[Federal Register Volume 60, Number 149 (Thursday, August 3, 1995)]
[Notices]
[Pages 39747-39751]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19112]



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FEDERAL TRADE COMMISSION
[File No. 941-0076]


Local Health System, Inc., et al; 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 
prohibit the merger of the two largest hospitals in St. Clair County, 
Michigan and would require the hospitals, for a limited time, to notify 
the Commission or obtain Commission approval before acquiring certain 
hospital assets in the Port Huron, Michigan area.

DATES: Comments must be received on or before October 2, 1995.

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:Phillip L. Broyles, Cleveland Regional 
Office, Federal Trade Commission, 668 Euclid Avenue, Suite 520-A, 
Cleveland, OH 44114. (216) 522-4207.

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 rules of practice (16 CFR 2.34), notice is hereby 
given that the following consent agreement containing a consent order 
to cease and desist, 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 Sec. 4.9(b)(6)(ii) of the Commission's rules of 
practice (16 CFR 4.9(b)(6)(ii)).

[File No. 941-0076]

Agreement Containing Consent Order

    In the matter of LOCAL HEALTH SYSTEM, INC., a corporation, BLUE 
WATER HEALTH SERVICES CORP., a corporation, and MERCY HEALTH 
SERVICES, a corporation.
    The Federal Trade Commission (``Commission''), having initiated an 
investigation of the proposed acquisition by Local Health System, Inc. 
(``Local Health''), of certain assets of Mercy Hospital Port Huron 
(``Mercy-Port Huron'') from Mercy Health Services (``Mercy Health''), 
and of certain assets of Port Huron Hospital from Blue Water Health 
Services Corporation (``Blue Water Health''), and 

[[Page 39748]]
it now appearing that Local Health, Mercy Health and Blue Water Health, 
hereinafter sometimes referred to as ``Proposed Respondents,'' are 
willing to enter into an agreement containing an order to cease and 
desist from making certain acquisitions, and providing for other 
relief:
    It is hereby agreed by and between Proposed Respondents, by their 
duly authorized officers and attorneys, and counsel for the Commission 
that:
    1. Proposed Respondent Local Health 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 
located at 1001 Kearney Street, Port Huron, Michigan 48060.
    2. Proposed Respondent Mercy Health is a corporation organized, 
existing and doing business under and by virtue of the laws of the 
State of Michigan, with its office and principal place of business 
located at 34605 Twelve Mile Road, Farmington, Hills, Michigan 48331.
    3. Proposed Respondent Blue Water Health is a corporation 
organized, existing and doing business under and by virtue of the laws 
of the State of Michigan, with its office and principal place of 
business located at 1001 Kearney Street, Port Huron, Michigan 48060.
    4. Proposed Respondents admit all the jurisdictional facts set 
forth in the draft of complaint.
    5. Proposed Respondents waive:
    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.
    6. This agreement shall not become 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 Respondents, 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.
    7. This agreement is for settlement purposes only and does not 
constitute an admission by Proposed Respondents that the law has been 
violated as alleged in the draft of complaint, or that the facts as 
alleged in the draft complaint, other than jurisdictional facts, are 
true.
    8. 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 Sec. 2.34 of the Commission's 
rules, the Commission may, without further notice to the Proposed 
Respondents, (1) issue its complaint corresponding in form and 
substance with the draft of complaint and its decision containing the 
following Order to cease and desist in disposition of the proceeding 
and (2) make information public with respect thereto. When so entered, 
the Order to cease and desist 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 Proposed 
Respondents' addresses as stated in this agreement shall constitute 
service. Proposed Respondents waive any right they 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 the agreement may be used 
to very or contradict the terms of the Order.
    9. Proposed Respondents have read the proposed complaint and Order 
contemplated hereby. Proposed Respondents understand that once the 
Order has been issued, they will be required to file one or more 
compliance reports showing that they have fully complied with the 
Order. Proposed Respondents further understand that they may be liable 
for civil penalties in the amount provided by law for each violation of 
the Order after it becomes final.

Order

I

    It is ordered that, as used in this Order, the following 
definitions shall apply:
    A. Local Health means Local Health System, Inc., its predecessors, 
subsidiaries, divisions, and groups and affiliates controlled by Local 
Health System, Inc.; their directors, officers, employees, agents, and 
representatives; and their successors and assigns.
    B. Mercy Health means Mercy Health Services, its predecessors, 
subsidiaries, divisions, and groups and affiliates controlled by Mercy 
Health Services; their directors, officers, employees, agents, and 
representatives; and their successors and assigns.
    C. Blue Water Health means Blue Water Health Services Corporation, 
its predecessors, subsidiaries, divisions, and groups and affiliates 
controlled by Blue Water Health Services Corporation; their directors, 
officers, employees, agents, and representatives; and their successors 
and assigns.
    D. Respondents means Local Health, Mercy Health and Blue Water 
Health, collectively and individually.
    E. The Acquisition means the proposed acquisition of Port Huron 
Hospital and Mercy Hospital Port Huron by Local Health pursuant to the 
Memorandum of Understanding dated January 19, 1994.
    F. 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, that 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.
    G. 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.
    H. Affiliate means any entity whose management and policies are 
controlled in any way, directly or indirectly, by the person with which 
it is affiliated.
    I. Person means any natural person, partnership, corporation, 
company, association, trust, joint venture or other business or legal 
entity, including any governmental agency.
    J. Greater Port Huron means the area consisting of the cities of 
Port Huron, Marysville, Kimball Township, Port Huron Township and Fort 
Gratiot, Michigan.
    K. Commission means the Federal Trade Commission.

II

    It is further ordered that, unless they have already done so, 
Respondents shall, no later than seven (7) days after the date this 
Order becomes final: (1) Terminate any agreement that provides for or 
contemplates the Acquisition; (2) return or destroy all documents 
containing or recording confidential 

[[Page 39749]]
information provided to Respondents by any other person in connection 
with negotiations or agreements relating to the Acquisition; and (3) 
recover from any other person or have such other person destroy all 
documents containing or recording confidential information provided by 
Respondents to such other person in connection with negotiations or 
agreements relating to the Acquisition.

III

    It is further ordered that, for a period of three (3) years from 
the date this Order becomes final, no Respondent shall, without prior 
approval of the Commission, directly or indirectly, through 
subsidiaries, partnerships or otherwise:
    A. Acquire any majority or other controlling stock, share capital, 
equity or other interest in any other Respondent that operates any 
acute care hospital facility in Greater Port Huron;
    B. Acquire a majority of any assets of any acute care hospital 
facility operated by any other Respondent in Greater Port Huron;
    C. Enter into any agreement or other arrangement to obtain direct 
or indirect ownership, management or control of any acute care hospital 
facility operated by any other Respondent in Greater Port Huron, 
including but not limited to, a lease of or management contract for any 
such acute care hospital facility, or an agreement to replace an acute 
care hospital facility operated by another person with an acute care 
hospital to be operated by any Respondent;
    D. Acquire or otherwise obtain the right to designate, directly or 
indirectly, a majority of the directors or trustees of any acute care 
hospital facility operated by any other Respondent in Greater Port 
Huron; or
    E. Permit any acute care hospital it operates in Greater Port Huron 
to be acquired (by stock acquisition, asset acquisition, lease, 
management contract, establishment of a replacement facility, right to 
designate directors or trustees or otherwise) by any other Respondent 
that operated, or will operate immediately following such acquisition, 
any other acute care hospital in Greater Port Huron.

IV

    It is further ordered that, for a period of ten (10) years from the 
date this Order becomes final, no Respondent shall, without providing 
advance written notification to the Commission, directly or indirectly, 
through subsidiaries, partnerships, or otherwise:
    A. Acquire any stock, share capital, equity or other interest in 
any person who operates any acute care hospital facility in Greater 
Port Huron;
    B. Acquire any assets of any acute care hospital facility in 
Greater Port Huron;
    C. Enter into any agreement or other arrangement to obtain direct 
or indirect ownership, management or control of any acute care hospital 
facility or any part thereof in Greater Port Huron, including but not 
limited to, a lease of or management contract for any such acute care 
hospital facility, or an agreement to replace an acute care hospital 
facility operated by another person with an acute care hospital 
facility to be operated by any Respondent;
    D. Acquire or otherwise obtain the right to designate, directly or 
indirectly, directors or trustees of any acute care hospital facility 
in Greater Port Huron; or
    E. Permit any acute care hospital it operates in Greater Port Huron 
to be acquired (in whole or in part, by stock acquisition, asset 
acquisition, lease, management contract, establishment of a replacement 
facility, right to designate directors or trustees, or otherwise) by 
any person who operates, or will operate immediately following such 
acquisition, any other acute care hospital in Greater Port Huron.
    Said notification 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 (hereinafter referred to as ``the 
Notification''), 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 Respondents and not of any other party to the transaction. 
Respondents shall provide the Notification to the Commission at least 
thirty days prior to acquiring any such interest (hereinafter referred 
to as the ``first waiting period''). If, within the first waiting 
period, representatives of the Commission make a written request for 
additional information, Respondents shall not consummate the 
acquisition until twenty days after substantially complying with such 
request for additional information. Early termination of the waiting 
periods in this paragraph may be requested and, where appropriate, 
granted in the same manner as is applicable under the requirements and 
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, 
15 U.S.C. 18a.
    Provided, however, that prior notification shall not be required by 
this Paragraph IV of this Order for:
    1. The establishment by a Respondent of a new acute care hospital 
facility that is a replacement for that Repondent's existing acute care 
hospital facility;
    2. The establishment by a Respondent of a new acute care hospital 
that is not a replacement for any other acute care hospital facility in 
Greater Port Huron;
    3. Any transaction otherwise subject to this Paragraph IV of this 
Order if the fair market value of (or, in the case of a purchase 
acquisition, the consideration paid for) the acute care hospital 
facility or part thereof to be acquired does not exceed one million 
dollars ($1,000,000);
    4. Any transaction otherwise subject to this Paragraph IV of this 
Order if the acquisition is pursuant to a joint venture which is to 
engage in no activities other than the provision of the following 
services: Laundry; data processing; joint ownership and management of 
inventory; materials management; billing and collection; dietary; 
industrial engineering management; printing; security; records 
management; laboratory testing; support services for charitable 
foundations; or personnel education, testing or training; or
    5. Notification is required to be made, and has been made, pursuant 
to Section 7A of the Clayton Act, 15 U.S.C. 18a, or prior approval by 
the Commission is required, and has been granted pursuant to Paragraph 
III of this Order.

V

    It is further ordered that, for a period of ten (10) years from the 
date this order becomes final, Respondents shall not permit all or any 
substantial part of any acute care hospital they operate in Greater 
Port Huron to be acquired (in whole or in part, stock acquisition, 
asset acquisition, lease, management contract, establishment of a 
replacement facility, right to designate directors or trustees or 
otherwise) by any other person unless the acquiring person fields with 
the Commission, prior to the closing of such acquisition, a written 
agreement to be bound by the provisions of this Order, which agreement 
Respondents shall require as a condition precedent to the acquisition.
VI

    It is further ordered that:
    A. Within sixty (60) days of the date this Order becomes final, 
each Respondent shall file a verified written report with the 
Commission setting forth in detail the manner and form in which it has 
complied and is complying with Paragraph II of this order; and

[[Page 39750]]

    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 such other times as the Commission may require, 
each Respondent shall file a verified written report with the 
Commission setting forth in detail the manner and form in which it has 
complied and is complying with Paragraphs III, IV and V of this Order.

VII

    It is further ordered that Respondents shall notify the Commission 
at least thirty (30) days prior to any proposed change in the corporate 
Respondents that may affect compliance obligations arising out of the 
Order, such as dissolution, assignment, sale resulting in the emergence 
of a successor corporation, or the creation or dissolution of 
subsidiaries.

VIII

    It is further ordered that, for the purpose of determining or 
securing compliance with this Order, upon reasonable notice to 
Respondents, Respondents shall permit, for a period of ten (10) years 
from the date this Order becomes final, any duly authorized 
representative of the Commission:
    A. Reasonable 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 Respondents relating to any matters 
contained in this Order; and
    B. Upon five days' notice to Respondents and without restraint or 
interference from them, to interview officers, directors, or employees 
of Respondents, who may have counsel present.

Analysis of Proposed Consent Order To Aid Public Comment

    The Federal Trade Commission (``the Commission'') has accepted, 
subject to final approval, an agreement containing a proposed consent 
order from Local Health System, Inc. (``Local Health''), Blue Water 
Health Services Corp. (``Blue Water Health'') and Mercy Health Services 
(``Mercy Health''). 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 make final the 
agreement's proposed order.
    The Commission's investigation of this matter concerns the 
acquisition of Port Huron Hospital, a general acute care hospital owned 
and operated by Blue Water Health, and Mercy Hospital-Port Huron 
(``Mercy Hospital''), a general acute care hospital owned and operated 
by Mercy Health, by Local Health. Port Huron Hospital and Mercy 
Hospital are the only general acute care hospitals in Port Huron, 
Michigan. In its administrative complaint, the Commission alleges, 
among other things, that the market for acute care inpatient hospital 
services in greater Port Huron is highly concentrated and would become 
substantially more concentrated as a result of the acquisitions. The 
Commission also alleges that it has reason to believe that the 
acquisitions would have anticompetitive effects and would violate 
section 7 of the Clayton Act. The agreement containing consent order 
would, if finally accepted by the Commission, settle charges that the 
acquisitions may substantially lessen competition in the delivery of 
acute care inpatient hospital services in greater Port Huron.
    The order, accepted for public comment, contains provisions 
requiring Local Health, Blue Water Health and Mercy Health to terminate 
any and all agreements that provide for the acquisition of Port Huron 
Hospital and Mercy Hospital by Local Health.
    For a period of three years from the date the order becomes final, 
the order prohibits Local Health, Blue Water Health and Mercy Health 
from acquiring, without prior Commission approval, a majority or 
controlling share of stock or other interests in, each other; or a 
majority of the assets of any acute care hospital facility operated in 
Greater Port Huron by either of the other companies named in the order.
    For a period of ten years from the date the order becomes final, 
the order prohibits Local Health, Blue Water Health and Mercy Health 
from acquiring, without providing the Commission prior written notice, 
stock or assets of, or interests in any general acute care hospital 
facility in Greater Port Huron. If the Commission requests additional 
information regarding any acquisition for which prior notice is 
required, the order prohibits Local Health, Blue Water Health and Mercy 
Health from completing the acquisition until twenty days after they 
have provided substantially all of the information requested by the 
Commission.
    The purpose of this analysis is to facilitate public comment on the 
proposed order, and it is not intended to constitute an official 
interpretation of the agreement and proposed order or to modify in any 
way their terms.
Donald S. Clark,
Secretary.
Dissenting Statement of Commissioner Mary L. Azcuenaga in Local Health 
System, Inc., File 941-0076

    Not having found reason to believe that the proposed merger of Port 
Huron Hospital and Mercy Hospital would be unlawful, I do not support 
the proposed complaint and consent order.

Concurring Statement of Commissioner Roscoe B. Starek, III

    In the Matter of Local Health System, Inc., et al., File No. 941 
0076.

    In deciding whether to vote for acceptance of the agreement 
containing consent order negotiated by the staff, I have evaluated with 
particular care the prior approval and prior notice provisions of the 
proposed order. The prior approval provisions (para. III) requires each 
respondent, for three years, to obtain the Commission's approval before 
entering into any transaction that in essence would renew the Port 
Huron Hospital/Mercy Hospital merger that gave rise to this case. Under 
the prior notice requirement (para. IV), a respondent must furnish 
notice to the Commission--largely along the lines of the Hart-Scott-
Rodino premerger notification program--in advance of certain 
acquisitions and other transactions involving acute care hospitals in 
``Greater Port Huron'' (an area consisting of five Michigan cities).
    I have previously expressed my serious reservations about imposing 
a prior approval requirement on parties that have abandoned a 
challenged transaction.\1\ Those reservations rest primarily on two 
foundations. The first is the moral neutrality of mergers and 
acquisitions--and therefore the dubious appropriateness of prior 
approval as a form of ``merger probation.'' The second is the 
superfluity--if not the downright excessiveness--of imposing a prior 
approval requirement on parties that will have to observe the notice 
and waiting requirements of section 7A of the Clayton Act \2\ if they 
wish to undertake the same (or another competitively questionable) 
transaction in the future. Indeed, even when future acquisitions are 
likely to be competitively troublesome but not reportable pursuant to 
Section 7A, I 

[[Page 39751]]
would favor a prior notice-and-wait obligation--rather than a prior 
approval power--with regard to those transactions.\3\

    \1\ See, e.g., ``Reinventing Antitrust Enforcement? Antitrust at 
the FTC in 1995 and Beyond,'' Remarks of Commissioner Roscoe B. 
Starek, III, Marina del Rey, California (Feb. 24, 1995).
    \2\ 15 U.S.C. 18a.
    \3\ ``Reinventing Antitrust Enforcement? Antitrust at the FTC in 
1995 and Beyond,'' supra note 1, at 21-22.
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    Despite my general inclination to believe a broad prior approval 
provision unwarranted when the parties have abandoned their planned 
transaction (as they did here), acceptance of a narrowly tailored prior 
approval provision is appropriate in the special circumstances of this 
case, Paragraph III of the proposed order merely requires respondents 
to seek prior Commission approval, over a three-year period, for 
essentially the same transaction that the Commission challenged in the 
first place. Given that a renewed Port Huron/Mercy consolidation would 
be likely to raise the same antitrust concerns, this narrow prior 
approval requirement is neither punitive nor redundant.
    I also find acceptable the proposed order's 10-year prior 
notification requirement. This provision pertains only to (1) 
transactions in the narrowly defined ``Greater Port Huron'' that (2) 
exceed $1 million yet (3) would not be reportable pursuant to Section 
7A.\4\ Where the Commission finds reason to believe that an acquisition 
would violate section 7, I consider it appropriate to require the 
respondent for some period of time to notify the Commission in advance 
of any proposed significant acquisitions in the relevant market that 
are not reportable under section 7A. That is all that Paragraph IV 
provides.

    \4\ The third and fifth provisos to Paragraph IV, respectively, 
set forth the latter two limitations on the prior notification 
requirement.
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[FR Doc. 95-19112 Filed 8-2-95; 8:45 am]
BILLING CODE 6750-01-M