[Federal Register Volume 75, Number 225 (Tuesday, November 23, 2010)]
[Notices]
[Pages 71441-71443]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-29511]


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FEDERAL TRADE COMMISSION

[File No. 101 0142]


Universal Health Services, Inc. and Psychiatric Solutions, Inc.; 
Analysis of Agreement Containing Consent Orders To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of Federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis To 
Aid Public Comment describes both the allegations in the draft 
complaint and the terms of the consent order--embodied in the consent 
agreement--that would settle these allegations.

DATES: Comments must be received on or before December 15, 2010.

ADDRESSES: Interested parties are invited to submit written comments 
electronically or in paper form. Comments should refer to ``Universal 
Health Services, File No. 101 0142'' to facilitate the organization of 
comments. Please note that your comment--including your name and your 
State--will be placed on the public record of this proceeding, 
including on the publicly accessible FTC Web site, at http://www.ftc.gov/os/publiccomments.shtm.
    Because comments will be made public, they should not include any 
sensitive personal information, such as an individual's Social Security 
Number; date of birth; driver's license number or other State 
identification number, or foreign country equivalent; passport number; 
financial account number; or credit or debit card number. Comments also 
should not include any sensitive health information, such as medical 
records or other individually identifiable health information. In 
addition, comments should not include any ``[t]rade secret or any 
commercial or financial information which is obtained from any person 
and which is privileged or confidential. * * * '' as provided in 
Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and Commission Rule 
4.10(a)(2), 16 CFR 4.10(a)(2). Comments containing material for which 
confidential treatment is requested must be filed in paper form, must 
be clearly labeled ``Confidential,'' and must comply with FTC Rule 
4.9(c), 16 CFR 4.9(c).\1\
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    \1\ The comment must be accompanied by an explicit request for 
confidential treatment, including the factual and legal basis for 
the request, and must identify the specific portions of the comment 
to be withheld from the public record. The request will be granted 
or denied by the Commission's General Counsel, consistent with 
applicable law and the public interest. See FTC Rule 4.9(c), 16 CFR 
4.9(c).
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    Because paper mail addressed to the FTC is subject to delay due to 
heightened security screening, please consider submitting your comments 
in electronic form. Comments filed in electronic form should be 
submitted by using the following Web link: https://ftcpublic.commentworks.com/ftc/psychsolutions and following the 
instructions on the Web-based form. To ensure that the Commission 
considers an electronic comment, you must file it on the Web-based form 
at the Web link: https://ftcpublic.commentworks.com/ftc/psychsolutions. 
If this Notice appears at http://www.regulations.gov/search/index.jsp, 
you may also file an electronic comment through that Web site. The 
Commission will consider all comments that regulations.gov forwards to 
it. You may also visit the FTC Web site at http://www.ftc.gov/ to read 
the Notice and the news release describing it.
    A comment filed in paper form should include the ``Universal Health 
Services, File No. 101 0142'' reference both in the text and on the 
envelope, and should be mailed or delivered to the following address: 
Federal Trade Commission, Office of the Secretary, Room H-135 (Annex 
D), 600 Pennsylvania Avenue, NW., Washington, DC 20580. The FTC is 
requesting that any comment filed in paper form be sent by courier or 
overnight service, if possible, because U.S. postal mail in the 
Washington area and at the Commission is subject to delay due to 
heightened security precautions.
    The Federal Trade Commission Act (``FTC Act'') and other laws the 
Commission administers permit the collection of public comments to 
consider and use in this proceeding as appropriate. The Commission will 
consider all timely and responsive public comments that it receives, 
whether filed in paper or electronic form. Comments received will be 
available to the public on the FTC Web site, to the extent practicable, 
at http://www.ftc.gov/os/publiccomments.shtm. As a matter of 
discretion, the Commission makes every effort to remove home contact 
information for individuals from the public comments it receives before 
placing those comments on the FTC Web site. More information, including 
routine uses permitted by the Privacy Act, may be found in the FTC's 
privacy

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policy, at http://www.ftc.gov/ftc/privacy.shtm.

FOR FURTHER INFORMATION CONTACT: Kenneth W. Field (202-326-2868), FTC 
Bureau of Competition, 600 Pennsylvania Avenue, NW., Washington, DC 
20580.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec.  2.34 the 
Commission Rules of Practice, 16 CFR Sec.  2.34, notice is hereby given 
that the above-captioned consent agreement containing a consent order 
to cease and desist, having been filed with and accepted, subject to 
final approval, by the Commission, has been placed on the public record 
for a period of thirty (30) days. The following Analysis to Aid Public 
Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for November 15, 2010), on the World Wide Web, at http://www.ftc.gov/os/actions.shtm. A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW., Washington, 
DC 20580, either in person or by calling (202) 326-2222.
    Public comments are invited, and may be filed with the Commission 
in either paper or electronic form. All comments should be filed as 
prescribed in the ADDRESSES section above, and must be received on or 
before the date specified in the DATES section.

Analysis of Agreement Containing Consent Order To Aid Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted for 
public comment, subject to final approval, an Agreement Containing 
Consent Orders (``Consent Agreement'') from Alan B. Miller and 
Universal Health Services, Inc. (collectively, ``UHS'') and Psychiatric 
Solutions, Inc. (``PSI''). The purpose of the proposed Consent 
Agreement is to remedy the anticompetitive effects that would otherwise 
result from UHS's acquisition of PSI. Under the terms of the proposed 
Consent Agreement, UHS is required to divest four psychiatric 
facilities and eleven affiliated clinics operating in three local acute 
inpatient psychiatric care markets to acquirers who receive the 
approval of the Commission. The proposed Consent Agreement also 
requires UHS to divest all related assets and real property necessary 
to ensure that the buyer(s) of the divested facilities will be able to 
quickly and fully replicate the competition that would have otherwise 
been eliminated by the acquisition. Finally, UHS and PSI have agreed to 
an Order to Hold Separate and Maintain Assets (``Hold Separate Order'') 
that requires UHS to maintain and hold separate the facilities to be 
divested pending their final divestiture pursuant to the Consent 
Agreement.
    The proposed Consent Agreement has been placed on the public record 
for thirty days to solicit comments from interested persons. Comments 
received during this period will become part of the public record. 
After thirty days, the Commission again will review the proposed 
Consent Agreement and comments received, and decide whether it should 
withdraw the Consent Agreement, modify the Consent Agreement, or make 
it final.
    On May 16, 2010, UHS and PSI entered into a merger agreement under 
which UHS proposes to acquire all of the outstanding voting securities 
of PSI for approximately $2.0 billion in cash, and to assume 
approximately $1.1 billion of PSI debt. The Commission's complaint 
alleges that the proposed acquisition, if consummated, would violate 
Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 
of the Federal Trade Commission Act, as amended, 15 U.S.C. 45, by 
removing an actual, direct, and substantial competitor from three local 
markets for acute inpatient psychiatric care. The proposed Consent 
Agreement would remedy the alleged violations by requiring complete 
divestitures in each of the three markets. These divestitures will 
replace the competition that otherwise would be lost in these markets 
as a result of the proposed acquisition.

The Parties

    UHS, headquartered in King of Prussia, Pennsylvania, owns or 
operates 25 general acute care hospitals and 102 behavioral health 
facilities located in 32 States, Washington, DC, and Puerto Rico. It is 
one of the nation's largest hospital management companies, with 2009 
revenues totaling approximately $5.2 billion. In 2009, UHS's 102 
behavioral health facilities generated approximately $1.3 billion in 
revenue (25% of total revenues) from nearly 8,000 licensed beds and 
over 2 million patient days.
    PSI, headquartered in Franklin, Tennessee, operates 94 inpatient 
behavioral health facilities in 32 States, Puerto Rico, and the U.S. 
Virgin Islands. The 11,000 licensed beds at these facilities accounted 
for 2.8 million patient days in 2009. The company also manages the 
behavioral health programs for 109 general acute care hospitals owned 
by third parties. PSI's revenue for the twelve months ending December 
31, 2009 was approximately $1.8 billion. Behavioral health facilities 
and residential treatment centers generated 93% of 2009 revenues and 
the contract management business accounted for the remaining 7%.

Acute Inpatient Psychiatric Services

    UHS's proposed acquisition of PSI poses substantial antitrust 
concerns in the relevant product market of acute inpatient psychiatric 
services. Acute inpatient psychiatric services are those provided for 
the diagnosis, treatment, and care of patients deemed to be a threat to 
themselves or others or unable to perform basic life functions, due to 
an acute psychiatric condition.
    The three acute inpatient psychiatric services markets are local in 
nature. Analysis of patient flow data and evidence gathered from market 
participants indicate that patients and their families prefer to find 
care close to home in order to facilitate visits or participation in 
family therapy. Also, emergency responders typically transport patients 
in acute psychiatric distress to the nearest emergency room for 
treatment or placement. The three acute inpatient psychiatric services 
markets affected by the proposed acquisition are: the State of 
Delaware; the Las Vegas, Nevada metropolitan statistical area; and the 
Commonwealth of Puerto Rico.
    The proposed acquisition would dramatically increase market 
concentration in each of the relevant acute inpatient psychiatric 
markets. The markets already range from moderately to highly 
concentrated prior to the acquisition. In each market, the proposed 
acquisition would significantly increase market concentration and 
eliminate substantial, direct competition between two significant acute 
inpatient psychiatric care providers. Under the 2010 Department of 
Justice and Federal Trade Commission Horizontal Merger Guidelines, an 
acquisition is presumed to enhance market power or facilitate its 
exercise if it increases the Herfindahl-Hirschman Index (AHHI@) by more 
than 200 points and results in a post-acquisition HHI that exceeds 
2,500 points. The proposed acquisition far exceeds these thresholds: 
the post-acquisition HHIs range from 3916 to 4942, and HHI levels would 
increase by 1428 to 2610 points above pre-acquisition levels. The 
proposed acquisition also would result in UHS controlling approximately 
60 percent or

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more of the acute inpatient psychiatric beds in each of the affected 
markets.
    The presumption of anticompetitive harm created by the steep 
increases in market concentration is further supported by evidence of 
the intense rivalry between UHS- and PSI-owned facilities that would be 
eliminated by the proposed acquisition. In each of the local markets, 
consumers have benefitted from the head-to-head competition in the form 
of lower health care costs, higher quality of care, and improved 
service offerings. Left unremedied, the proposed acquisition likely 
would cause anticompetitive harm by enabling UHS to profit by 
unilaterally raising the reimbursement rates negotiated with commercial 
health plans. These costs are ultimately passed on to consumers in the 
form of higher premiums, co-pays, and other out-of-pocket costs. The 
loss of competition also reduces UHS's incentive to improve quality and 
provide better service.
    New entry is unlikely to deter or counteract the anticompetitive 
effects of the proposed acquisition. Among other entry barriers, 
regulatory requirements pose substantial barriers to entrants 
attempting to establish new psychiatric facilities or to expand their 
offerings in the relevant markets. In particular, Delaware and Puerto 
Rico require Certificates of Need in order to enter or significantly 
expand the number of beds provided in the market. The availability of 
suitable land, local zoning regulations, and Medicare and Medicaid 
certifications also impact significantly the ability of firms to enter 
or expand. As a result, new entry sufficient to achieve a significant 
market impact is unlikely to occur in a timely manner in these markets.

The Proposed Consent Agreement

    The proposed Consent Agreement wholly remedies the anticompetitive 
effects of the acquisition by requiring the divestiture of all of the 
PSI or UHS assets to a Commission-approved buyer (or buyers) within six 
months of the date the Consent Agreement becomes final in Delaware and 
Las Vegas, and within nine months in Puerto Rico. Specifically, the 
proposed Consent Agreement requires the divestiture of four facilities 
that provide acute inpatient psychiatric care, as well as related 
outpatient clinics, contracts, commercial trade names, and real 
property, in the three geographic markets. See Appendix A for a 
complete list of the divestiture assets. Each psychiatric facility and 
its associated clinics to be divested in Delaware and Puerto Rico is a 
stand-alone business, and includes all of the assets necessary for a 
Commission-approved buyer to independently and effectively operate each 
facility. The two facilities in Las Vegas are closely related and 
complementary businesses and were jointly managed within PSI; as such, 
the two facilities together constitute a stand-alone business, and 
include all of the assets necessary for a Commission-approved buyer to 
independently and effectively operate the business.
    The proposed Consent Agreement contains several provisions designed 
to ensure that the divestitures are successful. First, the Commission 
will evaluate the suitability of possible purchasers of the divested 
assets to ensure that the competitive environment that would have 
existed but for the transaction is replicated by the required 
divestitures. If UHS fails to divest the assets within the required 
time period to a Commission-approved buyer, the Consent Agreement 
permits the Commission to appoint a trustee to divest the assets. 
Second, UHS is required to provide transitional services to the 
Commission-approved buyer. These services will facilitate a smooth 
transition of the assets to the acquirer, and ensure continued and 
uninterrupted operation of the assets during the transition. Third, the 
Consent Agreement requires UHS to remove any contractual impediments 
that may deter the current managers of the facilities to be divested 
from accepting offers of employment from any Commission-approved 
acquirer and to obtain all consents necessary to transfer the required 
assets. Finally, to ensure that the Commission will have an opportunity 
to review any future attempt by UHS to acquire any acute inpatient 
psychiatric services provider in any of the three geographic markets at 
issue, the proposed Consent Agreement contains a ten-year prior notice 
provision.
    The Hold Separate Order requires the parties to maintain the 
viability of the divestiture assets as competitive operations until 
each facility is transferred to a Commission-approved buyer. 
Specifically, the parties must maintain the confidentiality of 
sensitive business information, and take all actions necessary to 
prevent the destruction or wasting of the divestiture assets. After UHS 
acquires PSI, the Hold Separate Order requires that UHS separately hold 
and maintain the divestiture assets and appoint a Hold Separate Manager 
to operate these assets pending their divestiture.
    The sole purpose of this analysis is to facilitate public comment 
on the Consent Agreement. This analysis does not constitute an official 
interpretation of the Consent Agreement or modify its terms in any way.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 2010-29511 Filed 11-22-10; 8:45 am]
BILLING CODE 6750-01-P