HEALTHSOUTH Rehabilitation Corporation; Proposed Consent Agreement With Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 951 0007]

HEALTHSOUTH Rehabilitation Corporation; 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, HEALTHSOUTH, an Alabama-based corporation,

to divest Nashville Rehabilitation Hospital and related assets in

Nashville, TN. within twelve months to a Commission approved entity. If

the divestiture is not completed on time, the Commission would be

permitted to appoint a trustee to complete the transaction. In

addition, the consent agreement would require HEALTHSOUTH to terminate

management contracts to operate rehabilitation units at Medical Center

East in Birmingham, AL. and Roper Hospital in Charleston, S.C. Also,

the consent agreement would require HEALTHSOUTH, for ten years, to

obtain Commission approval before merging, by acquisition, lease,

management contract or otherwise, any of its rehabilitation hospital

facilities in any of the three areas with any competing facilities in

those areas.

DATES: Comments must be received on or before March 28, 1995.

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

Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT: Mark Horoschak or Oscar Voss, FTC/S-

3115, Washington, D.C. 20580. (202) 326-2756 or 326-2750.

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 Section 4.9(b)(6)(ii) of the Commission's Rules of

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

In the matter of HEALTHSOUTH REHABILITATION CORPORATION, a

corporation,

Agreement Containing Consent Order

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

investigation of the proposed merger of ReLife, Inc. with HEALTHSOUTH

Rehabilitation Corporation (``HEALTHSOUTH''), and it now appearing that

HEALTHSOUTH, hereinafter sometimes referred to as ``proposed

respondent,'' 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. Proposed respondent HEALTHSOUTH 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 Two Perimeter Park South, Birmingham, Alabama 35243.

2. Proposed respondent admits all the jurisdictional facts set

forth in the draft of complaint.

3. 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 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 of complaint 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 and its decision containing the

following order to divest and to cease and desist in disposition of the

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

so entered, the order shall have the same [[Page 5402]] 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 respondent's address as stated in this agreement shall

constitute service. 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 the

agreement may be used to vary or contradict the terms of the order.

7. Proposed respondent has read the proposed complaint and order

contemplated hereby. 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.

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

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

definitions shall apply:

A. ``Respondent'' or ``HEALTHSOUTH'' means HEALTHSOUTH

Rehabilitation Corporation, its predecessors, subsidiaries, divisions,

and partnerships, joint ventures, groups, and affiliates controlled by

HEALTHSOUTH; their respective directors, officers, employees, agents,

and representatives; and their respective successors and assigns.

B. The ``Acquisition'' means the merger of ReLife, Inc. with

HEALTHSOUTH, pursuant to their merger agreement dated September 18,

1994.

C. ``Rehabilitation hospital facility'' means a hospital, or

distinct part thereof or unit therein with beds licensed as hospital

beds, that specializes in the provision of comprehensive, acute

inpatient medical rehabilitation care to patients requiring intensive,

multidisciplinary rehabilitation treatment programs, such as patients

suffering from stroke, head injury, spinal cord injury, amputation,

severe fractures, or neuromuscular diseases.

D. To ``acquire'' a rehabilitation hospital facility means to

directly or indirectly, through subsidiaries, partnerships, or

otherwise, acquire the whole or any part of the stock, share capital,

equity, or other interest in a person who operates the rehabilitation

hospital facility; acquire any assets of the rehabilitation hospital

facility; enter into any agreement or other arrangement to obtain

direct or indirect ownership, management, or control of the

rehabilitation hospital facility or any part thereof, including but not

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

rehabilitation hospital facility, or an agreement to replace the

rehabilitation hospital facility with a new rehabilitation hospital

facility to be operated by respondent; or acquire or otherwise obtain

the right to designate, directly or indirectly, directors or trustees

of any rehabilitation hospital facility.

E. To ``operate'' a rehabilitation hospital facility means to own,

lease, manage, or otherwise control or direct the operations of a

rehabilitation hospital facility, directly or indirectly.

F. ``Affiliate'' means any entity whose management and policies are

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

it is affiliated.

G. ``Relevant market area'' means each of the following areas:

1. The ``Birmingham metropolitan area,'' consisting of Blount,

Jefferson, St. Clair, and Shelby counties in Alabama;

2. The ``Charleston metropolitan area,'' consisting of Berkeley,

Charleston, and Dorchester counties in South Carolina; and

3. The ``Nashville metropolitan area,'' consisting of Cheatham,

Davidson, Dickson, Robertson, Rutherford, Summer, Williamson, and

Wilson counties in Tennessee.

H. ``Person'' means any natural person, partnership, corporation,

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

entity, including any governmental agency.

I. ``Commission'' means the Federal Trade Commission.

J. ``Material confidential information'' means competitively

sensitive or proprietary information not independently known to

respondent from sources other than the rehabilitation hospital facility

to which that information pertains, including but not limited to

customer lists, price lists, marketing methods, patents, technologies,

processes, or other trade secrets.

II

It is further ordered that:

A. Respondent shall divest, absolutely and in good faith, within

twelve (12) months of the date this order becomes final, all of its

rights, title, and interests in and to all tangible and intangible

assets, businesses, goodwill, properties, lands, licenses, and leases

relating to Nashville Rehabilitation Hospital, a general acute care

hospital in Nashville, Tennessee which contains a rehabilitation

hospital facility (``assets to be divested''). Respondent shall divest

the assets only to an acquirer or acquirers that receive the prior

approval of the Commission, and only in a manner that receives the

prior approval of the Commission, and only in a manner that receives

the prior approval of the Commission. Respondent may, but is not

required to, divest to said acquirer(s) the management contract under

which ReLife, Inc. operates the rehabilitation hospital facility at

Sumner Memorial Hospital in Gallatin, Tennessee, or otherwise transfer

operation of that facility to said acquirer(s), if Sumner Memorial

consents to the transfer. The purpose of the divestiture is to ensure

the continuation of the rehabilitation hospital facility of Nashville

Rehabilitation Hospital as an ongoing, viable rehabilitation hospital

facility, and to remedy the lessening of competition resulting from the

Acquisition as alleged in the Commission's complaint.

B. Respondent shall unconditionally terminate, absolutely and in

good faith, the following management contracts, and cease operating the

rehabilitation hospital facilities to which those contracts pertain:

1. By no later than October 1, 1995, the Rehabilitation Unit

Management Agreement between ReLife, Inc. and Roper Hospital, dated

December 6, 1991, under which ReLife operates the rehabilitation

hospital facility at Roper Hospital in Charleston, South Carolina; and

2. Within ninety (90) days of the date this order becomes final,

the Consulting Services Contract between HEALTHSOUTH Rehabilitation

Corp. and Medical Center East, Inc. dated January 1, 1990, as amended,

under which HEALTHSOUTH operates the rehabilitation hospital facility

at Medical Center East in Birmingham, Alabama.

Provided, however, that respondent may contract with Medical Center

East to provide to that hospital's rehabilitation hospital facility the

services of licensed physical, occupational, or speech therapists, so

long as the therapists provided by respondent do not perform managerial

functions at the facility, or supervise [[Page 5403]] personnel except

other therapists provided by respondent.

C. By no later than the termination of each contract identified in

Paragraph II.B. above, respondent shall enter into an agreement with

the hospital whose rehabilitation hospital facility was operated under

such contract (the ``managed hospital''), that:

1. Prohibits respondent from using, in connection with respondent's

operation of any rehabilitation hospital or other health care facility

in the relevant market area where the managed hospital is located, any

material confidential information of the managed hospital's

rehabilitation hospital facility; and

2. Confers upon the managed hospital a legal right to enforce the

prohibition set forth above in Paragraph II.C.1.

D. Respondent shall comply with all terms of the Agreement to Hold

Separate, attached hereto and made a part hereof as Appendix I. Said

Agreement to Hold Separate 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.

E. Pending the divestiture required by Paragraph II.A. above, and

the contract terminations required by Paragraph II.B. above, respondent

shall take such actions as are necessary to maintain the viability,

competitiveness, and marketability of the assets to be divested and of

the rehabilitation hospital facilities operated under the contracts to

be terminated, and to prevent the destruction, removal, wasting,

deterioration, or impairment of any of the those assets, except for

ordinary wear and tear.

F. A condition of approval by the Commission of the divestiture

required by Paragraph II.A. shall be a written agreement by the

acquirer that it will not, 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, sell or otherwise transfer all or substantially all of the

rehabilitation hospital facility of Nashville Rehabilitation Hospital

to any person who operates, or will operate immediately following such

sale or transfer, any other rehabilitation hospital facility in the

Nashville metropolitan area as defined in Paragraph I.G.3. above.

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 assets to be divested

identified in Paragraph II.A. above, in accordance with this order,

within twelve (12) months of the date this order becomes final, the

Commission may appoint a trustee to divest such 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 5(l) of the Federal Trade Commission Act, 15

U.S.C. 45(l), 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, including a court appointment of a trustee pursuant to

Section 5(l) of the Federal Trade Commission Act, 15 U.S.C. 45(l), or

any other statute enforced by the Commission, 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, 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 assets

identified in Paragraph II.A. above.

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 divestitures required by

this order.

4. The trustee shall have twelve (12) months from the date the

Commission approves 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 assets

identified in Paragraph II.A. above, 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 in the manner and to acquirer(s) 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 [[Page 5404]] 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 assets

set forth in Paragraph II.A. above.

8. Respondent shall identify 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 they 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 assets identified in Paragraph II.A. above.

12. The trustee shall report in writing to the respondent and to

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 who operates any rehabilitation hospital facility in any

relevant market area;

B. Acquire any assets of any rehabilitation hospital facility in

any relevant market area;

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

or indirect ownership, management, or control of any rehabilitation

hospital facility or any part thereof in any relevant market area,

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

such rehabilitation hospital facility, or an agreement to replace a

rehabilitation hospital facility operated by another person with a

rehabilitation hospital facility to be operated by respondent;

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

indirectly, directors or trustees of any rehabilitation hospital

facility in any relevant market area; or

E. Permit any rehabilitation hospital facility it operates in any

relevant market area 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 rehabilitation

hospital facility in that relevant market area.

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

this Paragraph IV for:

1. The establishment of a new rehabilitation hospital facility

(other than as a replacement for a rehabilitation hospital facility,

not operated by respondent, in any relevant area, pursuant to an

agreement or understanding between respondent and the person operating

the replaced facility);

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

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

acquisition, the consideration to be paid for) the rehabilitation

hospital facility or part thereof to be acquired does not exceed five

hundred thousand dollars ($500,000);

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

order if the rehabilitation hospital facility in question is already

operated by respondent (unless respondent is required by Paragraph II

of this order to cease operating the facility); or

4. 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 or otherwise, without

providing advance written notification to the Commission, consummate

any joint venture or other arrangement with any rehabilitation hospital

facility in any relevant market area not operated by respondent, for

the joint establishment or operation of any new rehabilitation hospital

service, facility, or part thereof in that relevant market 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 after making 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 receipt of

such requests.

Provided, however, that no transaction shall be subject to this

Paragraph V of this order if:

A. The fair market value of the assets to be contributed to the

joint venture or other arrangement, by rehabilitation hospital

facilities not operated by respondent, does not exceed five hundred

thousand dollars ($500,000);

B. The fair market value of the assets to be contributed to the

joint venture or other arrangement by respondent does not exceed five

hundred thousand dollars ($500,000);

C. The service, facility, or part thereof to be established or

operated in a transactions 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

D. 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 sell or otherwise

transfer to any other person [[Page 5405]] all or substantially all of

any rehabilitation hospital facility it operates in any relevant market

area (except pursuant to a 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 as applicable to the facility and the relevant

market area in which the acquired facility is located, 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 Paragraphs II and III 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 Paragraphs II and III of this order. Respondent

shall include in its compliance reports, among other things that are

required from time to tome, a full description of the efforts being

made to comply with Paragraphs II and III of the order, including a

description of all substantive contracts or negotiations for the

divestiture of the assets identified in Paragraph II.A. above, the

steps taken to terminate the contracts identified in Paragraph II.B.

above, and the identity of all parties contacted. Respondent shall also

include in its compliance reports, subject to any legally recognized

privilege, copies of all written communications to and from such

parties, all internal memoranda, 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 complied

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, and subject to any legally

recognized privilege, 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.

In the matter of HEALTH REHABILITATION CORPORATION, a

corporation File No. 951-0007.

Agreement to Hold Separate

This agreement to Hold Separate (``Agreement'') is by and between

HEALTHSOUTH Rehabilitation Corporation (``respondent'' or

``HEALTHSOUTH''), 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 Two Perimeter Park South, Birmingham,

Alabama 35243; and the Federal Trade Commission (``Commission''), and

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 before September 18, 1994, HEALTHSOUTH agreed to

merge with ReLife, Inc. (``Relife''), and thereby acquire, inter alia,

a majority partnership interest in Nashville Rehabilitation Hospital in

Nashville, Tennessee (the ``Acquisition''); and

Whereas, The Commission is now investigating the Acquisition to

determine if it would violate any of the status enforced by the

Commission; and

Whereas, if the Commission accepts the Agreement Containing Consent

Order in this matter (``Consent Order''), which would require the

divestiture of ReLife's majority partnership interest in, and certain

other assets listed in Paragraph II.A. of the Consent Order Relating

to, Nashville Rehabilitation Hospital (which assets, together with the

Hospital, hereinafter are referred to as the ``NRH Assets''), 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 NRH 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 compel the divestiture required by Paragraphs II.A. and III of the

Consent Order and the Commission's right to have NRH Assets continue as

a viable independent rehabilitation hospital facility; and

Whereas, the purpose of this Agreement and the Consent Order is to:

(i) Preserve the NRH Assets as a viable independent inpatient

rehabilitation hospital facility pending the divestiture required by

Paragraphs II.A. and III of the Consent Order, 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 as follows, 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 NRH

Assets pursuant to the Consent Order:

1. Respondent agrees to execute the Agreement Containing Consent

Order [[Page 5406]] and be bound by the attached Consent Order.

2. Respondent agrees that from the date this Agreement is accepted

until the earliest of the times listed in subparagraphs 2.a or 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 time that the divestiture required by the Consent Order has

been completed.

3. Respondent will hold the NRH Assets as they are presently

constituted separate and apart, on the following terms and conditions:

a. The NRH Assets, as they are presently constituted, shall be held

separate and apart and shall be operated independently of respondent

(meaning here and hereinafter, HEALTHSOUTH excluding the NRH Assets),

except to the extent that respondent must exercise direction and

control over the NRH Assets to assure compliance with this Agreement or

the Consent Order and except as otherwise provided in this Agreement.

b. HEALTHSOUTH shall appoint a Management Committee to manage and

maintain the NRH Assets on a day-to-day basis while this Agreement

remains in effect. The Management Committee shall have exclusive

management and control of the NRH Assets, and shall manage the NRH

Assets independently of HEALTHSOUTH's other businesses.

c. The Management Committee, which shall be appointed by

HEALTHSOUTH, shall consist of three or five members, including a

chairman who is independent of respondent and is competent to assure to

continued viability and competitiveness of the NRH Assets; a person

with experience in operating rehabilitation hospital facilities; and a

HEALTHSOUTH controller or other financial officer, whose

responsibilities do not include any participation in HEALTHSOUTH's

operations in the Nashville metropolitan area as defined in Paragraph

I.G. of the Consent Order. No more than a minority of Management

Committee members shall be directors, officers, employees, or agents of

respondent (``respondent's Management Committee members''). Meetings of

the Management Committee during the term of this Agreement shall be

audio recorded, and recordings shall be retained for two (2) years

after the termination of this Agreeement.

d. Respondent shall not exercise direction or control over, or

influence directly or indirectly, the NRH Assets, any associated

operations or businesses, the Management Committee, or the independent

chairman of the Management Committee; provided, however, that

respondent may exercise only such direction and control over the

Management Committee as is necessary to assure compliance with this

Agreement or the Consent Order.

e. Respondent shall maintain the viability, competitiveness, and

marketability of the NRH Assets, and shall not sell, transfer, encumber

(other than in the normal course of business, or to effect the

divestitures contemplated by the consent order), or otherwise impair

their viability, competitiveness, or marketability.

f. The NRH Assets shall be staffed with employees sufficient in

numbers and skills to maintain the viability, competitiveness, and

marketability of the Hospital and the NRH Assets, which employees shall

be selected from the existing employee base of the NRH Assets, and may

also be hired from other sources. To this end, respondent shall

maintain at least the same ratios of full-time equivalent employees to

inpatient days, for professional employee staff (Such as nurses and

therapists), and for other staff employees, as exist at the date of

this Agreement, and shall offer salaries and employee benefits

sufficient to maintain such staffing levels and maintain quality of

patient care at least substantially equivalent to that now provided by

the employees of the NRH Assets.

g. With the exception of respondent's Management Committee members,

respondent shall not change the composition of the Management Committee

unless the independent chairman consents to such change. The

independent chairman shall have power to remove members of the

Management Committee for cause. Respondent shall not change the

composition of the management of the NRH Assets, except that the

Management Committee shall have the power to remove management

employees for cause.

h. 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.

i. Except as required by law, and except to the extent that

necessary information is exchanged in the course of evaluating the

Acquisition, defending investigations, defending or prosecuting

litigation, negotiating agreements to divest assets, or complying with

this agreement or the Consent Order, respondent shall not receive, have

access to, use, or continue to use, any material confidential

information (as that term is defined in the Consent Order) not in the

public domain about the NRH Assets, or the activities of the Management

Committee. Nor shall the NRH Assets or the Management Committee receive

or have access to, or use or continue to use, any material confidential

information not in the public domain about respondent that relates to

rehabilitation hospital facilities operated by respondent in the

Nashville metropolitan area as defined in Paragraph I.G. of the Consent

Order. Respondent may receive on a regular basis aggregate financial

information relating to the NRH Assets 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 purpose set

forth in this subparagraph.

j. Except as permitted by this Agreement, respondent's Management

Committee members shall not, in their capacity as Management Committee

members, receive material confidential information of the NRH Assets,

and shall not disclose any such information received under this

Agreement to respondent, or use it to obtain any advantage for

respondent. Each of respondent's Management Committee members shall

enter a confidentiality agreement prohibiting disclosure of material

confidential information. Respondent's Management Committee members

shall participate in matters that come before the Management Committee

only for the limited purposes of considering a capital investment or

other transaction exceeding $100,000, approving any proposed budget and

operating plans, and carrying out respondent's responsibilities under

this Agreement, the Consent Agreement, and the Consent Order. Except as

permitted by this Agreement, respondent's Management Committee members

shall not participate in any matter, or attempt to influence the votes

of the other members of the Management Committee with respect to

matters, that would involve a conflict of interest if respondent and

the NRH Assets were separate and independent entities.

k. Any material transaction relating to the NRH Assets that is out

of the ordinary course of business must be approved by a majority vote

of the Management Committee; provided that the Management Committee

shall approve no transaction, material or otherwise, that is precluded

by this Agreement.

l. All earnings and profits of the NRH Assets shall be retained

separately. If [[Page 5407]] necessary, respondent shall provide the

NRH Assets with sufficient working capital to maintain the current rate

of operation of the NRH Assets, and to carry out any capital

improvement plans which have been approved.

m. HEALTHSOUTH shall continue to provide the same support services

to the NRH Assets, which are not provided by that hospital's employees,

as are being provided by ReLife to the hospital as of the date this

Agreement is signed. HEALTHSOUTH may charge the NRH Assets the same

fees, if any, charged by ReLife for such support services as of the

date of this Agreement. HEALTHSOUTH personnel providing such support

services must retain and maintain all material confidential information

of the NRH Assets on a confidential basis, and, except as is permitted

by this Agreement, such persons shall be prohibited from providing,

discussing, exchanging, circulating, or otherwise furnishing any such

information to or with any person whose employment involves any of

respondent's businesses, including without limitation businesses in the

Nashville metropolitan area. Such personnel shall also execute a

confidentiality agreement prohibiting the disclosure of any material

confidential information of the NRH Assets.

n. HEALTHSOUTH shall cause the NRH Assets to continue to expend

funds for marketing and advertising at a level not lower than that

expended in fiscal year 1994 or budgeted in fiscal year 1995, and shall

increase such spending as deemed reasonably necessary by the Management

Committee in light of competitive conditions.

4. Should the Federal Trade Commission seek in any proceeding to

compel respondent to divest any of the NRH 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, 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 to Aid Public Comment HEALTHSOUTH

Rehabilitation Corp., File No. 951-0007

The Federal Trade Commission has accepted, subject to final

approval, a proposed consent order from HEALTHSOUTH Rehabilitation

Corporation (``HEALTHSOUTH''). The agreement would settle charges by

the Federal Trade Commission that HEALTHSOUTH's proposed merger with

ReLife Inc. (``ReLife'') would violate Section 5 of the Federal Trade

Commission Act, and Section 7 of the Clayton Act.

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.

HEALTHSOUTH owns and operates rehabilitation hospital service

facilities nationwide, including facilities in the Birmingham, Alabama,

Charleston, South Carolina, and Nashville, Tennessee metropolitan

areas. ReLife operates rehabilitation hospital facilities in these same

areas, among others. The complaint accompanying the proposed consent

order discusses the proposed acquisition's impact upon competition for

rehabilitation hospital services in the Birmingham, Charleston, and

Nashville areas. According to the complaint, HEALTHSOUTH operates

(i.e., owns, leases, or manages):

--a rehabilitation unit within Medical Center East, a general acute

care hospital in Birmingham, Alabama;

--Trident Neurosciences Center, a rehabilitation hospital in

Charleston, South Carolina; and

--Vanderbilt Stallworth Rehabilitation Hospital, a rehabilitation

hospital in Nashville, Tennessee.

ReLife operates:

--Lakeshore Hospital, a rehabilitation hospital in Birmingham, Alabama,

as well as rehabilitation hospital units within Bessemer Carraway

Medical Center, Brookwood Medical Center, and Carraway Methodist

Medical Center, all general acute care hospitals in Birmingham, Alabama

or adjacent communities in Jefferson County, Alabama;

--a rehabilitation hospital unit within Roper Hospital, a general acute

care hospital in Charleston, South Carolina; and

--Nashville Rehabilitation Hospital in Nashville, Tennessee, a general

acute care hospital in Nashville, Tennessee which contains a

rehabilitation hospital unit, as well as rehabilitation unit within

Sumner Memorial Hospital, a general acute care hospital in Gallatin,

Tennessee northeast of Nashville.

The consent order, if issued in final form by the Commission, would

settle charges that the acquisition may substantially lessen

competition for rehabilitation hospital services in the Birmingham,

Charleston, and Nashville areas. The complaint alleges that HEALTHSOUTH

and ReLife are competitors in those market areas, where, according to

the complaint, concentration is already high, 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 Birmingham, Charleston, and Nashville

rehabilitation hospital services markets, in violation of Section 5 of

the Federal Trade Commission Act and Section 7 of the Clayton Act,

unless an effective remedy eliminates such anticompetitive effects.

The order accepted for public comment contains provisions requiring

the divestiture by HEALTHSOUTH of Nashville Rehabilitation hospital and

related assets in Nashville, Tennessee. The order also requires the

termination by HEALTHSOUTH of management contracts pertaining to the

rehabilitation hospital facilities at Roper Hospital in

[[Page 5408]] Charleston, South Carolina, and Medical Center East in

Birmingham, Alabama. The purpose of the divestiture and contract

terminations is to ensure the continuation of these designated

facilities as ongoing, viable rehabilitation facilities independent or

HEALTHSOUTH, and to remedy the lessening of competition resulting from

the acquisition in the Birmingham, Charleston, and Nashville areas.

The proposed order requires HEALTHSOUTH to divest Nashville

Rehabilitation Hospital to an acquirer, and in a manner, approved by

the Commission. Under the terms of the order, the required divestiture

mut be completed within twelve months of the date the order becomes

final. If the required divestiture is not completed within the twelve-

month period, HEALTHSOUTH will consent to the appointment of a trustee,

who would have twelve additional months to effect the divestiture. The

acquirer of Nashville Rehabilitation Hospital would be required to

agree that, for ten years from the date of the order, it will not

transfer Nashville Rehabilitation Hospital, without the prior approval

of the Commission, to any person already operating a rehabilitation

hospital facility in the Nashville area. In addition, the hold separate

agreement executed in conjunction with the consent agreement requires

HEALTHSOUTH, until the completion of the divestiture or as otherwise

specified, to maintain Nashville Rehabilitation separate from

HEALTHSOUTH's other operations.

The provisions of the order relating to Roper Hospital and Medical

Center East require HEALTHSOUTH to terminate the management contracts

for the operation of those hospitals' rehabilitation units, and cease

operation of those rehabilitation facilities, within 90 days after the

order becomes final (for Medical Center east) or by October 1, 1995

(for Roper Hospital). HEALTHSOUTH may, however, continue to supply

therapy personnel to the Medical Center East rehabilitation unit. In

addition, HEALTHSOUTH would be required to enter into agreements with

Roper Hospital and Medical Center East to protect any competitively-

sensitive information about those hospitals which HEALTHSOUTH has

obtained, so that HEALTHSOUTH rehabilitation facilities which compete

with those hospitals will not be able to use that information to their

competitive advantage.

The order would prohibit HEALTHSOUTH from acquiring any

rehabilitation hospital facilities in the Birmingham, Charleston, and

Nashville areas without the prior approval of the Federal Trade

Commission. It would also prohibit HEALTHSOUTH from transferring,

without prior Commission approval, any rehabilitation hospital facility

it operates in any of those areas to another person operating (or in

the process of acquiring) another rehabilitation hospital facility in

that area. These provisions, in combination, would give the Commission

authority to prohibit any substantial combination of the rehabilitation

hospital operations of HEALTHSOUTH with those of any other

rehabilitation hospital facility in the Birmingham, Charleston, and

Nashville areas, unless HEALTHSOUTH convinced the Commission that a

particular transaction would not endanger competition in those areas.

The provisions would not apply to transaction where the value of the

transferred assets does not exceed $500,000, or to certain transactions

between HEALTHSOUTH and the rehabilitation hospital facilities it

already operates. They would expire ten years after the order becomes

final.

The order would also require HEALTHSOUTH to provide advance notice

to the commission before carrying out certain joint ventures with

competing rehabilitation hospital facilities in the Birmingham,

Charleston, and Nashville areas, for which the order does not otherwise

require prior approval. This requirement is subject to limitation

similar to those applicable to the prior approval provision, does not

require notice of certain specified support services joint ventures,

and also does not require additional notice for transactions which

HEALTHSOUTH provides notice under the premerger notification

requirements of the Clayton Act.

For ten years, the order would prohibit HEALTHSOUTH from

transferring any of its rehabilitation hospital facilities in the

Birmingham, Charleston, or Nashville areas to another person without

first filing with the Commission an agreement by the transferee to be

bound by the order provisions that apply to the facility and the market

area in which it is located.

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 HEALTHSOUTH that its proposed acquisition

would have violated the law, as alleged in the Commission's complaint.

Donald S. Clark,

Secretary.

[FR Doc. 95-2059 Filed 1-26-95; 8:45 am]

BILLING CODE 6750-01-M