[Federal Register Volume 59, Number 143 (Wednesday, July 27, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-18258]
[[Page Unknown]]
[Federal Register: July 27, 1994]
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FEDERAL TRADE COMMISSION
[File No. 941 0020]
Healthtrust, Inc.--The Hospital Company; Proposed Consent
Agreement With Analysis to Aid Public Comment
agency: Federal Trade Commission.
action: Proposed Consent Agreement.
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summary: In settlement of alleged violations of federal law prohibiting
unfair acts and practices and unfair methods of competition, this
consent agreement, accepted subject to final Commission approval, would
require, among other things, a Tennessee-based corporation that
provides acute care hospital services to divest Holy Cross Hospital of
Salt Lake City to a Commission approved acquirer; to complete the
divestiture within six months of the date of the order; and to consent
to the appointment of a trustee, if the divestiture is not completed
within six months. In addition, the proposed consent agreement would
require the respondent to obtain prior Commission approval, for ten
years, before purchasing any acute care hospital or any hospital,
medical or surgical diagnostic or treatment service or facility in the
Utah counties of Weber, Davis, and Salt Lake.
dates: Comments must be received on or before September 26, 1994.
addresses: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 6th St. and Pa. Ave. NW., Washington, DC 20580.
for further information contact: Mark Horoschak or Philip Eisenstat,
FTC/S-3115, Washington, DC 20580. (202) 326-2756 or 326-2769.
supplementary information: Pursuant to Section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 2.34 of
the Commission's Rule of Practice (16 CFR 2.34), notice is hereby given
that the following consent agreement containing a consent order to
divest, having been filed with and accepted, subject to final approval,
by the Commission, has been placed on the public record for a period of
sixty (60) days. Public comment is invited. Such comments or views will
be considered by the Commission and will be available for inspection
and copying at its principal office in accordance with Section
4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR
4.9(b)(6)(ii)).
Agreement Containing Consent Order
The Federal Trade Commission (``Commission''), having initiated an
investigation into the proposed acquisition of assets of Holy Cross
Health System Corporation by Healthtrust, Inc.--The Hospital Company
(``Healthtrust'') is willing to enter into an agreement containing an
order to divest certain assets and to cease and desist from making
certain acquisitions, and providing for other relief:
It is hereby agreed by and between the proposed respondent by its
duly authorized officer and attorney, and counsel for the Commission
that:
1. The proposed respondent Healthtrust is a corporation organized,
existing and doing business under and by virtue of the laws of the
State of Delaware with its office and principal place of business at
4525 Harding Road, Nashville, Tennessee.
2. The proposed respondent admits all the jurisdictional facts set
forth in the draft complaint here attached.
3. The proposed respondent waives:
a. Any further procedural steps;
b. The requirement that the Commission's decision contain a
statement of findings of fact and conclusions of law;
c. All rights to seek judicial review or otherwise to challenge or
contest the validity of the order entered pursuant to this agreement;
and
d. Any claim under the Equal Access to Justice Act.
4. This agreement shall not become a part of the public record of
the proceeding unless and until it is accepted by the Commission. If
this agreement is accepted by the Commission it, together with the
draft of complaint contemplated thereby, will be placed on the public
record for a period of sixty (60) days and information in respect
thereto publicly released. The Commission thereafter may either
withdraw its acceptance of this agreement and so notify the proposed
respondent, in which event it will take such action as it may consider
appropriate, or issue and serve its complaint (in such form as the
circumstances may require) and decision, in disposition of the
proceeding.
5. This agreement is for settlement purposes only and does not
constitute an admission by the proposed respondent that the law has
been violated as alleged in the draft complaint here attached, or that
the facts as alleged in the draft complaint, other than jurisdictional
facts, are true.
6. This agreement contemplates that, if it is accepted by the
Commission, and if such acceptance is not subsequently withdrawn by the
Commission pursuant to the provisions of Section 2.34 of the
Commission's Rules, the Commission may, without further notice to the
proposed respondent, (1) Issue its complaint corresponding in form and
substance with the draft of complaint here attached and its decision
containing the following order to divest and to cease and desist, and
other relief in disposition of the proceeding, and (2) make information
public with respect thereto. When so entered, the order shall have the
same force and effect and may be altered, modified, or set aside in the
same manner and within the same time provided by statute for other
orders. The order shall become final upon service. Delivery by the U.S.
Postal Service of the complaint and decision containing the agreed-to
order to respondent's address as stated in this agreement shall
constitute service. The proposed respondent waives any right it may
have to any other manner of service. The complaint may be used in
construing the terms of the order, and no agreement, understanding,
representation, or interpretation not contained in the order or this
agreement may be used to vary or contradict the terms of the order.
7. The proposed respondent has read the proposed complaint and
order contemplated hereby. The proposed respondent understands that
once the order has been issued, it will be required to file one or more
compliance reports showing that it has fully complied with the order.
The proposed respondent further understands that it may be liable for
civil penalties in the amount provided by law for each violation of the
order after it becomes final.
Order
I
As used in this order, the following definitions shall apply:
A. ``Respondent'' or ``Healthtrust'' means Healthtrust, Inc. The
Hospital Co., its partnerships, joint ventures, companies,
subsidiaries, divisions, groups and affiliates controlled by
Respondent, and their respective directors, officers, employees,
agents, and representatives, and their respective successors and
assigns.
B. The ``Acquisition'' means the acquisition by Healthtrust of
certain assets of Holy Cross Health System Corporation including Holy
Cross Hospital of Salt Lake City, Holy Cross-Jordan Valley Hospital,
and St. Benedict's Hospital.
C. ``Acute care hospital'' means a health facility, other than a
federally owned facility, having a duly organized governing body with
overall administrative and professional responsibility, and an
organized medical staff, the provides 24-hour inpatient care, as well
as outpatient services, and having as a primary function the provision
of inpatient services for medical diagnosis, treatment, and care of
physically injured or sick persons with short-term or episodic health
problems or infirmities.
D. To ``operate an acute care hospital'' means to own, lease,
manage, or otherwise control or direct the operations of an acute care
hospital, directly or indirectly.
E. ``Affiliate'' means any entity whose management and policies are
controlled in any way, directly or indirectly, by the person with which
it is affiliated.
F. ``Person'' means any natural person, partnership, corporation,
company, association, trust, joint venture or other business or legal
entity, including any governmental agency.
G. ``Three-County Area'' means the area consisting of the following
three Utah counties: Salt Lake County, Davis County, and Weber County.
H. ``Commission'' means the Federal Trade Commission.
I. ``Schedule A Assets'' means assets acquired by the respondent
and listed on the attached Schedule A.
J. ``Viability and competitiveness'' means that the Schedule A
Assets are capable of functioning independently and competitively.
K. ``Assets and Businesses'' include, but are not limited to, all
assets, properties, businesses, rights, privileges, contractual
interests, licenses, and goodwill of whatever nature, tangible and
intangible, including, without limitation, the following:
1. all real property interests (including fee simple interests and
real property leasehold interests, whether as lessor or lessee),
together with all buildings, improvements and fixtures located thereon,
all construction in progress thereat, all appurtenances thereto, and
all licenses and permits related thereto (collectively, the ``Real
Property'');
2. all contracts and agreements with physicians, other health care
providers, unions, third party payors, HMOs, customers, suppliers,
sales representatives, distributors, agents, personal property lessors,
personal property lessees, licensors, licensees, cosigners and
consignees (collectively, the ``contracts'');
3. all machinery, equipment, fixtures, vehicles, furniture,
inventories and supplies (other than such inventories and supplies as
are used in the ordinary course of business during the time that
Healthtrust owns the assets) (collectively, the ``Personal Property'');
4. all research materials, technical information, management
information systems, software, software licenses, inventions, trade
secrets, technology, know how, specifications, designs, drawings,
processes, and quality control data (collectively, the ``Intangible
Personal Property'');
5. all books, records and files, excluding, however, the corporate
minute books and tax records of Healthtrust and its Affiliates; and
6. all prepaid expenses.
II
It is ordered, that:
A. Respondent shall divest, absolutely and in good faith, within
six (6) months of the date this order becomes final, the Schedule A
Assets, and shall also divest such additional assets and businesses
ancillary to Holy Cross Hospital of Salt Lake City, Utah (excluding
Pioneer Valley Hospital, Lakeview Hospital, Jordan Valley Hospital, St.
Benedict's Hospital, Salt Lake Industrial Clinic, and West Jordan
Clinic), and effect such arrangements as are necessary to assure the
marketability and the viability and competitiveness of the Schedule A
Assets.
B. Respondent shall divest the Schedule A Assets only to an
acquirer that receives the prior approval of the Commission and only in
a manner that receives the prior approval of the Commission. The
purpose of the divestiture of the Schedule A Assets is to ensure the
continuation of the Schedule A Assets as an ongoing, viable acute care
hospital and to remedy the lessening of competition resulting from the
Acquisition as alleged in the Commission's complaint.
C. Respondent shall comply with all terms of the Agreement to Hold
Separate, attached hereto and made a part hereof as Appendix I. Said
Agreement shall continue in effect until such time as respondent has
fulfilled the divestiture requirements of this order or until such
other time as the Agreement to Hold Separate provides.
D. Pending divestiture of the Schedule A Assets, respondent shall
take such actions as are necessary to maintain the viability and
competitiveness and the marketability of the Schedule A Assets and to
prevent the destruction, removal, wasting, deterioration, or impairment
of any of the Scheduled Assets except for ordinary wear and tear.
E. A condition of approval by the Commission of the divestiture
shall be a written agreement by the acquirer of the Schedule A Assets
that it will not sell for a period of ten (10) years from the date of
divestiture, directly or indirectly, through subsidiaries, partnerships
or otherwise, without the prior approval of the Commission, the
Schedule A Assets to any person who operates, or will operate
immediately following the sale, any other acute care hospital in the
Three-County Area. Provided, however, that the acquirer is not required
to seek prior approval of the Commission for the sale of any of the
assets identified in Part II of Schedule A.
III
It is further ordered , that:
A. If the respondent has not divested, absolutely and in good faith
and with the Commission's prior approval, the Schedule A Assets, in
accordance with this order, within six (6) months of the date this
order becomes final, the Commission may appoint a trustee to divest the
Schedule A Assets. In the event that the Commission or the Attorney
General brings an action for any failure to comply with this Order or
in any way relating to the Acquisition, pursuant to Section 5(1) of the
Federal Trade Commission Act, 15 U.S.C. 45(1), or any other statute
enforced by the Commission, the respondent shall consent to the
appointment of a trustee in such action. Neither the appointment of a
trustee nor a decision not to appoint a trustee under this paragraph
shall preclude the Commission or the Attorney General from seeking
civil penalties or any other relief available to it for any failure by
the respondent to comply with this order.
B. If a trustee is appointed by the Commission or a court pursuant
to Paragraph III.A. of this order, the respondent shall consent to the
following terms and conditions regarding the trustee's powers, duties,
authority, and responsibilities:
1. The Commission shall select the trustee, subject to the consent
of the respondent, which consent shall not be unreasonably withheld.
The trustee shall be a person with experience and expertise in
acquisitions and divestitures. If respondent has not opposed, in
writing, including the reasons for opposing, the selection of any
proposed trustee within ten (10) days after notice by the staff of the
Commission to respondent of the identity of any proposed trustee,
respondent shall be deemed to have consented to the selection of the
proposed trustee.
2. Subject to the prior approval of the Commission, the trustee
shall have the exclusive power and authority to divest the Schedule A
Assets.
3. Within ten (10) days after appointment of the trustee,
respondent shall execute a trust agreement that, subject to the prior
approval of the Commission and, in the case of a court-appointed
trustee, of the court, transfers to the trustee all rights and powers
necessary to permit the trustee to effect the divestiture required by
this order.
4. The trustee shall have twelve (12) months from the date the
Commission approves that the trust agreement described in Paragraph
III.B.3. to accomplish the divestiture, which shall be subject to the
prior approval of the Commission. If, however, at the end of the
twelve-month period, the trustee has submitted a plan of divestiture or
believes that divestiture can be achieved within a reasonable time, the
divestiture period may be extended by the Commission, or in the case of
a court-appointed trustee, by the court; provided however, the
Commission may extend this period only two (2) times.
5. The trustee shall have full and complete access to the
personnel, books, records, and facilities related to the Schedule A
Assets or to any other relevant information as the trustee may request.
Respondent shall develop such financial or other information as such
trustee may reasonably request and shall cooperate with the trustee.
Respondent shall take no action to interfere with or impede the
trustee's accomplishment of the divestiture. Any delays in divestiture
caused by respondent shall extend the time for divestiture under this
Paragraph in an amount equal to the delay, as determined by the
Commission or, for a court-appointed trustee, by the court.
6. The trustee shall use his or her best efforts to negotiate the
most favorable price and terms available in each contract that is
submitted to the Commission, subject to the respondent's absolute and
unconditional obligation to divest at no minimum price., The
divestiture shall be made in the manner and to the acquirer as set out
in Paragraph II of this order; provided, however, if the trustee
receives bona fide offers from more than one acquiring entity, and if
the Commission determines to approve more than one such acquiring
entity, the trustee shall divest to the acquiring entity selected by
respondent from among those approved by the Commission.
7. The trustee shall serve, without bond or other security, at the
cost and expense of the respondent, on such reasonable and customary
terms and conditions as the Commission or a court may set. The trustee
shall have the authority to employ, at the cost and expense of
respondent, such consultants, accountants, attorneys, investment
bankers, business brokers, appraisers, and other representatives and
assistants as are necessary to carry out the trustee's duties and
responsibilities. The trustee shall account for all monies derived from
the sale and all expenses incurred. After approval by the Commission
and, in the case of a court-appointed trustee, by the court, of the
account of the trustee, including fees for his or her services, all
remaining monies shall be paid at the direction of the respondent and
the trustee's power shall be terminated. The trustee's compensation
shall be based at least in significant part on a commission arrangement
contingent on the trustee's divesting the Schedule A Assets.
8. Respondent shall indemnify the trustee and hold the trustee
harmless against any losses, claims, damages, liabilities, or expenses
arising out of, or in connection with, the performance of the trustee's
duties, including all reasonable fees of counsel and other expenses
incurred in connection with the preparation for, or defense of any
claim, whether or not resulting in any liability, except to the extent
that such liabilities, losses, damages, claims, or expenses result from
misfeasance, gross negligence, willful or wanton acts, or bad faith by
the trustee.
9. If the trustee ceases to act or fails to act diligently, a
substitute trustee shall be appointed in the same manner as provided in
Paragraph III.A. of this order.
10. The Commission or, in the case of a court-appointed trustee,
the court, may on its own initiative, or at the request of the trustee
issue such additional orders or directions as may be necessary or
appropriate to accomplish the divestiture required by this order.
11. The trustee shall have no obligation or authority to operate or
maintain the Schedule A Assets.
12. The trustee shall report in writing to the respondent and the
Commission every sixty (60) days concerning the trustee's efforts to
accomplish divestiture.
IV
It is further ordered, That, for a period of ten (10) years from
the date this order becomes final, respondent shall not, without the
prior approval of the Commission, directly or indirectly, through
subsidiaries, partnerships, or otherwise:
A. Acquire any stock, share capital, equity, or other interest in
any person presently engaged in, or within the two years preceding such
acquisition engaged in, operating an acute care hospital in the Three-
County Area;
B. Acquire any assets used, or previously used, in the Three-County
Area (and still suitable for use) for operating an acute care hospital
from any person presently engaged in, or within the two years preceding
such acquisition engaged in, operating an acute care hospital in the
Three-County Area;
C. Enter into any agreement or other arrangement to obtain direct
or indirect ownership, management, or control of any acute care
hospital, or any part thereof, in the Three-County Area, including but
not limited to, a lease of or management contract for any such acute
care hospital;
D. Acquire or otherwise obtain the right to designate directly or
indirectly directors or trustees of any acute care hospital in the
Three-County Area;
E. Permit any acute care hospital it operates in the Three-County
Area to be acquired by any person that operates, or will operate
immediately following such acquisition, any other acute care hospital
in the Three-County Area.
Provided, however, that such prior approval shall not be required
for:
1. The establishment of a new hospital service or facility (other
than as a replacement for a hospital service or facility, not operated
by respondent, in the Three-County Area, pursuant to an agreement or
understanding between respondent and the person operating the replaced
service or facility);
2. Any transaction otherwise subject to this Paragraph IV of this
order if the fair market value of (or, in case of an asset acquisition,
the consideration to be paid for) the acute care hospital or part
thereof to be acquired does not exceed one million dollars
($1,000,000); or
3. The acquisition of products or services in the ordinary course
of business.
V
It is further ordered, That, for a period of ten (10) years from
the date this order becomes final, respondent shall not, directly or
indirectly, through subsidiaries, partnerships of otherwise, without
providing advance written notification to the Commission, consummate
any joint venture or other arrangement with any other acute care
hospital in the Three-County Area for the joint establishment or
operation of any new acute care hospital, hospital medical or surgical
diagnostic or treatment service or facility, or part thereof, in the
Three-County Area. Such advance notification shall be filed immediately
upon respondent's issuance of a letter of intent for, or execution of
an agreement to enter into, such a transaction, whichever is earlier.
Said notification required by this Paragraph V of this order shall
be given on the Notification and Report Form set forth in the Appendix
to Part 803 of Title 16 of the Code of Federal Regulations (as
amended), and shall be prepared and transmitted in accordance with the
requirements of that part, except that no filing fee will be required
for any such notification, notification need not be made to the United
States Department of Justice, and notification is required only of
respondent and not of any other party to the transaction. Respondent is
not required to observe any waiting period for said notification
required by this Paragraph V.
Respondent shall comply with reasonable requests by the Commission
staff for additional information concerning any transaction subject to
this Paragraph V of this order, within fifteen (15) days of service of
such requests.
Provided, however, that no transaction shall be subject to this
Paragraph V of this order if:
1. the fair market value of the assets to be contributed to the
joint venture or other arrangement by acute care hospitals not operated
by respondent does not exceed one million dollars ($1,000,000);
2. the service, facility or part thereof to be established or
operate in a transaction subject to this order is to engage in no
activities other than the provision of the following services: laundry;
data processing; purchasing; materials management; billing and
collection; dietary; industrial engineering maintenance; printing;
security; records management; laboratory testing; personnel education,
testing, or training; or health care financing (such as through a
health maintenance organization or preferred provider organization); or
3. notification is required to be made, and has been made, pursuant
to section 7A of the Clayton Act, 15 U.S.C. Sec. 18a, or prior approval
by the Commission is required, and has been requested, pursuant to
paragraph IV of this order.
VI
It is further ordered, that, for a period of ten (10) years from
the date this order becomes final, respondent shall not permit all or
any substantial part of any acute care hospital it operates in the
Three-County Area to be acquired by any other person (except pursuant
to the divestiture required by paragraph II of this order) unless the
acquiring person files with the Commission, prior to the closing of
such acquisition, a written agreement to be bound by the provisions of
this order, which agreement respondent shall require as a condition
precedent to the acquisition.
VII
It is further ordered, that:
A. Within sixty (60) days after the date this order becomes final
and every sixty (60) days thereafter until the respondent has fully
complied with paragraph II of this order, the respondent shall submit
to the Commission a verified written report setting forth in detail the
manner and form in which it intends to comply, is complying, and has
complied with paragraph II of this order. Respondent shall include in
its compliance reports, among other things that are required from time
to time, a full description of the efforts being made to comply with
paragraph II of the order, including a description of all substantive
contacts or negotiations for the divestiture and the identity of all
parties contacted. Respondent shall include in its compliance reports
of all written communications to and from such parties, all internal
memorandum, and all reports and recommendations concerning divestiture.
B. One (1) year from the date this order becomes final, annually
for the next nine (9) years on the anniversary of the date this order
becomes final, and at other times as the Commission may require,
respondent shall file a verified written report with the Commission
setting forth in detail the manner and form in which it has compiled
and it is complying with paragraphs IV, V and VI of this order.
VIII
It is further ordered, that respondent shall notify the Commission
at least thirty (30) days prior to any proposed change in the corporate
respondent such as dissolution, assignment, sale resulting in the
emergence of a successor corporation, or the creation or dissolution of
subsidiaries or any other change in the corporation that may affect
compliance obligations arising out of the order.
IX
It is further ordered, that, for the purpose of determining or
securing compliance with this order, the respondent shall permit any
duly authorized representative of the Commission:
A. Access, during office hours and in the presence of counsel, to
inspect and copy all books, ledgers, accounts, correspondence,
memoranda and other records and documents in the possession or under
the control of the respondent relating to any matters contained in this
order; and
B. Upon five days' notice to respondent and without restraint or
interference from it, to interview officers, directors, or employees of
respondent.
Schedule A
The assets to be divested (``Schedule A Assets'') shall consist of,
without limitation, all Assets and Businesses relating to Holy Cross
Hospital of Salt Lake City (the ``Hospital''), which were acquired by
HealthTrust pursuant to the Acquisition (including all improvements,
additions and enhancements made to such assets prior to divestiture),
and shall include, without limitation, the Assets and Businesses of the
following:
Part I
1. Holy Cross Hospital of Salt Lake City, 1050 East South Temple,
Salt Lake City;
Part II
2. Moreau Medical Building, 1002 East South Temple, Salt Lake City;
3. Salt Lake Professional Building, 24 South 1100 East, Salt Lake
City;
4. Foothill Family Clinic, 2295 Foothill Drive, Salt Lake City;
5. Eastridge Clinic medical office suites, South 10th East, Salt
Lake City;
6. Southeast Health Center, 1275 East Fort Union Boulevard,
Midvale, Utah (Southeast Center for Family Medicine; Holy Cross Medical
Park);
7. Southwest Health Center, 1990 West 7800 South, West Jordan
Valley, Utah (Southwest Center for Family Medicine; Southwest Emergency
Clinic);
8. The Magna Health Clinic, 8370 West 3500 South, Magna, Utah; and
9. The Hospitals' Park City, Utah Ambulance Service.
10. The Real Property located at:
A. 45 South 1100 East, Salt Lake City--approximately .227 acres
with house thereon;
B. 57 South 1100 East, Salt Lake City--approximately .21 acres with
house thereon;
C. 59 South 1100 East, Salt Lake City--approximately .086 acres
with house/office thereon;
D. 42 South 1000 East, Salt Lake City--approximately .1875 acres of
unimproved land;
11. Option to purchase four contiguous residential properties
consisting of approximately .54 acres in the aggregate located at
approximately 1014 through 1026 East 100 South, Salt Lake City
* * * * *
It is further provided, that to the extent that any of the
contracts, warranties with respect to Personal Property, licenses or
other interests in the Intangible Personal Property, or other Schedule
A Assets:
(A) also applies to facilities or operations other than those
included in the Schedule A Assets, then during the period (the
``Contract Period'') beginning on the closing date of the Acquisition
and ending on the earlier of (1) the expiration of the term of the
given contract or other right and (2) the second anniversary of
Healthtrust's divestiture of the Schedule A Assets, Healthtrust, at the
request of the owner or acquirer of the Schedule A Assets, shall use
its reasonable best efforts to cause the services, property or other
benefits provided or made available under such a contract or other
Schedule A Asset to continue to be available to the owner or acquirer
of the Schedule A Assets on terms and conditions substantially similar
to those presently in effect; or
(B) requires the consent of a third party in order to transfer or
assign such Contract or other Schedule A Asset, then Healthtrust, at
the request of the owner or acquirer of the Schedule A Assets, shall
use its reasonable best efforts to obtain such consent and, if such
consent cannot be obtained, to cooperate in any reasonable arrangement
with the owner or acquirer of the Schedule A Assets designed to provide
to such owner or acquirer the benefits of the given contract or other
Schedule A Asset during the Contract Period on terms and conditions
substantially similar to those presently in effect.
Appendix I
Agreement to Hold Separate
This Agreement to Hold Separate (``Agreement'') is by and
between Healthtrust, Inc.--The Hospital Company (``respondent'' or
``Healthtrust''), a corporation organized, existing, and doing
business under and by virtue of the laws of the State of Delaware,
with its principal place of business at 4525 Harding Road,
Nashville, Tennessee 37205; and the Federal Trade Commission
(``Commission''), an independent agency of the United States
Government, established under the Federal Trade Commission Act of
1914, 15 U.S.C. 41, et seq.
Whereas, on or about December 3, 1993, respondent entered into
an agreement with Holy Cross Health System Corporation (``Holy
Cross''), an Indiana corporation, whereby respondent will acquire
from Holy Cross certain Holy Cross assets in Utah (hereinafter the
``Acquisition''); and
Whereas, the Commission is now investigating the Acquisition to
determine if it would violate any of the statutes enforced by the
Commission; and
Whereas, if the Commission accepts the attached Agreement
Containing Consent Order (``Consent Order''), which would require
the divestiture of certain assets listed in Schedule A of the
Consent Order (``Schedule A Assets''), including Holy Cross Hospital
(``HCH'') in Salt Lake City, Utah, the Commission must place the
Consent Order on the public record for a period of at least sixty
(60) days and may subsequently withdraw such acceptance pursuant to
the provisions of Section 2.34 of the Commission's Rules' and
Whereas, the Commission is concerned that if an understanding is
not reached, preserving the status quo ante of the Schedule A Assets
during the period prior to the final acceptance and issuance of the
Consent Order by the Commission (after the 60-day public comment
period), divestiture resulting from any proceeding challenging the
legality of the Acquisition might not be possible, or might be less
than an effective remedy; and
Whereas, the Commission is concerned that if the Acquisition is
consummated, it will be necessary to preserve the Commission's
ability to require the divestiture of the Schedule A Assets as
described in Paragraph II of the Consent Order and the Commission's
right to have HCH continue as a viable independent acute care
hospital; and
Whereas, the purpose of this Agreement and the Consent Order is
to:
(i) preserve HCH as a viable independent acute care hospital
pending its divestiture, and
(ii) remedy any anticompetitive effects of the Acquisition;
Whereas, respondent's entering into this Agreement shall in no
way be construed as an admission by respondent that the Acquisition
is illegal; and
Whereas, respondent understands that no act or transaction
contemplated by this Agreement shall be deemed immune or exempt from
the provisions of the antitrust laws or the Federal Trade Commission
Act by reason of anything contained in this Agreement.
Now, therefore, the parties agree, upon understanding that the
Commission has not yet determined whether the Acquisition will be
challenged, and in consideration of the Commission's agreement that,
unless the Commission determines to reject the Consent Order, it
will not seek further relief from respondent with respect to the
Acquisition, except that the Commission may exercise any and all
rights to enforce this Agreement and the Consent Order to which it
is annexed and made a part thereof, and in the event the required
divestiture is not accomplished, to appoint a trustee to seek
divestiture of the Schedule A Assets pursuant to the Consent Order,
as follows:
1. Respondent agrees to execute the Agreement Containing Consent
Order and be bound by the attached Consent Order.
2. Respondent agrees that from the date this Agreement is
accepted until the earliest of the dates listed in subparagraphs
2.a-2.b, it will comply with the provisions of paragraph 3 of this
Agreement:
a. three (3) business days after the Commission withdraws its
acceptance of the Consent Order pursuant to the provisions of
Section 2.34 of the Commission's Rules; or
b. the day after the divestiture required by the Consent Order
has been completed.
3. Respondent will hold the Schedule A Assets as they are
presently constituted separate and apart on the following terms and
conditions:
a. The Schedule A Assets, as they are presently constituted,
shall be held separate and apart and shall be operated independently
of respondent (meaning here and hereinafter, Healthtrust excluding
the Schedule A Assets) except to the extent that respondent must
exercise direction and control over the Schedule A Assets to assure
compliance with this Agreement or the Consent Order, and except as
otherwise provided in this Agreement.
b. Prior to, or simultaneously with its acquisition of the Holy
Cross assets in Utah, respondent shall organize a distinct and
separate legal entity, either a corporation, limited liability
company, general or limited partnership (``New Company'') and adopt
constituent documents for the New Company that are not inconsistent
with other provisions of this Agreement or the Consent Order.
Respondent shall transfer all ownership and control of all Schedule
A Assets to the New Company.
c. The board of directors of the New Company, or, in the event
respondent organizes an entity other than a corporation, the
governing body of the entity (``New Company Board'') shall have five
members. Respondent may elect the members of the New Company Board;
provided, however, that the New Company Board shall include no more
than two members who are a director, officer, employee, or agent of
respondent (``the respondent's New Company Board member(s)''). The
New Company Board shall include a chairman who is independent of
respondent and is competent to assure the continued viability and
competitiveness of the Schedule A Assets. Meetings of the New
Company Board during the term of this Agreement shall be
stenographically transcribed and the transcripts retained for two
(2) years after the termination of this Agreement.
d. Respondent shall not exercise direction or control over, or
influence directly or indirectly, the Schedule A Assets, the
independent Chairman of the Board of the New Company, the New Board,
or the New Company or any of its operations or businesses; provided,
however, that respondent may exercise only such direction and
control over the New Company as is necessary to assure compliance
with this Agreement or the Consent Order.
e. Respondent shall maintain the viability and competitiveness
and the marketability of the Schedule A Assets and shall not sell,
transfer, encumber (other than in the normal course of business), or
otherwise impair their viability and competitiveness or their
marketability.
f. Except for the respondent's New Company Board members,
respondent shall not permit any director, officer, employee, or
agent of respondent to also be a director, officer, or employee of
the New Company.
g. The New Company shall be staffed with sufficient employees to
maintain the viability and competitiveness of the Schedule A Assets,
which employees shall be selected from Holy Cross's existing
employee base and may also be hired from sources other than Holy
Cross.
h. With the exception of the respondent's New Company Board
Members, respondent shall not change the composition of the New
Company Board unless the independent chairman consents. The
independent chairman shall have power to remove members of the New
Company Board for cause. Respondent shall not change the composition
of the management of the New Company except that the New Company
Board shall have the power to remove management employees for cause.
i. If the independent chairman ceases to act or fails to act
diligently, a substitute chairman shall be appointed in the same
manner as provided in Paragraph 3.c. of this Agreement.
j. Except as required by law, and except to the extent that
necessary information is exchanged in the course of evaluating the
Acquisition, defending investigations or defending or prosecuting
litigation, or negotiating agreements to divest assets, or complying
with this Agreement or the Consent Order, respondent shall not
receive or have access to, or use or continue to use, any material
confidential information not in the public domain about the New
Company or the activities of the New Company Board. Nor shall the
New Company or the New Company Board receive or have access to, or
use or continue to use, any material confidential information not in
the public domain about respondent and relating to respondent's
acute care hospitals in Utah. Respondent may receive on a regular
basis aggregate financial information relating to the New Company
necessary and essential to allow respondent to prepare United States
consolidated financial reports, tax returns and personnel reports.
Any such information that is obtained pursuant to this subparagraph
shall be used only for the purposes set forth in this subparagraph.
(``Material confidential information,'' as used herein, means
competitively sensitive or proprietary information not independently
known to respondent from sources other than the New Company, and
includes but is not limited to customer lists, price lists,
marketing methods, patents, technologies, processes, or other trade
secrets.)
k. Except as permitted by this Agreement, the respondent's New
Company Board members shall not in their capacity as New Company
Board members, receive material confidential information and shall
not disclose any such information received under this Agreement to
respondent or use it to obtain any advantage for respondent. The
respondent's New Company Board members shall enter a confidentiality
agreement prohibiting disclosure of material confidential
information. The respondent's New Company Board members shall
participate in matters that come before the New Company Board only
for the limited purposes of considering a capital investment or
other transaction exceeding $250,000, approving any proposed budget
and operating plans, and carrying out respondent's responsibilities
under this Agreement and the Consent Order. Except as permitted by
this Agreement, the respondent's New Company Board members shall not
participate in any matter, or attempt to influence the votes of the
other members of the New Company Board with respect to matters, that
would involve a conflict of interest if respondent and the New
Company were separate and independent entities.
l. If necessary to assure compliance with the terms of this
Agreement, the Consent Agreement, or the Consent Order, respondent
may, but is not required to, assign an individual to the New Company
for the purpose of overseeing such compliance (``on-site person'').
The on-site person shall have access to all officers and employees
of the New Company and such records of the New Company as he deems
necessary and reasonable to assure compliance. Such individual shall
enter into a confidentiality agreement prohibiting disclosure of
material confidential information.
m. Any material transaction of the New Company that is out of
the ordinary course of business must be approved by a majority vote
of the New Company Board; provided that the New Company shall engage
in no transaction, material or otherwise, that is precluded by this
Agreement.
n. All earnings and profits of the New Company shall be retained
separately in the New Company. If necessary, respondent shall
provide the New Company with sufficient working capital to operate
at its current rate of operation, and to carry out any capital
improvement plans for the New Company which have already been
approved.
o. During the period commencing on the date this Agreement is
effective and terminating on the earlier of (i) six months after the
date the Consent Order becomes final, or (ii) the date contemplated
by subparagraph 2.a (the ``Initial Divestiture Period''), respondent
shall make available for use by the New Company funds sufficient to
perform all necessary routine maintenance to, and replacements of,
the Schedule A Assets (``normal repair and replacement''). After
termination of the Initial Divestiture Period and until the earlier
of the date contemplated by either subparagraph 2.a or 2.b,
respondent shall make available for use by the New Company each year
an amount not less than that required for normal repair and
replacement, plus $1,000,000 for capital improvements to the
Schedule A Assets, unless a smaller amount is requested or required
by the New Company, in its sole discretion, for capital
expenditures. Provided, however, that in any event, respondent shall
provide the New Company with such funds as are necessary to maintain
the viability and competitiveness and marketability of the Schedule
A Assets.
4. Should the Federal Trade Commission seek in any proceeding to
compel respondent to divest any of the Schedule A Assets, as
provided in the Consent Order, or to seek any other injunctive or
equitable relief for any failure to comply with the Consent Order or
this Agreement, or in any way relating to the Acquisition, as
defined in the draft complaint, respondent shall not raise any
objection based upon the expiration of the applicable Hart-Scott-
Rodino Antitrust Improvements Act waiting period or the fact that
the Commission has permitted the Acquisition. Respondent also waives
all rights to contest the validity of this Agreement.
5. To the extent that this Agreement requires respondent to
take, or prohibits respondent from taking, certain actions that
otherwise may be required or prohibited by contract, respondent
shall abide by the terms of this Agreement or the Consent Order and
shall not assert as a defense such contract requirements in a civil
penalty action brought by the Commission to enforce the terms of
this Agreement or Consent Order.
6. For the purpose of determining or securing compliance with
this Agreement, subject to any legally recognized privilege, and
upon written request with reasonable notice to respondent made to
its principal office, respondent shall permit any duly authorized
representative or representatives of the Commission:
a. Access during the office hours of respondent and in the
presence of counsel to inspect and copy all books, ledgers,
accounts, correspondence, memoranda, and other records and documents
in the possession or under the control of respondent relating to
compliance with this Agreement;
b. Upon five (5) days' notice to respondent, and without
restraint or interference from respondent, to interview officers or
employees of respondent, who may have counsel present, regarding any
such matters.
7. This Agreement shall not be binding until approved by the
Commission.
Analysis of Proposed Consent Order Aid Public Comment
The Federal Trade Commission has accepted, subject to final
approval, a proposed consent order from Healthtrust Inc.--The Hospital
Company (``Healthtrust''). The agreement would settle charges by the
Federal Trade Commission that Healthtrust's proposed acquisition of
three hospitals from Holy Cross Health System Corporation (``Holy
Cross'') would have violated Section 7 of the Clayton Act, and Section
5 of the Federal Trade Commission Act, if it had been carried out.
The proposed consent order has been placed on the public record for
sixty (60) days for reception of comments by interested persons.
Comments received during this period will become part of the public
record. After sixty (60) days, the Commission will again review the
agreement and the comments received and will decide whether it should
withdraw from the agreement or issue and serve the agreement's proposed
order.
Both Healthtrust and Holy Cross own and operate acute care
hospitals in various states, including acute care hospitals in the Salt
Lake City area, encompassing Salt Lake County and southern Davis
County; and the Salt Lake City--Ogden Metropolitan Statistical Area, an
area encompassing three contiguous counties in northern Utah: Weber
County, Davis County, and Salt Lake County (``Three-County Area''). The
complaint accompanying the proposed consent order concerns the proposed
acquisition's impact upon competition for acute care hospital services
in the Salt Lake City area and the Three-County Area. According to the
complaint, Healthtrust owns and operates Lakeview Hospital in Bountiful
(in southern Davis County) and Pioneer Valley Hospital in West Valley
City (in Salt Lake County). Holy Cross owns and operates St. Benedict's
Hospital in Ogden (in Weber County), and two acute care hospitals in
Salt Lake County, Holy Cross Hospital in Salt Lake City, and Holy-
Cross-Jordan Valley Hospital in West Jordan.
The consent order, if finally accepted by the Commission, would
settle charges that the acquisition may substantially lessen
competition in the Salt Lake City area and the Three-County Area. The
complaint alleges that Healthtrust and Holy Cross are competitors in
those markets. The hospital markets in the Salt Lake City area and the
Three-County Area, according to the complaint, were already highly
concentrated, and entry by new competitors would be difficult. The
complaint alleges that the Commission has reason to believe that the
acquisition would have anticompetitive effects in the Salt Lake City
area and the Three-County Area hospital markets, in violation of
Section 7 of the Clayton Act and Section 5 of the Federal Trade
Commission Act, unless an effective remedy eliminates such
anticompetitive effects.
The order accepted for public comment contains provisions requiring
the divestiture by Healthtrust of the Holy Cross Hospital and related
assets, including interests in five clinics, in Salt Lake City, Utah.
The purpose of the divestiture is to ensure the continuation of Holy
Cross Hospital as an ongoing, viable acute care hospital independent of
Healthtrust, and to remedy the lessening of competition in the Salt
Lake City area and the Three-County Area hospital markets resulting
from the acquisition.
The proposed order requires Healthtrust to obtain the approval of
the Commission for the divestiture of Holy Cross Hospital. Under the
terms of the order, the required divestiture must be completed within
six months of the date the order becomes final. If the required
divestiture were not completed within the six-month period, Healthtrust
would consent to the appointment of a trustee, who would have twelve
additional months to effect the divestiture. The hold separate
agreement executed as part of the consent order requires Healthtrust,
until the completion of the divestiture or as otherwise specified, to
hold separate and preserve all of the assets and businesses of Holy
Cross Hospital.
The proposed order provides that approval by the Commission of the
divestiture shall be conditioned upon the agreement by the acquirer
that, for ten years from the date of the divestiture, it will not sell,
without the prior approval of the Commission, Holy Cross Hospital to
another person operating (or in the process of acquiring) any other
acute care hospital in the Three-County Area.
The order would prohibit Healthtrust from acquiring any acute care
hospital in the Three-County Area without the prior approval of the
Federal Trade Commission. It would also prohibit Healthtrust from
transferring, without prior Commission approval, any acute care
hospital it operates in the Three-County Area to another person
operating (or in the process of acquiring) an acute care hospital in
the area. These provisions, in combination, would give the Commission
authority to prohibit any substantial combination of the acute care
hospital operations of Healthtrust with those of any other acute care
hospital in the Three-County Area, unless Healthtrust convinced the
Commission that a particular transaction would not endanger competition
in the Salt Lake City area or the Three-County Area. The provisions
would not apply to acquisitions or sales where the value of the
transferred assets is $1 million or less, and the provisions would
expire ten years after the order becomes final.
For ten years, the order would prohibit Healthtrust from
transferring all or any substantial part of any hospital in the Three-
County Area to another party without first filing with the Commission
an agreement by the transferee to be bound by the order.
The purpose of this analysis is to invite public comment concerning
the proposed order, to assist the Commission in its determination
whether to make the order final. This analysis is not intended to
constitute an official interpretation of the agreement and order or to
modify their terms in any way.
The agreement is for settlement purposes only and does not
constitute an admission by Healthtrust that its proposed acquisition
would have violated the law, as alleged in the Commission's complaint.
Donald S. Clark,
Secretary.
Dissenting Statement of Commissioner Dennis A. Yao
In HealthTrust/Holy Cross, File No. 941 0020
I voted against acceptance of the proposed consent agreement in
this matter, as well as against a previous motion to seek a preliminary
injunction to enjoin HealthTrust from acquiring three Holy Cross
hospitals in the Salt Lake City, Utah, area. The three hospitals to be
acquired were: Jordan Valley, a 50-bed hospital located in the Salt
Lake City metropolitan area; St. Benedict's, a 239-bed tertiary level
hospital\1\ located approximately 34 miles north of Salt Lake City in
Ogden; and a 200-bed tertiary facility located in downtown Salt Lake
City. In analyzing the original proposed transaction, I concluded that
the merger of these two hospital systems would generate significant net
efficiencies that would outweigh any potential anticompetitive effects
of the merger in the Salt Lake City Metropolitan area and throughout
the Wasatch Front. Specifically, the Holy Cross hospitals offered
HealthTrust the opportunity to expand its geographic coverage by
including hospitals located throughout the Wasatch Front, and broaden
the services it provided by including a downtown Salt Lake City
tertiary care facility.
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\1\Medical services are generally divided into primary,
secondary, tertiary and now quaternary levels. Primary services are
provided by generalists, including family practitioners,
pediatricians, obstetricians, and internists. Secondary services are
provided by specialists, such as cardiologists, oncologists, and
orthopedic specialists. Tertiary services are those provided by sub-
specialists, such as invasive cardiology or neurosurgery. Quaternary
level services are those offered by only a few highly specialized
facilities, like high level burn units or organ transplants. The
demarcation between the various levels of service is not precise,
but these levels are all included as part of the ``acute care
inpatient hospital services'' market alleged in the complaint here.
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The proposed consent allows HealthTrust to acquire two of the Holy
Cross hospitals, Jordan Valley and St. Benedict's, while requiring
divestiture of the downtown Holy Cross hospital. Allowing HealthTrust
to acquire the two Holy Cross hospitals will give HealthTrust better
geographic coverage across the Wasatch Front. However, requiring the
divestiture of the downtown Holy Cross facility means that the newly
formed hospital network will not include a tertiary care facility in
the Salt Lake City Metropolitan area.
It was argued in this case (as it has been argued in several recent
hospital mergers) that the merging hospital systems can achieve network
and operational efficiencies through acquisition that are not possible
through alternative arrangements such as contracting or joint
venturing. Parties have sought to show that contracting and joint
venturing is inefficient as an alternative to outright merger, among
other reasons, because of the need to deter ``gaming'' on patient
referrals as each hospital attempts to shift costly patients to other
hospitals. This argument seems plausible in this industry because of
contracting problems involved in establishing ``capitation'' regimes.
In this particular case, it was argued that purchasing a downtown
Salt Lake City tertiary care facility was essential to achieve network
efficiencies and that contracting or joint venturing was an inferior
alternative. I find this argument persuasive.\2\ Therefore, because I
believe that the bulk of the network and operational efficiencies that
are possible from this merger will be lost if the downtown facility is
divested, and because I believe that the potential anticompetitive
effects that may have resulted from allowing HealthTrust to acquire the
downtown facility are outweighed by those efficiencies, I have
dissented from the issuance of this consent.
\2\The relative effectiveness of different organizational forms
such as mergers, joint ventures or contracting relationships
deserves further study in light of the current restructuring of the
health care industry. While I agree that network efficiency claims
may be more credible if they are endorsed by health plans (see
Remarks of Mary Lou Steptoe before the Practicing Law Institute,
June 17-20, 1994) we are often presented with situations of
``dueling'' affidavits, in which case other evidence must be present
to support such claims.
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[FR Doc. 94-18258 Filed 7-26-94; 8:45 am]
BILLING CODE 6750-01-M