FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
The United States of America, pursuant to Section 2(b) of the Antitrust Procedures and Penalties Act, ("APPA"), 15 U.S.C. § 16(b)-(h), files this Competitive Impact Statement relating to the proposed Final Judgment submitted for entry in this civil antitrust proceeding.
On March 21, 2005, the United States filed a civil antitrust Complaint alleging that Bluefield Regional Medical Center, Inc. (BRMC) and Princeton Community Hospital Association, Inc. (PCH) had violated Section 1 of the Sherman Act, 15 U.S.C. § 1. BRMC owns and operates a 265-bed, general acute-care hospital in Bluefield, West Virginia. PCH owns and operates a 211-bed, general acute-care hospital in Princeton, West Virginia. PCH also owns and operates St. Luke's Hospital, LLC (St. Luke's), a 79-bed, general acute-care hospital in Bluefield, West Virginia.
The Complaint alleges that, on January 30, 2003, BRMC and PCH entered into two agreements (the "cancer and open-heart agreements") in which BRMC agreed not to offer certain cancer services and PCH agreed not to offer certain cardiac-surgery services. The cancer and open-heart agreements effectively allocated markets for cancer and cardiac-surgery services and restrained competition to the detriment of consumers. With the Complaint, the United States, BRMC, and PCH filed an agreed-upon proposed Final Judgment that annuls the cancer and open-heart agreements and prohibits BRMC and PCH from taking actions that would reduce competition between the two hospitals for patients needing cancer and cardiac-surgery services.
The United States, BRMC, and PCH have agreed that the proposed Final Judgment may be entered after compliance with the APPA, provided that the United States has not withdrawn its consent. Entry of the Final Judgment would terminate the action, except that the Court would retain jurisdiction to construe, modify, or enforce the Final Judgment's provisions and to punish violations thereof.
At all times relevant to the matters alleged in the Complaint, BRMC and PCH have been significant competitors in general acute-care hospital services and in cancer services. PCH is located about fifteen miles from BRMC. PCH's St. Luke's Hospital is located about two miles from BRMC. BRMC, PCH, and St. Luke's are the only general acute-care hospitals in Mercer County, West Virginia.
BRMC and PCH also have been potential competitors in cardiac-surgery services. BRMC sought to develop cardiac-surgery services since at least 1999. Similarly, from at least 1999 until PCH agreed not to compete with BRMC in cardiac-surgery services, PCH sought to develop cardiac-surgery services by working with other hospitals in southern West Virginia.
The State of West Virginia and the Commonwealth of Virginia require that a hospital obtain a certificate of need or a certificate of public need (collectively, "CON") from a state agency before a hospital may provide either cardiac-surgery services or radiation-therapy services (using a linear accelerator) for treating patients with cancer. The West Virginia Health Care Authority (WVHCA) administers the CON program in West Virginia. The Virginia Department of Health's Certificate of Public Need Division and regional health planning agencies administer the CON program in Virginia.
In January 1999, BRMC submitted a CON application to the WVHCA to develop a cardiac-surgery program in Mercer County, West Virginia. At that time, neither BRMC, PCH, nor St. Luke's had a CON to operate a cardiac-surgery program. PCH, St. Luke's, and other hospitals opposed BRMC's application. PCH and St. Luke's argued, in part, that BRMC's application should be denied because it did not provide a role for PCH and St. Luke's in the provision of cardiac-surgery services in southern West Virginia.
In February 2000, the WVHCA issued a written decision that denied BRMC's application for a CON to develop a cardiac-surgery program because BRMC was unable to show that, without working with other hospitals, it would be able to attract a sufficient number of patients. In its decision, the WVHCA wrote that PCH, St. Luke's and other hospitals had:
failed to successfully negotiate with [BRMC] to reach a shared goal. The goal being to provide advanced cardiology services to the citizens of southern West Virginia and southwestern Virginia. . . . [The WVHCA] would have preferred that the parties work together to present a project that could have been approved under the existing law. Instead, the parties fought among themselves, failed to resolve their differences, and in return, the citizens of southern West Virginia will be inconvenienced and suffer by not having a regional open-heart service provider.
On one or more occasions during 2002, BRMC and PCH representatives met with WVHCA officials. The WVHCA officials encouraged BRMC and PCH to reach an understanding that would enable the parties to submit an application for an open-heart surgery CON that the WVHCA would be able to approve. The WVHCA officials, however, neither instructed nor encouraged BRMC and PCH to allocate markets.
On January 30, 2003, BRMC and PCH entered into the cancer and open-heart agreements. The cancer agreement concerned PCH's provision of certain cancer services, including radiation-therapy services, and the open-heart agreement concerned BRMC's plan to develop cardiac-surgery services (open-heart surgery and therapeutic cardiac-catheterization services). The agreements applied to McDowell, Mercer, Monroe, Raleigh, Summers, and Wyoming counties in southern West Virginia and Bland, Giles, and Tazewell counties in western Virginia. In the agreements, BRMC agreed to submit a joint CON application with PCH to transfer BRMC's CON to operate radiation-therapy equipment to PCH. PCH agreed to submit a joint CON application with BRMC for BRMC to receive a cardiac-surgery CON.
As part of the cancer and open-heart agreements, BRMC agreed to refrain from competing with PCH in various ways, none of which was related to a procompetitive purpose. BRMC agreed, among other things:
As part of the cancer and open-heart agreements, PCH also agreed to refrain from competing with BRMC in various ways, none of which was related to a procompetitive purpose. PCH agreed, among other things:
The term of the cancer and open-heart agreements commenced on January 30, 2003 and terminates five years after the first open-heart surgery is performed at BRMC or the first cancer patient is treated at a PCH comprehensive cancer center, whichever is later. Neither agreement can last longer than eight years. Each agreement automatically terminates if, within three years from commencement, either party has not received all government approvals needed to provide its services.
PCH and BRMC structured the agreements such that PCH would independently own its cancer-treatment facilities and provide its cancer services independently of BRMC, BRMC would independently own its cardiac-surgery facilities and provide its cardiac-surgery services independently of PCH, and BRMC and PCH would not provide these services as part of a joint venture.
On January 23, 2003, BRMC submitted to the WVHCA a CON application, with PCH as a joint applicant, to develop a cardiac-surgery program at BRMC. On July 30, 2003, PCH submitted to the WVHCA an application, with BRMC as a joint applicant, to transfer BRMC's CON to operate radiation-therapy equipment to PCH. The WVHCA approved BRMC's cardiac-surgery CON application on August 1, 2003. PCH's application to transfer BRMC's radiation-therapy equipment CON to PCH remains pending with the WVHCA.
Because of the cancer and open-heart agreements, BRMC and PCH have refrained and, if not enjoined, likely would continue to refrain from competing to serve patients that need cancer and cardiac-surgery services. The cancer and open-heart agreements have had and, unless enjoined, likely would have the following harmful effects:
The state-action doctrine provides immunity from federal antitrust liability where a party can satisfy a two-part test. First, the party must show that the challenged restraint is one clearly articulated and affirmatively expressed as state policy. California Retail Liquor Dealers Association v. Midcal Aluminum, 445 U.S. 97, 105 (1980). To satisfy the clear-articulation requirement, a defendant must show only that "the legislature contemplated the kind of action complained of." Town of Hallie v. City of Eau Claire, 471 U.S. 34, 44 (1985). Second, the state must actively supervise the challenged conduct. Midcal, 445 U.S. at 105.
As discussed below, no state action in either West Virginia or Virginia shields the cancer and open-heart agreements from federal antitrust review. The West Virginia legislature has not empowered the WVHCA to authorize hospitals to enter into market-allocation agreements. Furthermore, the WVHCA is not empowered to exercise, and has not exercised, active supervision over the cancer and open-heart agreements. Indeed, the WVHCA did not purport to authorize the parties to enter into the agreements. Similarly, in Virginia, no state agency or official encouraged or authorized BRMC and PCH to reach an understanding or agreement concerning cardiac-surgery or cancer services.
The West Virginia legislature empowered the WVHCA to administer West Virginia's CON program according to legislatively established criteria. W. Va. Code § 16-2D-1 et seq., W. Va. Code St. R. § 65-7-1 et seq., W. Va. Code § 16-29B-1 et seq. Although the West Virginia legislature granted the WVHCA significant regulatory powers over competition in West Virginia health-care markets, it limited the means by which the WVHCA can regulate competition among health-care providers principally to granting or denying CONs to firms wishing to compete. W. Va. Code § 16-2D-1 et seq., W. Va. Code St. R. § 65-7-1 et seq., W. Va. Code § 16-29B-1 et seq.
In administering the CON program, the WVHCA is called upon to review and, if appropriate, to grant or deny CON applications for certain medical services. W. Va. Code § 16-29B-11. The statutory framework grants third parties the right to intervene to protect their interests; affords adversely affected parties the right of judicial review; requires written findings as to whether approval of a CON would further legislatively established criteria; and establishes other procedural safeguards. W. Va. Code §§ 16-29B-12(f), 16-29B-13, and 16-2D-9. When reviewing CON applications, the WVHCA must follow established procedures and act within the CON process. See W. Va. Code § 16-2D-1 et seq., W. Va. Code St. R. § 65-7-1 et seq., W. Va. Code § 16-29B-1 et seq. The statutes and regulations delineating the responsibilities of the WVHCA do not explicitly empower it to consider, or to issue opinions concerning, private market-allocation agreements. See, e.g., W. Va. Code § 16-2D-1 et seq., W. Va. Code St. R. § 65-7-1 et seq., W. Va. Code § 16-29B-1 et seq., W. Va. Code St. R. § 65-5-1 et seq., W. Va. Code St. R. § 65-26-1 et seq.
Nor does the WVHCA have implicit authority to approve private agreements as a means of regulating competition. In light of the rights and procedural safeguards afforded in the statutory framework to affected parties, to conclude that WVHCA has implied authority to authorize private market-allocation agreements would be inconsistent with that framework and effectively would give to the WVHCA unreviewable discretion to regulate health-care markets. To the contrary, the legislature generally has left West Virginia health-care providers free to make market decisions on how to compete as long as they are not (1) adding or expanding health-care services; (2) incurring a capital expenditure of $2 million or more; (3) obtaining major medical equipment valued at $2 million or more; or (4) developing or acquiring new health-care facilities. W. Va. Code § 16-2D-3.
Because the West Virginia legislature has not granted to the WVHCA the explicit authority to approve private market-allocation agreements such as the cancer and open-heart agreements, because any implicit authority of the WVHCA to approve such agreements would be inconsistent with the statutory framework that the legislature did create, and because the legislature clearly contemplated that West Virginia hospitals would compete in the free market for many of the activities covered by the cancer and open-heart agreements, these agreements cannot be considered part of a "clearly articulated and affirmatively expressed state policy." Midcal, 445 U.S. at 105.
The active-supervision requirement of the state-action doctrine requires that the State actively supervise and exercise ultimate control over the challenged anticompetitive conduct. Midcal, 445 U.S. at 105, Patrick v. Burget, 486 U.S. 94, 100-101 (1988). "The requirement is designed to ensure that the state-action doctrine will shelter only the particular anticompetitive acts of private parties that, in the judgment of the State, actually further state regulatory policies." Patrick, 486 U.S. at 100-101.
The West Virginia legislature, however, has not empowered the WVHCA to require parties to private agreements to maintain, alter, or abandon their agreements. Thus, the WVHCA has no power to exercise active supervision or control over private agreements such as the cancer and open-heart agreements. Moreover, the WVHCA has not purported to actively supervise the cancer and open-heart agreements, as it did not (1) develop a factual record concerning the initial or ongoing nature and effect of the agreements; (2) issue a written decision approving the agreements; or (3) assess whether the agreements further criteria established by the West Virginia legislature. See FTC v. Ticor Title Ins. Co., 504 U.S. 621, 637-639 (1992).
The WVHCA, in its February 2000 decision and in the actions of its officials during 2002, did not purport to authorize BRMC and PCH to enter into market-allocation agreements. In its February 2000 decision denying BRMC's cardiac-surgery CON application, the WVHCA simply stated a preference that BRMC and PCH work together to develop a cardiac-surgery project and encouraged the parties to submit a cardiac-surgery CON application that could be approved under the law. The decision did not encourage or instruct BRMC and PCH to allocate cardiac-surgery or cancer services. Similarly, during meetings in 2002 with representatives of BRMC and PCH, WVHCA officials neither instructed nor encouraged BRMC and PCH to allocate markets or to agree to anticompetitive conduct such as that later contained in the cancer and open-heart agreements.
Regulation by the WVHCA of the rates charged by BRMC and PCH, see, e.g., W. Va. Code § 16-29B-1 et seq., W. Va. Code St. R. § 65-5-1 et seq., W. Va. Code St. R. § 65-26-1 et seq., also does not satisfy the active-supervision requirement. In this case, the anticompetitive conduct is not the prices charged by the hospitals; rather, it is the terms of the cancer and open-heart agreements. The WVHCA's regulation of rates does not directly address market-allocation issues or the potential anticompetitive effects of such allocations, as rate regulation may fail to ensure that the hospitals charge rates equal to those rates that would have prevailed in a competitive market and it fails to address decreases in quality of service, innovation, and consumer choice that result from an agreement not to compete.
Although the cancer and open-heart agreements allocate markets for cancer and cardiac surgery in three Virginia counties, no Virginia state action immunizes the agreements from federal antitrust review. An extensive discussion of why the state-action doctrine does not apply in Virginia is not necessary as BRMC and PCH had no contacts with any Virginia agency or official that might suggest a state-action defense. No Virginia agency or official encouraged or authorized BRMC and PCH to enter into the agreements or reach any understanding concerning cardiac-surgery or cancer services. BRMC and PCH also never sought or received approval for the agreements from any Virginia agency or official.
The proposed Final Judgment would enjoin BRMC and PCH from enforcing any part of the cancer and open-heart agreements. BRMC and PCH also would be enjoined from entering into, continuing, maintaining, or enforcing any agreement to allocate any cancer or cardiac-surgery service, market, territory, or customer. In addition, BRMC and PCH would be enjoined from entering into, continuing, maintaining, or enforcing any other agreement that (1) prohibits or restricts a health-care facility from obtaining a certificate of need relating to cancer services or cardiac surgery or (2) otherwise prohibits or restricts a health-care facility from taking actions related to providing cancer services or cardiac surgery without prior notice to and prior written approval of the United States. Finally, BRMC and PCH would be enjoined from entering into, continuing, maintaining, or enforcing any agreement with each other concerning cancer services or cardiac surgery without prior notice to and prior written approval of the United States. The effect of the proposed Final Judgment would be to restore competition between BRMC and PCH that the cancer and open-heart agreements eliminated, and would prevent BRMC and PCH from engaging in similar conduct in the future.
Section 4 of the Clayton Act, 15 U.S.C. §15, provides that any person who has been injured as a result of conduct prohibited by the antitrust laws may bring suit in federal court to recover three times the damages suffered, as well as costs and reasonable attorneys' fees. Entry of the proposed Final Judgment will neither impair nor assist the bringing of such actions. Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C. § 16(a), the Final Judgment has no prima facie effect in any subsequent lawsuits that may be brought against the Defendant.
The United States and the Defendant have stipulated that the proposed Final Judgment may be entered by the Court after compliance with the provisions of the APPA, provided that the United States has not withdrawn its consent. The APPA conditions entry upon the Court's determination that the proposed Final Judgment is in the public interest.
The APPA provides a period of at least sixty days preceding the effective date of the proposed Final Judgment within which any person may submit to the United States written comments regarding the proposed Final Judgment. Any person who wishes to comment should do so within sixty days of the date of publication of this Competitive Impact Statement in the Federal Register. All comments received during this period will be considered by the Department of Justice, which remains free to withdraw its consent to the proposed Final Judgment at any time prior to the Court's entry of judgment. The comments and the response of the United States will be filed with the Court and published in the Federal Register.
Written comments should be submitted to:
Mark J. Botti
The proposed Final Judgment provides that the Court retains jurisdiction over this action, and the parties may apply to the Court for any order necessary or appropriate for the modification, interpretation, or enforcement of the Final Judgment.
VI. Alternatives to the Proposed Final Judgment
The United States considered, as an alternative to the proposed Final Judgment, a full trial on the merits against defendants BRMC and PCH. The United States is satisfied, however, that the Final Judgment, with its prohibition on anticompetitive conduct, will more quickly achieve the primary objectives of a trial on the merits reestablishing competition in the relevant markets.
VII. Standard of Review Under the APPA for the Proposed Final Judgment
The APPA requires that proposed consent judgments in antitrust cases brought by the United States be subject to a sixty-day comment period, after which the Court shall determine whether entry of the proposed Final Judgment "is in the public interest." 15 U.S.C. § 16(e)(1). In making that determination, the Court shall consider:
15 U.S.C. § 16(e)(1)(A) and (B). As the United States Court of Appeals for the District of Columbia Circuit has held, the APPA permits a court to consider, among other things, the relationship between the remedy secured and the specific allegations set forth in the government's complaint, whether the decree is sufficiently clear, whether enforcement mechanisms are sufficient, and whether the decree may positively harm third parties. See United States v. Microsoft Corp., 56 F.3d 1448, 1458-62 (D.C. Cir. 1995).
"Nothing in this section shall be construed to require the court to conduct an evidentiary hearing or to require the court to permit anyone to intervene." 15 U.S.C. § 16(e)(2). Thus, in conducting this inquiry, "[t]he court is nowhere compelled to go to trial or to engage in extended proceedings which might have the effect of vitiating the benefits of prompt and less costly settlement through the consent decree process." 119 Cong. Rec. 24,598 (1973) (statement of Senator Tunney).(1) Rather:
[a]bsent a showing of corrupt failure of the government to discharge its duty, the Court, in making its public interest finding, should . . . carefully consider the explanations of the government in the competitive impact statement and its responses to comments in order to determine whether those explanations are reasonable under the circumstances.
United States v. Mid-America Dairymen, Inc., 1977-1 Trade Cas. (CCH) ¶ 61,508, at 71,980 (W.D. Mo. 1977).
Accordingly, with respect to the adequacy of the relief secured by the decree, a court may not "engage in an unrestricted evaluation of what relief would best serve the public." United States v. BNS, Inc., 858 F.2d 456, 462 (9th Cir. 1988) (citing United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir. 1981)); see also Microsoft, 56 F.3d at 1460-62. Courts have held that:
[t]he balancing of competing social and political interests affected by a proposed antitrust consent decree must be left, in the first instance, to the discretion of the Attorney General. The court's role in protecting the public interest is one of insuring that the government has not breached its duty to the public in consenting to the decree. The court is required to determine not whether a particular decree is the one that will best serve society, but whether the settlement is "within the reaches of the public interest." More elaborate requirements might undermine the effectiveness of antitrust enforcement by consent decree.
Bechtel , 648 F.2d at 666 (emphasis added) (citations omitted).(2)
The proposed Final Judgment, therefore, should not be reviewed under a standard of whether it is certain to eliminate every anticompetitive effect of a particular practice or whether it mandates certainty of free competition in the future. Court approval of a final judgment requires a standard more flexible and less strict than the standard required for a finding of liability. "[A] proposed decree must be approved even if it falls short of the remedy the court would impose on its own, as long as it falls within the range of acceptability or is 'within the reaches of public interest.'" United States v. AT&T, 552 F. Supp. 131, 151 (D.D.C. 1982) (citations omitted) (quoting Gillette, 406 F. Supp. at 716), aff'd sub nom. Maryland v. United States, 460 U.S. 1001 (1983); see also United States v. Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985) (approving the consent decree even though the court would have imposed a greater remedy).
Moreover, the Court's role under the APPA is limited to reviewing the remedy in relationship to the violations that the United States has alleged in its Complaint; the APPA does not authorize the Court to "construct [its] own hypothetical case and then evaluate the decree against that case." Microsoft, 56 F.3d at 1459. Because the "court's authority to review the decree depends entirely on the government's exercising its prosecutorial discretion by bringing a case in the first place," it follows that "the court is only authorized to review the decree itself," and not to "effectively redraft the complaint" to inquire into other matters that the United States did not pursue. Id. at 1459-60.
There are no determinative materials or documents within the meaning of the APPA that were considered by the United States in formulating the proposed Final Judgment.
Dated: March 21, 2005.
1. See United States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975) (recognizing it was not the court's duty to settle; rather, the court must only answer "whether the settlement achieved [was] within the reaches of the public interest"). A "public interest" determination can be made properly on the basis of the Competitive Impact Statement and Response to Comments filed by the Department of Justice pursuant to the APPA. Although the APPA authorizes the use of additional procedures, 15 U.S.C. § 16(f), those procedures are discretionary. A court need not invoke any of them unless it believes that the comments have raised significant issues and that further proceedings would aid the court in resolving those issues. See H.R. Rep. No. 93-1463, 93rd Cong., 2d Sess. 8-9 (1974), reprinted in 1974 U.S.C.C.A.N. 6535, 6538.
2. Cf. BNS, 858 F.2d at 464 (holding that the court's "ultimate authority under the [APPA] is limited to approving or disapproving the consent decree"); Gillette, 406 F. Supp. at 716 (noting that, in this way, the court is constrained to "look at the overall picture not hypercritically, nor with a microscope, but with an artist's reducing glass"). See generally Microsoft, 56 F.3d at 1461 (discussing whether "the remedies [obtained in the decree are] so inconsonant with the allegations charged as to fall outside of the 'reaches of the public interest'").