Federal Trade Commission v. University Health, Inc.

The Federal Trade Commission (FTC) filed this action to obtain a preliminary injunction pursuant to section 13(b) of the Federal Trade Commission Act (FTCA), 15 U.S.C. Sec. 53(b) (1988),1 to prevent the appellees from consummating an asset acquisition, which the FTC plans to challenge as violative of section 7 of the Clayton Act, 15 U.S.C. Sec. 18 (1988).2 Following a hearing, the district court held that the FTC had failed to demonstrate a likelihood of ultimate success in proving that the intended acquisition would substantially lessen competition; accordingly, the court denied the FTC's request for a preliminary injunction. In this appeal, we must answer two questions, both of which relate to whether it is likely that the FTC ultimately will prevail in its section 7 challenge. First, we must decide whether section 7 applies to asset acquisitions by nonprofit hospitals. We hold that it does. Second, we must determine whether the district court, in evaluating the FTC's section 7 challenge, correctly applied the law. We conclude that it did not. Therefore, we reverse the district court's judgment and grant the FTC its requested preliminary injunction.I.

This case involves a proposed acquisition by appellees University Health, Inc. (UHI), University Health Services, Inc. (UHS), and University Health Resources, Inc. (UHR) (collectively, University).3 UHS operates University Hospital, a nonprofit facility that it leases from the Richmond County (Georgia) Hospital Authority. University plans to acquire the assets of St. Joseph Hospital, Augusta, Georgia, Inc. (St. Joseph), a nonprofit entity owned by the Health Care Corporation of Sisters of St. Joseph of Carondelet (HCC), a Missouri nonprofit corporation run by the Roman Catholic church.4

Under the proposed transaction, University would acquire most of the assets and interests of St. Joseph from HCC.5 In return, HCC would receive University's fifty-percent interest in Walton Rehabilitation Hospital6 and a cash settlement (based on the value of certain assets at closing).7 The total transaction is worth over $38 million. A ten-year covenant not to compete, applicable to operations in the Augusta area, would require HCC to stay out of the general acute-care hospital market and University to stay out of the rehabilitation hospital market.

The appellees filed a premerger notification with the Department of Justice and the FTC as required by section 7A of the Clayton Act, 15 U.S.C. Sec. 18a (1988). The statutory waiting period, after which the appellees could consummate their proposed acquisition, was to expire on March 20, 1991. To forestall the acquisition, pending the outcome of the FTC's adjudicative proceedings, the FTC brought the instant action for preliminary injunctive relief on March 20.8 The FTC is concerned because University's acquisition of St. Joseph's assets would eliminate a patient-oriented, general acute-care hospital from the market that serves Richmond and Columbia Counties in Georgia and Aiken County in South Carolina (the Augusta area). This, according to the FTC, would so concentrate the market that consumers likely would suffer at the hands of the four remaining hospitals in the market, in which University Hospital would be the dominant participant. Without a preliminary injunction, the appellees will consummate the transaction, hindering the FTC's ability to enforce effectively section 7 of the Clayton Act.

Following expedited discovery, the district court held a hearing on April 3 and 4 to decide whether to issue the preliminary injunction requested by the FTC.9 The parties did not seriously dispute the material facts.10 The court found the relevant market to be the provision of in-patient services by acute-care hospitals in the Augusta area.11 Presently, five hospitals compete in this market: University Hospital; St. Joseph; Humana Hospital, a for-profit facility in Augusta; Hospital Corporation of America, a for-profit hospital in Aiken; and the Medical College of Georgia, a state teaching hospital.

Following the proposed transaction, the court found, the relevant market would be extremely concentrated, with University Hospital controlling approximately forty-three percent of it.12 Furthermore, the court found that Georgia's certificate of need law, which restricts the ability of existing hospitals to expand their output and the ability of outsiders to build new hospitals, is a "substantial" barrier to entry into the relevant market. Thus, the market's concentration could not easily be dissipated by the entry of new competitors.

Despite these facts, the court concluded that it was not likely that the proposed acquisition would substantially lessen competition. First, the court noted that University Hospital and St. Joseph are nonprofit corporations. Because of this, the court assumed that they would not act anticompetitively; indeed, the court stated that "[t]he Board of University Hospital is quite simply above collusion." Second, although the court concluded that St. Joseph was not a "failing company," see infra note 28, it found that St. Joseph was a weak competitor in the relevant market. This, according to the court, showed that the acquisition would not substantially lessen competition--St. Joseph was not, in the court's view, a true competitor of University Hospital. Finally, the court noted that a "number of efficiencies ... would result from the [proposed] acquisition." Most importantly, the acquisition would eliminate duplicate expenses for capital outlays (like buildings or equipment) and administration. Moreover, the proposed acquisition would, in the court's words, eliminate "wasteful competition," that is, competition between St. Joseph and University Hospital in services for which demand is low. Thus, after considering all of these factors, the court decided that it was not likely that the proposed acquisition would substantially lessen competition.

Moreover, the court determined that the equities weighed in favor of not issuing the injunction. First, the court observed that "the denial [or delay] of the acquisition would operate to force upon the Sisters of a[ ] holy order a mission which [they do not choose to pursue]." Second, the court thought that competition would actually be enhanced by the acquisition, keeping prices low and quality of service high. Third, the court concluded that the injunction would deal "a serious blow to property values and to the public's perception of St. Joseph as a hospital service provider." Finally, the court posited that excess capacity (i.e., the existence of more hospital beds than necessary to service the Augusta area) "has produced diseconomies of scale ... [and] higher prices without reason"; by allowing the transaction to proceed, however, these problems would be solved. The court, therefore, denied the FTC's request for a preliminary injunction.

The FTC now appeals. It argues that the district court misapplied the law in evaluating whether to issue the preliminary injunction. The FTC contends that, by showing that the proposed acquisition would result in an extremely concentrated market, it was entitled to a presumption that the proposed acquisition would yield anticompetitive results. Additionally, the FTC contends, it buttressed its case by showing that a substantial barrier to entry exists in the relevant market.

The district court, according to the FTC, relied on legally insufficient factors to overcome the presumption that the proposed acquisition would substantially lessen competition. First, the court erroneously assumed that University Hospital, as a nonprofit entity, would not act anticompetitively. Second, argues the FTC, it is of no moment whether St. Joseph is a weak competitor; there is only, in limited circumstances, an exception for acquisitions of "failing companies," which St. Joseph is not. Nor, contrary to the district court's ruling, is there an efficiency defense to section 7 challenges. Thus, concludes the FTC, it has demonstrated a substantial likelihood of ultimate success on the merits.

Moreover, the FTC argues, it has shown that a balancing of the equities favors issuance of the injunction. Failure to issue the injunction would frustrate the FTC's ability to enforce the antitrust laws, which protect the public from anticompetitive behavior. In contrast, only private equities support the district court's decision not to issue the preliminary injunction; only HCC and University Hospital and its competitors stand to gain from this acquisition. Therefore, the court erred in failing to issue the injunction.

In response, the appellees contend that the district court, although erroneously ruling that the FTC had jurisdiction to bring this action, see supra note 9 and infra part II, correctly applied the law in deciding not to issue the preliminary injunction. First, they argue, the district court properly relied on St. Joseph's bleak financial prospects in determining that the acquisition would not substantially lessen competition. Second, the court correctly found that the proposed acquisition would create significant efficiencies and that this factor supports the legality of the transaction. Third, the court properly concluded that University Hospital's obligations to the Richmond County Hospital Authority and other public entities demonstrate that it would not collude unlawfully with its competitors.

Furthermore, the appellees assert that the public interest would be harmed by the issuance of the requested preliminary injunction. The injunction would prohibit HCC from "salvaging [its] investment and redirecting these resources to unmet community needs, such as rehabilitation, home health care, and hospice. Further, University [Hospital] would be hindered in serving the public needs ... through cost reductions and expansion of its services." The equities, then, weigh in their favor. Accordingly, the court properly decided not to issue the requested injunction.13

We hold that the FTC is entitled to a preliminary injunction in this case. We first note that the FTC, as the district court held, has jurisdiction to challenge this acquisition. The court, however, erroneously decided that the FTC did not demonstrate that it likely would prevail in its section 7 challenge. The FTC made a strong showing that the proposed acquisition would substantially lessen competition, and the appellees failed to overcome this showing. The appellees did not introduce sufficient evidence to demonstrate that, because of St. Joseph's bleak prospects for the future, the proposed acquisition would not substantially lessen competition. Nor did the appellees show that the intended acquisition would yield significant economies to offset any anticompetitive costs it produces. Moreover, the district court's assumption that University Hospital, as a nonprofit entity, would not act anticompetitively was improper. Finally, we agree with the FTC that the equities weigh in favor of granting a preliminary injunction. Therefore, we reverse the district court.

The threshold question we must answer is whether section 7 of the Clayton Act applies to asset acquisitions by nonprofit hospitals. Section 7 provides, in part, that "no person subject to the jurisdiction of the [FTC] shall acquire the whole or any part of the assets of another person ... where ... the effect of such acquisition may be substantially to lessen competition." 15 U.S.C. Sec. 18.14 Therefore, we must determine whether nonprofit hospitals are subject to the jurisdiction of the FTC for purposes of enforcing the Clayton Act.15 The appellees argue that the FTC's jurisdiction over corporations is defined by the FTCA, 15 U.S.C. Secs. 41-46, 47-58 (1988), the fundamental charter of the FTC. Section 5 of the FTCA, id. Sec. 45(a)(2), gives the FTC jurisdiction over corporations; section 4 of the FTCA, id. Sec. 44, defines a "corporation" as an entity that is "organized to carry on business for its own profit or that of its members." Thus, the FTC has no jurisdiction to regulate nonprofit, charitable enterprises (i.e., nonprofit enterprises that operate to benefit the public rather than their members, employees, or shareholders). See Community Blood Bank v. FTC, 405 F.2d 1011 (8th Cir.1969). University Hospital is a nonprofit, charitable organization that is prohibited by law from operating for the benefit of private individuals. Therefore, according to the appellees, section 7 is inapplicable to this asset acquisition.

The FTC, on the other hand, argues that its jurisdiction, for purposes of enforcing the Clayton Act, is defined by section 11 of that same act; there is thus no need to turn to the FTCA. Section 11 vests "the authority to enforce compliance with sections [2, 3, 7, and 8 of the Clayton Act] by the persons respectively subject thereto" in five federal agencies:

in the Interstate Commerce Commission where applicable to common carriers subject to subtitle IV of title 49; in the Federal Communications Commission where applicable to common carriers engaged in wire or radio communication or radio transmission of energy; in the Secretary of Transportation where applicable to air carriers and foreign air carriers subject to the Federal Aviation Act of 1958 ...; in the Board of Governors of the Federal Reserve System where applicable to banks, banking associations, and trust companies; and in the [FTC] where applicable to all other character of commerce.

15 U.S.C. Sec. 21 (1988).16 According to the FTC, since nonprofit hospitals are not regulated by any of the other agencies listed in section 11, they are an "other character of commerce" and, thus, fall under the FTC's jurisdiction to enforce the Clayton Act. Therefore, section 7 of the Clayton Act applies to asset acquisitions by nonprofit hospitals.

We agree with the FTC. Clearly, Congress did not provide, in section 7, an explicit exemption to nonprofit hospitals for asset acquisitions.17 Nonetheless, the appellees ask us to confer a special dispensation upon them, based on their interpretation of section 7's reference to "the jurisdiction of the [FTC]." Immunity from the antitrust laws, however, is not lightly implied. United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 348, 83 S.Ct. 1715, 1733, 10 L.Ed.2d 915 (1963). In our judgment, section 7's reference to the "jurisdiction of the [FTC]" is best understood as a reference to the limitations set out in section 11 of the same act. Congress, in amending section 7 to its present state, used as a reference point section 11, rather than the FTCA. As the Supreme Court explained in Philadelphia National Bank :

the objective of including the phrase "corporation subject to the jurisdiction of the [FTC]" in Sec. 7 was not to limit the amalgamations to be covered by the amended statute but to make explicit the role of the FTC in administering the section. The predominant focus of the hearings, debates, and committee reports was upon the powers of the FTC. The decisions of this Court which had uncovered the loophole in the original Sec. 7 ... had not rested directly upon the substantive coverage of Sec. 7, but rather upon the limited scope of the FTC's divestiture powers under Sec. 11.... Thus, the loophole was sometimes viewed as primarily a gap in the FTC's jurisdiction.... Congress in 1950 clearly intended to remove all question concerning the FTC's remedial power over corporate acquisitions, and therefore explicitly enlarged the FTC's jurisdiction.

Id. at 346-48, 83 S.Ct. at 1732-33.18 Congress accomplished this enlargement by amending sections 7 and 11 of the Clayton Act at the same time. Celler-Kefauver Antimerger Act, ch. 1184, 64 Stat. 1125-26 (1950) (amending 15 U.S.C. Secs. 18, 21).19 Thus, section 11 of the Clayton Act evidences Congress' intent to exempt from the FTC's enforcement of section 7's asset-acquisition clause only certain entities regulated by other federal agencies; all other entities, including nonprofit hospitals, are subject to section 7. See United States v. Rockford Memorial Corp., 898 F.2d 1278, 1280-81 (7th Cir.), cert. denied, --- U.S. ----, 111 S.Ct. 295, 112 L.Ed.2d 249 (1990) (dicta); P. Areeda & H. Hovenkamp, Antitrust Law p 906, at 797 n. 2 (Supp.1989); Baker, The Antitrust Analysis of Hospital Mergers and the Transformation of the Hospital Industry, 51 Law & Contemp. Probs. 93, 112-13 (Spring 1989). But see United States v. Carilion Health Sys., 707 F.Supp. 840, 841 n. 1 (W.D.Va.), aff'd, 892 F.2d 1042 (4th Cir.1989); Comment, Antitrust Challenges to Nonprofit Hospital Mergers Under Section 7 of the Clayton Act, 21 Loy.U.Chi.L.J. 1231 (1990); Miles & Philip, Hospitals Caught in the Antitrust Net: An Overview, 24 Duq.L.Rev. 489, 664 (1985).20

The appellees offer no compelling reason why we should borrow section 4 of the FTCA in interpreting section 7 of the Clayton Act, other than that both acts regulate the FTC. We think it is reasonable to infer that Congress intended the FTC's jurisdiction to be greater in enforcing the Clayton Act, which regulates specific types of anticompetitive behavior, than in carrying out its duties under the FTCA, which regulates unfair methods of competition in general. See Community Blood Bank, 405 F.2d at 1018 (The Clayton Act "not only make[s] no distinction between business and nonprofit corporations as does the [FTCA], but [it] contain[s] no language whatsoever that would limit jurisdiction to particular types of corporations."). Indeed, given Congress' efforts to define, in the Clayton Act, specific activity harmful to competition, it is likely that it intended expansive and vigorous enforcement of section 7 by the FTC.

Furthermore, several factors counsel against the interpretive method appellees advocate. First, in interpreting one section of a statute, it is usually best to refer first to the overall statutory scheme of which the section is a part before turning to other sources, such as other statutes. See United States v. American Trucking Ass'ns, 310 U.S. 534, 542-44, 60 S.Ct. 1059, 1063-64, 84 L.Ed. 1345 (1940) ("To take a few words from their context and with them thus isolated to attempt to determine their meaning, certainly would not contribute greatly to the discovery of the purpose of the draftsmen of a statute, particularly in a law drawn to meet many needs of a major occupation."); cf. Ingersoll-Rand Co. v. McClendon, --- U.S. ----, ----, 111 S.Ct. 478, 482, 112 L.Ed.2d 474 (1990); United States v. Ron Pair Enters., 489 U.S. 235, 240-43, 109 S.Ct. 1026, 1030-31, 103 L.Ed.2d 290 (1989). Thus, to understand section 7, we should first look to the Clayton Act as a whole, particularly section 11. Only if this analysis yields ambiguous results, which it does not here, should we refer to alternative sources.21

Second, Congress did not limit explicitly, in the Clayton Act itself, the FTC's jurisdiction by reference to some other statute; neither section 7 nor section 11 cite the FTCA as a source for, or limitation on, the FTC's jurisdiction. This is in sharp contrast to Congress' decision to limit, in section 11, the jurisdiction of the Interstate Commerce Commission and the Secretary of Transportation in enforcing the Clayton Act to certain entities as provided by other specified statutes. Moreover, Congress specifically exempted certain transactions, which are regulated by federal agencies other than the FTC, in section 7. See supra note 13. Thus, it appears that Congress intentionally declined to limit the FTC's jurisdiction in enforcing the Clayton Act to the scope of its jurisdiction under the FTCA; if Congress had meant to do otherwise, it could have done so explicitly in section 7 or 11, as it did with other federal agencies.

Finally, the appellees argue that Supreme Court precedent requires us to look to the FTCA, rather than section 11, to determine the FTC's jurisdiction to enforce section 7. In Philadelphia National Bank, the Court, on its way to holding that mergers between banks are subject to section 7's stock-acquisition clause, discussed whether pure asset acquisitions by banks are subject to section 7's asset-acquisition clause. The Court stated that "[t]he FTC, under Sec. 5 of the [FTCA], has no jurisdiction over banks. Therefore, if the proposed merger be deemed an assets acquisition, it is not within Sec. 7." Philadelphia Nat'l Bank, 374 U.S. at 336, 83 S.Ct. at 1726-27 (citation and footnote omitted); see also id. at 344 n. 22, 83 S.Ct. at 1731 n. 22 (referring to FTCA in defining FTC's jurisdiction in enforcing section 7 of Clayton Act). This, argues the appellees, establishes that the FTC's jurisdiction to enforce the Clayton Act is limited to its jurisdiction under the FTCA.

The appellees ignore, however, that the Court also considered whether section 11 conferred jurisdiction over banks upon the FTC. Id. at 336 n. 11, 83 S.Ct. at 1726 n. 11. The Court held that Congress did not intend in section 11 to expand the FTC's jurisdiction to include banks, which the Federal Reserve Board already regulated. Id. ("The exclusion of banks from the FTC's jurisdiction appears to have been motivated by the fact that banks were already subject to extensive federal administrative controls.").22 In other words, the Court suggested, as we hold today, that section 11 restricts the FTC's jurisdiction in enforcing the Clayton Act to those industries unregulated by other federal agencies. Thus, the lesson, if any, that the dicta in Philadelphia National Bank imparts is that the FTC's jurisdiction in enforcing the Clayton Act should be defined expansively; that is, both section 11 and the FTCA define this jurisdiction--the FTCA alone, however, does not limit it.23

We now turn to whether the district court properly applied the law to the basically uncontested facts. As stated above, we hold that it did not. Section 13(b) of the FTCA provides that "[u]pon a proper showing that, weighing the equities and considering the [FTC]'s likelihood of ultimate success, such action would be in the public interest ... a preliminary injunction may be granted...." 15 U.S.C. Sec. 53(b). Thus, in determining whether to grant a preliminary injunction under section 13(b), a district court must (1) determine the likelihood that the FTC will ultimately succeed on the merits and (2) balance the equities. See FTC v. Warner Communications Inc., 742 F.2d 1156, 1160 (9th Cir.1984). To obtain a preliminary injunction, then, the FTC need not satisfy the traditional equity standard that courts impose on private litigants--the FTC need not prove irreparable harm. See H.R.Conf.Rep. No. 624, 93d Cong., 1st Sess. 31 (1973), reprinted in 1973 U.S.Code Cong. & Admin.News 2417, 2533; FTC v. Exxon Corp., 636 F.2d 1336, 1343 (D.C.Cir.1980).

To show a likelihood of ultimate success, the FTC must "raise[ ] questions going to the merits so serious, substantial, difficult and doubtful as to make them fair ground for thorough investigation, study, deliberation and determination by the FTC in the first instance and ultimately by the Court of Appeals." Warner Communications Inc., 742 F.2d at 1162 (quoting FTC v. National Tea Co., 603 F.2d 694, 698 (8th Cir.1979)). Thus, "[o]ur present task is not to make a final determination on whether the proposed [acquisition] violates [s]ection 7, but rather to make only a preliminary assessment of the [acquisition]'s impact on competition." Id. To secure a preliminary injunction here, the FTC must demonstrate that it likely will prevail on its section 7 challenge to the proposed acquisition.

As its language suggests, section 7 is "designed to arrest in its incipiency ... the substantial lessening of competition from the acquisition by one corporation of the whole or any part of the stock" or assets of a competing corporation. United States v. E.I. du Pont de Nemours & Co., 353 U.S. 586, 589, 77 S.Ct. 872, 875, 1 L.Ed.2d 1057 (1957). Thus, to satisfy section 7, the government must show a reasonable probability that the proposed transaction would substantially lessen competition in the future. Warner Communications Inc., 742 F.2d at 1160. The government usually makes a prima facie case by showing that the acquisition at issue would produce "a firm controlling an undue percentage share of the relevant market, and [would] result[ ] in a significant increase in the concentration of firms in that market." Philadelphia Nat'l Bank, 374 U.S. at 363, 83 S.Ct. at 1741; see United States v. Citizens & S. Nat'l Bank, 422 U.S. 86, 120-22, 95 S.Ct. 2099, 2118-19, 45 L.Ed.2d 41 (1975); United States v. Baker Hughes Inc., 908 F.2d 981, 982 (D.C.Cir.1990).24 If the government makes this showing, a presumption of illegality arises. Id.

To rebut this presumption, the defendant must produce evidence that "show[s] that the market-share statistics [give] an inaccurate account of the acquisition['s] probable effect[ ] on competition" in the relevant market. Citizens & S. Nat'l Bank, 422 U.S. at 120, 95 S.Ct. at 2118-19; see Philadelphia Nat'l Bank, 374 U.S. at 363, 83 S.Ct. at 1741; United States v. Waste Management, Inc., 743 F.2d 976, 981 (2nd Cir.1984). In so doing, the defendant may rely on "[n]onstatistical evidence which casts doubt on the persuasive quality of the statistics to predict future anticompetitive consequences," such as: "ease of entry into the market, the trend of the market either toward or away from concentration, and the continuation of active price competition." Kaiser Aluminum & Chem. Corp. v. FTC, 652 F.2d 1324, 1341 (7th Cir.1981). See generally P. Areeda & H. Hovenkamp, supra p. 1215 pp 917.1, 919, 920.1, 921, 925, 934, 935, 939 (Supp.1989); Antitrust Section, American Bar Association, Horizontal Mergers: Law and Policy 162-75, 201-04, 219-63 (Monograph No. 12, 1986). Additionally, the defendant may demonstrate unique economic circumstances that undermine the predictive value of the government's statistics. See, e.g., United States v. General Dynamics Corp., 415 U.S. 486, 94 S.Ct. 1186, 39 L.Ed.2d 530 (1974). "If the defendant successfully rebuts the presumption [of illegality], the burden of producing additional evidence of anticompetitive effect shifts to the government, and merges with the ultimate burden of persuasion, which remains with the government at all times." Baker Hughes Inc., 908 F.2d at 983; see also Kaiser Aluminum, 652 F.2d at 1340 & n. 12.25

In the discussion that follows, we analyze whether the FTC has demonstrated that it likely will satisfy its ultimate burden of persuasion--that the proposed acquisition probably would substantially lessen competition. In subpart 1, we discuss the FTC's case, both its prima facie showing of market concentration and the additional evidence that it submitted to bolster this prima facie case. In subpart 2, we discuss the appellees' response to the FTC's case.

The FTC clearly established a prima facie case of anticompetitive effect. The proposed acquisition would significantly increase the concentration of an already highly concentrated market. See supra note 12. Following the acquisition, University Hospital would control approximately forty-three percent of the relevant market; three smaller hospitals would share the remainder of the market. These businesses (and these hospitals certainly are businesses), then, theoretically would be able to raise prices and reduce output together without fear that smaller competitors would undermine their anticompetitive plan by expanding their output and slashing prices--there simply would be no other competitors. And, indeed, four businesses easily could collude to achieve such ends without committing detectable violations of sections 1 or 2 of the Sherman Act, 15 U.S.C. Secs. 1, 2 (1988). See Hospital Corp. of Am. v. FTC, 807 F.2d 1381, 1387 (7th Cir.1986), cert. denied, 481 U.S. 1038, 107 S.Ct. 1975, 95 L.Ed.2d 815 (1987).

Added to its prima facie case, the FTC demonstrated that Georgia's certificate of need law--which regulates the addition of hospital services based on the need of the public--is a substantial barrier to entry by new competitors and to expansion by existing ones; in the words of the district court, "the barriers to entry of another into the relevant ... market [or to expansion by existing firms] are as substantial as they could be, barring outright statutory prohibition." Such barriers make concentrated markets more threatening, since there is little chance that other firms (new or old) would be able, in the face of anticompetitive practices, to spur competition.26

In fact, the certificate of need law would facilitate an illegal cartel among the hospitals. First,

[s]hould the leading hospitals [in the relevant market] collude, a natural consequence would be the creation of excess hospital capacity, for the higher prices resulting from collusion would drive some patients to shorten their hospital stays and others to postpone or reject elective surgery. If a noncolluding hospital wanted to expand its capacity [or an outsider wanted to enter the market] so that it could serve patients driven off by the high prices charged by the colluding hospitals, the colluders would have not only a strong incentive to oppose the grant of a certificate of need but also substantial evidence with which to oppose it--the excess capacity (in the market considered as a whole) created by their own collusive efforts.

Id. Consequently, this law would help the hospitals maintain their cartel. Second, since any hospital that wanted to expand its capacity would have to give public notice in advance, it would be difficult for cartel members to "cheat" their co-conspirators (i.e., expand output and lower prices). I