HOSPITAL CORPORATION OF AMERICA, PETITIONER V. FEDERAL TRADE
COMMISSION

   No. 86-1492

   In the Supreme Court of the United States

   October Term, 1986

   On Petition for A Writ of Certiorari to the United States Court of
Appeals for the Seventh Circuit

   Brief for the Respondent in Opposition

            TABLE OF CONTENTS
   Questions presented
   Opinions below
   Jurisdiction
   Constitutional and statutory provisions involved
   Statement
   Argument
   Conclusion

                            OPINIONS BELOW

   The opinion of the court of appeals (Pet. App. 1a-23a) is reported
at 807 F.2d 1381.  The opinion and order of the Federal Trade
Commission (Pet. App. 26a-138a) are reported at 106 F.T.C. 455.  The
initial decision of the administrative law judge (Pet. App. 139a-276a)
is reported at 106 F.T.C. 368.

                             JURISDICTION

   The judgment of the court of appeals (Pet. App. 24a-25a) was
entered on December 18, 1986.  The petition for a writ of certiorari
was filed on March 16, 1987.  The jurisdiction of this Court is
invoked under 28 U.S.C. 1254(1).

           CONSTITUTIONAL AND STATUTORY PROVISIONS INVOLVED

   Pertinent portions of Article II of the Constitution and of Section
7 of the Clayton Act, 15 U.S.C. 18, and Sections 1 and 5 of the
Federal Trade Commission (FTC) Act, 15 U.S.C. 41, 45, are set forth at
Pet. 2-3.

                          QUESTIONS PRESENTED

   1. Whether, in concluding that substantial evidence supported the
Federal Trade Commission's findings regarding the probable
anticompetitive effects of petitioner's corporate acquisitions, the
court of appeals gave sufficient consideration to market
characteristics in addition to market concentration statistics.

   2. Whether this Court should consider the constitutionality of the
exercise of enforcement authority by Federal Trade Commissioners not
removable at will by the President, when the issue was neither
properly raised nor decided in the court of appeals.

                               STATEMENT

   1. Petitioner Hospital Corporation of America is the largest
proprietary hospital chain in the United States.  In late 1981,
petitioner acquired two other hospital corporations, Hospital
Affiliates International, Inc. (HAI), and Health Care Corporation
(HCC), through stock transactions valued at approximately $700
million.  By virtue of these acquisitions, petitioner went from
ownership of one acute care hospital in the Chattanooga, Tennessee,
urban area to ownership of three such hospitals and management of two
others.  Petitioner thus became owner or manager of five of the eleven
acute care hospitals in the Chattanooga urban area.  Pet. App. 1a-3a,
40a-41a, 148a-151a.

   2. The Federal Trade Commission (Commission or FTC), after
completing its investigation of the effects of these acquisitions in
the Chattanooga market, /1/ issued an administrative complaint against
petitioner on July 30, 1982.  The complaint alleged that, by acquiring
HAI and HCC, petitioner had violated Section 7 of the Clayton Act, 15
U.S.C. (& Supp. III) 18, and Section 5 of the FTC Act, 15 U.S.C. (&
Supp. III) 45.  According to the complaint, those acquisitions were
likely to lessen competition substantially or might tend to create a
monopoly in the market for acute care hospital services in the
Chattanooga urban area.  Pet. App. 1a-2a, 41a, 144a-147a.

   After "extensive discovery" and several months of evidentiary
hearings (Pet. App. 147a), an administrative law judge (ALJ) found
that the acquisitions violated the law because of their probable
anticompetitive effects in the Chattanooga market (id. at 262a-263a).
The ALJ ordered petitioner to divest itself of the two Chattanooga
hospitals of which it had acquired ownership and to provide prior
notification to the Commission of certain of its future hospital
acquisitions.  Id. at 3a, 41a, 263a-276a.  On appeal from the ALJ's
decision, the Commission modified some of the ALJ's findings and
concluded that petitioner's acquisition of ownership or management of
four new hospitals, taken together, was unlawful, because the
acquisitions may substantially lessen competition in the Chattanooga
urgan area acute care hospital market.  Id. at 125a-126a, 128a.

   At the outset of its analysis of probable anticompetitive effects,
the Commission found that the acquisitions resulted in a significant
increase in concentration in a market that was already highly
concentrated.  Pet. App. 91a.  /2/ It determined that this increase in
concentration "points toward a finding of likely harm to competition,
all other things being equal" (id. at 90a).  It explicitly recognized,
however, that "all other things are not equal in this market, and
statistical evidence is not the end of our inquiry" (id. at 91a).

   Noting that "an exercise of market power can be defeated or
deterred by the entry or potential entry of new firms" (Pet. App.
91a), the Commission began its consideration of relevant market
characteristics other than market share by finding that state
"certificate of need" legislation either completely precludes new
entry or delays it to such a degree as to constitute a substantial
entry barrier (id. at 91a-102a).  The Commission next concluded that
hospital markets in general, and the Chattanooga market in particular,
possess several characteristics that make anticompetitive effects
likely when such markets become highly concentrated.  Id. at 107a.
Among these are a small absolute number of competitors, low price
elasticity of demand, pressures to contain costs, a tradition of
limited price competition and disapproval of advertising, and a long
history of cooperative behavior among Chattanooga hospitals.  Id. at
108a-110a.

   The Commission also analyzed the market characteristics cited by
petitioner as presenting obstacles to anticompetitive behavior.  These
include the presence of non-profit hospitals in the market, the
heterogeneous nature of hospital services, the role of insurance
companies and other third-party payors, the alleged difficulty of
policing an anticompetitive agreement, and the existence of rapid
technological change.  After careful review, the Commission determined
that those factors did not make anticompetitive behavior substantially
less likely.  Pet. App. 110a-125a.  The Commission similarly rejected
a number of defenses raised by petitioner, including the assertion
that significant efficiencies would result from the acquisitions (id.
at 126a-127a).

   Having found liability, the Commission issued a cease and desist
order requiring divestiture of petitioner's current interests in the
hospitals previously owned and managed by HAI and HCC.  The Commission
also imposed a modified version of the ALJ's prior-notification
requirement and an additional requirement of prior Commission approval
of petitioner's future hospital acquisitions in the Chattanooga urban
area.  Pet. App. 128a-133a.

   3. The court of appeals affirmed and enforced the Commission's
order in its entirety.  Pet. App. 1a-23a.  Observing that the
Commission had conducted a "detailed analysis" of anticompetitive
effects that "fill(ed) most of a 117-page opinion" (id. at 5a), the
court held that the Commission had applied proper legal standards and
that its findings that the acquisitions created a significant threat
to competition were supported by substantial evidence (id. at 3a-19a).

   After noting that the market concentration statistics showed a
significant increase in concentration in a highly concentrated market
(Pet. App. 3a), the court discussed the relevant case law and noted
approvingly that the Commission did not rest its decision on market
concentration statistics alone but inquired into other market
characteristics and the probability of harm to consumers (id. at 7a).
The court adopted the same approach, stating that it "could not uphold
the Commission's decision on a rationale different from its own"
(ibid.).  The court therefore reviewed in detail the numerous market
characteristics identified by the Commission and by petitioner as
relevant to the question of anticompetitive potential of the
acquisitions.  Id. at 8a-19a.

   After extensive analysis, the court concluded that the Commission's
determination regarding the likelihood of anticompetitive effects was
supported by a number of market characteristics beyond market
concentration -- e.g., the absence of competitive alternatives, the
existence of regulatory barriers to entry, the low elasticity of
demand, the severe pressures to contain costs placed on hospitals by
insurers and by the federal government, and the sharp reduction in the
number of substantial competitors.  Pet. App. 8a-14a.  The court then
analyzed the reasons advanced by petitioner as tending to detract from
a conclusion that collusion was a serious danger -- e.g., the
complexity and heterogeneity of hospital services, the presence in the
market of non-profit hospitals, the fast pace of technological change,
the role of large insurance companies, and opposition to the
acquisition from a competitor.  Id. at 14a-19a.  The court held that
it was for the Commission to determine the weight of these various
market factors and that the Comission's assessment that
anticompetitive effects were reasonably probable in this case was
supported by substantial evidence and should not be disturbed on
appeal.  Id. at 14a-15a.

   The court also rejected petitioner's effort to raise on appeal a
new argument, not made before the Commission, that the Commission's
use of its enforcement powers was unconstitutional because the
authority exercised was executive and the commissioners of the FTC are
not subject to removal at will by the President.  The court asserted
that petitioner was, in fact, asking it to adopt a position that
"would make every independent administrative agency unconstitutional"
(Pet. App. 20a).  The court observed that, despite the potentially
far-reaching effects of petitioner's contentions, and the fact that it
had been granted leave to file a 90-page brief, petitioner had devoted
only three pages of its opening brief and one page of its reply to a
presentation on the issue that left many important questions
unanswered.  Id. at 20a-22a.  /3/ In the circumstances, the court
said, "(f)our pages is not an adequate presentation of the case for
this revolutionary result.  Brevity may be the soul of wit, but
seismic constitutional change is not a laughing matter" (id. at 20a).
Thus, the court held that the constitutional issue had not been
adequately raised and declined to reach the merits.  Id. at 22a.

                               ARGUMENT

   The decision of the court below is correct and does not conflict
with any decision of this Court or another court of appeals.  Further
review by this Court is unwarranted.  /4/

   1. Petitioner's first contention (Pet. 6-11) is that the court of
appeals erred by placing "near dispositive reliance" on market share
and concentration statistics (id. at 10).  This argument rests on a
serious mischaracterization of the Seventh Circuit's decision.

   This Court has consistently held that statistics concerning market
share and concentration are of "great significance" in assessing the
legality of a merger.  United States v. General Dynamics Corp., 415
U.S. 486, 498 (1974);  see, e.g., United States v. Citizens & Southern
National Bank, 422 U.S. 86, 120 (1975);  United States v. Marine
Bancorporation, Inc., 418 U.S. 602, 631 (1974).  Consequently, both
the court of appeals and the Commission quite properly commenced their
analyses of the probable anticompetitive effects of the challenged
acquisitions by examining market shares and concentration ratios (Pet.
App. 3a, 87a-97a).  Recognizing, however, that such statistics alone
are not conclusive (see United States v. Marine Bancorporation, Inc.,
418 U.S. at 631-632;  United States v. General Dynamics Corp., 415
U.S. at 498), the court, like the Commission before it, then examined
in detail a wide variety of market factors directly bearing on the
likelihood of anticompetitive effects, including barriers to entry,
inelastic demand, past cooperative behavior, cost containment
pressures, and many others (Pet. App. 7a-19a, 91a-125a).  /5/

   Contrary to petitioner's repeated assertions (Pet. 5-11), the court
did not view market shares as essentially dispositive.  To the
contrary, the court approvingly observed that the Commission had acted
"prudent(ly)" by considering market characteristics rather than
resting solely on market concentration ratios, as many of the merger
decisions of the 1960s did (Pet. App. 7a, 11a).  After reviewing the
Commission's decision based on this expressed rationale (see SEC v.
Chenery Corp., 318 U.S. 80, 87-89 (1943)), the court concluded (Pet.
App. 14a):  /6/

   Considering the concentration of the market, the absence of

   competitive alternatives, the regulatory barrier to entry

   (the certificate of need law), the low elasticity of demand,

   the exceptionally severe cost pressures under which American

   hospitals labor today, the history of collusion in the

   industry, and the sharp reduction in the number of substantial

   competitors in this market brought about by the acquisition of

   four hospitals in a city with only eleven (one already owned

   by Hospital Corporation), we cannot say that the Commission's

   prediction is not supported by substantial evidence. The court's
thorough consideration of relevant market characteristics other than
market shares occupied virtually the entire discussion of petitioner's
antitrust challenge (id. at 4a-19a).  /7/

   In sum, petitioner's first contention rests on a false premise.  It
is apparent from the Seventh Circuit's opinion that the court, like
the Commission, gave full and fair consideration to the competitive
characteristics of the market and did not treat market concentration
as dispositive.  /8/ Petitioner's assertion to the contrary is
incorrect.

   2. Petitioner contends (Pet. 11-17) that Congress may not,
consistent with the Constitution's vesting of the executive power in
the President, authorize the Commission to initiate and carry on law
enforcement proceedings and at the same time provide that FTC
commissioners may not be removed by the President except for
"inefficiency, neglect of duty, or malfeasance in office" (15 U.S.C.
41).  This contention does not warrant the Court's review.

   In the court of appeals, petitioner devoted only three pages of its
85-page opening brief, and one page of its reply brief, to a
perfunctory presentation of this constitutional argument, one that
failed to address important aspects of the issue.  See pages 7-8,
supra.  The court of appeals, stating that it could "not be forced to
consider far-reaching constitutional contentions presented in so
offhand a manner" (Pet. App. 20a), therefore properly declined to
consider the merits of the argument (id. at 20a-22a).  See Bonds v.
Coca-Cola Co., 806 F.2d 1324, 1328 (7th Cir. 1986);  Hershinow v.
Bonamarte, 735 F.2d 264, 266 (7th Cir. 1984);  Carducci v. Regan, 714
F.2d 171, 177 (D.C. Cir. 1983).  Because the constitutional issue was
neither properly raised nor decided in the court below, it is not
appropriate for consideration by this Court.  See Regents of the
University of California v. Bakke, 438 U.S. 265, 283 (1978);  Adickes
v. S.H. Kress & Co., 398 U.S. 144, 147 n.2 (1970).

   Consideration of petitioner's challenge to the FTC would be
particularly inappropriate because of the possible implications of the
challenge.  Petitioner's challenge implicitly raises questions about
activities of other administrative agencies whose members the
President selects but may not remove without complying with certain
statutory standards.  Pet. App. 20a.  In the absence of a decision on
(or proper raising of) the issue below, or of any conflict in the
circuits, /9/ this case presents no occasion for this Court to
consider a contention with such serious implications.

                              CONCLUSION

   The petition for a writ of certiorari should be denied.

   Respectfully submitted.

   CHARLES FRIED

      Solicitor General

   CHARLES R. RULE

      Acting Assistant Attorney General

   ROBERT D. PAUL

      General Counsel

   ERNEST J. ISENSTADT

      Assistant General Counsel

   MELVIN H. ORLANS

      Attorney Federal Trade Commission

   APRIL 1987

   /1/ The Department of Justice separately reviewed the acquisition
of HAI alone.  After completing that review, the Department granted
clearance to the FTC to investigate the distinct problem of the
combined effect of petitioner's acquisitions of HAI and HCC in
Tennessee.  The Department's closing of its inquiry into the
acquisition of HAI alone is in no way inconsistent, and the Department
has no disagreement, with the Commission's conclusions about the
anticompetitive potential of the HAI and HCC acquisitions together.

   /2/ Petitioner's market share increased from 14% to 26% and the
market share for the top four firms increased from 79% to 91%.
Similarly, the Herfindahl-Hirschman Index increased from over 1900
points (indicating a market already highly concentrated) to
approximately 2200 points.  Pet. App. 87a-91a.

   /3/ The court of appeals wrote (Pet. App. 20a-21a (emphasis in
original)) that petitioner had

      made no effort to show that the President wants to remove any
      member of the FTC who voted for the complaint in this case, or
      that the complaint would not have been issued if the President
      had plenary removal power, or that the concept of "cause" is too
      restrictive to satisfy the constitutional provisions vesting
      executive power in the President, or that the allegedly
      unconstitutional limitation on the President's power to remove
      FTC commissioners can't be severed from the Commission's power
      to file complaints (citation omitted).  We are not even told
      whether the commissioners who voted for the complaint were
      appointed by President Reagan;  if they were, it becomes
      somewhat implausible to suppose that the complaint would not
      have been issued if the President had the power to remove them.
      * * * .  So there is no showing that the FTC is acting at cross
      purposes with the President in this matter.  There just is no
      reason to think the complaint would not have been issued but for
      the allegedly unconstitutional feature of the FTC's structure.

   /4/ The divestiture order of the FTC, enforced by the court of
appeals, is automatically stayed pending final disposition of this
petition for a writ of certiorari.  15 U.S.C. 45(g).

   /5/ Correctly applying the substantial evidence test (see, 487-488
(1951)), the court considered whether the Commission's conclusion of
likely anticompetitive effects was supported by substantial evidence
in light of both the supporting evidence and the various market
characteristics cited by petitioner as detracting from the likelihood
of collusion.  Pet. App. 14a-19a, 110a-125a.

   /6/ As the court of appeals noted (Pet. App. 4a-5a, 14a-15a),
petitioner misconceived (and apparently still misconceives (see Pet.
10)) the role of a reviewing court in a substantial evidence case.
The question for the court was not whether the acquisitions created a
danger of anticompetitive effects, but whether the Commission's
conclusion that they did was supported by substantial evidence on the
record as a whole.  The Court answered the latter question in the
affirmative, and petitioner does not, and could not, contend that this
is one of "the rare instance(s) when the (substantial evidence) test
appears to have been misapprehended or grossly misapplied." American
Textile Manufacturers Institute, Inc. v. Donovan, 452 U.S. 490, 523
(1981);  Universal Camera Corp. v. NLRB, 340 U.S. at 491.

   /7/ Petitioner maintains (Pet. 9) that it was the view of the court
of appeals that United States v. General Dynamics, supra, and United
States v. Citizens & Southern National Bank, supra, created only
narrow, factbound exceptions to the general principle that market
shares are dispositive.  In fact, the court of appeals said only that
"it can be argued" that General Dynamics and Citizens & Southern
should be interpreted in this manner (Pet. App. 6a-7a).  More
important, the court's discussion of these and other cases (ibid.)
leaves no doubt that it understood that there has been a marked shift
away from the treatment of market share statistics as nearly decisive.
 Indeed, the court commended the Commission for rejecting such a
limited approach and instead taking into account the full range of
market characteristics.  Id. at 7a, 11a, 14a.  Moreover, as the court
observed, even if it believed this more limited approach was
appropriate, a reviewing court "could not uphold the Commission's
decision on a rationale different from its own" (id. at 7a).

   Petitioner also quotes (Pet. 9) the court as stating that the
Commission need have "gone no further" than market share data.  What
the court actually stated was:  "Maybe (the Commission) need have gone
no further.  * * * But it did." (Pet. App. 11a (citations omitted)).
The court then analyzed the factors considered by the Commission.

   /8/ Since the court in fact considered market factors other than
concentration statistics, the decision is not in conflict with any
decision cited by petitioner (Pet. 8-10) as holding that such
consideration is necessary.  Moreover, the detailed analyses of market
factors conducted by the court and the Commission, coupled with the
emphasis on the circumstances of each particular case, make clear the
fallacy in petitioner's assertion (id. at 11) that, under the court of
appeals' decision, any significant horizontal acquisition in the
hospital industry would necessarily be illegal.

   /9/ Petitioner cites no case contrary to the rulings of several
courts of appeals (e.g., FTC v. American National Cellular, Inc. 810
F.2d 1511 (9th Cir. 1987);  ICC v. Chatsworth Cooperative Marketing
Ass'n, 347 F.2d 821 (7th Cir.), cert. denied, 382 U.S. 938 (1965))
that have rejected challenges like petitioner's.