[Federal Register Volume 62, Number 24 (Wednesday, February 5, 1997)]
[Notices]
[Pages 5418-5420]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-2810]
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FEDERAL TRADE COMMISSION
[File No. 971-0024]
Tenet Healthcare Corp.; 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 or deceptive acts or practices and unfair methods of
competition, this consent agreement, accepted subject to final
Commission approval, would require, among other things, the for-profit
general acute care hospital chain to divest a hospital, and related
assets, in San Luis Obispo County, California that it will acquire as
part of its proposed acquisition of OrNda Healthcorp. The complaint
accompanying the consent agreement alleges that Tenet's acquisition of
OrNda would deny the benefits of free and open competition--lower
prices and better quality of service--to patients, physicians, third-
party payers, and other consumers of inpatient acute care hospital
services in that county.
DATES: Comments must be received on or before April 7, 1997.
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: William J. Baer, Federal Trade
Commission, H-374, 6th and Pennsylvania Ave, NW, Washington, DC 20580.
(202) 326-2932. Mark Whitener, Federal Trade Commission, H-374, 6th and
Pennsylvania Ave, NW, Washington, DC 20580. (202) 326-2845. Robert
Leibenluft, Federal Trade Commission, S-3115, 6th and Pennsylvania Ave,
NW, Washington, DC 20580. (202) 326-3688.
SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Sec. 2.34 of the
Commission's rules of practice (16 CFR 2.34), notice is hereby given
that the above-captioned 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. The following Analysis to Aid Public
Comment describes the terms of the consent agreement, and the
allegations in the accompanying complaint. An electronic copy of the
full text of the consent agreement package can be obtained from the
Commission Actions section of the FTC Home Page (for January 29, 1997),
on the World Wide Web, at ``http://www.ftc.gov/os/actions/htm.'' A
paper copy can be obtained from the FTC Public Reference Room, Room H-
130, Sixth Street and Pennsylvania Avenue, NW, Washington, DC 20580,
either in person or by calling (202) 326-3627. 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)).
Analysis of Proposed Consent Order To Aid Public Comment
The Federal Trade Commission has accepted, subject to final
approval, a proposed consent order from Tenet Healthcare Corp.
(``Tenet''), to resolve antitrust concerns raised by Tenet's proposed
acquisition of OrNda Healthcorp (``OrNda''). Tenet would be required to
divest, among other things,
[[Page 5419]]
OrNda's French Hospital and Medical Center in San Luis Obispo,
California (``French''), and OrNda's interests in Monarch Health
Systems, an integrated health care delivery system in the San Luis
Obispo area. Tenet has also agreed to hold French, the Monarch
interests, and some additional assets separate from Tenet's other
assets, pending the required divestitures.
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 Complaint
The proposed consent order would settle charges by the Federal
Trade Commission that Tenet's proposed acquisition of OrNda Healthcorp
would endanger competition in the market for inpatient acute care
hospital services in San Luis Obispo County, California, and so would
violate section 7 of the Clayton Act and section 5 of the Federal Trade
Commission Act. This matter involves the same market, and the same
principal hospitals, as were at issue in a previous Commission hospital
merger case, American Medical International, Inc., 104 F.T.C. 1, 617
(1984), which resulted in the divestiture of French.
Tenet operates over 75 acute care hospitals nationwide. In San Luis
Obispo County, Tenet operates two acute care hospitals, 195-bed Sierra
Vista Regional Medical Center (``Sierra Vista'') in the city of San
Luis Obispo, and 84-bed Twin Cities Community Hospital (``Twin
Cities'') in Templeton about 22 miles to the north of San Luis Obispo.
OrNda operates over 50 acute care hospitals nationwide, including 147-
bed French Hospital Medical Center in the city of San Luis Obispo.
OrNda also operates 70-bed Valley Community Hospital in Santa Maria, in
northern Santa Barbara County about 30 miles south of the city of San
Luis Obispo.
The complaint alleges that Tenet and OrNda are the two leading
competitors, out of only four providers, of acute care hospital
services in San Luis Obispo County, California. It further alleges that
Tenet's main hospital in the area, Sierra Vista, and OrNda's French
hospital, offer broader service complements than any of the other
hospitals in the county, and are each other's principal and most direct
competitor.
The complaint identifies 79-bed Arroyo Grande Community Hospital in
southern San Luis Obispo County, and county-owned 64-bed San Luis
Obispo General Hospital (``SLO General'') in the city of San Luis
Obispo, as the only acute care hospitals in San Luis Obispo County that
would not be owned by Tenet after the acquisition of OrNda. The
complaint further alleges that SLO General's long-term competitive
prospects are clouded by its need for major capital improvements,
including construction required to bring the hospital into compliance
with stringent new state earthquake safety standards.
As stated in the complaint, the proposed acquisition would
eliminate competition between Tenet and OrNda, and significantly
increase the already high level of concentration for inpatient acute
care hospital services in San Luis Obispo County. The complaint also
alleges that the proposed merger would increase the market share of
Tenet, already the leading provider of inpatient acute care hospital
services in the Tri-Cities area, to over 71%, an increase of at least
17% above its existing market share. The complaint further alleges
that, as measured by the Herfindahl-Hirschman Index (``HHI''), market
concentration would increase more than 2000 points to a post-
acquisition level of over 5000. The HHI is a measure of market
concentration used by the Federal antitrust enforcement agencies to
estimate, in conjunction with information on other market factors, the
likelihood that a merger would endanger competition. As explained in
the 1992 Merger Guidelines, the Federal antitrust enforcement agencies
consider markets with HHI levels above 1800 (on a scale of 0 to 10,000)
to be ``highly concentrated,'' and, where the post-merger HHI would
exceed 1800, presume that a merger producing an increase in the HHI of
more than 100 points is likely to significantly lessen competition
(unless factors other than market concentration indicate that the
merger presents no significant threat to competition).
According to the complaint, it is unlikely that entry into San Luis
Obispo County by a new acute care hospital will prevent or remedy any
anticompetitive price increases or other effects resulting from the
acquisition. This is due to, among other factors, the lengthy lead
times required to build new hospitals in the relevant market, such as
those required by California's requirements for advance review of
hospital building plans.
The complaint alleges that the proposed acquisition may:
substantially lessen competition for inpatient acute care hospital
services in San Luis Obispo County; result in less favorable prices and
other terms for health plans that contract for such services in the
county; increase the possibility of collusion or interdependent
coordination by the remaining market competitors; deny patients,
physicians, third-party payers, and other consumers of inpatient acute
care hospital services, the benefits of free and open competition based
on price, quality, and service; and deny the opportunity for the San
Luis Obispo County government to purchase, on competitive terms, the
hospital care it must provide to certain indigent County residents, as
a potentially less costly alternative to providing those services at
SLO General.
The Proposed Consent and Hold Separate Agreements
The consent order, if issued in final form by the Commission, would
require Tenet to divest French and related OrNda assets, after Tenet
acquires OrNda. These assets include, among others, OrNda's interests
in a surgery center, two urgent care centers, and two medical office
buildings in San Luis Obispo County.
Tenet would also be required to divest OrNda's holdings of about
one-third of the stock of, and also a short-term loan agreement with,
Monarch Health Systems (``Monarch'). Monarch is an integrated health
delivery system, operating in San Luis Obispo and Santa Barbara
Counties. Monarch has a long-term exclusive contract with French,
through which French receives a large percentage of its patients. As
part of the Agreement to Hold Separate accompanying the proposed order,
Tenet has agreed--effective immediately--to place OrNda's stock in
Monarch into a voting trust, and take other measures designed to
prevent Tenet from exercising influence or control over Monarch,
pending divestiture of the Monarch stock and loan agreement. These
measures are to prevent Tenet from using the Monarch stock and loan
agreement to damage French's business relationship with Monarch, and
thereby lessen French's competitiveness and viability.
Under the terms of the proposed order, Tenet must make the
foregoing divestitures to an acquirer, and in a manner, approved by the
Commission. (However, Tenet may divest the Monarch stock to someone
other than the purchaser of French, and if Monarch is bought in its
entirety by a third party, Tenet need not obtain prior approval to
divest its Monarch stock to Monarch's new owner.) The approval
requirement allows the Commission to make sure that Tenet's
divestitures fulfill their purpose, of ensuring the continuation of
[[Page 5420]]
French as an ongoing, independent, and viable acute care hospital, and
remedying the lessening of competition resulting from Tenet's
acquisition of OrNda.
The divestitures must be completed by August 1, 1997; otherwise,
Tenet will consent to the appointment of a trustee, who will have
twelve additional months to effect the divestitures. If Tenet does not
complete a Commission-approved divestiture of French by August 1, 1997,
the Commission may appoint a trustee to complete that divestiture. The
trustee may divest not only French and related assets, but also OrNda's
Valley Community Hospital in Santa Maria, south of San Luis Obispo
County, and certain assets relating to Valley, if the additional
hospital and assets turn out to be necessary for a successful
divestiture of French.
The Agreement to Hold Separate executed in conjunction with the
consent agreement requires Tenet, effective immediately, to maintain
French, Valley, the Monarch stock and loan agreement, and related
assets separate from Tenet's other operations until the completion of
the divestitures, or as otherwise specified. The Agreement to Hold
Separate also requires Tenet to comply with the provisions of the
proposed consent order, pending its final approval by the Commission.
To assure the complete independence and viability of French and
Valley hospitals, and related assets, the Hold Separate Agreement
requires Tenet to transfer control of those assets to a three-member
board (only one of whom will be a Tenet employee), and to ensure that
no competitive information is exchanged between Tenet and those assets.
(The Hold Separate Agreement's provisions relating to the Monarch stock
have been described above.) Under the Hold Separate Agreement, Tenet
may not exercise any direction, control, or influence over the assets
to be held separate, except as necessary to ensure compliance with the
Consent Order and the Hold Separate Agreement, and to ensure the
continued viability, competitiveness, and marketability of those
assets.
For ten years after the order is made final, the proposed consent
order would prohibit Tenet from combining (through purchase, sale,
lease, or otherwise) its acute care hospitals in San Luis Obispo County
with any other acute care hospital in that area, or from acquiring
Monarch stock, without prior notice to the Federal Trade Commission.
Tenet must provide such notice in accordance with procedures similar to
those governing premerger notifications required by Section 7A of the
Clayton Act, 15 U.S.C. 18a (unless the merger is already subject to
section 7A's requirements, in which case no notice is necessary over
and above that provided pursuant to section 7A). The order provision
supplements section 7A, to ensure that the Commission receives advance
notice of potentially significant Tenet mergers in the relevant market,
and to thereby give the Commission an opportunity to block any such
merger if it can demonstrate that the merger may substantially lessen
competition. The proposed order contains certain limited exceptions to
the prior notification requirement for transactions which are unlikely
to substantially lessen competition, such as for transactions under $1
million.
The proposed consent order also contains provisions concerning its
continued application to future owners of French and of Tenet's acute
care hospitals in San Luis Obispo County. The acquirer of French,
pursuant to the divestiture called for by the order, must agree not to
transfer the hospital, for ten years from the date of the order,
without prior notice to the Commission, to any person already operating
an acute care hospital in San Luis Obispo County. In addition, the
order would prohibit Tenet for ten years from transferring an acute
care hospital facility in San Luis Obispo County, other than French
(e.g., Sierra Vista or Twin Cities) to another person, unless the
acquiring person first files with the Commission an agreement to be
bound by the order.
The purpose of this analysis is to invite public comment concerning
the proposed order, and to assist the Commission in its determination
of whether to make the order final. This analysis is not intended to
constitute an official interpretation of the agreement or to modify its
terms in any way.
Donald S. Clark,
Secretary.
[FR Doc. 97-2810 Filed 2-4-97; 8:45 am]
BILLING CODE 6750-01-P