Healthtrust, Inc.The Hospital Company; Proposed Consent Agreement With Analysis to Aid Public Comment

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