Hospital Corporation of America v. FTC
Citation: 807 F.2d 1381 (7th Cir. 1986)
Facts
Hospital Corporation of America (HCA) acquired two competing hospital chains in Chattanooga, Tennessee, increasing its share of hospital beds in the area substantially. The FTC challenged the acquisitions under Clayton Act § 7 as likely to substantially lessen competition.
Issue
Did HCA’s acquisitions of competing hospitals in the Chattanooga area substantially lessen competition in violation of Clayton Act § 7?
Holding
Yes. Judge Posner, writing for the Seventh Circuit, affirmed the FTC’s order. The acquisitions raised market concentration to dangerous levels and entry barriers were high. The potential for collusion among the remaining competitors was substantial.
Rule
Section 7 mergers analysis: To assess whether a merger substantially lessens competition, courts consider: (1) market definition (product and geographic), (2) market concentration (HHI increases), (3) entry barriers, (4) likelihood of coordination or unilateral effects, and (5) procompetitive justifications. The government need not show actual anticompetitive effects — only a reasonable probability that competition will be substantially lessened.
Entry barriers in hospital markets: Certificate-of-need laws, high capital costs, and reputational factors constitute significant entry barriers in hospital markets, supporting concerns about post-merger coordination.
Significance
- Posner’s opinion is a model of economic analysis of merger effects
- Influential in articulating how market concentration, entry barriers, and coordination risks interact
- Demonstrates application of Herfindahl-Hirschman Index (HHI) analysis to merger review
- Widely assigned in antitrust courses as an example of careful merger analysis