Bobby Guy is a member in the Nashville office
of Frost Brown Todd LLC and is certified as a
business bankruptcy specialist by the American
Board of Certification. He is a deal lawyer
who specializes in fixing, buying, and selling
companies in special situations nationwide,
most often in the healthcare sector. Guy can be
reached at firstname.lastname@example.org or 615-251-5557.
The author wishes to thank his colleague Robert
Dempsey for his insights into this article.
parties to a consolidation show that
the failure of the target is imminent,
that there is no course other than the
proposed transaction that would be
less harmful to competition, and that
the target could not regain competitive
stature through reorganization in
bankruptcy. 7 However, the facts in the
ProMedica case are likely to be replicated
many times in the near term—a target
hemorrhaging cash for years, skating
the line of negative cash flow after
lengthy turnaround work by a seasoned
professional, and facing a rapidly
changing environment with only limited
funds to invest in staying competitive.
If early intervention is the key to a
successful exit from financial distress,
the narrowness of the failing firm
doctrine may serve to incentivize
exactly the opposite behavior. If
a struggling healthcare provider
determines that consolidation is the
preferred exit strategy but antitrust
concerns intervene, then the struggling
healthcare provider may have to wait
until its situation is dire before it can
effectuate its strategy. Indeed, filing
Chapter 11 bankruptcy with a stalking
horse buyer in hand may actually be
the best method to confirm that the
struggling company is truly failing.
While not dispositive for antitrust
purposes, a Bankruptcy Court’s proposed
approval of a Section 363 sale, with
findings that exigencies exist requiring
the sale and that there appear to be
no feasible alternatives to preserve
the business as a going concern, may
be helpful in connection with the
antitrust analysis and establishing the
failing firm defense. Further, if the
transaction meets the HSR thresholds,
then Section 363 of the Bankruptcy
Code expedites the timeline for
FTC review to an initial 15 days. 8
The best response of all to an antitrust
challenge, of course, is for proponents
to show that the consolidation is
actually pro-competitive. One potential
way to harmonize Obamacare and
antitrust law may be to understand
that the goal of Obamacare in creating
efficiencies is to lower healthcare
costs, and consolidations that create
efficiencies but increase costs through
market power are likely inconsistent
with both public policies.
But in a distress scenario, showing a pro-competitive effect may be a more difficult
standard to demonstrate after the fact
when the parties to a quickly fashioned
distress sale are focused on attempting to
save a struggling facility before its value is
lost, rather than on trying to create a clear
record of the favorable economic effects
in the broader market. Also, for antitrust
purposes, the message of ProMedica is
that pro-competitive and anticompetitive
effects may be measured by specific
healthcare service lines, rather than the
provision of healthcare services overall.
The tensions created by Obamacare
and antitrust policies are not lost on
the FTC. In March 2014, the FTC held
a public workshop on “Examining
Health Care Competition.” The last time
the FTC did something similar was
when it held hearings on healthcare
enforcement in the early 2000s, which
resulted in a 2004 report that provided
recommendations for future healthcare
industry enforcement activity. The
new public workshop could be a
precursor to a new report that guides
enforcement, although that remains
to be seen. However, it underscores
the fact that the FTC is highly attuned
to activities in the healthcare sector.
The next few years will be an
interesting display of two federal
government policies in conflict,
and the bankruptcy arena is likely
to be the forum in which many of
the issues will come to the fore. J
1 Saint Alphonsus Medical Center--Nampa, Inc.
v. St. Luke's Health System, Ltd., ____F.Supp.3d
______, 2014 WL 407446 (D. Idaho Jan. 24, 2014).
2 ProMedica Health Systems, Inc.
v. F. T.C., ____ F.3d ____, 2014 WL
1584835 (6th Cir. Apr. 22, 2014).
3 Just how many hospitals named “St. Luke’s”
are there? Short of an exhaustive search of
Medicare records, the answer isn’t clear—but
a quick glance at Google suggests that the
answer is “lots.” Just the first page of a Google
search reveals hospitals named St. Luke’s in
Texas, Pennsylvania, Missouri (both in St.
Louis and Kansas City), Iowa, and New York.
6 In 2014, HSR applies to transactions of more
than $75.9 million or acquisitions that result in
the combination of companies in which one
company has annual net sales or total assets
in excess of $151.7 million and the other has
annual net sales or total assets in excess of
$15.2 million. See generally 15 U.S.C. § 18a.
7 U.S. v. Gen. Dynamics Corp., 415 U.S. 486, 507
(1974); Dr. Pepper/Seven Up Cos. Inc. v. FTC,
991 F.2d 859, 864-65 (D.C. Cir. 1993); Michigan
Citizens for an Indep. Press v. Thornburgh,
868 F.2d 1285, 1288 (D.C. Cir. 1989).
8 11 U.S.C. Section 363(b)( 2).
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