The Reading Hospital

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IN THE MATTER OF THE READING HOSPITAL, ET AL.

COI-SENT ORDER, ETC. , IN REGARD TO ALLEGED VIOLATION OF SEC. 7 OF THE CLAYTON ACT Docket C-3284. Complaint, Apr. 10, 1990-Decision, Apt. 10, 1990 This consent order prohibits, for a period of ten years, among other things, two Berks County, Fa. hospitals from acquiring, without prior Commission approval, an Of part of any hospital in Berks County, Fa., with a fair market value or purchase price greater than $1 milJon. Respondents are also prohibited, for a period of ten years, from transferring any hospital they operate in Berks County to a person that operates or is acquiring a hospital in Berks Cpunty, without prior Commission approval.

Appearances For the Commission: Jonathan Banks and Mark Horoschak. For the respondents: David H. Roland, Roland Schlegel Reading, Pa. and Christopher Mattson, Barley, Snyder, Cooper & Barber Lancaster, P A.

COMPLAINT The Federal Trade Commission, having reason to believe that The Reading Hospital and Community General Hospital were consolidated through their formation of Berkshire Health System in violation of Section 7 of the Clayton Act, as amended, 15 V. C. 18, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint, pursuant to the provisions of Section 11 of the Clayton Act, as amended, 15 C. 21 , stating its charges as follows:

1. THE RESPONDENTS PARAGRAPH 1. Respondent The Reading Hospital ("Reading Hospital") is a non-profit corporation organized, existing and doing business under the laws of the State of Pennsylvania, with its office principal place of business and mailing address at Sixth A venue and Spruce Street, Reading, Pennsylvania. Reading Hospital is a person Complaint 113 F.

subject to the jurisdiction of the Commission pursuant to Section 11 of the Clayton Act, as amended, 15 U. C. 21. PAR. 2. Respondent Community General Hospital ("Community General") is a non-profit corporation organized, existing and doing business under the laws of Pennsylvania, with its office and principal place of business in Reading, Pennsylvania, and its mailng address at O. Box 1728, Reading, Pennsylvania. Community General is person subject to the jurisdiction of the Commission pursuant to Section 11 of the Clayton Act, as amended, 15 U. C. 21. I1. THE TRANSACTION PAR. 3. Until December 27 , 1985 , Reading Hospital was an independent, private, non-profit corporation, controlled by a selfperpetuating board of directors. Reading Hospital had net revenues of approximately $86 milion in its fiscal year 1985. PAR. 4. Until December 27 , 1985 , Community General was an independent, private, non-profit corporation, controlled by a selfperpetuating board of trustees. Community General had net revenues of approximately $27 milion in its fiscal year 1985. PAR. 5. Pursuant to an Affliation Agreement, dated December 27 1985, between Reading Hospital and Community General, the two corporations formed a new corporation, Berkshire Health System BHS"), for the purpose of consolidating their operations under the control of BHS. BHS immediately became the sole member of, and thereby acquired control over, both Reading Hospital and Community General.

PAR. 6. After the consolidation described above, and until the disaffliation and dissolution described below, BHS was a non-profit corporation organized, existing and doing business under the laws of the State of Pennsylvania. BHS was primarily engaged in the establishment and management of a system of health care providers in southeastern Pennsylvania, including Reading Hospital and Community General, among others. BHS was governed by a self-perpetuating Board of Directors, composed _principally of members of the Board of Directors of Reading Hospital and of the Board of Trustees of Community General.

PAR. 7. BHS remained the sole member of both Reading Hospital and Community General until on or about March 28 1989, when BHS relinquished its rights as member of Community General, pursuant to a Disaffliation Agreement entered into on January 18, 1989, among READING HOSPITAL, ET AL. 287 285 Complaint BHS, Reading Hospital and Community General. Soon thereafter Community General trustees resigned from the BHS board of directors, and the articles of incorporation and bylaws of BHS and Community General were amended to eliminate Community General' representation on the BHS board of directors and BHS' status as member of Community General. Subsequently, on December 19 1989 BHS was dissolved. As a result of BHS' dissolution, Reading Hospifal or its affiliates assumed control over BHS' subsidiaries, affiliates and other assets. Reading Hospital and Community General are now, as they were prior to the consolidation described above, independent corporations controlled by separate, self-perpetuating boards of directors or trustees.

PAR. 8. At all times relevant herein, BHS, Reading Hospital and Community General have been and (except for BHS) are now engaged in or affecting commerce within the meaning of Section 1 of the Clayton Act, as amended 15 U. C. 12.

II1. TRADE AND COM:IERCE PAR. 9. The relevant line of commerce is general acute care hospital services. General acute care hospital services are services provided by health facilities that provide 24-hour inpatient care in connection with services of physicians for conditions for which nursing, medical or surgical services would be appropriate for care, diagnosis, or treatment, other than services provided by facilities that are specially intended for treatment of mental illness, emotional disturbance or substance abuse.

PAR. 10. The relevant section of the country is the Berks County, Pennsylvania, area, and/or parts thereof. PAR. 11. Prior to the consolidation described above, the general acute care hospital services market in the Berks County area was highly concentrated, with only three firms doing business in the relevant market. Reading Hospital was the largest firm in the relevant market. In 1985, Reading Hospital had a share of approximately 63% of the general acute care hospital services market in the Berks County area. St. Joseph Hospital had a market share of approximately 23%. Community General had a market share of approximately 14%. PAR. 12. Entry into the general acute care hospital services market in the Berks County area is difficult, especially in light of Pennsylvans certificate-of-need regulation of entry. 288 FEDERA TRADE COMMISSION DECISIONS Decision and Order 113 F. IV. THE EFFECTS OF THE CONSOLIDATION PAR. 13. As a result of the consolidation of Reading Hospital and Community General through the formation of BHS, BHS controlled two of the three general acute care hospitals in the Berks County area. The consolidation increased the market share of the largest provider of general acute care hospital servces in the Berks County area from approximately 63% to approximately 77% , and increased the two-firm concentration ratio from approximately 86% to 100%. As a result of the consolidation, the Herfndahl-Hirschmann index increased by over 1 700 points, from approximately 4 700 points to approximately 6 500 points.

PAR. 14. The consolidation eliminated direct and actual competition between Reading Hospital and Community General. PAR. 15. Until the disaffliation described above, the effect of the consolidation of Reading Hospital and Community General through the formation of BHS may have been substantially to lessen competition or tend to create a monopoly in the relevant market in the following ways, among others:

(a) By substantially reducing actual and potential competition in the relevant market;

(b) By giving BHS a dominant position in the relevant market; (c) By substantially increasing the likelihood of collusion in the relevant market; and (d) By denying patients, physicians, and purchasers of health care coverage the benefits of free and open competition based on price quality, and servce.

V. VIOLATION CHARGED PAR. 16. The consolidation of Reading Hospital and Community General through their formation of BHS violated Section 7 of the Clayton Act, as amended, 15 V. C. 18.

DECISION AND- ORDER The Federal Trade Commission having initiated an investigation of certain acts and practices of the respondents named in the caption hereof, and the respondents having been furnished thereafter with a copy of a draft of complaint which the Bureau of Competition proposed to present to the Commission for its consideration and READING HOSPITAL, ET AL. 289 285 Decision and Order which, if issued by the Commission, would charge respondents with violation of the Clayton Act; and The respondents, their attorneys, and counsel for the Federal Trade Commission having thereafter executed an agreement containing a consent order, an admission by the respondents of all of the jurisdictional facts set forth in the aforesaid complaint, a statem that the signing of said agreement is for settement purposes only and does not constitute an admission by respondents that the law has been violated as alleged in such complaint, and waivers and other provisions as required by the Commission s Rules; and The Commission having thereafter considered the matter and having determined that it had reason to believe that the respondents have violated the said Act, and that complaint should issue stating its charges in that respect, and having thereupon accepted the executed consent agreement and placed such agreement on the public record for a period of sixty (60) days, now in further conformity with the procedures prescribed in Section 2. 34 of its Rules, the Commission hereby issues its complaint, makes the following jurisdictional findings and enters the following order:

1. Respondent The Reading Hospital is a corporation organized existing and doing business under and by virtue of the laws of the State of Pennsylvania, with its office, principal place of business and mailing address at Sixth A venue and Spruce Street, Reading, Pennsylvania. Respondent Community General Hospital is a corporation organized, existing and doing business under and by virtue of the laws of the State of Pennsylvania, with its office and principal place of business in Reading, Pennsylvania, and its mailing address at P. Box 1728 , Reading, Pennsylvania.

2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondents, and the proceeding is in the public interest.

ORDER For the purposes of this order:

A. Reading Hospital" means The Reading Hospital (a Pennsylvania corporation), its directors, trustees, officers, agents, employees 290 FEDERAL TRADE COMMISSION DECISIO?-S Decision and Order 113 F. and representatives, its parents and affliates, and its subsidiaries divisions, successors, and assigns.

B. Community General" means Community General Hospital (a Pennsylvania corporation, which operates a hospital of the same name in Reading, Pennsylvania), its directors, trustees, officers, agents employees, and representatives, its parents and affilates, and its subsidiaries, divisions, successors, and assigns. C. Responents means Reading Hospital and Community Gener- , collectively and individually.

D. General acte care hospital herein referred to as hospital means a health facilty, other than a federally owned facility, having a duly organized governing body with overall administrative and professional responsibilty, and an organized medical staff, that provides 24-hour inpatient care, as well as outpatient services, and having as a primary function the provision of inpatient services for medical diagnosis, treatment, and care of physically injured or sick persons with short-term or episodic health problems or infirmities. E. To acquire a hospital" means to directly or indirectly acquire all or any part of the stock or assets of any hospital, or enter into any arrangement to obtain direct or indirect ownership, management or control of any hospital or any part thereof, such as a lease of or management contract for a hospital, or the acquisition of the right to designate directly or indirectly the directors of a hospital corporation. F. To operate a hospital" means to own, lease, manage, or otherwse control or direct the operations of a hospital, directly or indirectly.

G. Affiliate means any entity whose management and policies are controlled or directed in any way, directly or indirectly, by the person with which it is affliated.

H. Person means any natural person, partnership, corporation company, association, trust, joint venture or other business or legal entity, including any governmental agency. I1.

lt is ordered That, for a period of ten (10) years from the date this order becomes final, no respondent shall, without the prior approval of the Federal Trade Commission:

A. Acquire any hospital in Berks County, Pennsylvania; or B. Permit any hospital it operates in Berks County to be acquired by READING HOSPITAL. ET AL. 291 285 Decision and Order any person that operates, or is in the process of acquiring, any other hospital in Berks County.

Provided, however that no acquisition shall be subject to this Paragraph II of this order if the fair market value of (or, in case of a purchase acquisition, the consideration to be paid for) the hospital or part thereof to be acquired does not exceed one milion dollars ($1 000000).

It is further ordered That, for a period of ten (10) years from the date this order becomes final, no respondent shall, without the prior approval of the Federal Trade Commission, permit any hospital it operates in Berks County, Pennsylvania to be acquired by any person other than another respondent unless the respondent requires, as a condition precedent to the acquisition, that the acquiring party fie with the Commission, prior to the closing of the acquisition, a written agreement to be bound to the provisions of this order. IV.

lt is further ordered That respondents, upon written request of the Secretary of the Federal Trade Commission or the Director of the Bureau of Competition of the Federal Trade Commission made to them at their principal offices, for the purpose of securing compliance with this order, and for no other purpose, and subject to any legally recognized privilege, shall permit duly authorized representatives of the Federal Trade Commission or the Director of the Bureau of Competition:

1. Reasonable access during their office hours, in the presence of counsel, to those books, ledgers, accounts, correspondence, memoran- , reports, and other records and documents in their possession or control that relate materially and substantially to any matter contained in this order; and 2. An opportunity, subject to their -reasonable convenience, to intervew their officers or employees, who may have counsel present regarding such matters.

It is further ordered That respondents shall notify the Commission Decision and Order 113 F. at least thirty (30) days prior to any proposed change, such as dissolution, assignment, sale resulting in the emergence of a successor corporation or association, or the creation or dissolution of subsidiaries or affiiates, which may affect compliance obligations arising out of this order.

NATURE' S WAY PRODUCTS, INC. , ET AL. 293 293 Complaint