Hospital Corp. of America v. Federal Trade Commission

Hospital Corporation of America (Hospital Corp.) (defendant) was a hospital chain. Hospital Corp. owned a hospital in Chattanooga, Tennessee. In 1981 and 1982, Hospital Corp. acquired two additional hospitals in Chattanooga. The acquisitions also gave Hospital Corp. management contracts for two more hospitals in Chattanooga. Accordingly, after the acquisitions, Hospital Corp. controlled five of the 11 hospitals in Chattanooga. The Federal Trade Commission (FTC) (plaintiff) filed a complaint against Hospital Corp. The FTC alleged that Hospital Corp.’s acquisitions violated § 7 of the Clayton Act, because the transactions substantially lessened competition in the Chattanooga hospital-services market. The FTC demonstrated that Hospital Corp.’s market share increased from 14 percent to 26 percent. The combined market share of the four biggest hospitals in the Chattanooga market increased from 79 percent to 91 percent. The FTC presented additional evidence of Chattanooga hospitals’ cooperative tradition and other economic aspects of the hospital-services market that showed a market prone to collusion. Hospital Corp. argued the mergers did not threaten competition, because differences in services and organizational structure made collusion difficult or unappealing. Hospital Corp. also argued the fact that hospitals are paid mainly by sophisticated insurance companies deters anticompetitive collusion. The FTC ruled that Hospital Corp.’s acquisitions violated § 7 of the Clayton Act. Hospital Corp. appealed.