AAI Urges Massachusetts Court to Reject Conduct Remedy for Anticompetitive Hospital Merger

In Comments filed with the Massachusetts Attorney General’s Office, the American Antitrust Institute (AAI) urged the state superior court to reject a proposed settlement which would allow the dominant hospital system in Eastern Massachusetts to acquire two suburban community hospital systems, while imposing price caps and other conduct relief.

The Massachusetts Attorney General challenged the acquisitions by Partners HealthCare System (Partners) of South Shore Health and Educational Corp. (South Shore) and Hallmark Health Corp. (Hallmark), including three community hospitals, South Shore Hospital, Lawrence Memorial Hospital, and Melrose-Wakefield Hospital under the Massachusetts “baby FTC” Act.  The Attorney General alleged that the acquisitions would substantially lessen competition in the provision of general acute care inpatient health services in the Boston-South Shore and Boston-Metro North markets, and likely raise the prices of inpatient hospital services.

The recently created Massachusetts Health Policy Commission (HPC) also reviewed the transactions and found that they were likely to lead to substantially higher prices for payers large and small, that the anticompetitive effects were not offset by claimed efficiency benefits, and that Partners and South Shore were in “strong financial condition,” while Hallmark’s financial position is “positive.”

The AAI’s Comments emphasized that conduct remedies are clearly inferior to blocking an anticompetitive merger or other structural relief, and are typically unsuccessful because antitrust enforcers and courts lack the expertise and institutional capability to adequately regulate firms with market power, and to counteract the firms’ natural incentives to exploit it.  Accordingly, the Comments explain, the federal enforcement agencies and courts have rejected these types of conduct remedies, especially price caps, in hospital and other mergers between direct competitors.  The Comments also argue that the court has ample legal authority to reject the settlement as not being in the public interest.

The Comments were written by AAI General Counsel Rick Brunell and AAI Advisory Board Member David Balto. They were supported by a Declaration of Northeastern University Economics Professor John Kwoka, a Senior Fellow of AAI.  The Boston Globe reported on the filing here.

On October 21, the AAI filed additional comments in reply to Attorney General’s Response to Public Comments.  The additional comments address the standard of review, price caps, and component contracting.  The AAI concludes, as it did in its initial comments, that the proposed settlement should be rejected as not in the public interest because it does not adequately remedy the competitive harms alleged in the complaint and it will be difficult and costly for the judiciary to enforce.