FTC says appeals court must reject Sanford, Mid Dakota attempt to spin factual disputes as legal errors

20 November 2018 2:34pm

13 November 2018. By Jenna Ebersole.

Sanford Health and Mid Dakota Clinic are misconstruing factual disputes as legal errors by the lower court that agreed to halt their planned merger, the US Federal Trade Commission told a federal appeals court Tuesday, saying its case against the deal was strong and decided correctly.

A three-judge panel — US Circuit Judges Steven M. Colloton, Bobby E. Shepherd and David R. Stras — on the US Court of Appeals for the Eighth Circuit heard arguments in the healthcare providers’ appeal in St. Paul, Minnesota. Colloton and Shepherd were nominated to the court by President George W. Bush and Stras by President Donald Trump.

The FTC won a preliminary injunction to stop the deal in December after alleging it would significantly reduce competition for adult primary care physician services, pediatric services, obstetrics and gynecology services, and general surgery physician services in the greater Bismarck and Mandan, North Dakota, metropolitan area.

At the outset Tuesday, Sanford lawyer Robert Cooper said the lower court made a series of legal errors, including by improperly shifting the burden of persuasion to the companies, seeing insurer Blue Cross Blue Shield’s power as a buyer only as a defense, focusing on a minor anticompetitive effect and erring in its market definition technique.

The lower court decision effectively says unless companies can prove a deal is at least competitively neutral, it must be stopped, which is incorrect, he told the panel.

The judge said in her opinion that because the government established the deal is presumptively illegal, the burden shifted to Sanford and Mid Dakota to produce evidence “clearly” showing no anticompetitive effects are likely, citing the 1963 Supreme Court case US v. Philadelphia National Bank.

But Cooper said given the US Court of Appeals for the DC Circuit’s decision in the Baker Hughes case, that approach was improper, although encouraged here by the FTC. In their brief, Sanford and Mid Dakota said in Baker Hughes the DC Circuit explained decisions after Philadelphia National Bank have discarded the need to “clearly” disprove anticompetitive effects and instead called for a “showing.”

During his argument, Cooper also said the companies have provided statistical evidence of other areas of North Dakota where there is not a correlation between concentration and price. Large insurer Blue Cross Blue Shield is dominant, setting statewide rates, he added.

The other insurers are Sanford, which obviously will not be harmed, and Medica, which does business with Sanford in other states, Cooper said. Medica is a small part of the market so the potential minimal impact on the company does not account for the overall picture where competing healthcare provider CHI St. Alexius Health has plans to expand, he said.

But FTC lawyer Michele Arington said the agency bolstered its concentration analysis with economics and other evidence, and the companies are disputing factual findings rather than legal errors.

Stras interjected, saying there is a clear legal and not a factual issue on the question of making a clear showing, and asked what to do with that.

Arington said in Baker Hughes the government rested just on market share statistics, and the court recognized the more compelling the initial government case, the more evidence needed from defendants. Here the FTC’s statistical showing was strong and also supported by evidence, she said.

Colloton asked Arington what the best evidence is to counter the idea that Blue Cross can dictate rates. Arington said there is an example in the record showing statewide pricing accounts for the influence and demands of powerful buyers.

Colloton also asked about Sanford and Mid Dakota’s claims regarding new entry by CHI. Arington said the legal standard is that entry must be timely, likely and sufficient, and the evidence shows otherwise here. The issue is a factual dispute, she also said.

Colloton said Cooper claimed the FTC interjected the “clearly shows” standard into its case and questioned the applicability of Philadelphia National Bank. Arington said it is still a valid Supreme Court case that has not been overruled and the same language is in the companies’ briefing.

Colloton asked if that means the standard was applied correctly, and she said yes and consistently with Baker Hughes. He asked if it depends how strong the showing is, and Arington said “exactly” — here there is a particularly strong showing with the “complete elimination of competition” in one market and near monopolies in three others.

Medica would be harmed, she also said, and non-price effects would be harmful to the entire population. Stras said Medica is a small part of the market and so is a piece of evidence, but does not necessarily lead to an anticompetitive conclusion.

The panel took the case under advisement and didn't say when it would issue a ruling.

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