Local Health System, Inc., et al; Proposed Consent Agreement With Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 941-0076]

Local Health System, Inc., et al; Proposed Consent Agreement With

Analysis To Aid Public Comment

AGENCY: Federal trade commission.

ACTION: Proposed consent agreement.

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SUMMARY: In settlement of alleged violations of federal law prohibiting

unfair acts and practices and unfair methods of competition, this

consent agreement, accepted subject to final Commission approval, would

prohibit the merger of the two largest hospitals in St. Clair County,

Michigan and would require the hospitals, for a limited time, to notify

the Commission or obtain Commission approval before acquiring certain

hospital assets in the Port Huron, Michigan area.

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

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

Room 159, 6th St. and Pa. Ave., NW, Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:Phillip L. Broyles, Cleveland Regional

Office, Federal Trade Commission, 668 Euclid Avenue, Suite 520-A,

Cleveland, OH 44114. (216) 522-4207.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and section 2.34 of

the Commission's rules of practice (16 CFR 2.34), notice is hereby

given that the following consent agreement containing a consent order

to cease and desist, having been filed with and accepted, subject to

final approval, by the Commission, has been placed on the public record

for a period of sixty (60) days. Public comment is invited. Such

comments or views will be considered by the Commission and will be

available for inspection and copying at its principal office in

accordance with Sec. 4.9(b)(6)(ii) of the Commission's rules of

practice (16 CFR 4.9(b)(6)(ii)).

[File No. 941-0076]

Agreement Containing Consent Order

In the matter of LOCAL HEALTH SYSTEM, INC., a corporation, BLUE

WATER HEALTH SERVICES CORP., a corporation, and MERCY HEALTH

SERVICES, a corporation.

The Federal Trade Commission (``Commission''), having initiated an

investigation of the proposed acquisition by Local Health System, Inc.

(``Local Health''), of certain assets of Mercy Hospital Port Huron

(``Mercy-Port Huron'') from Mercy Health Services (``Mercy Health''),

and of certain assets of Port Huron Hospital from Blue Water Health

Services Corporation (``Blue Water Health''), and

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it now appearing that Local Health, Mercy Health and Blue Water Health,

hereinafter sometimes referred to as ``Proposed Respondents,'' are

willing to enter into an agreement containing an order to cease and

desist from making certain acquisitions, and providing for other

relief:

It is hereby agreed by and between Proposed Respondents, by their

duly authorized officers and attorneys, and counsel for the Commission

that:

1. Proposed Respondent Local Health is a corporation organized,

existing and doing business under and by virtue of the laws of the

State of Delaware, with its office and principal place of business

located at 1001 Kearney Street, Port Huron, Michigan 48060.

2. Proposed Respondent Mercy Health is a corporation organized,

existing and doing business under and by virtue of the laws of the

State of Michigan, with its office and principal place of business

located at 34605 Twelve Mile Road, Farmington, Hills, Michigan 48331.

3. Proposed Respondent Blue Water Health is a corporation

organized, existing and doing business under and by virtue of the laws

of the State of Michigan, with its office and principal place of

business located at 1001 Kearney Street, Port Huron, Michigan 48060.

4. Proposed Respondents admit all the jurisdictional facts set

forth in the draft of complaint.

5. Proposed Respondents waive:

a. Any further procedural steps;

b. The requirement that the Commission's decision contain a

statement of findings of fact and conclusions of law;

c. All rights to seek judicial review or otherwise to challenge or

contest the validity of the Order entered pursuant to this agreement;

and

d. Any claim under the Equal Access to Justice Act.

6. This agreement shall not become part of the public record of the

proceeding unless and until it is accepted by the Commission. If this

agreement is accepted by the Commission it, together with the draft of

complaint contemplated thereby, will be placed on the public record for

a period of sixty (60) days and information in respect thereto publicly

released. The Commission thereafter may either withdraw its acceptance

of this agreement and so notify the Proposed Respondents, in which

event it will take such action as it may consider appropriate, or issue

and serve its complaint (in such form as the circumstances may require)

and decision, in disposition of the proceeding.

7. This agreement is for settlement purposes only and does not

constitute an admission by Proposed Respondents that the law has been

violated as alleged in the draft of complaint, or that the facts as

alleged in the draft complaint, other than jurisdictional facts, are

true.

8. This agreement contemplates that, if it is accepted by the

Commission, and if such acceptance is not subsequently withdrawn by the

Commission pursuant to the provisions of Sec. 2.34 of the Commission's

rules, the Commission may, without further notice to the Proposed

Respondents, (1) issue its complaint corresponding in form and

substance with the draft of complaint and its decision containing the

following Order to cease and desist in disposition of the proceeding

and (2) make information public with respect thereto. When so entered,

the Order to cease and desist shall have the same force and effect and

may be altered, modified or set aside in the same manner and within the

same time provided by statute for other orders. The Order shall become

final upon service. Delivery by the U.S. Postal Service of the

complaint and decision containing the agreed-to Order to Proposed

Respondents' addresses as stated in this agreement shall constitute

service. Proposed Respondents waive any right they may have to any

other manner of service. The complaint may be used in construing the

terms of the Order, and no agreement, understanding, representation, or

interpretation not contained in the Order or the agreement may be used

to very or contradict the terms of the Order.

9. Proposed Respondents have read the proposed complaint and Order

contemplated hereby. Proposed Respondents understand that once the

Order has been issued, they will be required to file one or more

compliance reports showing that they have fully complied with the

Order. Proposed Respondents further understand that they may be liable

for civil penalties in the amount provided by law for each violation of

the Order after it becomes final.

Order

I

It is ordered that, as used in this Order, the following

definitions shall apply:

A. Local Health means Local Health System, Inc., its predecessors,

subsidiaries, divisions, and groups and affiliates controlled by Local

Health System, Inc.; their directors, officers, employees, agents, and

representatives; and their successors and assigns.

B. Mercy Health means Mercy Health Services, its predecessors,

subsidiaries, divisions, and groups and affiliates controlled by Mercy

Health Services; their directors, officers, employees, agents, and

representatives; and their successors and assigns.

C. Blue Water Health means Blue Water Health Services Corporation,

its predecessors, subsidiaries, divisions, and groups and affiliates

controlled by Blue Water Health Services Corporation; their directors,

officers, employees, agents, and representatives; and their successors

and assigns.

D. Respondents means Local Health, Mercy Health and Blue Water

Health, collectively and individually.

E. The Acquisition means the proposed acquisition of Port Huron

Hospital and Mercy Hospital Port Huron by Local Health pursuant to the

Memorandum of Understanding dated January 19, 1994.

F. Acute care hospital means a health facility, other than a

federally owned facility, having a duly organized governing body with

overall administrative and professional responsibility, and an

organized medical staff, that provides 24-hour inpatient care, as well

as outpatient services, and having as a primary function the provision

of inpatient services for medical diagnosis, treatment and care of

physically injured or sick persons with short-term or episodic health

problems or infirmities.

G. To operate an acute care hospital means to own, lease, manage or

otherwise control or direct the operations of an acute care hospital,

directly or indirectly.

H. Affiliate means any entity whose management and policies are

controlled in any way, directly or indirectly, by the person with which

it is affiliated.

I. Person means any natural person, partnership, corporation,

company, association, trust, joint venture or other business or legal

entity, including any governmental agency.

J. Greater Port Huron means the area consisting of the cities of

Port Huron, Marysville, Kimball Township, Port Huron Township and Fort

Gratiot, Michigan.

K. Commission means the Federal Trade Commission.

II

It is further ordered that, unless they have already done so,

Respondents shall, no later than seven (7) days after the date this

Order becomes final: (1) Terminate any agreement that provides for or

contemplates the Acquisition; (2) return or destroy all documents

containing or recording confidential

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information provided to Respondents by any other person in connection

with negotiations or agreements relating to the Acquisition; and (3)

recover from any other person or have such other person destroy all

documents containing or recording confidential information provided by

Respondents to such other person in connection with negotiations or

agreements relating to the Acquisition.

III

It is further ordered that, for a period of three (3) years from

the date this Order becomes final, no Respondent shall, without prior

approval of the Commission, directly or indirectly, through

subsidiaries, partnerships or otherwise:

A. Acquire any majority or other controlling stock, share capital,

equity or other interest in any other Respondent that operates any

acute care hospital facility in Greater Port Huron;

B. Acquire a majority of any assets of any acute care hospital

facility operated by any other Respondent in Greater Port Huron;

C. Enter into any agreement or other arrangement to obtain direct

or indirect ownership, management or control of any acute care hospital

facility operated by any other Respondent in Greater Port Huron,

including but not limited to, a lease of or management contract for any

such acute care hospital facility, or an agreement to replace an acute

care hospital facility operated by another person with an acute care

hospital to be operated by any Respondent;

D. Acquire or otherwise obtain the right to designate, directly or

indirectly, a majority of the directors or trustees of any acute care

hospital facility operated by any other Respondent in Greater Port

Huron; or

E. Permit any acute care hospital it operates in Greater Port Huron

to be acquired (by stock acquisition, asset acquisition, lease,

management contract, establishment of a replacement facility, right to

designate directors or trustees or otherwise) by any other Respondent

that operated, or will operate immediately following such acquisition,

any other acute care hospital in Greater Port Huron.

IV

It is further ordered that, for a period of ten (10) years from the

date this Order becomes final, no Respondent shall, without providing

advance written notification to the Commission, directly or indirectly,

through subsidiaries, partnerships, or otherwise:

A. Acquire any stock, share capital, equity or other interest in

any person who operates any acute care hospital facility in Greater

Port Huron;

B. Acquire any assets of any acute care hospital facility in

Greater Port Huron;

C. Enter into any agreement or other arrangement to obtain direct

or indirect ownership, management or control of any acute care hospital

facility or any part thereof in Greater Port Huron, including but not

limited to, a lease of or management contract for any such acute care

hospital facility, or an agreement to replace an acute care hospital

facility operated by another person with an acute care hospital

facility to be operated by any Respondent;

D. Acquire or otherwise obtain the right to designate, directly or

indirectly, directors or trustees of any acute care hospital facility

in Greater Port Huron; or

E. Permit any acute care hospital it operates in Greater Port Huron

to be acquired (in whole or in part, by stock acquisition, asset

acquisition, lease, management contract, establishment of a replacement

facility, right to designate directors or trustees, or otherwise) by

any person who operates, or will operate immediately following such

acquisition, any other acute care hospital in Greater Port Huron.

Said notification shall be given on the Notification and Report

Form set forth in the appendix to part 803 of title 16 of the Code of

Federal Regulations as amended (hereinafter referred to as ``the

Notification''), and shall be prepared and transmitted in accordance

with the requirements of that part, except that no filing fee will be

required for any such notification, notification need not be made to

the United States Department of Justice, and notification is required

only of Respondents and not of any other party to the transaction.

Respondents shall provide the Notification to the Commission at least

thirty days prior to acquiring any such interest (hereinafter referred

to as the ``first waiting period''). If, within the first waiting

period, representatives of the Commission make a written request for

additional information, Respondents shall not consummate the

acquisition until twenty days after substantially complying with such

request for additional information. Early termination of the waiting

periods in this paragraph may be requested and, where appropriate,

granted in the same manner as is applicable under the requirements and

provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976,

15 U.S.C. 18a.

Provided, however, that prior notification shall not be required by

this Paragraph IV of this Order for:

1. The establishment by a Respondent of a new acute care hospital

facility that is a replacement for that Repondent's existing acute care

hospital facility;

2. The establishment by a Respondent of a new acute care hospital

that is not a replacement for any other acute care hospital facility in

Greater Port Huron;

3. Any transaction otherwise subject to this Paragraph IV of this

Order if the fair market value of (or, in the case of a purchase

acquisition, the consideration paid for) the acute care hospital

facility or part thereof to be acquired does not exceed one million

dollars ($1,000,000);

4. Any transaction otherwise subject to this Paragraph IV of this

Order if the acquisition is pursuant to a joint venture which is to

engage in no activities other than the provision of the following

services: Laundry; data processing; joint ownership and management of

inventory; materials management; billing and collection; dietary;

industrial engineering management; printing; security; records

management; laboratory testing; support services for charitable

foundations; or personnel education, testing or training; or

5. Notification is required to be made, and has been made, pursuant

to Section 7A of the Clayton Act, 15 U.S.C. 18a, or prior approval by

the Commission is required, and has been granted pursuant to Paragraph

III of this Order.

V

It is further ordered that, for a period of ten (10) years from the

date this order becomes final, Respondents shall not permit all or any

substantial part of any acute care hospital they operate in Greater

Port Huron to be acquired (in whole or in part, stock acquisition,

asset acquisition, lease, management contract, establishment of a

replacement facility, right to designate directors or trustees or

otherwise) by any other person unless the acquiring person fields with

the Commission, prior to the closing of such acquisition, a written

agreement to be bound by the provisions of this Order, which agreement

Respondents shall require as a condition precedent to the acquisition.

VI

It is further ordered that:

A. Within sixty (60) days of the date this Order becomes final,

each Respondent shall file a verified written report with the

Commission setting forth in detail the manner and form in which it has

complied and is complying with Paragraph II of this order; and

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B. One (1) year from the date this Order becomes final, annually

for the next nine (9) years on the anniversary of the date this Order

becomes final, and at such other times as the Commission may require,

each Respondent shall file a verified written report with the

Commission setting forth in detail the manner and form in which it has

complied and is complying with Paragraphs III, IV and V of this Order.

VII

It is further ordered that Respondents shall notify the Commission

at least thirty (30) days prior to any proposed change in the corporate

Respondents that may affect compliance obligations arising out of the

Order, such as dissolution, assignment, sale resulting in the emergence

of a successor corporation, or the creation or dissolution of

subsidiaries.

VIII

It is further ordered that, for the purpose of determining or

securing compliance with this Order, upon reasonable notice to

Respondents, Respondents shall permit, for a period of ten (10) years

from the date this Order becomes final, any duly authorized

representative of the Commission:

A. Reasonable access, during office hours and in the presence of

counsel, to inspect and copy all books, ledgers, accounts,

correspondence, memoranda and other records and documents in the

possession or under the control of Respondents relating to any matters

contained in this Order; and

B. Upon five days' notice to Respondents and without restraint or

interference from them, to interview officers, directors, or employees

of Respondents, who may have counsel present.

Analysis of Proposed Consent Order To Aid Public Comment

The Federal Trade Commission (``the Commission'') has accepted,

subject to final approval, an agreement containing a proposed consent

order from Local Health System, Inc. (``Local Health''), Blue Water

Health Services Corp. (``Blue Water Health'') and Mercy Health Services

(``Mercy Health''). The proposed consent order has been placed on the

public record for sixty (60) days for reception of comments by

interested persons. Comments received during this period will become

part of the public record. After sixty (60) days, the Commission will

again review the agreement and the comments received and will decide

whether it should withdraw from the agreement or make final the

agreement's proposed order.

The Commission's investigation of this matter concerns the

acquisition of Port Huron Hospital, a general acute care hospital owned

and operated by Blue Water Health, and Mercy Hospital-Port Huron

(``Mercy Hospital''), a general acute care hospital owned and operated

by Mercy Health, by Local Health. Port Huron Hospital and Mercy

Hospital are the only general acute care hospitals in Port Huron,

Michigan. In its administrative complaint, the Commission alleges,

among other things, that the market for acute care inpatient hospital

services in greater Port Huron is highly concentrated and would become

substantially more concentrated as a result of the acquisitions. The

Commission also alleges that it has reason to believe that the

acquisitions would have anticompetitive effects and would violate

section 7 of the Clayton Act. The agreement containing consent order

would, if finally accepted by the Commission, settle charges that the

acquisitions may substantially lessen competition in the delivery of

acute care inpatient hospital services in greater Port Huron.

The order, accepted for public comment, contains provisions

requiring Local Health, Blue Water Health and Mercy Health to terminate

any and all agreements that provide for the acquisition of Port Huron

Hospital and Mercy Hospital by Local Health.

For a period of three years from the date the order becomes final,

the order prohibits Local Health, Blue Water Health and Mercy Health

from acquiring, without prior Commission approval, a majority or

controlling share of stock or other interests in, each other; or a

majority of the assets of any acute care hospital facility operated in

Greater Port Huron by either of the other companies named in the order.

For a period of ten years from the date the order becomes final,

the order prohibits Local Health, Blue Water Health and Mercy Health

from acquiring, without providing the Commission prior written notice,

stock or assets of, or interests in any general acute care hospital

facility in Greater Port Huron. If the Commission requests additional

information regarding any acquisition for which prior notice is

required, the order prohibits Local Health, Blue Water Health and Mercy

Health from completing the acquisition until twenty days after they

have provided substantially all of the information requested by the

Commission.

The purpose of this analysis is to facilitate public comment on the

proposed order, and it is not intended to constitute an official

interpretation of the agreement and proposed order or to modify in any

way their terms.

Donald S. Clark,

Secretary.

Dissenting Statement of Commissioner Mary L. Azcuenaga in Local Health

System, Inc., File 941-0076

Not having found reason to believe that the proposed merger of Port

Huron Hospital and Mercy Hospital would be unlawful, I do not support

the proposed complaint and consent order.

Concurring Statement of Commissioner Roscoe B. Starek, III

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

0076.

In deciding whether to vote for acceptance of the agreement

containing consent order negotiated by the staff, I have evaluated with

particular care the prior approval and prior notice provisions of the

proposed order. The prior approval provisions (para. III) requires each

respondent, for three years, to obtain the Commission's approval before

entering into any transaction that in essence would renew the Port

Huron Hospital/Mercy Hospital merger that gave rise to this case. Under

the prior notice requirement (para. IV), a respondent must furnish

notice to the Commission--largely along the lines of the Hart-Scott-

Rodino premerger notification program--in advance of certain

acquisitions and other transactions involving acute care hospitals in

``Greater Port Huron'' (an area consisting of five Michigan cities).

I have previously expressed my serious reservations about imposing

a prior approval requirement on parties that have abandoned a

challenged transaction.\1\ Those reservations rest primarily on two

foundations. The first is the moral neutrality of mergers and

acquisitions--and therefore the dubious appropriateness of prior

approval as a form of ``merger probation.'' The second is the

superfluity--if not the downright excessiveness--of imposing a prior

approval requirement on parties that will have to observe the notice

and waiting requirements of section 7A of the Clayton Act \2\ if they

wish to undertake the same (or another competitively questionable)

transaction in the future. Indeed, even when future acquisitions are

likely to be competitively troublesome but not reportable pursuant to

Section 7A, I

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would favor a prior notice-and-wait obligation--rather than a prior

approval power--with regard to those transactions.\3\

\1\ See, e.g., ``Reinventing Antitrust Enforcement? Antitrust at

the FTC in 1995 and Beyond,'' Remarks of Commissioner Roscoe B.

Starek, III, Marina del Rey, California (Feb. 24, 1995).

\2\ 15 U.S.C. 18a.

\3\ ``Reinventing Antitrust Enforcement? Antitrust at the FTC in

1995 and Beyond,'' supra note 1, at 21-22.

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Despite my general inclination to believe a broad prior approval

provision unwarranted when the parties have abandoned their planned

transaction (as they did here), acceptance of a narrowly tailored prior

approval provision is appropriate in the special circumstances of this

case, Paragraph III of the proposed order merely requires respondents

to seek prior Commission approval, over a three-year period, for

essentially the same transaction that the Commission challenged in the

first place. Given that a renewed Port Huron/Mercy consolidation would

be likely to raise the same antitrust concerns, this narrow prior

approval requirement is neither punitive nor redundant.

I also find acceptable the proposed order's 10-year prior

notification requirement. This provision pertains only to (1)

transactions in the narrowly defined ``Greater Port Huron'' that (2)

exceed $1 million yet (3) would not be reportable pursuant to Section

7A.\4\ Where the Commission finds reason to believe that an acquisition

would violate section 7, I consider it appropriate to require the

respondent for some period of time to notify the Commission in advance

of any proposed significant acquisitions in the relevant market that

are not reportable under section 7A. That is all that Paragraph IV

provides.

\4\ The third and fifth provisos to Paragraph IV, respectively,

set forth the latter two limitations on the prior notification

requirement.

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[FR Doc. 95-19112 Filed 8-2-95; 8:45 am]

BILLING CODE 6750-01-M