David Dahlquist, Partner, Winston & Strawn LLP, and Dina Older Aguilar, Vice President, Cornerstone, discuss FTC v. Hackensack Meridian Health and Englewood Health, which was argued in the Northern District of New Jersey in May 2021 (closing arguments took place on June 2, 2021 and the case is pending a final ruling). Hackensack and Englewood entered into a merger agreement in 2019, but the FTC challenged the merger in late 2020. Dahlquist represented Englewood Health, and Aguilar represented both parties. Dahlquist and Aguilar discuss the geographic and economic aspects at the center of the case, including the pro-competitive benefits of the merger that were argued by the defendants, along with the FTC’s position. From AHLA’s Antitrust Practice Group. Sponsored by Cornerstone.
Watch the full conversation here.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
David Dahlquist, Partner, Winston & Strawn LLP, and Dina Older Aguilar, Vice President, Cornerstone, discuss FTC v. Hackensack Meridian Health and Englewood Health, which was argued in the Northern District of New Jersey in May 2021 (closing arguments took place on June 2, 2021 and the case is pending a final ruling). Hackensack and Englewood entered into a merger agreement in 2019, but the FTC challenged the merger in late 2020. Dahlquist represented Englewood Health, and Aguilar represented both parties. Dahlquist and Aguilar discuss the geographic and economic aspects at the center of the case, including the pro-competitive benefits of the merger that were argued by the defendants, along with the FTC’s position. From AHLA’s Antitrust Practice Group. Sponsored by Cornerstone.
Watch the full conversation here.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
Support for A H L A comes from Cornerstone research. For more than 30 years, cornerstone research staff has provided economic and financial analysis in all phases of economic litigation and regulatory proceedings. Our staff consultants contribute expertise in economic, finance, accounting, and marketing, as well as business acumen, familiarity with the litigation process, and a commitment to produce outstanding results. For more information, go to www.cornerstone.com.
Speaker 2:Hello everyone. Thank you for joining today. My name is David Dahlquist. I'm a partner at Winston Intron, uh, based in Chicago, and also co-chair of our healthcare and Life Science Practice Group. I appreciate you taking the time to join us today. I want to thank, uh, the H l A Antitrust Practice Group for helping today make today possible, um, as well as thank Cornerstone and, uh, my co-presenter here, uh, who is gonna join me for a discussion of FTC versus Hackensack Meridian Health and Englewood Health. Uh, and welcome. And Dina, please turn it to you to introduce. Hey,
Speaker 3:David. Uh, my name is Dina Older Aguilar. I'm a Vice President at Cornerstone Research and also the co-chair of our healthcare practice. Um, David, did you wanna start off by telling us a little bit about the background on this case, uh, and trial and parties?
Speaker 2:Absolutely. Happy to do so. And, uh, uh, for everyone's knowledge, Dina and I were both involved in the case intimately, uh, Winston and Strong, and the privilege of representing, uh, Englewood Health. Um, and Dean on behalf of Cornerstone represented both parties in, uh, some of the work that we'll talk about today. All the information that we're gonna give today is public, um, from the party's perspectives, um, and occurred at the trial. Um, we are not gonna provide any, uh, confidential information that was shared, uh, amongst our clients. Um, uh, so that's our, our sort of talking points from today. Uh, but this is about a seven day preliminary injunction hearing or trial that occurred in May of this year, May 10th to May 18th, where the dates of the trial, um, it occurred, uh, virtually, but in the, uh, Northern District of New Jersey, um, uh, and before Judge Michael Vasquez. Um, due to the Covid protocols, the District Court of New Jersey was closed at the time, and therefore, uh, we conducted a virtual trial. Nonetheless, the parties, uh, as well as the Federal Trade Commission, were all present in their own respective offices and witnesses testified live within our own offices. So it was a very strange hybrid live, uh, virtual type of trial format, which was, uh, uh, first for me. Um, uh, the trial is in the record is submitted. We did closing arguments on June 2nd and has been fully submitted and is being considered by the judge. Uh, so hopefully you hear all this before the opinion comes out. Um, let me give you a minute about the parties. Hackensack Meridian Health is a 17 hospital academic hospital, uh, uh, based system, uh, based in Hackensack, New Jersey. Um, it's anchored by Hackensack University Medical Center, uh, and various other hospitals that are part of the system throughout New Jersey. Um, H U M H as we, uh, uh, sometimes affectionately called it, uh, it offers a full range of services, uh, throughout, um, Northern New Jersey. Uh, our client, Englewood Health is a single hospital, uh, about 300 bed hospital based in Englewood, New Jersey, just across the Hudson River from New York City, uh, and offers primary, secondary, and some, uh, tertiary level services. Um, uh, there was a H M H and Englewood also offer, uh, extensive physician services and physician networks that operate throughout New Jersey as well. The parties entered a emerge, entered into a merger agreement in 2019. Uh, went through an investigation full through a second request with the Federal Trade Commission. Um, and ultimately the commission elected to challenge it in early, uh, 20, uh, late 2020, and the trial was held, uh, over May in 2021. Um, today, while there's a multitude of issues that occurred over those eight days of trial and closing arguments, I wanted to focus on really two points, um, that we think are our most prominent, uh, uh, of the trial and that we want to take away in today's short, uh, a quick analysis of the case first geographic market. And second, my colleague Dina will address really pro-competitive benefits. Uh, but lemme talk about geographic market, which was perhaps first and foremost the largest issue, uh, and that we argued before Judge Vasquez during, uh, the preliminary junction hearing. Uh, the Federal Trade Commission's position is that the relevant market, geographic market is only the county of Bergen, Bergen County in northern New Jersey. Um, the parties had a far different view of the world and believed that Bergen County was far too narrow, uh, was basically a, a holdover political boundary, and did not connect with any of the economic realities of which the court was required to take consideration of. Uh, the parties did not specifically define a market, but stated that the market should at least be, uh, for county area that included Bergen Hudson, Passaic, and Essex County, but also introduced evidence that, uh, patients certainly traveled to and hospitals in other areas competed such as into Manhattan and up into Rockland County, into New York. Um, the, uh, geographic market was a hotly contested issue throughout the trial, and we expected to be featured prominently in the judge's ultimate opinion. Um, the parties argued, uh, uh, extensively that the Federal Trade Commission in constructing their market and their economists, which we'll talk about more in a few minutes, did not follow the merger guidelines, um, in constructing their, their very narrow localized Bergen County market. And I'm sure you can read a lot more about that in the papers, but for a quick analysis today, uh, that's where we'll, we'll, we'll pause, uh, wanted with that, to toss it over to Dina to really talk about some of the economics that was, uh, played a prominent role and featured role in the case. And Dina, if you'll take us through a little bit of the work you did and the pro-competitive benefits that, uh, the parties believed really support, uh, uh, the closing of the transaction.
Speaker 3:Yeah. So, um, what we did in, in analyzing the pro-competitive benefits and, uh, cornerstone supported Dr. Uh, Gotham Garron, who's a professor of economics at Columbia. Um, and so what we did was to translate the commitments to improvements in the clinical capacity and capabilities at H U M C and at Englewood, and then see how would that, uh, relate into, um, improved, um, to pro-competitive benefits, uh, that would affect both patients, benefit patients in the market, but also directly lead to benefits that would be enjoyed by payers. So lower cost for payers, improved care for patients. So to start with, um, in thinking about the improvements in capacity and capabilities at Englewood and at H M C, um, with the merger, there was a commitment by H hm M C to make investments of over 400 million in, uh, in capital improvements at Englewood. Um, in addition, uh, h hm m C had made commitments to support the clinical programs of Englewood, and part of that support included transferring patients from who would otherwise be cared for at H HMC to Englewood. And that could both be a, a direct transfer from community, uh, hospitals, um, HMH community hospitals to Englewood, um, and could also be redirection. Um, so encouraging physicians to take care, you know, take their patients to Englewood, um, who might otherwise be cared for at H hm M C. Um, Englewood as, um, as David mentioned, has a, has capabilities to, to deliver primary, secondary, some non complex tertiary care. Uh, but Englewood has, um, uh, lots of unused capacity. Um, so they have the capabilities to be delivering more in the market. Um, what we found is that that could, the improvement in capabilities at Englewood could lead to direct payer cost savings, because Englewood is also a low priced hospital, and that's low prices in comparison to H U M C, but it's also low prices in comparison to many other hospitals in the region. So by improving the capacity and the capabilities of Englewood, um, you can draw patients, um, from around the community to Englewood and away from more, um, more expensive hospitals. Um, that's a benefit to the combined parties. They now have more patients, they can care for more patients at Englewood, but it's also a benefit to payers because they're able to realize, um, direct cost savings in patients cared for at Englewood. Um, and, uh, just to spend a little bit more time on that, um, how did we think about what those cost savings would be? Um, well, first of all, we looked at, uh, other investments in New Jersey hospitals, in hospitals in New York, um, and, uh, looked at what did those hospitals realize in terms of increased volume following, uh, investments that were, you know, either of similar magnitude or even sometimes smaller investments. So we used those past experiences to project what a, um, investment of the size and scope that was planned at Englewood, what that could mean in terms of really improving Englewood's competitive position and ability to draw patients from other hospitals. So that was one thing. Uh, we also looked at the commitments that, uh, HMH had made in terms of supporting, uh, movement of patients that would be cared for, uh, elsewhere in the HMH system, moving those to Englewood. Um, and finally we also, um, Dr. Gary Shanon, uh, did a analyzed patient choice, um, and found that patients had, um, uh, placed increased value on hospitals that were part of systems that were close to those patients. So just the sort of integration of Englewood into the HMH system would also have an expectation of, um, increasing volume at, at Englewood. Um, he actually did not include that in his, um, estimate of payer cost savings as a, as a conservative measure, um, turning from Englewood, now we look at H U M C, um, and, you know, the, the kind of a big motivation<laugh> for the merger from h hm H'S point of view was to free up capacity at H U M C that would allow it to, uh, really, um, become an, even, even more of a flagship hospital and regional draw in terms of, uh, expanded complex, tertiary and quaternary care services. Um, this, um, and, and what is kind of stopping them right now in part is the, um, incredible capacity pressure that that hospital is under. Um, so, um, with that, um, with that in mind, we thought about, we analyzed the freed capacity that could be generated at H U M C with the increased capabilities at Englewood, and with that freed capacity, um, projected that, uh, H G M C would be able to care for more, uh, seriously ill patients. Um, and some of those seriously ill patients would be patients who are currently leaving New Jersey, uh, and seeking care in New York. So there's clearly a, a, a huge benefit to patients who are able to get care for their most serious illnesses, um, closer to home, closer to their family. Uh, but there's also a benefit to payers in that H U M C, um, while it has, you know, um, uh, more, uh, is able to deliver more acute care services and is more expensive than Englewood, um, is a deal compared to some of the academic medical centers in New York that would otherwise be caring for these critically ill patients. So those were, um, those were two of the, um, uh, pro-competitive benefits that, uh, Dr. Gary Shankar assessed. Um, he also, uh, looked at efficiencies, um, and, uh, used an estimate by, um, Ms. Lisa Ahern, who was the party's efficiencies expert, and, uh, estimated that half of those efficiencies of, um,$38 million, that half of that would be passed on to payers. Um, David, uh, why don't you tell us, uh, kind of what the FTCs thoughts were and, and position on, uh, on those pro-competitive benefits?
Speaker 2:Sure, sure. And we'll certainly say that those estimates that, uh, Dr. Gary Shankar and others, uh, put forward in our mind were always conservative, but, um, uh, really saw that parties saw a lot of value in the efficiencies and pro-competitive benefits of the transaction. And that's a good segue into what the, how the FTC viewed some of the world. Clearly you're getting a view here from the defense perspective, and if the FTC was here, they'd of course, uh, have the counterpoint. But let me channel them for a moment and, uh, put forward some of their, uh, positions and some of their statements in arguments to, to, to start right where we left off on the pro-competitive benefits, um, that, uh, Dina was talking about. The FTC believed that all of those, uh, most if not all of those were really under the inefficiencies bucket, and therefore, uh, needed to comply with a merger specific analysis, uh, which they, uh, believe was not met and could not be met. Um, and they questioned how and why a lot of those, uh, pro-competitive benefits could not be achieved or would not be achieved through other, uh, less, uh, anti-competitive means, um, through clinical agreements, clinical arrangements, contractual agree arrangements or other methodologies. So, uh, they wanted to take a lot of the pro-competitive benefits that we argued, really go to the competitive effects analysis of the case and put it into an efficiencies bucket, uh, and then not discredit it as, uh, a non merger specific efficiency. That was certainly a battleground. They also thought we needed to look at alternative mergers that, uh, while this was a merger that they had in front of them, that, uh, the court needed to analyze whether those same type of benefits could be achieved through a different, or an alternate merger through some other party, um, whether in New Hampshire or whether in in New Jersey or elsewhere. Um, that was a question that was hotly contested by the parties, even subject of a motion in limine that was filed on behalf of the parties that alternative mergers are irrelevant and should not really be considered. Um, and the judge, uh, elected to take it under advisement, and we may see some of that in the future opinion, uh, capacity. Uh, the FTC certainly argue that, um, H HMH and it's flag flagship hospital, H h hm, M C, were not in fact at capacity, even though facts showed that they were about an 85% capacity, which by our argument, uh, uh, met if not exceeded capacity realms, but h hmh, um, and the ftc, they're argued that those patients could be transferred to other hospitals, not only Englewood outside of a merger agreement, but also it's other existing hospitals. And therefore, uh, it really did not have the capacity constraints that we tried to argue it did. Um, quality, quality was certain in argument. Um, we put forward on the defense side of quality of care expert Dr. Meyer, uh, Greg Meyer to argue that the quality improvements would come from this transaction, and the FTC attempted to rebut that with their own quality expert in order to say quality results through any merger are mixed at best. Um, finally, I just think I'd focus on price increases. One of the biggest, uh, points of the FTC focused on an allegation that the combination of H M H H, hm, m C and Englewood, uh, would be an increase in prices. They, uh, retained Dr. Lier Daphne, who testified, uh, and she estimated an approximate 31 million price increase that would occur based on her analysis, um, as a result of the combination of the two, uh, of the two entities. And Dina, let me turn over to you to just talk about how did the parties respond to Dr. Daphne's analysis and claim of a, uh, approximately 30 million price increase?
Speaker 3:Yeah. Uh, so the parties, uh, looked at, uh, Dr. Lemore Daphne's analysis, and as you indicated, David, um, she found that there would be a approximately 31 million price increase, and, and where did that come from? So that came from a, a patient choice model where she estimated an increase in, uh, in willingness to pay for the two hospitals, um, as or for the h HMH system with Englewood integrated, um, from that willingness to pay, she used an existing academic research on past hospital mergers, um, and, and found the average effect in those mergers and applied it to the change in willingness to pay in this case. Um, and what, um, uh, defendant's other e economic expert, um, Dr. Lawrence Wu found was, or, or pointed out, was that the, um, average impact that Dr. Daphne relied upon was not the full results of the paper, but was the results of a, a subset of the sample, which were hospital mergers where there was not, um, uh, no decrease in in costs. Um, if we looked at the full sample, that same, uh, academic study found no, uh, statistically significant increase in prices. Um, Dr. Wu then analyzed claims data from hospitals in New Jersey and New York, um, projected, uh, an increased willingness to pay, and then, um, aligned that with a projection of the impact of that increased willingness to pay on prices, given data from these hospitals and this market, and found that there would be, you know, his projection is that there would not be a competitive, um, price impact. And that aligned with testimony, um, by insurers in the case, which was that, um, the integration or the acquisition of Englewood by H HMH would not lead to an increase in bargaining leverage, um, by the HMH system. Um, uh, so I think that was really kind of how the parties responded to that, uh, to the competitive price, uh, effect. Uh, David, do you wanna kind of summarize with where we stand now?
Speaker 2:Well, thank you, Dina. Uh, yes, the case is now pending a final decision or ruling by Judge Vasquez. Um, uh, note, timeline or date certain is doing that will come, we'll certainly await his decision. Um, but we certainly know he has some work cut out for him in going through the party's, uh, various arguments, uh, judge Rasquez made a, a good comment at the end stating that if he had to start his opinion writing with what the parties agreed upon, it would be limited to solely that the parties were located in New Jersey because everything else was disputed. Um, uh, so we'll look forward to that decision and any, uh, um, uh, future appeals or any other action that might come, uh, from that decision. Uh, so I thank you all for listening today. Therefore, we encapsulated a few years of hard work and a months of litigation into, uh, a 10 minute presentation. We obviously, uh, skirted over a lot, but we tried to give you the, the highlights. And in conclusion, I'd love to thank the, uh, A H l A Anti Troth Practice Group for, um, for hosting us today. And thank cornerstone for sponsoring us today. And Dina, thank you for joining me. It was a pleasure to see.
Speaker 3:Thank you, David. Good to see you again, and thanks also today, a H L A and to everyone, uh, who joined us.
Speaker 2:Thank you everyone for listening.
Speaker 1:Thank you for listening. If you enjoy this episode, be sure to subscribe to a H L A speaking of health law wherever you get your podcasts. To learn more about a H L A and the educational resources available to the health law community, visit American health law.org.