This is a reminder to consider substantive antitrust issues even when transactions do not require a U.S. Hart-Scott-Rodino (HSR) filing; for example, when the purchase price is less than the current lowest HSR threshold of US$75.9 million.1
Transactions not subject to HSR are still prohibited under Section 7 of the Clayton Act if "the effect of such acquisition may be substantially to lessen competition." Mergers and acquisitions may also raise concerns under the Sherman Act, as Section 1 bars any agreement that unreasonably restrains competition and Section 2 prohibits the intentional acquisition of monopoly power.
A federal court decision earlier this year, Federal Trade Commission v. St. Luke’s Health System, underscores the point. The court ordered the unwinding and full divestiture of St. Luke’s Health System, Ltd.’s acquisition of Saltzer Medical Group, more than a year after the deal closed. The parties had not been required to make an HSR filing because the $16 million transaction was far below the $75.9 million threshold.
The court found that the acquisition violated Clayton Act Section 7 and the Idaho Competition Act. The court’s conclusion flowed in large part from its acceptance of the small geographic market defined by the FTC—the city of Nampa, Idaho. The relevant product market was primary physician services.
In the market so defined, the court considered the Herfindahl-Hirschman Index (HHI), a measure of market concentration. The Federal Trade Commission (FTC) and the Department of Justice (DOJ) generally consider markets highly concentrated when the HHI exceeds 2,500 and transactions that increase HHI by more than 200 points in highly concentrated markets are presumptively considered anticompetitive. The pre-acquisition HHI in the St. Luke’s case was 4,612 and the post-transaction HHI was 6,219, an increase of 1,607 in the relevant market. Moreover, according to the FTC, the combined St. Luke’s/Saltzer entity would create a substantial risk of anticompetitive price increases, raising costs for consumers by using its dominant market share to negotiate higher reimbursements with health plans and charge common services at higher hospital billing rates than those charged by Saltzer previously as a non-hospital based medical provider. Prior to the acquisition of Saltzer, evidence showed St. Luke’s had used acquisitions of other independent physician groups to gain greater bargaining leverage with health insurers.
The case is not unique—the FTC and DOJ do not hesitate to challenge small, non-reportable transactions when they raise the risk of anticompetitive conduct, so it is important to review antitrust and competition issues posed by a transaction even when no HSR filing is required.
Every deal requires at least a short examination of the potential antitrust risk to be obtained from both parties. If possible, buyers should negotiate purchase prices or other terms that provide for the seller to share the risk of a post-consummation antitrust challenge. Caution is also advised in written communications concerning the anticipated market impacts of the transaction.
1 Threshold dollar amounts are subject to annual adjustment based on the change in gross national product.
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