Saint Alphonsus Med. Ctr. - Nampa, Inc. v. Saint Luke's Health Sys. - 778 F.3d 775 (9th Cir. 2015)

Rule:

The U.S. Court of Appeals for the Ninth Circuit remains skeptical about the efficiencies defense in general and about its scope in particular. Nevertheless, in a decision, it assumed that because § 7 (15 U.S.C.S. § 18) of the Clayton Act only prohibits those mergers whose effect "may be substantially to lessen competition," 15 U.S.C.S. § 18, a defendant can rebut a prima facie case with evidence that the proposed merger will create a more efficient combined entity and thus increase competition. For example, if two small firms were unable to match the prices of a larger competitor, but could do so after a merger because of decreased production costs, a court recognizing the efficiencies defense might reasonably conclude that the transaction likely would not lessen competition; refer to U.S. Dep't of Justice & FTC, Horizontal Merger Guidelines § 10 (2010) (Merger-generated efficiencies may enhance competition by permitting two ineffective competitors to form a more effective competitor, e.g., by combining complementary assets. Incremental cost reductions may reduce or reverse any increases in the merged firm's incentive to elevate price).

Facts:

This case arises out of the 2012 merger of two health care providers in Nampa, Idaho. The Federal Trade Commission ("FTC") and the State of Idaho sued, alleging that the merger violated § 7 of the Clayton Act, 15 U.S.C. § 18, and state law; two local hospitals filed a similar complaint. Although the district court believed that the merger was intended to improve patient outcomes and might well do so, the judge nonetheless found that the merger violated § 7 and ordered divestiture.

Issue:

Did the 2012 merger of two health care providers in Nampa, Idaho, violate § 7 of the Clayton Act?

Answer:

Yes

Conclusion:

 The panel affirmed the district court's judgment in favor of the FTC, the State of Idaho, and two local hospitals, holding that the 2012 merger of two health care providers in Nampa, Idaho, violated § 7 of the Clayton Act. Section 7 of the Clayton Act bars mergers whose effect "may be substantially to lessen competition, or to tend to create a monopoly." The plaintiff must first establish a prima facie case that a merger is anticompetitive, and the burden then shifts to the defendant to rebut the prima facie case. The panel held that the district court did not clearly err in determining that Nampa, Idaho, was the relevant geographic market. The panel also held that the district court did not clearly err in its factual findings that the plaintiffs established a prima facie case that the merger will probably lead to anticompetitive effects in that market. The panel further held that a defendant can rebut a prima facie case with evidence that the proposed merger will create a more efficient combined entity and thus increase competition. The panel held that the district court did not clearly err in concluding that the defendant did not rebut the plaintiffs' prima facie case where the defendant did not demonstrate that efficiencies resulting from the merger would have a positive effect on competition. Finally, the panel held that the district court did not abuse its discretion in choosing a divestiture remedy.