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

DEPARTMENT OF JUSTICE

Antitrust Division

United States and State of Florida v. Morton Plant Health System,

Inc. and Trustees of Mease Hospital, Inc.; Public Comments and Response

on Proposed Final Consent Judgment

Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C.

16(b)-(h), the United States publishes below the comments received on

the proposed Final Consent Judgment in United States and State of

Florida v. Morton Plant Health System, Inc., and Trustees of Mease

Hospital, Inc. Civil No. 94-748-CIV-T-23E, United States District Court

for the Middle District of Florida, together with the United States'

response to the comments.

Copies of the public comments and the response are available on

request for inspection and copying in Room 3235 of the Antitrust

Division, U.S. Department of Justice, Tenth Street and Pennsylvania

Avenue, NW., Washington, DC 20530, and at the Office of the Clerk of

the United States District Court for the Middle District of Florida,

United States Courthouse, 611 North Florida Avenue, Room B-100, Tampa,

Florida 33602.

Joseph H. Widmar,

Deputy Assistant Attorney General, Antitrust Division.

The United States' Response To Public Comments

Pursuant to Section 2(d) of the Antitrust Procedures and Penalties

Act, 15 U.S.C. 16(b)-(h) (the ``APPA''), the United States hereby

submits and responds to the public comments it has received regarding

the proposed Final Consent Judgment (``Judgment'') in this civil

antitrust proceeding.

This action began on May 5, 1994, when the United States and the

State of Florida filed a Verified Complaint alleging that the proposed

consolidation of Morton Plant Health System, Inc. and Trustees of Mease

Hospital, Inc. would tend to substantially lessen competition in the

provision of acute inpatient hospital services in North Pinellas

County, Florida in violation of Section 7 of the Clayton Act, as

amended, 15 U.S.C. Sec. 18. On June 17, 1994, the parties filed a

Stipulation and a proposed Judgment, and on July 1, the United States

filed a Competitive Impact Statement regarding the proposed Judgment.

As explained in the Competitive Impact Statement, the proposed

Judgment permits Morton Plant and Mease to achieve cost savings by

consolidating some hospital and administrative services, but it enjoins

the proposed consolidation and requires Morton Plant and Mease to

continue competing in the provision of inpatient hospital services as

separate corporate entities, thus preserving that competition upon

which consumers have relied to reduce the cost of hospital care.

The APPA requires a sixty-day period for the submission of public

comments on the proposed Judgment [15 U.S.C. 16(b)]. The sixty-day

comment period expired on September 12, 1994. The United States

received two comments. The comments and the United States' response to

these comments are being published with this notice.\1\ What follows is

a brief summary of the comments and the United States' response.

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

\1\The comments and the individual responses are attached as

Exhibit 1.

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

1. The Textile Rental Services Association criticized language in

the proposed Judgment that, the Association claims, would authorize

Morton Plant and Mease to establish a tax-exempt joint venture to

provide hospital laundry services. Currently, such a venture would not

be tax-exempt. The United States' response to this comment points out

that, in drafting the proposed Judgment, the parties did not intend to

create any new federal or state tax exemption. Morton Plant and Mease

confirmed in writing that they neither intend, nor will they interpret,

the proposed Judgment to provide them with any such tax-exemption.

In our view, the parties' written commitment that they will not

interpret the proposed Judgment as creating or providing any new

federal or state tax exemption fully meets the Textile Rental Services

Association's concern that the Judgment could be read to provide such

tax relief. A key point, however, is that the criticism about the tax

consequences of the proposed Judgment is entirely unrelated to the key

issue before the Court: the effectiveness of the Judgment in remedying

the antitrust violation alleged in the Complaint.

2. Ms. Ann E. Castro, who represents an employment agency for

temporary nurses, criticized provisions of the proposed Judgment that

would permit Morton Plant and Mease to combine their purchases of

temporary nursing services. She believes that the hospitals' joint

venture might decide to purchase nursing services from foreign-born

nurses, who, she claims, typically charge less than the nurses her

client represents.

In response, the United States pointed out that purchasing nursing

services at lower prices is a legitimate, pro-competitive goal. A

reduction in Morton Plant's and Mease's costs for nursing services

would likely translate into lower charges for hospital care, and hence,

benefit health care consumers. Consequently, this criticism does not

warrant rejecting the proposed Judgment, but instead underscores its

salutory effect.

Dated: September 23, 1994.

Respectfully submitted,

Anthony E. Harris, Attorney, Antitrust Division U.S. Department of

Justice, Washington, D.C. 20001 (202) 307-0951

Exhibit 1

Galland, Kharasch Morse & Garfinkle, P.C.

Canal Square

1054 Thirty-First Street, NW.

Washington, DC. 20007-4496

(202) 342-5200

Telecopy: (202)342-5219, (202) 337-8787

August 9, 1994

VIA HAND DELIVERY

Ms. Gail Kursh

Chief, Professions and Intellectual Property Section

U.S. Department of Justice

Antitrust Division

555 4th Street, NW., Rm 9903

Washington, DC. 20001

Re: Public Comment on Proposed Final Consent Judgment, Stipulation

and Competitive Impact Statement in the matter of United States and

State of Florida v. Morton Plant Health System, Inc. and Trustees of

Mease Hospital, Inc., No. 94-748-CIV-T-23E (M.D. Fla., Filed May 5,

1994).

Dear Ms. Kursh:

This letter is filed on behalf of this firm's client, the

Textile Rental Services Association (``TRSA'') with respect to the

above-captioned action (the ``Stipulation''), in partial objection

to the terms of the Stipulation.

TRSA is a nonprofit trade association. Its mission is to

protect, promote, and professionalize the industry of its members,

which are companies engaged in textile maintenance and provision of

rental services to commercial, industrial and institutional

accounts. Members of TRSA account for about 90 percent of the annual

sales of the linen supply industry and about 75 percent of the sales

of the industrial laundering industry. The combined textile rental

industry had estimated 1993 sales of about $6 billion. Linen supply

and industrial laundering companies employ 110,000 people.

Article II, paragraph (G), and Article V, paragraph (B) of the

Stipulation, as published in the Wednesday, July 13, 1994 Federal

Register (59 Fed. Reg. 35,752, 35754) provide that Morton Plant

Health System (``Morton Plant'') and Trustees of Mease Hospital

(``Mease'') may form a ``nonprofit, tax-exempt organization'' which

``may own and operate any . . . Eligible Partnership Administrative

Service and may provide such service to Morton Plan and Mease.'' The

Stipulation defines ``Eligible Partnership Administrative Service''

to include, among other things, ``housekeeping and laundry''

services and ``all miscellaneous services not related to patient

care and not exceeding an expenditure of $250,000.00 annually.''

As is discussed in greater detail below, the implication in the

Stipulation that a tax-exempt organization may perform laundry

services is directly contrary to law, and the open-ended grant of

authority to perform ``miscellaneous services'' may be interpreted

in a manner which is inconsistent with law. TRSA objects to the

content and potential effect of these provisions.

The Supreme Court specifically ruled in HCSC-Laundry v. United

States, 450 U.S. 1,101 S.Ct. 836, 67 L.ED.2d 1 (1981) that a

``cooperative hospital service organization'' formed for the express

purpose of providing laundry services for two or more hospitals

(which were themselves tax-exempt organizations under Sec. 501(c)(3)

of the Internal Revenue Code) was not eligible for tax exempt

status. Section 501(e) of the Internal Revenue Code directly

addresses the capacity of a hospital service organization to qualify

for tax exempt status, and provides a list of services which such

qualified organizations can perform. Laundry services are not

expressly nor implicitly included in that list.\1\

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

\1\Section 501(e) provides, in pertinent part, as follows

(emphasis added):

For purposes of this title, an organization shall be treated as

an organization organized and operated exclusively for charitable

purposes if--(1) such organization is organized and operated

solely--(A) to perform, on a centralized basis, one or more of the

following services which, if performed on its own behalf by a

hospital which is an organization described in [Sec. 501(c)(3)] and

exempt from taxation under subsection (a), would constitute

activities in exercising or performing the purpose or function

constituting the basis for its exemption: data processing,

purchasing, warehousing, billing and collection, food, clinical,

industrial, engineering, laboratory, printing, communications,

record center and personnel (including selection, testing, training,

and education of personnel)

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

The petitioner in HCSC Laundry asserted that the list of

services in Sec. 501(e) was not intended as an exclusive list, and

that the service entity providing laundry services could qualify for

tax-exempt status under the general qualification standards of

Sec. 501(c)(3) applied to other companies. The Supreme Court

rejected the petitioner's argument, and upheld the Third Circuit's

ruling that compliance with Sec. 501(e) was, in fact, the only way

for a hospital service organization to attain tax-exempt status. The

Court noted that the omission of laundry services from Sec. 501(e)

by lawmakers in 1968 was not inadvertent, and that the inclusion of

laundry services was expressly considered and rejected in 1968

(during original legislative action), and 1976 (when an effort was

made to amend the law to include laundry services). 101 S. Ct. at

839.

We acknowledge that the issues before the District Court and the

Department of Justice, and the compromises contained in the

Stipulation, focus on antitrust and anticompetitive concerns and

that the Stipulation is not necessarily cognizant of federal income

tax implications. Nevertheless, the Stipulation implies a range of

authority which is inconsistent with current law, and we urge you to

revise the Stipulation to reflect current law on permissible tax-

exempt activities for hospital service organizations.

TRSA requests the opportunity to submit further comments or to

otherwise participate in any other proceeding concerning this

subject. Please contact the undersigned if you have any questions

regarding the foregoing, or if you need any further information.

Sincerely,

Steven John Fellman,

Counsel to the Textile Rental Services Association.

cc: Mr. John Burke,

Employee Plans and Exempt Organizations

Mr. J.C. Contney

Executive Director, Textile Rental Services Assn.

September 23, 1994

BY FACSIMILE AND U.S. MAIL

Steven John Fellman, Esquire

Galland, Kharasch, Morse & Garfinkle, P.C.

Canal Square

1054 31st Street, N.W.

Washington, D.C. 20007-4492

Re: Public Comment on Proposed Consent Decree in United States and

State of Florida v. Morton Plant Health Systems, Inc., et al., No.

94-748-CIV-T-23E (M.D. Fla., filed May 5, 1994)

Dear Mr. Fellman:

This letter responds to your recent letter, submitted on behalf

of the Textile Rental Service Association, commenting on the

possible tax ramifications of the joint venture that Morton Plant

Health System, Inc. and Trustees of Mease Hospital, Inc. are

permitted to establish under the terms of the proposed consent

decree in this case.

In your letter, your correctly point out that the proposed

decree authorizes Morton Plant and Mease to form a ``nonprofit, tax-

exempt organization'' that ``may own and operate [and provide to

Morton Plant and Mease] any * * * Eligible Partnership

Administrative Service,'' and that such services may include inter

alia, ``housekeeping and laundry'' services and ``all miscellaneous

services not related to patient care and not exceeding an

expenditure of $250,000 annually.'' Final Consent Judgment II (G)

and V(B). This language could be read to imply that the partnership

organized under the decree can perform laundry services and other

unspecified miscellaneous services and remain a ``nonprofit, tax-

exempt organization'' under federal tax laws.

However, current federal tax statutes and court decisions

interpreting them indicate that a ``cooperative hospitals service

organization'' formed to provide laundry services for two or more

non-profit hospital is not eligible for tax exempt status. HCSC-

Laundry v. United States, 450 U.S. 1, 6-8 (1981). It is also quite

possible that a joint venture formed by the hospitals to provide

other ``miscellaneous services not related to patient care''--and

not specifically listed as a tax-exempt service in Section 501(e) of

the Internal Revenue Code--would not be entitled to tax-exempt

status.

The United States certainly does not view this consent decree as

affording Morton Plant or Mease a new exemption from federal (or

state) taxes. Moreover, Morton Plant and Mease have provided written

assurances that they do not intend to interpret the consent decree

as providing an amendment to or exemption under any tax law. (A copy

of that written assurance from the hospitals' trial counsel is

enclosed.)

In short, the proposed consent decree is clearly not intended,

and should not be read, to alter or amend tax laws, rules, or

regulations, or to create any new tax exemptions or loopholes. In

order to qualify for tax-exempt status, the hospitals' joint venture

must satisfy any applicable tax regulations, not simply rely upon

the language of the proposed decree.

I trust that this responds to the concerns you have expressed.

Thank you for your keen interest in the enforcement of our federal

antitrust and tax laws.

Sincerely yours,

Anthony E. Harris,

Attorney, Professions & Intellectual Property Section.

Enclosure

cc: Mr. John Burke

Assistant Commissioner,

Employee Plans and Exempt Organizations

Internal Revenue Service.

Macfarlane Ausley Ferguson & McMullen

Attorneys and Counselors At Law

September 21, 1994

in reply refer to: Clearwater

ALSO SENT VIA FAX 1-202-514-1517

Anthony E. Harris, Esq.

Trial Counsel

U.S. Department of Justice

Antitrust Division

555-4th Street, N.W., Room 9901

Washington, DC 20001

Re: USA v. Morton Plant and Mease

Dear Tony:

It is my understanding that you requested written assurances in

reference to one of the comments received in relation to the Consent

Decree. In that regard, please accept this correspondence as my

clients' written assurance that they do not intend to violate the

tax laws in relation to implementation of this Consent Decree, nor

do they intend to claim any exemption to which they are not

entitled, nor did they intend, nor do they interpret the Consent

Decree to give them any additional exemptions not provided for in

the tax codes, federal or state. This matter has been reviewed by

appropriate tax counsel who are advising the entities accordingly.

If you have additional questions, please do not hesitate to call.

Sincerely,

James A. Martin, Jr.

JAM:knk

cc:

Mr. Frank V. Murphy

Mr. Phil Beauchamp

John P. Frazer, Esq.

Emil C. Marquardt, Jr., Esq.

Steve Kiess, Esq.

H:/DATA/ATY/JAM/MPH/MEASE/HARRIS LTR

Law Offices

Ann Elaine Castro P.A.

September 12, 1994

Ms. Gail Kursh

Chief, Professions and Intellectual Property Section

U.S. Department of Justice

Antitrust Division

555 4th Street, N.W.

Room 9903

Washington D.C. 20001

In Re: United States and State of Florida v. Morton Plant Health

System, Inc. and Trustees of Mease Hospital, Inc. No. 94-748-CIV-T-

23E (M.D., Fla., Filed May 5, 1994)

On behalf of my client, a nursing contractor doing business in

Pinellas County Florida, this public comment is being submitted as

there is considerable concern that the combination of Morton Plant

and Mease may substantially lessen competition in the provision of

health care services in North Pinellas County in violation of

Section 7 of the Clayton Act, 15 U.S.C. 18.

Specifically, the gravamen of my client's concern lies in the

suspicion that should the merger go forward, staff relief nurses and

other health care professionals will be injured. At 59 Fed. Reg.

357555 (July 13, 1994), Part VI (B) Independent Activities, the

Final Consent Judgment reads as follows:

Morton Plant and Mease shall each price and sell its services,

both those owned and operated and operated separately and those

purchased from the Partnership, in active competition with each

other. Morton Plant and Mease shall each exercise its own

independent judgment on how to market and price its patient care

services and shall not discuss, communicate, or exchange with each

other or any other hospital information relating to the marketing,

pricing, negotiating, or contracting of any patient care services,

including those purchased from the Partnership.

On information and belief Morton Plant has participated in

predatory pricing. Morton Plant together with nineteen of twenty-

three major hospitals in the Tampa Bay area previously engaged in

activities which set forth a federal anti-trust investigation. This

investigation was conducted in 1988-9 to look into alleged abuses by

the hospitals. An organization by the name of SASSA alleged that the

nineteen hospitals were acting in concert to attempt to eliminate

competition in the staff relief nurse industry throughout the Tampa

Bay area, and to drive prices below community standards for the

relief nurses.

Although the federal investigation of the anti-trust activities

ended when the hospitals dropped their plan, the hospitals have

continued to act in concert to try to eliminate competition in the

staff relief nurse industry and to drive prices below community

standards for the relief nurses. A new alliance was formed after the

1988-9 investigation called the Bay Area Hospital Council. (BAHC).

BAHC has actively recruited foreign nurses to supply area hospitals

with cheaper temporary nurses, and this collective activity has

further damaged the nursing contractor that this firm represents, as

the foreign relief nurses have been working for wages well below

community standards for temporary nurses.

Although Morton Plant has engaged in utilizing relief nurses on

H-1A nurses, Mease has not. The nursing contractor this firm

represents has been doing business with Mease, but had been doing no

business at all with Morton Plant, until the contractor would agree

to do business with Morton Plant at rates below community standards

for relief workers. This demand for cheaper rates commanded by

Morton Plant has still not translated into significant return of

business to the contractor who had historically provided Morton

Plant with a large portion of its staff relief nurses.

Should the merger go forward, there will certainly be an adverse

affect on staff relief nurses desiring to work in north Pinellas

County, in that their ability to work at Mease Hospital will be

uncertain, should Mease be influenced by the practices that Morton

Plant has adopted.

Further information has been supplied to Jerome Hoffman of the

Florida Attorney General's Office in Tallahassee, Florida.

Sincerely,

Ann Elaine Castro P.A.

September 23, 1994

BY FACSIMILE AND U.S. MAIL

Ann Elaine Castro, Esquire

Griffin Professional Building

1455 Court Street

Clearwater, Florida 34616

Re: Public Comment on Proposed Consent Decree in United States and

State of Florida v. Morton Plant Health System, Inc., et al., No.

94-748-CIV-T-23E (M.D. Fla., filed May 5, 1994)

Dear Ms. Castro:

This letter responds to your September 12, 1994 letter regarding

the potential impact of the proposed consent decree on competition

in the provision of temporary nursing services to Tampa Bay area

hospitals.

As I understand your concerns, your client is an employment

agency that supplies temporary nurses to hospitals in the Tampa Bay

area, including Mease. Apparently, your client has had difficulty

competing in the provision of nursing services because Morton Plant

and 19 other area hospitals, acting through a trade association, Bay

Area Hospital Association, actively recruit foreign-born nurses,

who, you say, are willing to work at temporary positions at much

cheaper rates than the nurses your client employs. You believe that

if Morton Plant and Mease combine their purchases of nursing

services, as they are permitted to do under the proposed consent

decree, their joint venture may elect to purchase the services of

foreign-born nurses, rather than continue doing business with your

client.

In our view, the concerns you have expressed provide no

justification for reconsidering the merits of the proposed decree.

First, the factual premise of your argument--that Morton Plant

favors the use of foreign-born temporary nurses--is suspect. There

is no evidence that Morton Plant, in fact, routinely fills temporary

nursing positions at its hospitals with lower-paid foreign-born

nationals. The materials you submitted to the Florida Attorney

General's Office in support of your complaint indicate that, as

recently as 1992, Morton Plant did not hire a single foreign

national as a temporary nurse.

Second, neither hospital is today precluded from hiring foreign-

born nurses to fill temporary positions, and there is no proper

basis for restricting the joint venture's hiring of foreign-born

nurses. Indeed, such employment discrimination is likely unlawful.

Finally, even if Morton Plant routinely fills temporary nursing

positions with lower-paid foreign nationals, and the hospital joint

venture organized pursuant to the decree adopts that practice and

expands it to Mease, paying less expensive rates for nursing

services is likely to have significant procompetitive effects. This

practice promises to reduce the cost of nursing care at these

hospitals, and it has not been suggested that that will lead to any

diminution in the quality of care. The reduction in nursing costs

will likely lead to a reduction in prices paid for hospital-related

services, precisely the pro-consumer result the parties anticipated

when they agreed to the settlement now pending before the Court.

I trust this information will help you to understand the basis

for the Department's action and the proposed settlement in this

matter. Thank you for sharing your views with us.

Sincerely yours,

Anthony E. Harris,

Attorney, Professions & Intellectual Property Section.

[FR Doc. 94-24213 Filed 9-29-94; 8:45 am]

BILLING CODE 4410-01-M