[Federal Register Volume 59, Number 189 (Friday, September 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24213]


[[Page Unknown]]

[Federal Register: September 30, 1994]


-----------------------------------------------------------------------

DEPARTMENT OF JUSTICE
Antitrust Division

 

United States and State of Florida v. Morton Plant Health System, 
Inc. and Trustees of Mease Hospital, Inc.; Public Comments and Response 
on Proposed Final Consent Judgment

    Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 
16(b)-(h), the United States publishes below the comments received on 
the proposed Final Consent Judgment in United States and State of 
Florida v. Morton Plant Health System, Inc., and Trustees of Mease 
Hospital, Inc. Civil No. 94-748-CIV-T-23E, United States District Court 
for the Middle District of Florida, together with the United States' 
response to the comments.
    Copies of the public comments and the response are available on 
request for inspection and copying in Room 3235 of the Antitrust 
Division, U.S. Department of Justice, Tenth Street and Pennsylvania 
Avenue, NW., Washington, DC 20530, and at the Office of the Clerk of 
the United States District Court for the Middle District of Florida, 
United States Courthouse, 611 North Florida Avenue, Room B-100, Tampa, 
Florida 33602.
Joseph H. Widmar,
Deputy Assistant Attorney General, Antitrust Division.

The United States' Response To Public Comments

    Pursuant to Section 2(d) of the Antitrust Procedures and Penalties 
Act, 15 U.S.C. 16(b)-(h) (the ``APPA''), the United States hereby 
submits and responds to the public comments it has received regarding 
the proposed Final Consent Judgment (``Judgment'') in this civil 
antitrust proceeding.
    This action began on May 5, 1994, when the United States and the 
State of Florida filed a Verified Complaint alleging that the proposed 
consolidation of Morton Plant Health System, Inc. and Trustees of Mease 
Hospital, Inc. would tend to substantially lessen competition in the 
provision of acute inpatient hospital services in North Pinellas 
County, Florida in violation of Section 7 of the Clayton Act, as 
amended, 15 U.S.C. Sec. 18. On June 17, 1994, the parties filed a 
Stipulation and a proposed Judgment, and on July 1, the United States 
filed a Competitive Impact Statement regarding the proposed Judgment.
    As explained in the Competitive Impact Statement, the proposed 
Judgment permits Morton Plant and Mease to achieve cost savings by 
consolidating some hospital and administrative services, but it enjoins 
the proposed consolidation and requires Morton Plant and Mease to 
continue competing in the provision of inpatient hospital services as 
separate corporate entities, thus preserving that competition upon 
which consumers have relied to reduce the cost of hospital care.
    The APPA requires a sixty-day period for the submission of public 
comments on the proposed Judgment [15 U.S.C. 16(b)]. The sixty-day 
comment period expired on September 12, 1994. The United States 
received two comments. The comments and the United States' response to 
these comments are being published with this notice.\1\ What follows is 
a brief summary of the comments and the United States' response.
---------------------------------------------------------------------------

    \1\The comments and the individual responses are attached as 
Exhibit 1.
---------------------------------------------------------------------------

    1. The Textile Rental Services Association criticized language in 
the proposed Judgment that, the Association claims, would authorize 
Morton Plant and Mease to establish a tax-exempt joint venture to 
provide hospital laundry services. Currently, such a venture would not 
be tax-exempt. The United States' response to this comment points out 
that, in drafting the proposed Judgment, the parties did not intend to 
create any new federal or state tax exemption. Morton Plant and Mease 
confirmed in writing that they neither intend, nor will they interpret, 
the proposed Judgment to provide them with any such tax-exemption.
    In our view, the parties' written commitment that they will not 
interpret the proposed Judgment as creating or providing any new 
federal or state tax exemption fully meets the Textile Rental Services 
Association's concern that the Judgment could be read to provide such 
tax relief. A key point, however, is that the criticism about the tax 
consequences of the proposed Judgment is entirely unrelated to the key 
issue before the Court: the effectiveness of the Judgment in remedying 
the antitrust violation alleged in the Complaint.
    2. Ms. Ann E. Castro, who represents an employment agency for 
temporary nurses, criticized provisions of the proposed Judgment that 
would permit Morton Plant and Mease to combine their purchases of 
temporary nursing services. She believes that the hospitals' joint 
venture might decide to purchase nursing services from foreign-born 
nurses, who, she claims, typically charge less than the nurses her 
client represents.
    In response, the United States pointed out that purchasing nursing 
services at lower prices is a legitimate, pro-competitive goal. A 
reduction in Morton Plant's and Mease's costs for nursing services 
would likely translate into lower charges for hospital care, and hence, 
benefit health care consumers. Consequently, this criticism does not 
warrant rejecting the proposed Judgment, but instead underscores its 
salutory effect.

    Dated: September 23, 1994.
    Respectfully submitted,
Anthony E. Harris, Attorney, Antitrust Division U.S. Department of 
Justice, Washington, D.C. 20001 (202) 307-0951

Exhibit 1

Galland, Kharasch Morse & Garfinkle, P.C.
Canal Square
1054 Thirty-First Street, NW.
Washington, DC. 20007-4496
(202) 342-5200
Telecopy: (202)342-5219, (202) 337-8787

August 9, 1994

VIA HAND DELIVERY
Ms. Gail Kursh
Chief, Professions and Intellectual Property Section
U.S. Department of Justice
Antitrust Division
555 4th Street, NW., Rm 9903
Washington, DC. 20001

Re: Public Comment on Proposed Final Consent Judgment, Stipulation 
and Competitive Impact Statement in the matter of United States and 
State of Florida v. Morton Plant Health System, Inc. and Trustees of 
Mease Hospital, Inc., No. 94-748-CIV-T-23E (M.D. Fla., Filed May 5, 
1994).

Dear Ms. Kursh:
    This letter is filed on behalf of this firm's client, the 
Textile Rental Services Association (``TRSA'') with respect to the 
above-captioned action (the ``Stipulation''), in partial objection 
to the terms of the Stipulation.
    TRSA is a nonprofit trade association. Its mission is to 
protect, promote, and professionalize the industry of its members, 
which are companies engaged in textile maintenance and provision of 
rental services to commercial, industrial and institutional 
accounts. Members of TRSA account for about 90 percent of the annual 
sales of the linen supply industry and about 75 percent of the sales 
of the industrial laundering industry. The combined textile rental 
industry had estimated 1993 sales of about $6 billion. Linen supply 
and industrial laundering companies employ 110,000 people.
    Article II, paragraph (G), and Article V, paragraph (B) of the 
Stipulation, as published in the Wednesday, July 13, 1994 Federal 
Register (59 Fed. Reg. 35,752, 35754) provide that Morton Plant 
Health System (``Morton Plant'') and Trustees of Mease Hospital 
(``Mease'') may form a ``nonprofit, tax-exempt organization'' which 
``may own and operate any . . . Eligible Partnership Administrative 
Service and may provide such service to Morton Plan and Mease.'' The 
Stipulation defines ``Eligible Partnership Administrative Service'' 
to include, among other things, ``housekeeping and laundry'' 
services and ``all miscellaneous services not related to patient 
care and not exceeding an expenditure of $250,000.00 annually.''
    As is discussed in greater detail below, the implication in the 
Stipulation that a tax-exempt organization may perform laundry 
services is directly contrary to law, and the open-ended grant of 
authority to perform ``miscellaneous services'' may be interpreted 
in a manner which is inconsistent with law. TRSA objects to the 
content and potential effect of these provisions.
    The Supreme Court specifically ruled in HCSC-Laundry v. United 
States, 450 U.S. 1,101 S.Ct. 836, 67 L.ED.2d 1 (1981) that a 
``cooperative hospital service organization'' formed for the express 
purpose of providing laundry services for two or more hospitals 
(which were themselves tax-exempt organizations under Sec. 501(c)(3) 
of the Internal Revenue Code) was not eligible for tax exempt 
status. Section 501(e) of the Internal Revenue Code directly 
addresses the capacity of a hospital service organization to qualify 
for tax exempt status, and provides a list of services which such 
qualified organizations can perform. Laundry services are not 
expressly nor implicitly included in that list.\1\
---------------------------------------------------------------------------

    \1\Section 501(e) provides, in pertinent part, as follows 
(emphasis added):
    For purposes of this title, an organization shall be treated as 
an organization organized and operated exclusively for charitable 
purposes if--(1) such organization is organized and operated 
solely--(A) to perform, on a centralized basis, one or more of the 
following services which, if performed on its own behalf by a 
hospital which is an organization described in [Sec. 501(c)(3)] and 
exempt from taxation under subsection (a), would constitute 
activities in exercising or performing the purpose or function 
constituting the basis for its exemption: data processing, 
purchasing, warehousing, billing and collection, food, clinical, 
industrial, engineering, laboratory, printing, communications, 
record center and personnel (including selection, testing, training, 
and education of personnel)
---------------------------------------------------------------------------

    The petitioner in HCSC Laundry asserted that the list of 
services in Sec. 501(e) was not intended as an exclusive list, and 
that the service entity providing laundry services could qualify for 
tax-exempt status under the general qualification standards of 
Sec. 501(c)(3) applied to other companies. The Supreme Court 
rejected the petitioner's argument, and upheld the Third Circuit's 
ruling that compliance with Sec. 501(e) was, in fact, the only way 
for a hospital service organization to attain tax-exempt status. The 
Court noted that the omission of laundry services from Sec. 501(e) 
by lawmakers in 1968 was not inadvertent, and that the inclusion of 
laundry services was expressly considered and rejected in 1968 
(during original legislative action), and 1976 (when an effort was 
made to amend the law to include laundry services). 101 S. Ct. at 
839.
    We acknowledge that the issues before the District Court and the 
Department of Justice, and the compromises contained in the 
Stipulation, focus on antitrust and anticompetitive concerns and 
that the Stipulation is not necessarily cognizant of federal income 
tax implications. Nevertheless, the Stipulation implies a range of 
authority which is inconsistent with current law, and we urge you to 
revise the Stipulation to reflect current law on permissible tax-
exempt activities for hospital service organizations.
    TRSA requests the opportunity to submit further comments or to 
otherwise participate in any other proceeding concerning this 
subject. Please contact the undersigned if you have any questions 
regarding the foregoing, or if you need any further information.

Sincerely,
Steven John Fellman,
Counsel to the Textile Rental Services Association.

cc: Mr. John Burke,
    Employee Plans and Exempt Organizations
Mr. J.C. Contney
    Executive Director, Textile Rental Services Assn.

September 23, 1994

BY FACSIMILE AND U.S. MAIL
Steven John Fellman, Esquire
Galland, Kharasch, Morse & Garfinkle, P.C.
Canal Square
1054 31st Street, N.W.
Washington, D.C. 20007-4492

Re: Public Comment on Proposed Consent Decree in United States and 
State of Florida v. Morton Plant Health Systems, Inc., et al., No. 
94-748-CIV-T-23E (M.D. Fla., filed May 5, 1994)

    Dear Mr. Fellman:
    This letter responds to your recent letter, submitted on behalf 
of the Textile Rental Service Association, commenting on the 
possible tax ramifications of the joint venture that Morton Plant 
Health System, Inc. and Trustees of Mease Hospital, Inc. are 
permitted to establish under the terms of the proposed consent 
decree in this case.
    In your letter, your correctly point out that the proposed 
decree authorizes Morton Plant and Mease to form a ``nonprofit, tax-
exempt organization'' that ``may own and operate [and provide to 
Morton Plant and Mease] any * * * Eligible Partnership 
Administrative Service,'' and that such services may include inter 
alia, ``housekeeping and laundry'' services and ``all miscellaneous 
services not related to patient care and not exceeding an 
expenditure of $250,000 annually.'' Final Consent Judgment II (G) 
and V(B). This language could be read to imply that the partnership 
organized under the decree can perform laundry services and other 
unspecified miscellaneous services and remain a ``nonprofit, tax-
exempt organization'' under federal tax laws.
    However, current federal tax statutes and court decisions 
interpreting them indicate that a ``cooperative hospitals service 
organization'' formed to provide laundry services for two or more 
non-profit hospital is not eligible for tax exempt status. HCSC-
Laundry v. United States, 450 U.S. 1, 6-8 (1981). It is also quite 
possible that a joint venture formed by the hospitals to provide 
other ``miscellaneous services not related to patient care''--and 
not specifically listed as a tax-exempt service in Section 501(e) of 
the Internal Revenue Code--would not be entitled to tax-exempt 
status.
    The United States certainly does not view this consent decree as 
affording Morton Plant or Mease a new exemption from federal (or 
state) taxes. Moreover, Morton Plant and Mease have provided written 
assurances that they do not intend to interpret the consent decree 
as providing an amendment to or exemption under any tax law. (A copy 
of that written assurance from the hospitals' trial counsel is 
enclosed.)
    In short, the proposed consent decree is clearly not intended, 
and should not be read, to alter or amend tax laws, rules, or 
regulations, or to create any new tax exemptions or loopholes. In 
order to qualify for tax-exempt status, the hospitals' joint venture 
must satisfy any applicable tax regulations, not simply rely upon 
the language of the proposed decree.
    I trust that this responds to the concerns you have expressed. 
Thank you for your keen interest in the enforcement of our federal 
antitrust and tax laws.

Sincerely yours,
Anthony E. Harris,
Attorney, Professions & Intellectual Property Section.

Enclosure
cc: Mr. John Burke
    Assistant Commissioner,
    Employee Plans and Exempt Organizations
    Internal Revenue Service.

Macfarlane Ausley Ferguson & McMullen
Attorneys and Counselors At Law

September 21, 1994
in reply refer to: Clearwater
ALSO SENT VIA FAX 1-202-514-1517

Anthony E. Harris, Esq.
Trial Counsel
U.S. Department of Justice
Antitrust Division
555-4th Street, N.W., Room 9901
Washington, DC 20001

Re: USA v. Morton Plant and Mease
Dear Tony:
    It is my understanding that you requested written assurances in 
reference to one of the comments received in relation to the Consent 
Decree. In that regard, please accept this correspondence as my 
clients' written assurance that they do not intend to violate the 
tax laws in relation to implementation of this Consent Decree, nor 
do they intend to claim any exemption to which they are not 
entitled, nor did they intend, nor do they interpret the Consent 
Decree to give them any additional exemptions not provided for in 
the tax codes, federal or state. This matter has been reviewed by 
appropriate tax counsel who are advising the entities accordingly. 
If you have additional questions, please do not hesitate to call.

Sincerely,
James A. Martin, Jr.
JAM:knk
cc:
    Mr. Frank V. Murphy
    Mr. Phil Beauchamp
    John P. Frazer, Esq.
    Emil C. Marquardt, Jr., Esq.
    Steve Kiess, Esq.
H:/DATA/ATY/JAM/MPH/MEASE/HARRIS LTR

Law Offices
Ann Elaine Castro P.A.

September 12, 1994

Ms. Gail Kursh
Chief, Professions and Intellectual Property Section
U.S. Department of Justice
Antitrust Division
555 4th Street, N.W.
Room 9903
Washington D.C. 20001

In Re: United States and State of Florida v. Morton Plant Health 
System, Inc. and Trustees of Mease Hospital, Inc. No. 94-748-CIV-T-
23E (M.D., Fla., Filed May 5, 1994)

    On behalf of my client, a nursing contractor doing business in 
Pinellas County Florida, this public comment is being submitted as 
there is considerable concern that the combination of Morton Plant 
and Mease may substantially lessen competition in the provision of 
health care services in North Pinellas County in violation of 
Section 7 of the Clayton Act, 15 U.S.C. 18.
    Specifically, the gravamen of my client's concern lies in the 
suspicion that should the merger go forward, staff relief nurses and 
other health care professionals will be injured. At 59 Fed. Reg. 
357555 (July 13, 1994), Part VI (B) Independent Activities, the 
Final Consent Judgment reads as follows:
    Morton Plant and Mease shall each price and sell its services, 
both those owned and operated and operated separately and those 
purchased from the Partnership, in active competition with each 
other. Morton Plant and Mease shall each exercise its own 
independent judgment on how to market and price its patient care 
services and shall not discuss, communicate, or exchange with each 
other or any other hospital information relating to the marketing, 
pricing, negotiating, or contracting of any patient care services, 
including those purchased from the Partnership.
    On information and belief Morton Plant has participated in 
predatory pricing. Morton Plant together with nineteen of twenty-
three major hospitals in the Tampa Bay area previously engaged in 
activities which set forth a federal anti-trust investigation. This 
investigation was conducted in 1988-9 to look into alleged abuses by 
the hospitals. An organization by the name of SASSA alleged that the 
nineteen hospitals were acting in concert to attempt to eliminate 
competition in the staff relief nurse industry throughout the Tampa 
Bay area, and to drive prices below community standards for the 
relief nurses.
    Although the federal investigation of the anti-trust activities 
ended when the hospitals dropped their plan, the hospitals have 
continued to act in concert to try to eliminate competition in the 
staff relief nurse industry and to drive prices below community 
standards for the relief nurses. A new alliance was formed after the 
1988-9 investigation called the Bay Area Hospital Council. (BAHC). 
BAHC has actively recruited foreign nurses to supply area hospitals 
with cheaper temporary nurses, and this collective activity has 
further damaged the nursing contractor that this firm represents, as 
the foreign relief nurses have been working for wages well below 
community standards for temporary nurses.
    Although Morton Plant has engaged in utilizing relief nurses on 
H-1A nurses, Mease has not. The nursing contractor this firm 
represents has been doing business with Mease, but had been doing no 
business at all with Morton Plant, until the contractor would agree 
to do business with Morton Plant at rates below community standards 
for relief workers. This demand for cheaper rates commanded by 
Morton Plant has still not translated into significant return of 
business to the contractor who had historically provided Morton 
Plant with a large portion of its staff relief nurses.
    Should the merger go forward, there will certainly be an adverse 
affect on staff relief nurses desiring to work in north Pinellas 
County, in that their ability to work at Mease Hospital will be 
uncertain, should Mease be influenced by the practices that Morton 
Plant has adopted.
    Further information has been supplied to Jerome Hoffman of the 
Florida Attorney General's Office in Tallahassee, Florida.

Sincerely,
Ann Elaine Castro P.A.

September 23, 1994

BY FACSIMILE AND U.S. MAIL
Ann Elaine Castro, Esquire
Griffin Professional Building
1455 Court Street
Clearwater, Florida 34616

Re: Public Comment on Proposed Consent Decree in United States and 
State of Florida v. Morton Plant Health System, Inc., et al., No. 
94-748-CIV-T-23E (M.D. Fla., filed May 5, 1994)

Dear Ms. Castro:
    This letter responds to your September 12, 1994 letter regarding 
the potential impact of the proposed consent decree on competition 
in the provision of temporary nursing services to Tampa Bay area 
hospitals.
    As I understand your concerns, your client is an employment 
agency that supplies temporary nurses to hospitals in the Tampa Bay 
area, including Mease. Apparently, your client has had difficulty 
competing in the provision of nursing services because Morton Plant 
and 19 other area hospitals, acting through a trade association, Bay 
Area Hospital Association, actively recruit foreign-born nurses, 
who, you say, are willing to work at temporary positions at much 
cheaper rates than the nurses your client employs. You believe that 
if Morton Plant and Mease combine their purchases of nursing 
services, as they are permitted to do under the proposed consent 
decree, their joint venture may elect to purchase the services of 
foreign-born nurses, rather than continue doing business with your 
client.
    In our view, the concerns you have expressed provide no 
justification for reconsidering the merits of the proposed decree. 
First, the factual premise of your argument--that Morton Plant 
favors the use of foreign-born temporary nurses--is suspect. There 
is no evidence that Morton Plant, in fact, routinely fills temporary 
nursing positions at its hospitals with lower-paid foreign-born 
nationals. The materials you submitted to the Florida Attorney 
General's Office in support of your complaint indicate that, as 
recently as 1992, Morton Plant did not hire a single foreign 
national as a temporary nurse.
    Second, neither hospital is today precluded from hiring foreign-
born nurses to fill temporary positions, and there is no proper 
basis for restricting the joint venture's hiring of foreign-born 
nurses. Indeed, such employment discrimination is likely unlawful.
    Finally, even if Morton Plant routinely fills temporary nursing 
positions with lower-paid foreign nationals, and the hospital joint 
venture organized pursuant to the decree adopts that practice and 
expands it to Mease, paying less expensive rates for nursing 
services is likely to have significant procompetitive effects. This 
practice promises to reduce the cost of nursing care at these 
hospitals, and it has not been suggested that that will lead to any 
diminution in the quality of care. The reduction in nursing costs 
will likely lead to a reduction in prices paid for hospital-related 
services, precisely the pro-consumer result the parties anticipated 
when they agreed to the settlement now pending before the Court.
    I trust this information will help you to understand the basis 
for the Department's action and the proposed settlement in this 
matter. Thank you for sharing your views with us.

Sincerely yours,
Anthony E. Harris,
Attorney, Professions & Intellectual Property Section.
[FR Doc. 94-24213 Filed 9-29-94; 8:45 am]
BILLING CODE 4410-01-M