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Should Manhattan Hospitals Prepare For Outbreak Of Monopolization?

Posted  February 10, 2010

St. Vincent’s Hospital in Manhattan may have survived its recent brush with possible monopolization, but its financial health leaves it susceptible to relapse.  That’s the diagnosis of some antitrust practitioners, who are bracing for another outbreak.

The weak financial health of St. Vincent’s Hospital has been in the news lately.  News reports indicate that St. Vincent’s, located on Manhattan’s West 12th Street, is again having difficultly meeting its financial obligations.  (St. Vincent’s is no stranger to the bankruptcy process, having gone through a Chapter 11 proceeding in 2005.)

One proposal would have shored up St. Vincent’s financial position by reducing health services and competition.  Continuum Health Care Partners – a health care consortium that operates three Manhattan hospitals, including Roosevelt Hospital (at W. 55th Street), St. Luke’s Hospital (at W. 114th Street) and Beth Israel Medical Center (at E. 16th Street) – proposed acquiring St. Vincent’s and turning it into a strictly outpatient facility.  In other words, Continuum stated that it would shut down St. Vincent’s inpatient, emergency services facility if it were to operate St. Vincent’s.

If Continuum became the operator of St. Vincent’s, it would offer the only hospital services for most of the West Side of Manhattan.  Columbia Presbyterian Hospital, located at West 168th Street — far from downtown or mid-town, would be the only other remaining West Side hospital.  Moreover, if St. Vincent’s ceased offering inpatient services, residents of the lower West Side would have to travel to Roosevelt at 55th Street or across town to Beth Israel in order to receive emergency services.

The Continuum proposal met fierce opposition from political voices, including City Councilwoman Christine Quinn and Congressman Jerry Nadler, as well as advocacy groups for residents on the lower West Side of Manhattan.  Continuum responded by withdrawing its proposal.

Some antitrust practitioners are recommending that if the Continuum renews its proposal that it be scrutinized by antitrust enforcers.  As the proposal indisputably would reduce output in inpatient, emergency services, it appears on its face to constitute a violation of Section 7 of the Clayton Act, the antitrust provision that governs asset purchases.  That statute prohibits transactions that are likely to “substantially lessen competition . . . in any line of commerce . . . in any section of the county.”

A Continuum purchase of St. Vincent’s, even one that calls for the elimination of St. Vincent’s inpatient, emergency services, could past muster under Section 7 if it can be proven that St. Vincent’s qualifies as a “failing firm.”  Antitrust law characterizes a “failing firm” as one that has no reasonable prospect of reorganization under Chapter 11.  A purchase of a failing firm’s assets is permissible even where the transaction is otherwise anticompetitive when there is no less anticompetitive option available (e.g., no other hospital group that would be willing to purchase the St. Vincent hospital assets, even if the purchase was at a bargain basement price.)

Antitrust enforcers should make sure that St. Vincent’s is truly “failing” before permitting Continuum to acquire the hospital, especially if Continuum seeks to eliminate St. Vincent’s all-important emergency services.  Enforcers may even choose for St. Vincent’s to go through the bankruptcy process again before consenting to such a facially anticompetitive deal.  In this way, they can be assured that St. Vincent’s did not have the wherewithal to reorganize and that there is no other potentially less anticompetitive deal that could be had which would assure the continued operation of emergency services at St. Vincent’s.

Tagged in: Antitrust Enforcement,

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