Boston University School of Law
Nonprofit hospitals developed out of the charitable hospital movement, which began in the mid-nineteenth century.' The early voluntary hospitals depended upon local benefactors for financing.2 Originally conceived as charitable institutions providing long-term care, these hospitals began to change their focus around the turn of the century.3 A changed mission-providing care to all rather than just poor inpatients with chronic problems-required the latest medical technology.4 This in turn demanded increased construction of up-to-date facilities, as well as large operating expenses.
Recent years have seen further pressure on hospital budgets, as the health-care sector of the economy has become more commercial, with mounting competition and price pressure from health-care purchasers. Given declining inpatient admissions, shorter inpatient stays, and increasing costs, hospitals face intense pressure to cut costs and develop more efficient ways to provide services.6 In addition, managed-care and thirdparty-payer plans continue to reduce reimbursements, forcing hospitals to discount prices contractually.7
Federal Trade Commission oversight of business competition has, however, traditionally not applied to nonprofit firms-as many hospitals are-simply because charitable entities allegedly lack motive to engage in anticompetitive practices.8 Yet in this decade, as both for-profit and nonprofit hospitals struggle merely to survive, hospital mergers continue to occur across the country at an unprecedented rate.' Hospitals facing closure consider the merger option because it allows them to offer new services or to streamline the cost of providing current services. Because most hospital mergers occur between competitors,10 however, their economic consequences can raise antitrust concerns.11 Faced with competitive pressures to merge, nonprofit hospitals have, like any other business would, resisted application of the antitrust laws. Perhaps most importantly, nonprofit hospitals have chafed against the Clayton Act, which is the primary federal tool to prevent anticompetitive mergers before they occur.
A primary goal of antitrust law is the preservation of competitive markets. By definition, mergers eliminate competition. 14 The federal antitrust laws15 serve to check the market power of merged entities and to limit overall market concentration.16 Because mergers produce some economic benefits, however, such as more efficient delivery of services, they are not per se illegal under federal antitrust laws.18 For example, section 7 of the Clayton Act prohibits proposed mergers involving any acquisition of another firm's assets, stock, or share capital that "may substantially ... lessen competition, or tend to create a monopoly."'
Section 7 is not, however, even that uniform. Whereas the provisions regulating securities-based acquisitions (the "stock clause," which includes the "share capital" language) applies to "persons," the provision regulating assets-based mergers (the "assets clause"), applies only to "person[s] subject to the jurisdiction of the Federal Trade Commission."20 Courts remain divided over whether nonprofit firms are "persons" subject to the jurisdiction of the FTC under the Act. Nonprofit hospitals typically merge by acquiring the assets, and not the stock, of another hospital.21 As a result, nonprofit hospitals might be exempt from the Clayton Act provisions that require government review of mergers before they occur.
TWo federal appellate cases decided only fifteen months apart, in April 1990 and July 1991, should have resolved any confusion over the source of FTC enforcement power.22 More than four years later, however, the debate continues. Part I of this Note examines the history of the "assets clause" and the role of the FTC in challenges to incipient nonprofit hospital mergers under the Clayton Act. Part II focuses on the economic analysis of mergers and the propriety of applying antitrust law to the nonprofit hospital context. The Note concludes that recent decisions holding that the FTC has jurisdiction to challenge incipient nonprofit hospital mergers are consistent with both the legislative intent and economic goals of the Clayton Act.
Nonprofit Hospital Mergers and Section 7 of the Clayton Act: Closing an Antitrust Loophole
Boston University Law Review
Available at: https://scholarship.law.bu.edu/faculty_scholarship/3427