American Medical International, Inc

Text (OCR of the scan at left; may contain errors)

IN THE MATTER .

AMERICAN MEDICAL INTERNATIONAL, INC., ET AL. MODIFYING ORDER, ETC" IN REGARD TO ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT AND SEC. 7 OF THE CLAYTON ACT Docket 9158. Final Order, July j984-Modified Order, Nov. , 1984 This Modified Order revises the Commission s Final Order issued on July 2, 1984, 104 , which requires a Beverly Hils operator of a chain of proprietary hospitals to divest French Hospital, located in San Luis Obispo, California, and provide the Commission, for a period often years, with advance notification of its intention to acquire any hospital costing $1 milion or more in the 13-state area specified in the order. As revised, the Modified Order retains the advance notification requirement of the original order, but sets forth in detail the manner in which the firm must prepare and submit the notification to the Commission, and the supplemental information that should be included.

ORDER AND OPINION OF THE COMMISSION GRANTING IN PART AND DENYING IN PART COMPLAINT COUNSEL S PETITION FOR RECONSIDERATION By CALVANI Commissioner:

1. Introduction On July 2, 1984, the Commission issued its Final Order and Opinion in American Medical International, Inc. (hereinafter "order ) (104 C. 1). The Commission held that respondents' acquisition of French Hospital in San Luis Obispo, California, violated Section 7 of the Clayton Act, as amended, 15 V. C. 18 (1976), and Section 5 of the Federal Trade Commission Act, as amended, 15 V. C. 45 (1976). The Commission rejected Complaint Counsel's request that respondents be prohibited, for a period often years, without prior approval ofthe Federal Trade Commission, from acquiring general acute care hospitals in areas where they already own or operate such a hospital. In so doing, the Commission stated:

Instead of requiring AMI to obtain prior approval from the Commission for acquiring other hospitals under the conditions set forth by Judge Barnes, we believe that many of Complaint Counsel' s more legitimate objections to such acquisitions can be satisfied by requiring AMI simply to notify the Commission of its intention to make an acquisition of the variety contemplated by Judge Barnes' order, This would enable the Commission to investigate an acquisition that appears to involve significant antitrust problems, and take enforcement action against the acquisition before the acquisition has progressed beyond the "point of no return " while at the same time preserve the Opinion - 104 F.TC.

procompetitive benefits attributable to AMI's presence in the acquisition market. This is not intended to rcplace Hart-Scutt-Rodino fiing requirements that may apply to any of(2J AMI's future acquisitions, but is to apply to AMI's hospital acquisitions which for one reason or another, may be exempt from those filing requirements. We contemplate that notification by AMI of such acquisitions is to be provided when AMI's Board of Directors or Executive Committee authorizes issuance of a letter of intent or enters into a purchase agreement to make such an acquisition, whichev is earlier. Slip op. at 60 (104 F. C. at 226). Complaint Counsel has petitioned for reconsideration of certain portions of the Commission s Order in American Medical International, Inc. pursuant to Rule 3.55 of the Commission s Rules of Practice. Respondent American Medical International, Inc. ("AMI") replied in opposition to the Petition by memorandum dated August 6, 1984. AMI's Opposition to Petition for Reconsideration of Final Order (hereinafter "AMI Memorandum After reviewing these fiings, as well as the relevant briefs, decisions, orders, and transcripts in this matter, we have concluded that Complaint Counsel's Petition is an appropriate Rule 3.55 petition as to the arguments and modifications it presents concerning prior notification, but that it is inappropriate as to the arguments and modifications it presents concerning prior approval. We have determined that the Order should be modified so as to accomplish the purposes intended by the Commission s Opinion and Order of July 2 1984. The Order as revised is designed to set forth the details of the prior notification requirement imposed under the Order so as to permit Commission staff to make a meaningful review of AMI's (3) proposed acquisition while, at the same time, guarding against imposing undue burden on AMI as a participant in the acquisition market for general acute care hospitals.

II. Complaint Counsel's Petition for Reconsideration is Appropriate AMI challenges Complaint Counsel' s Petition for Reconsideration on two grounds. First, AMI contends that the Petition does not satisfy the requirements of Rule 3.55 of the Commission s Rules of Practice because it fails to raise any "new questions. . . upon which petitioner had no opportunity to argue before the Commission. 1 Second, AMI argues that the Petition should be denied because the modifications requested would harm AMI's ability to compete for new acquisitions and would "undermine the balance struck in the Commission s order between regulatory review and competitive vitality." AMI Memorandum at 2.

I Rule 3,55 ofthEo Commissiun s Rules of Practice, 16 C, R. 3,55 provides, in pertinent part: "any petition fied under this subsection must be confined to Dew questions raised by the decision or final order and upon which the petitioner had no opportunity to argile before the Commission. A1Vlr .nl\. .Mll .lYU:'.., 617 Opinion In support of its contention that the Petition fails to satisfythe criteria of Rule 3. , AMI cites to portions ofthe briefs that it submitted to Administrative Law Judge Barnes and to the Commission in this matter, and to the transcript of the oral argument before the Commission. There, AMI claims that it raised the issue ofprior notification and that Complaint Counsel had an opportunity to present its views on this issue. (4) In briefs submitted by AMI (both to Administrative Law Judge Barnes and to the Commission), the prior approval remedy was the focus on the "fencing- " discussion. In AMI's trial brief to Judge Barnes, AMI made only passing reference to a prior notification remedy; the overwhelming part of the "fencing- " discussion addressed the unfairness of a prior approval requirement. Although AMI had cited to a consent decree involving a hospital merger that had employed a prior notification remedy, United States v. Hospital Affiliates International, Inc. 1982-1 Trade Cas. (CCH) 64,696 (KD. La. 1982), AMI included no discussion in its trial brief of the relative benefits, disadvantages, or problems associated with using this remedy or the mechanics of its use. See Trial Brief of Respondent American Medical International, Inc. at 99 & 100.

Similarly, the prior approval remedy was the focus ofthe "fencing- " discussion in the two briefs submitted to the Commission by AMI. In its brief on appeal, AMI criticized the prior approval remedy as unfair, unwarranted, and anticompetitive. The only reference in AMI's brief to an alternative to a prior approval "fencing- " appeared in a footnote that contained citations to two Justice Department merger cases in which prior notification remedies were employed. See United States v. Stroh Brewery Co. 1982-83 Trade Cas. (CCH) n65,037 (D. C. 1982); United States v. Hospital Affiliates International, Inc. 1982-1 Trade Cas. (CCH) n64,696 (KD. La. 1982). Although AMI cited these two consent decrees, it failed to include any discussion of the advantages, (5) disadvantages, or justifications for use of this remedy. Respondent' s Brief on Appeal From Initial Decision at 70 n.87. AMI's Reply Brief again stressed the unfairness of a prior approval remedy and suggested that a prior notification remedy would be much more "reasonable" in the circumstances of this case. AMI's Reply Brief contained no discussion of the mechanics of a prior notification requirement.

Although Complaint Counsel made reference to prior notification as a "fencing- " remedy in its briefs in this matter, it did not do so in any meaningful way. Complaint Counsel referred in a footnote to premerger notification as a t fencing- remedy. See Complaint Counsel' s Answering Brief at 65 n.92. In this reference, Complaint Counsel simply points out that a process involving premerger notifica- Opinion 104 F.

tion was available to the Commission as an alternative to a prior approval "fencing- " provision. Complaint Counsel's brief contains no further discussion of this point, or ofthe prior notification remedy generally. There was no discussion of, or reference to, prior notification "fencing- " in Complaint Counsel's brief to Administrative Law Judge Barnes.

Thus, it appears that Complaint Counsel in its briefs argued for prior approval "fencing-in." Administrative Law Judge Barnes ordered this remedy in the initial order in this case. See Initial Decision at 183-89. AMI argued that "fencing- " was unnecessary and that even if the acquisition were found to be violative of Section 7 of the Clayton Act and Section 5 ofthe Federal Trade Commission Act, prior approval "fencing- " was not (6) warranted. Both parties focused their discussions on the justification, or lack thereof, for a prior approval remedy, and it appears that the issue of how to devise a prior notification remedy that could be employed effectively by the Commission to monitor future AMI acquisitions simply was never discussed.

As AMI correctly notes, Chairman Miller, in oral argument, did raise the issue ofwhether a prior notification remedy would adequately "fence- " respondents, assuming the finding of an unlawful acquisition. Complaint Counsel responded to Chairman Miller s question by pointing out three deficiencies with a prior notification "fencing- " requirement: (1) the Commission would not have credible information with which to assess a proposed acquisition; (2) the Commission might not have the time it needed to assess the competitive impact of the proposed acquisition; and (3) the Commission would not have any indication as to how quickly the proposed acquisition could be consummated. See Transcript of Oral Argument at 53. However, although Complaint Counsel's arguments at oral argument in this matter are similar to the arguments raised in Complaint Counsel' Petition, it does not appear that Complaint Counsel had a meaningful opportunity to argue them before the Commission at that time. Chairman Miler merely posed the possibility ofa prior notification requirement, and Complaint Counsel responded in general terms without proposing any specific suggestions to deal with these potential problems. Complaint Counsel's discussion of the problems associated with a prior notification remedy at oral argument occupies only threequarters ofa page in a sixty-eight page (7) transcript. It is not reasonable to conclude that Complaint Counsel had an opportunity to discuss the practical problems associated with this remedy or the mechanics for putting it into use.

After reviewing AMI's briefs and the oral argument transcript, as well as the briefs submitted by Complaint Counsel in this matter, we 617 Opinion conclude that there was no opportunity Jor - Complaint Counsel to address the prior notification issue in a meaningful way earlier in this case. This is due principally to the fact that the operation of a prior notification requirement was not at issue earlier in the case, an issue quite different from the propriety of imposing a prior approval requirement for fixture AMI acquisitions. Although Complaint Counsel' s Petition for Reconsideration raises some of the issues that were articulated during the oral argument, the Petition discusses, analyzes, and develops these items so that AMI and the Commission can focus for the first time on the diffculties and the practical problems associated with the use of a prior notification remedy. It presents information and specific suggestions that could not have been presented earlier in the case because prior notification "fencing- " was not at issue until the Commission opted to make it one by rejecting the prior approval provision. When the Commission chose to impose a prior notification requirement on AMI in the order, the practical problems associated with this requirement suddenly became significant for consideration by Complaint Counsel and AMI. Since neither Complaint Counsel nor AMI was in a position to (8) discuss this hypothetical remedy with any degree of precision prior to the Commission s Decision and Order, Complaint Counsel's Petition for Reconsideration is the only means available to Complaint Counsel to present to the Commission suggestions as to how to make the prior notification remedy effective. Thus, we find that those portions of Complaint Counsel's Petition that seek to modify the prior notification provision contained in Section III of the Commission s Final Order present appropriate areas for reconsideration under Rule 3. of the Commission s Rules of Practice, which we examine below. AMI claims that the fact that the petitioning party had an "opportunity to argue" bars a motion for reconsideration under Rule 3. citing Holiday Magic, Inc. 85 F. C. 19 , 20 (1975), Ash Grove Cement Co. 86 F. C. 606, 607 (1975), and National Association of Women and Children s Apparel Salesmen, Inc. 78 F. C. 1584, 1585-86 (1970), in support of this proposition. However, we find that these decisions are inapposite to the case at bar. In Holiday Magic, Inc the Commission apparently had "fully considered in reaching its final decision the arguments raised by counsel in the motion to reconsider. " 85 C. at 20. Here, we gave no such consideration to these matters. In Ash Grove Cement Co. the Commission found that respondent "had (9) an opportunity, which it exercised, to argue before the Commission" the very issues that it addressed in its petition for reconsidera- AMI's "opportunity to argue" contention inlloliduy Magicpresumably refers to the portion of respondent's motion for reconsideration relating to substit.ution of counsel in that case, The facts arc totally different in this case, and we cannot seriously entertain AMI' s reliance on this facet ol'that case for the proposition that it asserts in the case at btr Opinion - 104 F tion. 86 F. C. at 607. Similarly, in National Association of Women and Children Apparel Salesmen, Inc the Commission found that respondents have had opportunities and have made use of such opportunities" to argue the same points raised in their petition for reconsideration. 78 F. C. at 1587, There, the matters were discussed extensively in briefs and oral argument. Here, not only was the opportunity never exercised but, in fact, it never existed since the operation of the prior notification requirement was not put in issue before the Commission issued its Final Order on July 2 1984. None of the three dozen or so reported decisions examining Rule 3.55 that we have uncovered through independent legal research suggests a contrary conclusion.

However, a portion of Complaint Counsel' s Petition for Reconsideration reasserts an argument already presented to, and rejected by, the Commission. These modifications would require AMI to obtain Commission approval for a ten year period for any hospital it seeks to acquire in San Luis Obispo County, California. Both parties briefed the prior approval remedy fully before Administrative Law Judge Barnes and the Commission, and it appears that Complaint Counsel' request for reconsideration ofthis remedy for any geographic market including San Luis Obispo County, does not present "a new question . . . upon which petitioner had no opportunity to argue before the Commission. " Accordingly, we find that the specific modifications presented (1OJ with regard to Section IV ofthe Order (and the arguments marshalled in support of these modifications at pages 11 and 12 of Complaint Counsel's Petition) are not appropriate areas for reconsideration under Rule 3. , and thus this portion of Complaint Counsel' s Petition wil be denied.

III. The Mechanics of Prior Notification The Commission s Order requires AMI to notify the Commission when it seeks to acquire a hospital in any of thirteen states, if the acquisition would cost in excess of $1 milion and the acquisition would provide AMI with a 20% or more share of the acute care hospital beds in a specifically designated area. Under the Order, AMI is directed to notify the Commission of its intent to acquire a covered hospital either when it issues a letter of intent or enters into a purchase agreement, whichever is earlier Complaint Counsel's Petition for Reconsideration focuses on the fencing- " provision that the Order imposes. Complaint Counsel requests reconsideration and modification ofthis provisions and proffers specific language to accomplish the suggested modifications. .... .. .. ...

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617 Opinion Complaint Counsel seeks to modify the prior notification requirement. in five specific ways, discussed below.

First, Complaint Counsel requests that the Order provide a specific notification period so that AMI wil be required to give the Commission notice of any covered acquisition at least thirty days prior to completion of the acquisition (or fifteen days in (11) the case of a cash tender offer). Petition at 9. Complaint Counsel argues that without a specified notification period in the Order, AMI would be permitted wide discretion in notifying the Commission of covered acquisitions, and that the Commission could be left without suffcient time to obtain the evidence necessary to seek an injunction to block an ilegal acquisition. Id. at 3. Complaint Counsel contends that a thirty day notification period would provide the Commission with suffcient time with which to assess the acquisition, obtain evidence, and move to enjoin the acquisition if necessary. See id. at 3 & 5-. Second, Complaint Counsel recommends that the Order require written prior notification of a covered acquisition. Id. at 3 & 9. Complaint Counsel suggests that since AMI's notification may trigger significant action by the Commission (such as obtaining evidence sufficient to support an injunction), the notice triggering such efforts by See id. at 5.the Commission should be written notice, not oral. Third, Complaint Counsel requests that language requiring the submission ofspecific information be provided in the Order so that the Commission will have the opportunity to make an informed decision as to whether the proposed acquisition is lawful. Id. at 6. Complaint Counsel points to the diffculties in obtaining information from companies under investigation, particularly if compulsory process and enforcement procedures are required. Id. at 4-5. Complaint Counsel therefore, recommends that the Order provide the Commission with an effcient, orderly, (12) and equitable way of obtaining specific information needed to assess the competitive impact of a covered acquisition. See id. at 9-11.

Fourth, Complaint counsel requests that the Order provide Commission staff with a reliable way of obtaining additional information in a timely fashion in the event that the initial information provided is not suHicient to fully assess the impact of the covered acquisition. Id. at 8. Complaint Counsel suggests that in some acquisitions, additional time and information may be required to assess the competitive impact. Id. at 10. Complaint Counsel argues, therefore, that the Order should provide a way for obtaining more information and additional time in which to assess that information without forcing the Commission to rely on purely voluntary production. Fifth, Complaint Counsel requests that a prior approval "fencing- " provision be added to the Commission s Order to cover AMI hospi- - Opi!liol! 104 F.

tal acquisitions in San Luis Obispo County. Id. at 11-12. However since we have determined that this issue is not appropriate for a Rule 55 Petition, this issue wil not be addressed herein. AMI's memorandum in opposition to Complaint Counsel's Petition argues that a modified prior notification provision similar to the one contained in Complaint Counsel's Petition would harm AMI competitively. AMI Memorandum at 6. AMI contends that the Order, as originally crafted, struck a balance between the Commission s desire to monitor certain acquisitions by AMI that are not subject to Hart- Scott-Rodino reporting requirements (13) and the need to " 'preserve the procompetitive benefits attributable to AMI's presence in the acquisition market.''' Id. citing slip op. at 60 (104 F. C. at 226 (1984)) Under the proposed modification, AMI contends that in every case it would be required to wait for thirty days plus any extensions allowable under Hart-Scott-Rodino id. at 1 & 7 and, since the proposed Order would apply only where Hart-Scott-Rodino was not otherwise applicable, AMI's competitors in the hospital acquisition market would not have to condition their bids on compliance with these regulatory strictures. See id. AMI argues that "the proposed order would eliminate AMI's procompetitive presence in circumstances such as the sale of county-owned hospitals to which HSR does not apply, id. at 9, and "eliminate AMI's procompetitive presence in covered transactions (and) deprive the public of the benefits that the order was intended to preserve." Id. at 12. AMI does not make a convincing showing that a reasonable notice requirement would harm it competitively or place it at a competitive disadvantage vis-a-vis its competitors in the hospital acquisition market. By arguing that "the proposed modification would uniquely handicap AMI and therefore effectively remove it from the market for acquisitions covered by the order id. at 5, it is apparent that AMI misconstrues the concerns that the Commission expressed when it rejected the prior approval requirement. Under the prior approval requirement ordered by Administrative Law Judge Barnes, AMI would be at a competitive disadvantage due principally to an additional regulatory hurdle that it must jump in order to consummate the (14) acquistion of a hospital. This additional hurdle, which for all intents and purposes (subject to further appellate review) constitutes a veto over AMI acquisitions, would likely make a prospective seller ofa hospital reluctant to deal with AMI. In practical terms, this would reduce AMI's leverage in negotiating an acquisition and might necessitate AMI paying a premium in price for a potential acquisition over what "unfettered" acquirers, AMI's competitors, would be willng to pay. In the highly competitive market for hospital acquisitions, this would likely eliminate AMI as a viable competitor. .n.Y..1.n.I\..n.J'I U.lClJ..I\.n..L .J'1.1.lfiL"I.t.I.IUL'I.t.L , U'I\." .I.I .t.L, u.cu 617 Opinion However, the situation with regard' to. prior notification is quite different from that of prior approval. AMI does not set forth any evidence demonstrating that a notification provision requiring sub. mission of detailed market information would in any way burden an acquisition program. Such an advance notification requirement would not impose any undue burden on AMI because it does not inject any uncertainty into the acquisition process; instead, all it does is aford the Commission a meaningful opportunity to review the competitive impact of the acquisition.

AMI's arguments ' confuse prior approval and prior notification. Prior approval would preclude AMI from making a definitive purchase commitment; prior notification does not, as even AMI admits. AMI suggests that Complaint Counsel's proposed modifications would make an AMI bid "a conditional offer id. at 7, a "conditioned transaction( ), id. at 8. But, at the same time, AMI admits that prior notification requirements, such as (15) those imposed under Hart- Scott-Rodino, do not make such a transaction "conditional." According to AMI witness Weisman:

(Sellers of hospitals) do not want conditional transactions. They don t view Hart-ScoU- Rodino generally as a condition anymore than they view, for example, a preparation of a definitive agreement as a condition.

Id. quoting Hearing Transcript page at 1727 (Weisman) (hereinafter Tr. j. Similarly, AMI witness Reilly stated: Each of these transactions are, from the seller s perspective, time critical. And as it would be for you as an owner ofa substantial piece of real estate once you have decided to sell it, you want to get it committed and know it is locked in, It may take some time for escrow to close, but you want to know you have a deal. Id. quoting Tr. 1848 (Reilly) (emphasis added). AMI's arguments that prior notification wil make its acquisition bid conditional are disingenuous. Under prior notification, the Commission cannot stop a proposed acquisition except by successfully bringing suit, either in federal court or through an administrative complaint. Thus, the notification requirement does not in any way impose a prior approval constraint over the acquisition, as AMI seems to imply. Except for the compliance costs (principally, administrative and legal costs associated with preparation ofthe notification itself), such a requirement does not diminish AMI's leverage in negotiating an acquisition nor would it necessitate AMI paying a premium price for the acquisition in order to out-bid competitors in the acquisition market. Ifanything, it injects increased certainty into the acquisition because it subjects the acqui. sition to an early (albeit, non-binding) antitrust review and, as a _ ...... ;,,;.. .. ;.. Opinion 104 F.

practical (16) matter, lessens the likelihood that the Commission might seek divestiture of the acquisition at some later date on antitrust grounds.

On the other hand, in adopting the advance notification provision contained in the original Order, we never intended to deny staff the time and resources needed "to investigate an acquisition that appears to involve significant antitrust problems, and take enforcement action against the acquisition before the acquisition has progressed beyond the ' point of no return.' " See Petition at 2, quoting slip op, at 60 (104 F. C. at 226 (1984)). A simple statement by respondents of their intent to enter into an acquisition, without more, does not provide Commission staff with a meaningful opportunity to evaluate the competitive effects of the acquisition. Imposing a reasonable prior notification procedure does not simply "make the (Commission) staffs job easier as AMI contends, Petition at 6 (emphasis addedJ-rather it makes it possible for staff to do the job that we anticipated would be done under the Order-assess the competitive effects of the acquisition. Because of the demands oftime, it would be highly unlikely that through normal channels ofinvestigation, staffwould be able to learn ofthe acquisition, assess its competitive impact, and prepare the legal papers needed to pursue a preliminary injunction in the event that the acquisition posed competitive concerns. AMI's offer in its memorandum to Hbe responsive to reasonable requests for information AMI Memorandum at 11, does not by any means constitute a legally enforceable obligation that guarantees an (17) opportunity for meaningful review of a covered acquisition.

However, we are not convinced that there is a need to impose a waiting period on AMI in its covered acquisitions. Although AMI may have wide discretion in tbe timing of its making a purchase commitment to a prospective seller, AMI does not have discretion over the timing of notification of the commitmentto the Commission. The final order requires AMI to notify the Commission once AMI becomes legally bound to make the purchase, which may be as early as issuance of a letter of intent and is certainly no later than entering into the purchase agreement itself. Market incentives encourage AMI to make this commitment as soon as possible so as to take the assets off the market. Consummation of the acquisition, especially consolidation of the acquired entity s operations with those of AMI, often wil be delayed well past the purchase date because ofexternalities beyond AMI's control, such as state certificate-of-need requirements. As a practical matter, the Commission staff will have enough time, even more than the statutory waiting periods prescribed under Hart-Scott- Rodino, to review the notification fiing by AMI and assess the likely ":n- r..1-", ,,.. T""""n"' ..rr l1avihl.. ur9 ;t-inct 617 Opinion period on AMI would subject covered acquisitions to a time constraint that would accomplish little other than disabling AMI vis-a-vis its competitors. We conclude that the Commission staff wil have adequate resources, under the present framework, to assess the competitive impact of covered acquisitions and prevent consummation of anticompetitive acquisitions, and that imposition (18) of a waiting period is not necessary.

Complaint Counsel is correct in asserting that "(tJhe Commission expressed intent is similar to the purposes of HSR to provide the government with a meaningful opportunity to challenge unlawful transactions before consummation, thus avoiding the problem of constructing post-acquisition relief and preventing injury to the public that would otherwise occur before divestiture." Petition 2 (emphasis in original). A detailed prior notification and reporting requirement would satisfy this concern. Such a requirement is well within the wide discretion accorded the Commission to remedy unlawful practices. See Jacob Siegel Co. v. FTC, 327 U.S. 608, 611 (1946). Since the Commission has found prior approval to be appropriate in certain instances it is fair to conclude that a detailed prior notification requirement (a less drastic remedy than prior approval "fencing- ) is a legally valid remedy that the Commission could order in this case. Accordingly, we wil modify the Final Order in this matter by requiring written notification of AMI's intent to make a covered acquisition.3 This notification is to be provided when AMI's Board of Directors or Executive Committee, or any entity (19) that is authorized to act on AMI's behalf in such acquisitions 4 authorizes issuance ofa letter ofintent or enters into a purchase agreement to make such an acquisition, whichever is earlier. The Modified Order provides for fiing information comparable to Hart-Scott-Rodino reporting requirements by AMI in order to permit staff a meaningful opportunity to assess the competitive effects of the proposed acquisition.S We wil also require that the notification be supplemented with additional information, either in AMI's possession or reasonably available to 1 As we did in the Final Opinion and Order, we again caution respondents that this Modified Order does not replace H2.rt-Scott-Rodino fiing and waiting period requirement; that may apply to any of AMI's future acquisitions, Where both HartScott.Rodino find this Order apply to a particular acquisition. the Hart-Scolt-Rodino reporting and waiting period requirements would supercede operation of this Order, However, where AMI's acqu.sition is otherwise exempt from Hart-Scott-Rodino, the terms of this Order wil govern AMI's filing obliga. tions , We do this sua spun/eeo as to prevent technical inapplicabjlity of the Order if AMI were to assign acquisition responsiblities to a different AMI committee or entity 5 Complaint Counsel has also requested a mechanism for obtaining more information and additional time in which to assess that information without forcing the Commission t. rely upon purely voluntary compliance, We deny Complaint Counsel's request for additional time for the same rellsons that we have denied the request for a waiting period for the acquisition, However, we can envision some circumstances Wider which additional information may he necessry to fully assess the competitive effects of an acquisition, Therefore, we wil require AMI to comply with reasonable requests by staff for additional infonnation within fifteen days of service of such requests Modified Order 104 F.

AMI, relating to the hospital to be acquired, the AMI hospital in the area, and identification and assessment of the area hospital market.6 We require this supplemental information because, absent such, it would be diffcult to determine the (20) existence and extent of market overlaps resulting from the acquisition. It is hereby ordered, That, for the foregoing reasons, Complaint Counsel's Petition for Reconsideration is granted in part and denied in part. An appropriate order is appended.

MODIFIED ORDER Complaint Counsel has fied a Petition for Reconsideration of the Commission s Order in this matter issued on July 2, 1984 (104 F. 1J. Respondents have replied in opposition thereto. The Commission has determined upon review of the matter that its Order of July 2 1984 should be modified, for the reasons set forth in the accompanying opinion. Therefore It is ordered, That for purposes of this Order the following definitions shall apply:

A. Acquire any hospital means to directly or indirectly acquire all or any part of the stock or assets of any hospital, or enter into any arrangement by which AMI obtains ownership, management, or control of any hospital, including the right to lease or manage any hospital. (2) B. AMImeans American Medical International, Inc., a corporation organized under the laws of Delaware with its principal executive offces at 414 North Camden Drive, Beverly Hils, California, and its directors, offcers, agents, and employees, and its subsidiaries, divisions, affiliates, successors, and assigns. C. AMISUB (French Hospital)means the wholly-owned subsidiary corporation of AMI that was established for the purpose of acquiring and operating French Hospital located in San Luis Obispo, California. D. Countyalso means a county equivalent such as a parish in Louisiana.

E. General acute care hospital herein referred to as hospital(s), means a health facility, other than a federally-owned facility, having a duly organized governing body with overall administrative and 6 This informatiOIJ should include, where available, patient flow data, annual management and strategic plana, hospital untili lition and revenue data, and documents relating to market share, fonnulation of hospital prices competitive inter3ction among area hospitals, planned effciencies, relations with third-party payers, and physician ,jm ;tt;nd '" tt..,.n 617 Modified Order professional responsibility and anorganiied professional staff that. provides 24-hour inpatient care, and whose primary function is to provide inpatient services for medical diagnosis, treatment, and care of physically injured or sick persons with short-term or episodic health problems or infirmities.

F. Operate a hospital also means to own, manage or lease a general acute care hospital.

G. MSA and PMSA mean, respectively, a Metropolitan Statistical Area and a Primary Metropolitan Statistical Area, as defined as of July 1, 1983 by the Offce of Management and Budget, Offce ofInformation and Regulatory Affairs.

It is ordered That within twelve (12) months from the date this Order becomes final, AMI shall divest, absolutely and in good faith all stock, assets, properties, licenses, leases, and other rights and privileges, tangible and intangible, that AMI acquired from Central Coast Hospital Company, French Hospital Corporation and French Medical Clinic, Inc., together with any (3) subsequent improvements. The purpose of the divestiture is to reestablish French Hospital as a viable competitor in San Luis Obispo County. The divestiture shall be subject to the prior approval of the Federal Trade Commission. Pending divestiture, AMI shall take all measures necessary to maintain French Hospital in its present condition and to prevent any deterioration, except for normal wear and tear, of any of the assets to be divested so as not to impair French Hospital's present operating abilities or market value.

It is further ordered That for a period often (10) years from the date this Order becomes final, AMI shall not, without providing advance notification to the Federal Trade Commission, directly, or indirectly acquire any hospital located in the states of Oregon, California, Texas, Oklahoma, Missouri, Arkansas, Louisiana, Mississippi, Alabama Georgia, Florida, South Carolina, or North Carolina, if: A. The hospital to be acquired is within an MSA or a PSMA in which AMI already operates a hospital and in which AMI, immediately after the acquisition, would operate hospitals that combined have a twenty (20) percent or more share ofthe licensed general acute care hospital beds within that MSA or PMSA; or B. The hospital to be acquired is not within an MSA or a PMSA but is within a county in which AMI already operates a hospital and in Modified Order 104 F.

which AMI, immediately after the acquisition, would operate hospitals that combined have a twenty (20) percent or more share of the licensed hospital beds within that county; or C. The hospital to be acquired is (1) not within an MSA or a PMSA or a county in which AMI (4) already operates a hospital, but is within thirty (30) miles of a hospital which AMI already operates in another MSA or PMSA or county, and (2) the hospital to be acquired and any hospital(s) that AMI operates combined have a twenty (20) percent or more share of the licensed hospital beds in the area within thirty (30) miles of the midpoint between the hospital to be acquired and any hospital operated by AMI.

Provided, however That no acquisition shall be subject to this Section III: (1) if the consideration to be paid for the purchase of the hospital including assumption by AMI ofliabilities ofits present owners, does not exceed one milion dollars ($1 000 000); or (2) if notification of the acquisition is required to be made, and in fact is made, pursuant to Section 7 A of the Clayton Act, 15 VB. C. 18a. Such advance notification shall be provided when AMI's Board of Directors or Executive Committee, or any entity that is authorized to act on AMI's behalf in such acquisitions, authorizes issuance of a letter of intent or enters into a purchase agreement to make such an acquisition, whichever is earlier.

The notification required by Section III shall be the Notification and Report Form set forth in the Appendix to Part 803 of Title 16 of the Code of Federal Regulations, as amended, and shall be prepared and transmitted in accordance with the requirements of that part. The notification required by Section III of this Order shall apply to AMI and shall not apply to any party that AMI seeks to acquire. However, AMI shall provide at the same time of the fiing of the Notifiction and Report Form supplemental information, either in AMI's possession or reasonably available to AMI , relating to the hospital to be (5) acquired, the AMI hospital in that geographic area, and identification and assessment of the area hospital market. Such supplemental information should include, where available, patient flow data, annual management and strategic plans, hospital utiization and revenue data, and documents relating to market share, formulation ofhospital prices, competitive interaction among area hospitals implementation of certificate of need standards in the area, planned effciencies, relations with third-party payers, and physician admitting patterns.

, _. , . .

617 Modified Order AMI shall comply with reasonable requests by the Commission stairfor additional information within fifteen (15) days of service of such requests.

Any acquisition subject to Section III pf this Order, involving an arrangement to lease, manage, or control a hospital, shall be fully described in the notification regardless of whether the acquisition involves the acquisition of any stock or assets of a hospital. It is further ordered That AMI shall, within sixty (60) days after the date this Order becomes final and every sixty (60) days thereafter until it has fully complied with the provisions of Section II of this Order, submit a report in writing to the Federal Trade Commission setting forth in detail the manner and form in which it intends to comply, is complying, and has complied with these provisions. Such compliance reports shall include a summary of all contacts and negotiations with potential purchasers of the stock (6) and assets to be divested under this Order, the identity and address of all such potential purchasers, and copies ofall written communications to and from such potential purchasers.

AMI also shall submit such further written reports as the staff of the Federal Trade Commission may from time to time request in writing to assure compliance with this Order. It is further ordered That AMI shall notify the Federal Trade Commission at least thirty (30) days prior to any proposed corporate change, such as dissolution, assignment or sale resulting in the emergence of a successor corporation, the creation or dissolution ofsubsidi aries, or any other change in the corporation that may affect compliance with the obligations arising out of this Order. Commissioner Bailey voted in the negative.

632 FEDERAL TRADKCOMMISSION DECISIONS Modifying Order 104 F.