Price Increases May Result from Combination of the Two Full-service Hospitals in Slidell, Louisiana

The proposed acquisition of Slidell Memorial Hospital (Slidell Memorial) by Tenet Health Care Systems (Tenet) may reduce competition and harm consumers, according to a letter to the Louisiana Attorney General from the staff of the Federal Trade Commission's Bureau of Competition, Bureau of Economics, and Office of Policy Planning.

According to Joe Simons, Director of the Bureau of Competition, "Unless a significant number of employers and consumers are willing to use health plans that exclude Slidell Memorial and Tenet's NorthShore Regional Medical Center (NorthShore Regional) - the only other full-service hospital in Slidell - Tenet likely will be able to increase prices unilaterally following the acquisition."

The staff listed several reasons that Tenet's proposed acquisition of Slidell Memorial could harm consumers:

• Since the opening of NorthShore Regional, residents of Slidell and the surrounding area have benefitted from competition between that hospital and Slidell Memorial. The proposed sale will eliminate this competition.
• Many Slidell residents and their employers appear to want private health insurance plans that include either Slidell Memorial or NorthShore Regional in their provider networks. This may make it difficult for a health insurance company to market its plan successfully to those residents and employers if the plan does not include at least one of these hospitals.
• If health insurance plans need to include a Slidell hospital in their provider networks to be successful, it is unlikely that competition from hospitals outside Slidell could prevent Tenet from increasing prices after an acquisition.
• Specialty hospitals such as Louisiana Heart Hospital in Lacombe do not appear to be adequate substitutes for Slidell Memorial and NorthShore Regional because they are not full-service hospitals. Competition from these hospitals appears unlikely to prevent Tenet from increasing hospital prices if it owns both Slidell hospitals.
• Slidell and surrounding east St. Tammany Parish are experiencing rapid growth and appear well-situated to support two competitive full-service hospitals. Reflecting the growing demand for hospital services in Slidell, a number of potential purchasers made proposals to acquire Slidell Memorial.

In concluding its comments, the staff reiterated that competition between Slidell Memorial and NorthShore Regional has benefitted consumers. "It has ensured more competitive prices for hospital services," the letter stated, and "it has spurred both hospitals to provide quality services to attract physician referrals and patient admissions."

The staff also stated that, "Unless a sufficient number of employers and consumers are willing to use health plans that exclude Slidell Memorial and NorthShore Regional, it is likely that Tenet will be able to increase prices successfully, leading to higher insurance premiums, deductibles, and co-pays for Slidell consumers. Our assessment suggests that price increases may result from the combination of NorthShore and Slidell Memorial."

Under the terms of an asset purchase agreement dated December 30, 2002, Tenet stated its intention to acquire Slidell Memorial for $130 million, with Tenet required to invest an additional $40 million in the Slidell Memorial campus over five years. The parties have indicated that they are prepared to consummate the acquisition immediately after a pending referendum and upon receiving approval from the Louisiana Attorney General.

Tenet, headquartered in Santa Barbara, California, is one of the largest providers of for-profit hospital and health care-related services in the United States. Tenet owns and operates 112 acute care hospitals in 16 states, primarily in the Southeast and California. The company operates six hospitals in the New Orleans area, one of which is NorthShore Regional in Slidell - a 147-bed facility that offers a broad range of inpatient acute care services, including most secondary and some tertiary services. In addition to hospitals, Tenet also operates outpatient surgery centers, home health agencies, rehabilitation hospitals, psychiatric hospitals, and provides long-term care. These services are often centered around one of their acute care hospitals.

Slidell Memorial, built in 1959, is a 173-bed full-service acute care not-for-profit community hospital. It is operated under special legislative Act 180, which created the St. Tammany Parish Hospital Service District Number 2. With the exception of psychiatric services, Slidell Memorial offers almost identical acute care services as those provided by NorthShore. The hospital's operations are overseen by a 10-member Board of Commissioners, members of which are appointed by the St. Tammany Parish Council.

The Commission vote authorizing the filing of the staff's comments was 5-0. In issuing its comments to the Attorney General, the FTC staff noted that the Commission currently has an ongoing investigation of the proposed transaction.

NOTE: The letter described in this release represents the views of the FTC's Office of Policy Planning, Bureau of Competition, and Bureau of Economics and does not necessarily represent those of the Commission or of any individual Commissioner.

Copies of the FTC staff's letter are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC's Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, D.C. 20580, Electronic Mail: antitrust@ftc.gov; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published "Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws," which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.

(FTC File No. V030008)