The Federal Trade Commission (FTC or the Commission) has experienced multiple recent setbacks with respect to its regulatory authority. Now a new dispute raises questions about whether hospital acquisitions with Certificate of Public Advantage (“COPA”) authorization are exempt from Hart-Scott-Rodino Act pre-merger notification.
Recent FTC Setbacks
In AMG Capital Management v. FTC, the U.S. Supreme Court held that the FTC lacks authority to obtain monetary redress relief for consumers in federal court. As a consequence, to obtain such relief in consumer protection matters, the FTC would have to adjudicate the conduct in an FTC administrative proceeding.
Ironically, in Axon Enterprise Inc. v. FTC, the Court even more recently ruled that respondents need not wait until the FTC completes its administrative action to appeal. The typical process under the FTC Act allows respondents to appeal an adverse decision of an administrative law judge to the Commission. The Commission, acting as an adjudicative body, would then render a decision. If the respondent receives an adverse decision from the Commission, it can appeal that decision to a federal court of appeals of general jurisdiction. But the Supreme Court has now concluded that a respondent can bring a constitutional challenge in federal district court to the FTC’s administrative proceedings (and in a related case, the Security and Exchange Commission’s administrative proceedings).
Justice Clarence Thomas, in a concurring opinion in Axon, professed his “grave doubts” about the constitutional foundation for FTC-type administrative litigation. Illumina picked up this cudgel after the Commission ordered it to divest Grail, seeking an expedited review of Illumina’s appeal of the Commission decision. The Fifth Circuit Court of Appeals granted the expedited review.
A Challenge to HSR Pre-Merger Notification for Hospitals
The next chapter in this saga is the main subject of this note. Louisiana Children’s Medical Center v. Attorney General of the United States et al. involves a petition for a declaratory judgment that Louisiana Children’s Medical Center (LCMC) is not required to file pre-merger notification pursuant to the Hart-Scott-Rodino (“HSR”) Act. LCMC is a Louisiana nonprofit network of health care providers that operates nine hospitals and several other locations in Louisiana and Mississippi. LCMC acquired Tulane University Medical Center, Lakeview Regional Medical Center and Tulane Lakeside Hospital (the Acquisition) from HCA Healthcare, Inc. (HCA), consummating the acquisition without filing HSR premerger notifications. If the parties to an acquisition meet specified criteria, they must file such a notification, provide the required information and documents, and pay a filing fee. They also cannot consummate the transaction if the FTC (or the Antitrust Division of the Department of Justice) issues a “second request,” typically within 30 days of the notification. If the FTC issues such a request, it typically takes many months before the parties can close the transaction, assuming that the FTC does not challenge the acquisition at the end of this second waiting period.
LCMC consummated the acquisition on January 1, 2023. On March 3, the FTC’s Premerger Office asked LCMC why it had not filed the HSR notification. LCMC’s response, discussed below, did not convince the Premerger Office that the parties did not have a filing obligation. The penalty for not filing could be up to $50,120 per day for most of the period after the consummation. Filing now might not stop the penalty from mounting, given the position of the FTC that consummation is a violation of the parties’ HSR obligations.
In response to the Premerger Office’s position, LCMC sought a declaratory judgment that it has no filing obligation because, before closing, the State of Louisiana Attorney General issued a COPA authorizing the acquisition. A COPA authorizes regulatory oversight of a merged entity to replace the competition that may have been lost due to the consolidation of separate pre-merger entities. If done properly, a COPA would provide the merging parties with state action immunity from Section 7 of the Clayton Act. Section 7 bars mergers that may “substantially lessen competition.” The state action doctrine resulted from the Supreme Court’s 1943 Parker v. Brown decision, in which the Court concluded that there is “nothing in the language of the Sherman Act or in its history which suggests that its purpose was to restrain a state or its officers or agents from activities directed by its legislature.” Thirty-seven years later, the Supreme Court in California Retail Liquor Dealers Association v. Midcal Aluminumclarified that even conduct by private parties is immune from antitrust liability so long as the challenged conduct is pursuant to “clearly articulated and affirmatively expressed … state policy” and is “actively supervised” by the state. The FTC is unhappy with states using COPAs rather than competition to protect patients from higher prices or lower quality services, as we set out in another blog entry. But unhappiness alone does not undermine state action immunity. On the other hand, the state must cross its t’s and dot its i’s for the parties to obtain such immunity. See, e.g., FTC v. Phoebe Putney Health System, Inc.
One question raised by LCMC’s complaint is whether the FTC should have the opportunity to decide whether the state regulatory scheme is sufficient to provide such immunity during the waiting period after the parties have provided the premerger notification. LCMC argues that parties to a transaction do not have to file premerger notification if the transaction is “specifically exempted from the antitrust laws by Federal statute,” 15 U.S.C. § 18a(c)(5). The Parker line of cases, however, is court-made law, not supported by a specific exemption in a federal statute. Nevertheless, quoting Parker, LCMC argues that the state-action doctrine “is grounded in constitutional principles of federalism, in accordance with the ‘dual system of government in which, under the Constitution, the states are sovereign, save only as Congress may constitutionally subtract from their authority’” (emphasis added). The FTC may respond to LCMC’s argument by noting that no federal statute applicable to the acquisition specifically exempts the parties from HSR filings. LCMC might counter that the HSR Act is an antitrust law and that “Congress [did not] constitutionally subtract from [State] authority” when it passed the HSR Act. The FTC might, in turn, contend that the court should interpret the HSR Act’s reference to specific statutory exemptions from the antitrust law as limiting the carve-out from the HSR Act. That is, Congress did not intend to exempt acquisitions covered by state action from filing under HSR unless other statutes explicitly provided for such an exemption.
Not to be outdone by LCMC, on April 20, the FTC sued LCMC in the U.S. District Court for the District of Columbia, seeking to stop LCMC from integrating the three recently acquired hospitals because it did not file the required premerger notification. The FTC complaint argues that neither the FTC nor the DOJ has interpreted a COPA to exempt a party from its premerger notification obligations. After the required notifications, the FTC explained, it would investigate to decide whether the COPA shields the Acquisition from liability under Section 7 of the Clayton Act.
Conclusion
Businesses in all industries should take note of the FTC’s recent setbacks with respect to its regulatory authority. But we can offer no broad conclusion until we see the outcome of the two lawsuits discussed here. Stay tuned for the next blog post on this issue.
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