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— Rules of the Road —
Inova gave up on the acquisition of Prince William Health System Inc. without much of a court fight after a federal judge suggested he would grant the FTC's request for a preliminary injunction halting the deal. Inova's decision to back down was a big legal victory for the federal government because neither the FTC nor the Justice Department had been able to stop a hospital merger from closing in at least seven attempts over about two decades. The case also was significant because the FTC had never before challenged an acquisition where the target accounted for such a small fraction of the relevant market.
After prevailing, the FTC said its quick victory helped preserve competition for healthcare in the area. Inova owns about 70% of the hospital beds in Washington's Northern Virginia suburbs. Because Inova has such a lock on that market, however, any hospital acquisition would cause only an incremental increase in market share. The purchase of Prince William Health, for instance, would have increased Inova's market share a mere 5%. While the skirmish over Prince William Health was going on, a more dramatic Inova effort to block competition received little notice. While Inova was fighting to buy the smaller rival, it was simultaneously angling to keep a large hospital corporation from setting up shop in Loudoun. Using state certification rules and local zoning regulations, Inova has been doggedly trying to convince state medical regulators in Richmond, as well as the Loudoun County Board of Supervisors, to turn down HCA Inc.'s application to build a competing hospital in the county. Now, Inova is close to winning the fight to maintain its monopoly. HCA managed to convince Virginia state officials to grant a coveted permit required for medical facilities in 2005, despite Inova's costly efforts to upset the permitting process. Armed with the state-issued certificate of need, HCA asked Loudoun County officials to approve plans to construct a hospital, but they rejected the application. Encouraged by a change in the makeup of the board after the recent election, HCA renewed its application. But on Feb. 3, the supervisors again rejected HCA's plans after Inova officials threatened to stop a planned expansion of an ancillary medical facility that promised more than $10 million in improvements to county roads and other services. According to Supervisor Stevens Miller, Inova representatives argued that a new hospital would actually increase prices. Inova's position that a new competitor will harm consumers contradicts established antitrust theory; and it's a theory, to say the least, that the courts have never endorsed. FTC officials say they knew of Inova's lobbying to block competition. But the agency appears to have no avenue to challenge the company for its innovative end-around. Antitrust experts note that when Congress created the FTC in 1914, it was not permitted to investigate nonprofits for anticompetitive conduct. The FTC has asked Congress to remove the safe harbor for nonprofits, but for now it remains on the books. Antitrust lawyers also say that the First Amendment provides a limited amount of immunity to parties lobbying a government body. This extends even to lying or distorting the truth. The result: Inova probably can't be sanctioned for twisting antitrust theory to its advantage. Although the FTC has written to Loudoun supervisors offering to explain why a new hospital would likely bring lower prices and increased quality, there's no sign county officials want to take up the issue again. Inova's machinations against HCA might have gained more attention had the Prince William merger case proceeded to a full trial. FTC officials now say that they would have referred to the effort during the trial as a demonstration of just how far Inova will go to aggressively defend its monopoly in Loudoun County. But they never got the chance. Cecile Kohrs Lindell covers antitrust for The Deal. |
Last year the Federal Trade Commission 
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