any patients
lost to Evangelical. Similarly, these provisions preserve Defendants'
incentives to compete aggressively with each other as they have in the
past for the business of uninsured consumers.
As applied to the facts alleged in the Complaint, the limitations
imposed on Geisinger's ownership interest and investment in
Evangelical--along with the removal of significant entanglements
between the Defendants discussed below--render Geisinger's interest
passive, eliminate mechanisms for Geisinger to influence its smaller
competitor, and restore the incentives of both hospitals to continue to
compete with one another to provide inpatient general acute-care
services for the benefit of patients and health insurers. Following
entry of the proposed Final Judgment, Geisinger will not be in a
position to prevent other healthcare entities from acquiring or
partnering with Evangelical, and Geisinger's limited investment will
benefit patients and the community by partially financing Evangelical's
modernization of its patient rooms and providing funding for wellness
and recreation at the Miller Center.
B. Prohibitions Against Geisinger's Influence and Control Over
Evangelical
The Collaboration Agreement contained numerous provisions that gave
Geisinger the ability to influence and control its close competitor,
Evangelical, through management positions and other means. For example,
as originally crafted, the Collaboration Agreement gave Geisinger the
right to appoint six members to Evangelical's board of directors. The
proposed Final Judgment prohibits attempts to reinstate such provisions
during the ten-year term of the proposed Final Judgment in order to
prevent Geisinger from exerting influence or control over Evangelical
in the future.
Paragraphs IV.B.1. and IV.C. of the proposed Final Judgment,
respectively, prevent Geisinger from appointing any directors to
Evangelical's board of directors and prevent Evangelical from
appointing any directors to the board of directors of Geisinger or
Geisinger Health Plan. Paragraph IV.B.4. prevents Geisinger from
obtaining any management or leadership position with Evangelical that
would provide Geisinger with the ability to influence the strategic or
competitive decision-making at Evangelical. Paragraph IV.D. prevents
Defendants from consulting with each other regarding decisions to
employ individuals in executive-level positions. These provisions in
the proposed Final Judgment prevent Geisinger from exercising influence
over Evangelical through participation in its governance, management,
or strategic decision-making, which would render Evangelical a less
independent competitor.
The proposed Final Judgment also prohibits Geisinger from otherwise
influencing Evangelical, preserving its competitive independence.
Paragraph IV.B.5. of the proposed Final Judgment prevents Geisinger
from maintaining or obtaining any right of first offer or first refusal
regarding any proposal or offer to Evangelical, including proposals to
enter into future joint ventures with other entities, competitively
significant asset sales, or change-of-control transactions by
Evangelical. As alleged in the Complaint, having rights of first offer
and first refusal would enable Geisinger to interfere if Evangelical
[[Page 13748]]
attempted to enter into such transactions and would deter
collaborations between Evangelical and other entities. Prohibiting the
use of such rights eliminates an entanglement between Geisinger and
Evangelical that would reduce Evangelical's incentive and ability to
compete vigorously.
Paragraph IV.B.6. prohibits Geisinger from controlling
Evangelical's expenditure of funds, including Evangelical's choice of
strategic project investments. Paragraph IV.B.6. also prohibits
Geisinger from providing a guaranty to Evangelical against any
financial losses. In addition, Paragraph IV.B.3. prohibits Geisinger
from making a loan or extending a line of credit to Evangelical. These
provisions ensure Evangelical's financial independence. Paragraph
IV.B.7. prohibits Geisinger from licensing its information technology
systems to Evangelical without the consent of the United States, except
for information technology systems and support permitted under
Paragraph V.B., subject to a firewall to prevent the sharing of
competitively sensitive information. These provisions enable
Evangelical to improve its hospital operations and patient care in
order to be a more effective competitor while limiting Geisinger's
ability to influence Evangelical.
Finally, to maintain their competitive independence, Paragraph
IV.E. prevents Defendants from entering into any joint ventures with
each other, including those contemplated in the Collaboration Agreement
in certain service lines where Defendants historically competed, and
from renewing, extending, or amending their joint venture to operate a
recreation and wellness center called the Miller Center in Lewisburg,
Pennsylvania, without the prior written consent of the United States.
Exempted from this prohibition, however, are the renewal or extension
of two joint ventures already in place--Evangelical-Geisinger, LLC, a
joint venture between Geisinger and Evangelical to provide student
health services to Bucknell University and the Keystone Accountable
Care Organization, LLC, an organization of doctors, hospitals, and
other providers, that provides coordinated care to Medicare Patients.
Defendants, however, may not otherwise amend these two pre-existing
joint ventures without the prior written consent of the United States.
Collectively, these provisions in the proposed Final Judgment
remove Geisinger's ability to exercise influence or control over
Evangelical. Defendants' incentives to compete with each other are
preserved by eliminating all of Geisinger's rights to influence or
control decision-making at Evangelical, removing other entanglements
from the Collaboration Agreement, and capping Geisinger's equity stake
in Evangelical to a 7.5% passive investment. The terms of the proposed
Final Judgment maintain Evangelical's independence as a competitor,
substantially reduce the likelihood that Defendants' competitive
incentives will be affected by Geisinger's partial ownership, and
preserve Defendants' incentives to compete with each other on the
price, quality, and availability of services.
C. Prohibitions Against Sharing Competitively Sensitive Information
The Collaboration Agreement would have provided the potential for
increased coordination between Geisinger and Evangelical arising from
the sharing of sensitive, forward-looking confidential information
about Evangelical's plans to compete with Geisinger. The proposed Final
Judgment requires that the provisions in the Collaboration Agreement
that would have provided Geisinger with the ability to access
Evangelical's competitively sensitive information be eliminated in
order to prevent Defendants from coordinating with one another using
that information. Paragraph IV.G. of the proposed Final Judgment
prohibits the Defendants from providing each other with non-public
information, including any information about strategic projects being
considered by either Defendant. It also prevents Defendants from having
access to each other's financial records. By preventing Defendants from
sharing this information, this provision decreases the possibility of
anticompetitive coordination between Defendants and helps maintain
their incentives to compete with one another. This provision, however,
allows Defendants to exchange non-public information that is necessary
for the care and treatment of patients. In addition, Paragraph IV.B.5.
prohibits Defendants from exercising or maintaining any rights of first
offer and first refusal that would allow Geisinger to receive advance
notice about Evangelical's competitive plans through exercising such a
right.
E. Permitted Conduct
Paragraph V.A. of the proposed Final Judgment permits Evangelical
to retain the $20.3 million Geisinger already provided to Evangelical,
defined in the proposed Final Judgment as the Existing Financial
Payment, but only for the purpose of expending it on Evangelical's
PRIME patient room improvement project ($17 million) and to sponsor the
Lewisburg YMCA at the Miller Center in Lewisburg, Pennsylvania
(approximately $3.3 million). These projects will not impede
competition between the parties and will benefit the community.
Paragraph V.B. of the proposed Final Judgment permits Geisinger to
provide certain information technology systems and support to
Evangelical at a discounted rate to enable Evangelical to upgrade its
electronic health records systems. The proposed Final Judgment also
permits Geisinger to provide Evangelical access to various back office
software systems at commercially reasonable rates. Evangelical has been
unable to accomplish such upgrades on its own because of its status as
a small independent community hospital. Permitting Evangelical to
obtain this electronic medical records upgrade and related support from
Geisinger at a discount will benefit patients in central Pennsylvania
and promote the adoption of health information technology to improve
the delivery of care to patients. Geisinger's provision of upgraded
health records software and other support software to Evangelical is
unlikely to prevent Evangelical from collaborating with other
healthcare providers. The requirement in Paragraph VII.A. that
Defendants implement and maintain a firewall will prevent them from
sharing competitively sensitive information.
F. Antitrust Compliance Program and Firewall
Defendants are required to institute an antitrust compliance
program to ensure their compliance with the Final Judgment and the
antitrust laws. Under Section VI of the proposed Final Judgment, each
Defendant must create an antitrust compliance program that is
satisfactory to the United States to ensure that Defendants comply with
the Final Judgment.
Defendants must designate an Antitrust Compliance Officer who is
responsible for implementing training and antitrust compliance programs
and ensuring compliance with the Final Judgment. Among other duties,
each Antitrust Compliance Officer will be required to distribute copies
of the Final Judgment to each of Defendants' respective management,
among others, and to ensure that relevant training is provided to each
Defendants' management as well as individuals with responsibility over
Defendants' information technology systems. Defendants are each
required to certify compliance with the Final Judgment and the
requirements of the antitrust compliance programs annually on the
[[Page 13749]]
anniversary of the entry of the Final Judgment.
Under Section VII, Defendants are required to implement and
maintain a firewall to prevent competitively sensitive information from
being disclosed in the course of Geisinger's provision of electronic
medical records and other IT systems and services to Evangelical.
Defendants must provide their compliance plan for the firewall to the
United States for approval, and the United States maintains the right
to seek the Court's determination as to sufficiency of the Defendants'
proposed compliance plan for the firewall.
IV. Remedies Available to Potential Private Litigants
Section 4 of the Clayton Act, 15 U.S.C. 15, provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in federal court to recover three times
the damages the person has suffered, as well as costs and reasonable
attorneys' fees. Entry of the proposed Final Judgment neither impairs
nor assists the bringing of any private antitrust damage action. Under
the provisions of Section 5(a) of the Clayton Act, 15 U.S.C. 16(a), the
proposed Final Judgment has no prima facie effect in any subsequent
private lawsuit that may be brought against Defendants.
V. Procedures Available for Modification of the Proposed Final Judgment
The United States and Defendants have stipulated that the proposed
Final Judgment may be entered by the Court after compliance with the
provisions of the APPA, provided that the United States has not
withdrawn its consent. The APPA conditions entry upon the Court's
determination that the proposed Final Judgment is in the public
interest.
The APPA provides a period of at least sixty days preceding the
effective date of the proposed Final Judgment within which any person
may submit to the United States written comments regarding the proposed
Final Judgment. Any person who wishes to comment should do so within
sixty days of the date of publication of this Competitive Impact
Statement in the Federal Register, or the last date of publication in a
newspaper of the summary of this Competitive Impact Statement,
whichever is later. All comments received during this period will be
considered by the U.S. Department of Justice, which remains free to
withdraw its consent to the proposed Final Judgment at any time before
the Court's entry of the Final Judgment. The comments and the response
of the United States will be filed with the Court. In addition,
comments and the United States' responses will be published in the
Federal Register unless the Court agrees that the United States instead
may publish them on the U.S. Department of Justice, Antitrust
Division's internet website.
Written comments should be submitted to: Eric D. Welsh, Chief,
Healthcare and Consumer Products Section, Antitrust Division, U.S.
Department of Justice, 450 Fifth Street NW, Suite 4100, Washington, DC
20530.
The proposed Final Judgment provides that the Court retains
jurisdiction over this action, and the parties may apply to the Court
for any order necessary or appropriate for the modification,
interpretation, or enforcement of the Final Judgment.
VI. Alternatives to the Proposed Final Judgment
As an alternative to the proposed Final Judgment, the United States
considered a full trial on the merits challenging the partial
acquisition. The United States could have continued this litigation and
sought preliminary and permanent injunctions against Geisinger's
acquisition of partial ownership of Evangelical and the accompanying
entanglements in the Transaction. The United States is satisfied,
however, that the relief described in the proposed Final Judgment will
remedy the anticompetitive effects alleged in the Complaint, preserving
competition in the market for inpatient general acute-care services in
the six-county area in Pennsylvania identified in the Complaint. Thus,
the proposed Final Judgment achieves all or substantially all of the
relief the United States would have obtained through litigation, but
avoids the time, expense, and uncertainty of a full trial on the merits
of the Complaint.
VII. Standard of Review Under the APPA for the Proposed Final Judgment
The Clayton Act, as amended by the APPA, requires that proposed
consent judgments in antitrust cases brought by the United States be
subject to a sixty-day comment period, after which the Court shall
determine whether entry of the proposed Final Judgment ``is in the
public interest.'' 15 U.S.C. 16(e)(1). In making that determination,
the Court, in accordance with the statute as amended in 2004, is
required to consider:
(A) The competitive impact of such judgment, including termination
of alleged violations, provisions for enforcement and modification,
duration of relief sought, anticipated effects of alternative remedies
actually considered, whether its terms are ambiguous, and any other
competitive considerations bearing upon the adequacy of such judgment
that the court deems necessary to a determination of whether the
consent judgment is in the public interest; and
(B) the impact of entry of such judgment upon competition in the
relevant market or markets, upon the public generally and individuals
alleging specific injury from the violations set forth in the complaint
including consideration of the public benefit, if any, to be derived
from a determination of the issues at trial.
15 U.S.C. 16(e)(1)(A) & (B). In considering these statutory
factors, the Court's inquiry is necessarily a limited one as the
government is entitled to ``broad discretion to settle with the
defendant within the reaches of the public interest.'' United States v.
Microsoft Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995); United States v.
U.S. Airways Grp., Inc., 38 F. Supp. 3d 69, 75 (D.D.C. 2014)
(explaining that the ``court's inquiry is limited'' in Tunney Act
settlements); United States v. InBev N.V./S.A., No. 08-1965 (JR), 2009
U.S. Dist. LEXIS 84787, at *3 (D.D.C. Aug. 11, 2009) (noting that a
court's review of a consent judgment is limited and only inquires
``into whether the government's determination that the proposed
remedies will cure the antitrust violations alleged in the complaint
was reasonable, and whether the mechanism to enforce the final judgment
are clear and manageable'').
As the U.S. Court of Appeals for the District of Columbia Circuit
has held, under the APPA a court considers, among other things, the
relationship between the remedy secured and the specific allegations in
the government's complaint, whether the proposed Final Judgment is
sufficiently clear, whether its enforcement mechanisms are sufficient,
and whether it may positively harm third parties. See Microsoft, 56
F.3d at 1458-62. With respect to the adequacy of the relief secured by
the proposed Final Judgment, a court may not ``make de novo
determination of facts and issues.'' United States v. W. Elec. Co., 993
F.2d 1572, 1577 (D.C. Cir. 1993) (quotation marks omitted); see also
Microsoft, 56 F.3d at 1460-62; United States v. Alcoa, Inc., 152 F.
Supp. 2d 37, 40 (D.D.C. 2001); United States v. Enova Corp., 107 F.
Supp. 2d 10, 16 (D.D.C. 2000); InBev, 2009 U.S. Dist. LEXIS 84787, at
*3. Instead, ``[t]he balancing of competing social and political
interests affected by a proposed antitrust consent decree must be left,
in the first instance, to the discretion of the
[[Page 13750]]
Attorney General.'' W. Elec. Co., 993 F.2d at 1577 (quotation marks
omitted). ``The court should bear in mind the flexibility of the public
interest inquiry: The court's function is not to determine whether the
resulting array of rights and liabilities is one that will best serve
society, but only to confirm that the resulting settlement is within
the reaches of the public interest.'' Microsoft, 56 F.3d at 1460
(quotation marks omitted); see also United States v. Deutsche Telekom
AG, No. 19-2232 (TJK), 2020 WL 1873555, at *7 (D.D.C. Apr. 14, 2020).
More demanding requirements would ``have enormous practical
consequences for the government's ability to negotiate future
settlements,'' contrary to congressional intent. Id. at 1456. ``The
Tunney Act was not intended to create a disincentive to the use of the
consent decree.'' Id.
The United States' predictions about the efficacy of the remedy are
to be afforded deference by the Court. See, e.g., Microsoft, 56 F.3d at
1461 (recognizing courts should give ``due respect to the Justice
Department's . . . view of the nature of its case''); United States v.
Iron Mountain, Inc., 217 F. Supp. 3d 146, 152-53 (D.D.C. 2016) (``In
evaluating objections to settlement agreements under the Tunney Act, a
court must be mindful that [t]he government need not prove that the
settlements will perfectly remedy the alleged antitrust harms[;] it
need only provide a factual basis for concluding that the settlements
are reasonably adequate remedies for the alleged harms.'' (internal
citations omitted)); United States v. Republic Servs., Inc., 723 F.
Supp. 2d 157, 160 (D.D.C. 2010) (noting ``the deferential review to
which the government's proposed remedy is accorded''); United States v.
Archer-Daniels-Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003) (``A
district court must accord due respect to the government's prediction
as to the effect of proposed remedies, its perception of the market
structure, and its view of the nature of the case.''). The ultimate
question is whether ``the remedies [obtained by the Final Judgment are]
so inconsonant with the allegations charged as to fall outside of the
`reaches of the public interest.' '' Microsoft, 56 F.3d at 1461
(quoting W. Elec. Co., 900 F.2d at 309).
Moreover, the Court's role under the APPA is limited to reviewing
the remedy in relationship to the violations that the United States has
alleged in its complaint, and does not authorize the Court to
``construct [its] own hypothetical case and then evaluate the decree
against that case.'' Microsoft, 56 F.3d at 1459; see also U.S. Airways,
38 F. Supp. 3d at 75 (noting that the court must simply determine
whether there is a factual foundation for the government's decisions
such that its conclusions regarding the proposed settlements are
reasonable); InBev, 2009 U.S. Dist. LEXIS 84787, at *20 (``[T]he
`public interest' is not to be measured by comparing the violations
alleged in the complaint against those the court believes could have,
or even should have, been alleged.''). Because the ``court's authority
to review the decree depends entirely on the government's exercising
its prosecutorial discretion by bringing a case in the first place,''
it follows that ``the court is only authorized to review the decree
itself,'' and not to ``effectively redraft the complaint'' to inquire
into other matters that the United States did not pursue. Microsoft, 56
F.3d at 1459-60.
In its 2004 amendments to the APPA, Congress made clear its intent
to preserve the practical benefits of using consent judgments proposed
by the United States in antitrust enforcement, Public Law 108-237, 221,
and added the unambiguous instruction that ``[n]othing in this section
shall be construed to require the court to conduct an evidentiary
hearing or to require the court to permit anyone to intervene,'' 15
U.S.C. 16(e)(2). See also U.S. Airways, 38 F. Supp. 3d at 76
(indicating that a court is not required to hold an evidentiary hearing
or to permit intervenors as part of its review under the Tunney Act).
This language explicitly wrote into the statute what Congress intended
when it first enacted the Tunney Act in 1974. As Senator Tunney
explained: ``[t]he court is nowhere compelled to go to trial or to
engage in extended proceedings which might have the effect of vitiating
the benefits of prompt and less costly settlement through the consent
decree process.'' 119 Cong. Rec. 24,598 (1973) (statement of Sen.
Tunney). ``A court can make its public interest determination based on
the competitive impact statement and response to public comments
alone.'' U.S. Airways, 38 F. Supp. 3d at 76 (citing Enova Corp., 107 F.
Supp. 2d at 17).
VIII. Determinative Documents
The only determinative documents or materials within the meaning of
the APPA that were considered by the United States in formulating the
proposed Final Judgment are the Collaboration Agreement, dated February
1, 2019, and the Amended and Restated Collaboration Agreement, dated
February 18, 2021.
Dated: March 3, 2021
Respectfully submitted,
PLAINTIFF UNITED STATES OF AMERICA
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Natalie Melada
David M. Stoltzfus
Chris S. Hong
David C. Kelly
Garrett Liskey
Attorneys for the United States, U.S. Department of Justice,
Antitrust Division, 450 5th Street NW, Suite 4100, Washington, DC
20530, Tel.: (202) 353-1833, Email: [email protected].
[FR Doc. 2021-04953 Filed 3-9-21; 8:45 am]
BILLING CODE 4410-11-P