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ProMedica, FTC to offer closing arguments

by William McConnell  |  Published September 29, 2011 at 4:55 AM
Lawyers for the Federal Trade Commission will argue the afternoon of Sept. 29th that they have proved that ProMedica Health System Inc.'s acquisition of a rival in the Toledo, Ohio healthcare market will harm competition and that evidence put forward during a four-month trial demonstrates that company officials knew the deal would give them market power to jack up hospital rates in their area.

Closing arguments in the in-house FTC trial are scheduled for 1 p.m. today and will close out the administrative hearing phase of the agency's attempt to force ProMedica to divest St. Luke's Hospital, which ProMedica bought in 2010.

The trial before Chief Administrative Law Judge Michael Chappell began May 31. The FTC commissioners must then review Chappell's ruling and if they decide to block the merger, the company can appeal to the federal courts.

The FTC in January filed suit seeking to unwind ProMedica's takeover of St. Luke's. During the proceeding, FTC lawyers led by Matthew Reilly, assistant director of the agency's competition bureau, submitted numerous company documents and other evidence they say prove ProMedica officials carried out the acquisition to gain greater leverage to negotiate higher reimbursement rates from insurers. The FTC has argued those increases would be passed on to consumers and employers in the form of higher premiums.

The FTC's evidence included hundreds of documents from ProMedica, St. Luke's, other hospitals and health plans. Other evidence included the written analyses of three expert witnesses, live testimony from 34 witnesses and testimony gleaned from the FTC's pre-trial investigation. One piece of evidence the FTC cited during the trial was a 2009 presentation to St. Luke's board, which asserted that a St. Luke's affiliation with ProMedica would create an entity with "a lot of negotiating clout" and would have the "greatest potential for raising rates."

The FTC lawyers also contend that the harm to consumers will not be offset by any corresponding benefits or infusion of new competitors. In its final filing to the administrative court, the FTC said "the paltry efficiencies claims [Promedica] as put forth are not credible, not substantiated, and appear designed" to convince a judge of the merger's benefits rather than being well-grounded predictors of the deal's true effect on the Toledo healthcare market.
ProMedica's attorneys, led by McDermott Will & Emery LLP partners David Marx and Stephen Wu, have argued that the FTC has greatly overstated St. Luke's importance to the competition in the Toledo market and the harm that would be inflicted if it is integrated into ProMedica. They have also argued that the FTC relied on misleading definitions of the relevant markets to make St. Luke's market shares seem larger than they really are.
During the trial, ProMedica's lawyers also asserted that the government failed to prove that the merger would harm competition in either of the alleged relevant markets - general acute care sold to commercial payors in Lucas County, Ohio and obstetrics services in the area.
"Failure to present any evidence of anticompetitive effects in its alleged inpatient obstetrical services market is fatal to their case as to that alleged relevant market," ProMedica's team wrote in their last brief to the court.

They also asserted that because healthcare consumers in the Toledo area consider Mercy Health Partners and University of Toledo Medical Center to be better substitutes for ProMedica's services, the FTC can't claim that the purchase of St. Luke's will lead to unilateral effects, which in antitrust theory is the acquisition of sufficient market power to raise prices regardless of competitors' pricing practices. "Because ProMedica and St. Luke's are not close substitutes and because Mercy and UTMC are ready alternatives that can constrain ProMedica's pricing, . . . the [integration of St. Luke's] will not affect ProMedica's bargaining leverage," the company's attorneys wrote.
Tags: FTC | M&A | ProMedica Health System Inc. | St. Luke's Hospital

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