Can Cleveland Clinic Health System be trusted: whether a proposed merger or acquisition by Cleveland Clinic Health System will substantially impair the competitive health care market in Northeast Ohio resulting in a violation of federal antitrust statutes

Journal of Law and Health, Spring, 2002 by Matthew T. Polito

I. INTRODUCTION

II. OVERVIEW OF THE RELEVANT
    ANTITRUST LAWS
    A. The Sherman Act
       1. Discussion of the Rule
          of Reason
       2. Application of the Per Se
          Rule
    B. The Clayton Act
       1. Discussion of Seminal Antitrust
          Case: Brown Shoe Co. v. United States
       2. Eight Factors Established by
          Brown Shoe Co. v. United States
       3. Application of Section 7 of the
          Clayton Act to Not-For-Profit Hospitals

III. THE GOVERNMENT'S PRIMA FACIE CASE
     A. Definition of the Relevant Market
        1. Relevant Product Market
        2. Relevant Geographic Market
           a. Elzinga-Hogarty Two-Part Test
        3. Market Concentration

IV. CLEVELAND CLINIC HEALTH SYSTEM
    (CCHS) AND ITS SUBSIDIARIES
    A. CCHS Affiliates
    B. Major Competitors
    C. Recent Developments

V. ANALYSIS AND APPLICATION OF
   CURRENT LAW TO A POTENTIAL
   ACQUISITION BY CCHS OF ANOTHER
   LOCAL AREA HOSPITAL

VI. CONCLUSION

"It cannot be helped, it is as it should be, that the law is behind the times." (1)

I. INTRODUCTION

Changes in the health care industry and increasing costs of health care create incentives for hospitals to consider hospital mergers. From 1981 to 1991, as many as 195 hospitals underwent mergers. (2) The next decade demonstrated a drastic upsurge of hospital mergers, from 18 in 1993 to 735 in 1995. (3) This rise in mergers may stem from economic reasons, but also may be attributable to the federal government's difficulties in enjoining such mergers under the antitrust laws. This article will demonstrate that Cleveland Clinic Health System's (CCHS) recent mergers and acquisitions have increased market concentration, giving CCHS undue market control, and triggering serious antitrust concerns justifying further investigation by the Federal Trade Commission (FTC).

A network of not-for-profit hospitals, CCHS provides acute-care health care services to Northeast Ohio. CCHS claims that its mergers and hospital combinations create a service for the people of Northeast Ohio with which no other health system in the area can compete. (4) CCHS consists of Euclid Hospital, Fairview Hospital, Hillcrest Hospital, Huron Hospital, Lakewood Hospital, Lutheran Hospital, Marymount Hospital, South Pointe Hospital, Cleveland Clinic Children's Hospital Rehabilitation, and The Cleveland Clinic. (5) Also affiliated with CCHS are Ashtabula County Medical Center and Grace Hospital. (6) These hospital affiliates take part in numerous programs provided by CCHS, but have not yet been legally merged into CCHS. (7)

This article analyzes the implications of the Clayton Antitrust Act (8) (Clayton Act) and the Sherman Antitrust Act (9) (Sherman Act) as they pertain to the CCHS. Part One provides background analysis of these two statutes, and the application of those statutes to mergers in the health care industry. Part Two discusses the elements needed to prove the government's prima facie case. This consists of a discussion of a relevant market, which includes the product and geographic markets. This section also contains a description and analysis of market concentration, measured by the Herfindahl-Hirschman Index (HHI). Part Three provides further background information on the CCHS hospital affiliates, and discusses CCHS' recent acquisition activities. Part Four analyzes whether these recent activities amount to a violation of antitrust laws, warranting further investigation by the FTC. This section also provides a description and analysis of two possible defenses that CCHS may raise.

II. OVERVIEW OF THE RELEVANT ANTITRUST LAWS

Antitrust laws, in general, help to maintain a competitive market, and in turn protect the consumer from unwarranted price increases, (10) The Federal Trade Commission (FTC) and the Department of Justice (DOJ) are the federal agencies charged with enforcing the Clayton Act (11) and the Sherman Act. (12) These two statutes preserve competition and protect consumers from unfair price increases. (13) Similarly, the antitrust laws afford protection to existing competitors as well as potential competitors attempting to enter the market. (14)

A. The Sherman Act

In 1890, Congress passed the Sherman Act, the first federal antitrust statute enacted in the United States. (15) Its purpose is to prevent competitors from creating monopolies through mergers, thus driving up prices. (16) The framers of the Sherman Act did not intend to restrain competent business decisions of any given company or individual, absent the intent to monopolize. (17) The Sherman Act allows for a great deal of freedom to contract or otherwise, absent the intent to monopolize, but collaborative action through combinations and mergers raises a different problem. The Act prohibits such action when it tends to lessen or destroy competition in any given market, to which the consumer has sought protection. (18) This gives companies the ability to exercise business judgment without being concerned about potential violations of the antitrust laws. As long as these decisions are not for the purpose of monopolizing then the company in question is exempt from prosecution under the Sherman Act. (19) In 1890, Congress intended to use the Commerce Clause of the United States Constitution to its full potential to have it reach the substantive prohibitions of the Sherman Act, thus creating a competitive business market under the fullest use of Congressional power permitted by the Constitution to regulate interstate and foreign commerce. (20)