Court Opinion

ID: 6325606
Source: CourtListenerOpinion
Date Created: 2022-03-22 17:00:24.880677+00
Date Added: 2024-06-11T09:22:04.385045
License: Public Domain

PRECEDENTIAL

        UNITED STATES COURT OF APPEALS
             FOR THE THIRD CIRCUIT
                     ______

                       No. 21-2603
                         ______

           FEDERAL TRADE COMMISSION

                            v.

      HACKENSACK MERIDIAN HEALTH, INC.;
     ENGLEWOOD HEALTHCARE FOUNDATION,
                         Appellants
                  ______

      On Appeal from the United States District Court
               for the District of New Jersey
                 (D. C. No. 2-20-cv-18140)
       District Judge: Honorable John M. Vazquez
                           ______

             Argued December 7, 2021
Before: SHWARTZ, PORTER and FISHER, Circuit Judges.

                 (Filed: March 22, 2022)

Alison M. Agnew
John L. Roach, IV
Jonathan Todt
Kenneth M. Vorrasi
Faegre Drinker Biddle & Reath
1500 K Street, N.W., Suite 1100
Washington, DC 20005

Daniel J. Delaney
Faegre Drinker Biddle & Reath
191 North Wacker Drive, Suite 3700
Chicago, IL 60606

Paul H. Saint-Antoine
John S. Yi
Faegre Drinker Biddle & Reath
One Logan Square, Suite 2000
Philadelphia, PA 19103

Aaron D. Van Oort [ARGUED]
Faegre Drinker Biddle & Reath
90 South Seventh Street
2200 Wells Fargo Center
Minneapolis, MN 55402
      Counsel for Appellant Hackensack Meridian Health,
Inc.

Neely B. Agin
Heather P. Lamberg
Andrew Tauber
Winston & Strawn
1901 L Street, N.W.
Washington, DC 20036

Jeffrey J. Amato
Johanna Hudgens

                             2
Jeffrey L. Kessler
Winston & Strawn
200 Park Avenue
New York, NY 10166

David E. Dahlquist
Kevin B. Goldstein
Winston & Strawn
35 West Wacker Drive, 46th Floor
Chicago, IL 60601
      Counsel for Appellant Englewood           Healthcare
Foundation

David R. Fine
K&L Gates
17 North Second Street, 18th Floor
Harrisburg, PA 17101
       Counsel for Amicus Appellants Michael R. Baye,
       Kenneth G. Elzinga, Gregory K. Leonard, Janusz A.
       Ordover, Robert D. Willig

Paul Harold
Steffen N. Johnson
Wilson Sonsini Goodrich & Rosati
1700 K Street, N.W., 5th Floor
Washington, DC 20006

Jonathan M. Jacobson
Wilson Sonsini Goodrich & Rosati
1301 Avenue of the Americas, 40th Floor
New York, NY 10019
      Counsel for Amicus Appellants American Hospital
      Association, Association of American Medical Colleges

                            3
Jennifer A. Hradil
Gibbons
One Gateway Center
Newark, NJ 07102
       Counsel for Amicus Appellant African American
       Chamber of Commerce of New Jersey

Richard Hernandez
McCarter & English
100 Mulberry Street
Four Gateway Center, 14th Floor
Newark, NJ 07102

Ashley L. Turner
McCarter & English
1600 Market Street, Suite 3900
Philadelphia, PA 19103
      Counsel for Amicus Appellant New Jersey Hospital
Association

Mariel Goetz [ARGUED]
Jonathan H. Lasken
Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, DC 20580
      Counsel for Appellee Federal Trade Commission

Jamie Crooks
Fairmark Partners
1499 Massachusetts Avenue, Suite 113a
Washington, DC 20005

                            4
       Counsel for Amicus Appellees Professors, Economists
       and Scholars

Douglas F. Johnson
Earp Cohn
20 Brace Road, 4th Floor
Cherry Hill, NJ 08034
      Counsel for Amicus Professors of Law and Economics,
      Economists and Health Policy Researchers, Thomas L.
      Greaney, Alexandra D. Montague, Jaime S. King,
      Richard M. Scheffler, Katherine M. Gudiksen, Brent D.
      Fulton, Daniel R. Arnold

Tracy W. Wertz
Office of Attorney General of Pennsylvania
Strawberry Square
Harrisburg, PA 17120
       Counsel for Amicus Appellee Commonwealth of
Pennsylvania

                             ______

                 OPINION OF THE COURT
                         ______

FISHER, Circuit Judge
       Englewood Healthcare Foundation, a local New Jersey
hospital, and Hackensack Meridian Health, Inc., New Jersey’s
largest healthcare system, agreed to a multi-million-dollar
merger. The Federal Trade Commission opposes their merger
and filed an administrative complaint alleging it violates
Section 7 of the Clayton Act because it is likely to substantially

                                5
lessen competition. To prevent the parties from merging before
the administrative adjudication could occur, the FTC filed suit
in the District of New Jersey under Section 13(b) of the Federal
Trade Commission Act, requesting a preliminary injunction
pending the outcome of the administrative adjudication. The
District Court granted the preliminary injunction, holding that
the FTC established that there is a reasonable probability that
the merger will substantially impair competition. For the
reasons that follow, we will affirm.

        Englewood Healthcare Foundation is a non-profit
corporation that operates a single community hospital in
Bergen County, New Jersey. It provides primary, secondary,
and some non-complex tertiary services to patients. It does not
provide more complex tertiary and quaternary services. It
currently lacks the expertise, regulatory approvals, and
facilities to perform those services.1 Englewood is licensed for
531 beds, although it currently operates around 350 beds.
        Hackensack Meridian Health is the largest hospital
system in New Jersey. It is a sixteen-hospital health system
with multiple academic medical centers, community hospitals,
specialty hospitals, a medical school, and a research institution.
Hackensack has two hospitals in Bergen County: Hackensack
University Medical Center (“HUMC”), the busiest hospital in
New Jersey, and Pascack Valley Medical Center, a small, acute
care community hospital. HUMC offers all levels of care, but

       1
       Hospital services range from primary care—the least
complex, such as routine delivery of a baby—to quaternary
care—the most complex, such as an organ transplant or
experimental treatment.

                                6
it is Hackensack’s only hospital that performs complex tertiary
and quaternary services. HUMC is licensed for 781 beds, 711
of which are operational. In recent years, Hackensack has
acquired other health providers, each time raising prices at the
acquired facility.
        Bergen County is part of a densely populated region of
Northern New Jersey that borders New York City. Bergen
County is home to three other hospitals affiliated with neither
Englewood nor Hackensack. Some Bergen County residents
seek care in nearby Northern New Jersey counties—e.g.,
Hudson, Essex, and Passaic Counties—and New York.
        In April 2018, Englewood hired a strategic planning
consultant to explore ways to meet its capital needs and use its
excess bed capacity. The consultant advised Englewood to
consider searching for partnership opportunities. Shortly
thereafter, the Englewood board of directors voted to pursue a
merger. Englewood considered various merger partners and
ultimately selected Hackensack.
        Englewood and Hackensack signed a merger
agreement, which took effect in September 2019. As part of the
agreement, Hackensack committed $439.5 million in capital
investments over eight years. Hackensack also agreed to make
other clinical, operational, and financial investments, such as
transferring patients from its hospitals to Englewood and
developing Englewood into a “tertiary hub.” FTC v.
Hackensack Meridian Health, Inc., No. 20-18140, 2021 WL
4145062, at *10 (D.N.J. Aug. 4, 2021).

      After the signing of the agreement, the FTC filed an
administrative complaint against the Hospitals alleging that the
proposed merger would violate Section 7 of the Clayton Act,
15 U.S.C. § 18. In December 2020, the FTC filed suit in the

                               7
District of New Jersey, seeking a temporary restraining order
and a preliminary injunction to enjoin the merger. The parties
stipulated that the Hospitals would not effectuate the proposed
merger until after the District Court ruled on the FTC’s motion
for a preliminary injunction.
       The District Court conducted a seven-day evidentiary
hearing on the preliminary injunction motion. During the
hearing, the Court admitted over 500 exhibits into evidence
and heard testimony from fifteen fact witnesses and seven
expert witnesses. The District Court held that the FTC was
likely to succeed on the merits and the equities weighed in
favor of issuing the injunction. It concluded that the FTC had
established a prima facie case by proposing properly defined
product and geographic markets and showing that the merger
would likely have anticompetitive effects. Because the
Hospitals failed to rebut the FTC’s prima facie case, the
District Court granted the FTC’s request for a preliminary
injunction.
       The Hospitals timely appealed.
                                 2

       Section 13(b) of the FTC Act empowers the FTC to ask
a federal court to preliminarily enjoin a violation of § 7 “[u]pon

       2
         The District Court had jurisdiction under 15 U.S.C §
53(b) (FTC injunction request) and 28 U.S.C. § 1331 (federal
question). This Court has jurisdiction under 28 U.S.C. § 1291
(final decision) and 28 U.S.C. § 1292(a)(1) (order granting
injunctive relief). The adjudicatory function of determining
whether the FTC Act has been violated is vested in the FTC in
the first instance. 15 U.S.C. § 45. The only purpose of a
proceeding in federal court under § 13(b) of the Act is to obtain
a preliminary injunction and preserve the status quo until the
FTC can perform its adjudicatory function. Thus, the District

                                8
a proper showing that, weighing the equities and considering
the Commission’s likelihood of ultimate success, such action
would be in the public interest.” 15 U.S.C. § 53(b). The
Hospitals challenge the preliminary injunction on one basis:
that the District Court incorrectly concluded that the FTC is
likely to succeed on the merits in the administrative
proceeding.

       Section 7 of the Clayton Act bars mergers whose effect
“may be substantially to lessen competition, or to tend to create
a monopoly.” 15 U.S.C. § 18. “Congress used the words ‘may
be substantially to lessen competition’ . . . to indicate that its
concern was with probabilities, not certainties.” Brown Shoe
Co. v. United States, 370 U.S. 294, 323 (1962). Federal courts
assess § 7 claims under a three-part, burden-shifting
framework. FTC v. Penn State Hershey Med. Ctr. (“Hershey”),
838 F.3d 327, 337 (3d Cir. 2016). First, the FTC must establish
a prima facie case that the merger is anticompetitive. Id. If the
FTC establishes a prima facie case, the burden then shifts to
the Hospitals to rebut it. Id. If the Hospitals succeed on rebuttal,
the burden of production shifts back to the FTC “and merges
with the ultimate burden of persuasion, which is incumbent on
the [FTC] at all times.” Id. (quoting St. Alphonsus Med. Ctr.-
Nampa Inc. v. St. Luke’s Health Sys., Ltd., 778 F.3d 775, 783
(9th Cir. 2015)). “To establish a prima facie case, the [FTC]
must (1) propose the proper relevant market and (2) show that

Court’s grant of an injunction “effectively terminated the
litigation and constituted a final order which is appealable
under 28 U.S.C. § 1291.” FTC v. Food Town Stores, Inc., 539
F.2d 1339, 1342 (4th Cir. 1976).

                                 9
the effect of the merger in that market is likely to be
anticompetitive.” Id. at 337–38. The relevant market includes
both a product market and a geographic market. Id. at 338. The
Hospitals challenge the District Court’s evaluation of the
FTC’s likelihood of success on three grounds: the Court’s
adoption of the FTC’s geographic market definition; its use of
the efficiencies defense standard for evaluating the Hospitals’
claims of procompetitive benefits; and its holding that the FTC
carried its ultimate burden of persuasion.

                       1. Product Market
       “Determination of the relevant product and geographic
markets is a necessary predicate to deciding whether a merger
contravenes the Clayton Act.” United States v. Marine
Bancorporation, Inc., 418 U.S. 602, 618 (1974) (internal
quotation marks omitted). The District Court found the
relevant product market to be the “cluster of inpatient [general
acute care] services” offered by Englewood and Hackensack’s
Bergen County hospitals and sold to commercial insurers.
Hackensack, 2021 WL 4145062, at *15. The parties do not
dispute the relevant product market, but their agreement ends
here.

                      2. Geographic Market
       “The relevant geographic market ‘is that area in which
a potential buyer may rationally look for the goods or services
he seeks.’” Hershey, 838 F.3d at 338 (quoting Gordon v.
Lewistown Hosp., 423 F.3d 184, 212 (3d Cir. 2005)). The
relevant market’s geographic scope must be “[d]etermined
within the specific context of each case,” “correspond to the
commercial realities of the industry,” and “be economically
significant.” Id. (second and third phrases quoting Brown Shoe,
370 U.S. at 336–37). The plaintiff—here, the FTC—bears the
burden of establishing the relevant geographic market. Id.

                              10
        Courts and the FTC frequently use the hypothetical
monopolist test to determine the relevant geographic market.
A proposed market is properly defined, under this test, if a
hypothetical monopolist who owns all the firms in the
proposed market could profitably impose a small but
significant non-transitory increase in price (“SSNIP”) on
buyers in that market. U.S. Dep’t of Justice & Fed. Trade
Comm’n, Horizontal Merger Guidelines, § 4.1.1, at 8–9
(2010).3 Both parties here agree that this test is the proper one
to apply.
        The FTC proposed a relevant geographic market
defined by all hospitals used by commercially insured patients
who reside in Bergen County. This means that any hospital that
serves a resident of Bergen County is included as a market
participant even if that hospital is not in Bergen County. The
FTC’s proposed geographic market is thus patient-based, i.e.,
it is defined by the location of patients rather than the location
of hospitals. The FTC’s expert, Dr. Leemore Dafny, chose
Bergen County as the proposed market for three reasons: (1)
Englewood and HUMC are in Bergen County; (2) the majority
of Bergen County residents receive care in Bergen County; and
(3) Bergen County is an economically significant area for
insurers. Recognizing the unique commercial realities of the
healthcare market and relying heavily on insurer testimony, the
District Court accepted the FTC’s proposed geographic
market.
        The Hospitals argue that the District Court erred in its
formulation of the relevant geographic market. First, they

       3
       The Merger Guidelines are not binding on the courts.
However, “they are often used as persuasive authority.”
Hershey, 838 F.3d at 338 n.2 (quoting St. Alphonsus,778 at 784
n.9).

                               11
argue, the FTC did not prove the feasibility of price
discrimination in the market. Second, they contend that even if
a showing of price discrimination was not required, the
proposed market does not pass the hypothetical monopolist
test.
       “[D]efinition of the relevant [geographic] market is a
factual question dependent upon the special characteristics of
the industry involved,” so we review for clear error. Hershey,
838 F.3d at 335 (quoting St. Alphonsus, 778 F.3d at 783
(internal marks omitted)). However, “where a district court
applies an incomplete economic analysis or an erroneous
economic theory to [the] facts . . . , it has committed legal error
subject to plenary review” and we will reverse. Id. at 336.

a. Price discrimination is not a prerequisite for a patient-based
                               market
       As a preliminary matter, we must address whether a
showing of price discrimination is required for a patient-based
geographic market. The Hospitals argue that a showing of price
discrimination—specifically, that patients in the FTC’s
proposed market could be charged higher prices for inpatient
general acute care services than patients living outside the
proposed market—is required under the Merger Guidelines,
case law, and economic literature. Thus, the Hospitals argue,
when the District Court accepted the FTC’s proposed market
without this showing, it erred as a matter of law. We disagree.
       We begin our analysis with the Merger Guidelines. The
Guidelines themselves caution that they “should be read with
the awareness that merger analysis does not consist of uniform
application of a single methodology. Rather, it is a fact-specific
process through which the [FTC] . . . appl[ies] a range of
analytical tools to the reasonably available and reliable
evidence . . . .” Merger Guidelines, § 1, at 1. This initial call

                                12
for flexibility is bolstered throughout the Guidelines by the use
of permissive language such as “normally,” “may,” and
“usually.” See e.g., §§ 4, 5. The Hospitals argue that § 4.2 of
the Guidelines outlines the only allowable methods for
establishing a customer-based geographic market. They take
too restrictive a view of § 4.2. Using price discrimination is but
one way the Guidelines say the FTC may define a customer-
based geographic market. Id. § 4.2, at 14. The Guidelines even
recognize that these types of geographic markets apply most
often when traditional buyers and sellers are involved. Id. But
nothing in the Guidelines states that a customer-based
geographic market may be defined only through price
discrimination.
        The Hospitals next cite a slew of cases to argue
customer-based geographic markets require a showing of price
discrimination. But case law likewise provides us with no such
mandate. Several of the Hospitals’ cases involve markets
starkly different from the healthcare market here. See FTC v.
Staples, Inc., 190 F. Supp. 3d 100, 112, 117–18 (D.D.C. 2016)
(office supply companies); FTC v. Wilh. Wilhelmsen Holding
ASA, 341 F. Supp. 3d 27, 47 (D.D.C. 2018) (marine water
treatment providers). These markets, which involve traditional
sellers and buyers, are not analogous to a complex healthcare
market. The healthcare industry involves a two-stage model of
competition. Hershey, 838 F.3d at 342. In the first stage,
“insurers and hospitals negotiate to determine whether the
hospitals will be in the insurers’ networks and how much the
insurers will pay them.” FTC v. Advocate Health Care
Network, 841 F.3d 460, 465 (7th Cir. 2016). In the second
stage, “hospitals compete to attract patients, based primarily on
non-price factors like convenience and reputation for
quality.” Id. Thus, unlike a traditional seller and buyer
industry, healthcare involves different payors with different

                               13
incentives and competitive constraints. We must always
consider the commercial realities of the industry involved. See
Brown Shoe, 370 U.S. at 336–37.
        In the other cases the Hospitals cite, courts mandated
price discrimination because the FTC asked the court to impose
a price discrimination requirement. For example, in United
States v. Eastman Kodak Co., the Second Circuit rejected the
FTC’s proposed customer-based market because the FTC
failed to prove “systematic price discrimination.” 63 F.3d 95,
107 (2d Cir. 1995). But the government there “chose[] to rebut
Kodak’s proposed market definition” and proposed its own
geographic market “by relying on [a] theory of price
discrimination.” Id. The government did not argue, and the
Second Circuit did not hold, that price discrimination was the
only basis on which to define a customer-based market. The
Second Circuit assumed without deciding that if it accepted the
government’s theory of price discrimination, the government
would still lose because it did not proffer evidence to support
its theory. Id. Here, by contrast, the FTC chose Bergen County
as its geographic market based on a theory of economic
significance—Englewood and HUMC are both located there,
the vast majority of Bergen County residents receive care
there, and insurers think Bergen County is economically
significant. The FTC here, unlike in Kodak, provided evidence
to support its theory.
        St. Alphonsus provides a better example of defining a
geographic market in the complex healthcare industry. St.
Alphonsus Med. Ctr.-Nampa, Inc. v. St. Luke’s Health Sys., No.
1:12-cv-00560, 2014 WL 407446 (D. Idaho Jan. 24, 2014),
aff’d 778 F.3d at 775. In St. Alphonsus, the FTC argued for,
and the District Court found, a market based both on patient
location and physician group location. Id. at *7–8. The FTC’s
argument in this case is remarkably similar. The commercial

                              14
realities here are that most Bergen County residents receive
their inpatient general acute care services in Bergen County
and thus insurers feel they cannot offer a plan that does not
include any Bergen County hospital options. Therefore, just as
the court in St. Alphonsus defined the market based on both
patient and supplier location considerations, so too did the
District Court here.
        Finally, we see nothing in the economic literature to
convince us that price discrimination is a prerequisite for a
patient-based market. Far from “unambiguously stat[ing] that
price discrimination is a prerequisite to defining a relevant
customer-based geographic market,” Hospitals’ Br. at 26, the
economic literature explains how a price discrimination theory
applies to the definition of a relevant market when a price
discrimination theory is used. See Jerry Hausman et al., Market
Definition Under Price Discrimination, 64 Antitrust L.J. 367,
369 (1996); Phillip Areeda & Herbert Hovenkamp, An
Analysis of Antitrust Principles and Their Application, ¶ 534d
(4th and 5th Eds., 2021). The Hospitals point to one article that
supports their reading of the Merger Guidelines. See Gregory
Werden, Why (Ever) Define Markets? An Answer to Professor
Kaplow, 78 Antitrust L.J. 729, 743 (2012). However, as
discussed above, the Guidelines are flexible.
        Thus, we are not willing to adopt a rigid requirement
that price discrimination must be feasible in every customer-
based geographic market. Instead, we hew to the fundamental
antitrust principle that courts must consider the commercial
realities of the industry involved when defining the relevant
market. The District Court did not err.4

       4
        Because we hold that the District Court correctly did
not require a showing of price discrimination for the FTC’s
proposed patient-based market, we do not address the parties’

                               15
     b. The FTC verified the patient-based market with the
                    hypothetical monopolist test
        To confirm the feasibility of a geographic market,
courts often employ the hypothetical monopolist test. As
already explained, the market is properly defined under this
test if a hypothetical monopolist could impose a SSNIP,
typically about five percent, in the proposed market. Hershey,
838 F.3d at 338 & n.1 (citing Merger Guidelines, § 4.1.2, at
10). “If, however, consumers would respond to a SSNIP by
purchasing the product from outside the proposed market,
thereby making the SSNIP unprofitable, the proposed market
definition is too narrow.” Id.
        The FTC, through its expert Dr. Dafny, opined that the
hypothetical monopolist test in this case is whether “a
hypothetical monopolist of . . . all the hospitals supplying the
cluster of inpatient [general acute care] services to residents of
Bergen County [could] profitably impose a SSNIP.” Hr’g Tr.
vol. 3, 562:18–21, ECF No. 356. Insurers testified that Bergen
County is economically significant to them and they cannot
market a plan to Bergen County residents that does not include
a Bergen County hospital. Thus, Dafny concluded that these
insurers would be forced to accept a SSNIP from a hypothetical
monopolist of all hospitals supplying the cluster of inpatient
general acute care services to residents of Bergen County.
        To empirically test her conclusion that Bergen County
satisfies the hypothetical monopolist test, Dafny conducted a
willingness-to-pay analysis. This analysis measures the
bargaining leverage of a hospital by estimating the value that
patients place on having access to that hospital. Patient
preferences may depend on a multitude of factors, such as drive

arguments regarding whether the FTC showed that price
discrimination is feasible in the proposed market.

                               16
time to the hospital, services offered at the hospital, and the
reputation of the hospital. The more value patients assign to the
hospital, the more desirable that hospital is to an insurer’s
network, and the higher the price an insurer is willing to pay to
include that hospital in its network. Insurers maintain
bargaining leverage by having alternative hospitals that
patients recognize as close substitutes to include in their
networks. When individual hospitals merge, the merged entity
may increase its collective bargaining leverage, as compared to
the leverage each individual entity maintained on its own,
because the merger limits insurers’ ability to provide
alternative hospitals for its enrollees.
        Using patient discharge data from Bergen County
residents from 2017 to 2019, Dafny used a statistical model to
calculate the bargaining leverage of the six hospitals in Bergen
County—i.e., a subset of all hospitals that serve Bergen County
residents. She calculated their leverage individually and as one
entity owned by a hypothetical monopolist. Her calculations
revealed that the merged hospitals’ bargaining leverage
increased by sixty-five percent as compared to each hospital’s
leverage if each negotiated independently. Dafny opined that,
according to academic research, a change in leverage of this
magnitude corresponds to a thirty-seven percent price increase,
well above the five percent SSNIP threshold. Dafny reasoned
that if a hypothetical monopolist of just this subset of hospitals
could profitably impose a SSNIP on insurers, then a
hypothetical monopolist of all hospitals serving Bergen County
could likewise impose a SSNIP. The FTC argues that Dafny’s
extrapolation was proper because the insurers testified that
Bergen County is economically significant and that they could
not market a plan to Bergen County residents that did not
include a Bergen County hospital.

                               17
        The Hospitals argue that Dafny’s proposed market and
the methodology she applied do not match. They assert that
Dafny envisioned a hypothetical monopolist that controlled
only the six hospitals located in Bergen County—a market
defined by the hospitals’ location, rather than patients’
location. Because she used the wrong market definition, they
claim she only tested a subset of the FTC’s proposed patient-
based market. Thus, they argue, the District Court erred as a
matter of law in finding the hypothetical monopolist test
supported the FTC’s proposed geographic market.
        Hershey supports Dafny’s methodology. There, we
concluded that insurers would accept a price increase from the
two merging hospitals rather than excluding them from their
networks due to the economically significant nature of those
hospitals. 838 F.3d at 346. While the hypothetical monopolist
test required the government to show only that insurers would
“accept a price increase rather than exclude all of the hospitals”
in the geographic market, the government had actually
answered a narrower question—whether insurers would accept
a price increase rather than exclude the two particular hospitals
that planned to merge. Id. Thus, by determining that insurers
would accept a SSNIP rather than exclude even two hospitals
from its network, we could easily conclude that insurers would
accept a SSNIP rather than exclude all the hospitals in the
county. Id.
        As we did in Hershey, the District Court here found the
extrapolation to be reasonable. The Court concluded that if a
hypothetical monopolist owned all of the hospitals in Bergen
County, “then insurers could attempt to redirect their
customers to nearby hospitals outside of the county.”
Hackensack, 2021 WL 4145062, at *20. However, if the
hypothetical monopolist also owned other nearby hospitals that
serve Bergen County residents—i.e., hospitals in Essex,

                               18
Hudson, and Passaic Counties—the monopolist’s bargaining
leverage would increase even more. The District Court
accepted Dafny’s extrapolation that the more hospitals the
monopolist owned in the area, the greater leverage the
monopolist would have over insurers because insurers would
no longer have the option to redirect their Bergen County
customers to nearby, non-county hospitals.
        The Hospitals first challenge this extrapolation by
arguing that Dafny did not consider how individuals from other
counties—a large portion of the patients for hospitals outside
Bergen County—would affect her analysis. They argue that
“[t]o determine whether the hospitals located outside Bergen
County could profitably raise their prices across the board,
Dafny would have had to examine how insurers and competing
hospitals would react to such a price increase, which would
affect the prices charged to patients across the region.” Reply
Br. 13 (emphasis omitted). Not so. The District Court found
the insurer testimony and supporting data that Bergen County
is important to insurers credible and compelling. It was not
clear error for the District Court to find that insurers’ desire to
offer plans that include hospitals in Bergen County outweighs
any possible reaction competing hospitals further outside of
Bergen County and neighboring counties would have to a price
increase.
        The Hospitals next argue that Dafny only considered the
bargaining leverage of insurers, not patients. They point to
Dafny’s alleged concession in her deposition testimony that
she applied the hypothetical monopolist test to a market “based
on the location of facilities” and to the District Court’s apparent
acknowledgment that Dafny’s willingness-to-pay analysis
“examines the leverage that a hypothetical monopolist of
Bergen County hospitals would have as to insurers.” Hospitals’
Br. 33–34 (emphasis omitted). But as Dafny explained in that

                                19
deposition and at the preliminary injunction hearing, she
evaluated only hospitals located in Bergen County to predict
what a hypothetical monopolist of all hospitals serving Bergen
County residents—including those hospitals located in Bergen
County—would do. Her hospital-based approach was but a
first step to her patient-based analysis. The District Court
recognized as much, noting that in the healthcare industry
patient preferences and insurer preferences “cannot be viewed
in separate, isolated spheres.” Hackensack, 2021 WL 4145062,
at *20. Again, the Hospitals take too rigid a view of the
healthcare market. We therefore conclude that the District
Court did not clearly err in its application of the hypothetical
monopolist test.5
                               ***
        For the reasons stated above, the District Court did not
clearly err in finding the FTC demonstrated that Bergen
County, including all hospitals that serve its residents, is a
relevant geographic market.

       3. The merger will lead to anticompetitive effects
       After the relevant product and geographic markets are
determined, “a prima facie case is established if the plaintiff
proves that the merger will probably lead to anticompetitive
effects in that market.” Hershey, 838 F.3d at 346 (quoting St.

       5
        The FTC alternatively alleged that Bergen County is a
properly defined geographic market supported by the
hypothetical monopolist test if a hospital-based approach is
used. The Hospitals argue that the FTC forfeited this argument
when its expert did not propose a hospital-based geographic
market. Because we hold that the District Court did not err in
defining a patient-based market, we need not address either
argument.

                              20
Alphonsus, 778 F.3d at 785). Anticompetitive effects can
include price increases and reduced product quality, product
variety, service, or innovation. See Merger Guidelines, § 1, at
2. The record thoroughly supports the District Court’s
conclusion that the FTC established a prima facie case.

                    a. Market Concentration
        One useful indicator of the competitive effects of a
merger is market concentration. Id. § 5.3, at 18. Market
concentration is measured by the Herfindahl-Hirschman Index
(“HHI”). Id. A merger’s HHI is calculated by summing the
squares of the market shares of each market participant.
Squaring the shares “gives proportionately greater weight to
the larger market shares,” id., and economists consider the HHI
to be “superior to such cruder measures” such as summing up
the largest firms’ market shares, FTC v. H.J. Heinz Co., 246
F.3d 708, 716 n.9 (D.C. Cir. 2001) (citation omitted). A pure
monopoly would have an HHI of 10,000 (the square of a single
business’s 100 percent market share), while a market with
many players would have an HHI near zero. Merger
Guidelines, § 5.3, at 18. A post-merger market with an HHI
below 1,500 is considered unconcentrated, a market between
1,500 and 2,500 is considered moderately concentrated, and a
market with an HHI above 2,500 is considered highly
concentrated. Id. § 5.3, at 19.
        In addition to the post-merger HHI number, we also
consider the increase in the HHI resulting from the merger. Id.
§ 5.3, at 18–19. A merger that increases the HHI by more than
200 points and results in a highly concentrated market, as
described above, is “presumed to be likely to enhance market
power.” Id. § 5.3, at 19. The FTC may establish a prima facie
case by showing a high market concentration based on HHI
numbers alone. See, e.g., Hershey, 838 F.3d at 347.

                              21
        Using the methods described above, the FTC
demonstrated that the post-merger HHI would be 2,835—a
number that crosses the highly concentrated market threshold.
The merger would increase the HHI by 841 points—over four
times the 200-point benchmark that creates a presumption of
enhanced market power if the merger results in a highly
concentrated market. The FTC alleges that the post-merger
combined Englewood/Hackensack Hospitals would command
forty-seven percent of the market, with the next two closest
competitors commanding only twenty-one percent and nine
percent. The Hospitals do not dispute these numbers. Instead,
they argue that the total HHI “barely exceed[s] the minimum
2,500 threshold” to trigger a presumption of anticompetitive
effects. Hospitals’ Br. 38. The Hospitals highlight that these
numbers—an increase of 841 to an HHI of 2,835—are the
“lowest [HHI numbers] that the FTC has relied on in any recent
hospital-merger case involving [general acute care] services.”
Id. at 38–39. But the FTC is not required to show extraordinary
numbers to make out a prima facie case that the merger would
have anticompetitive effects. Anticompetitive effects can occur
at even lower thresholds, as evidenced by the Guidelines.
Merger Guidelines, § 5.3, at 19. For instance, a moderately
concentrated market (with a total HHI below 2,500) involving
only more than a hundred-point increase “potentially raise[s]
significant competitive concerns and [may] warrant scrutiny.”
Id. The District Court correctly concluded that these numbers
demonstrate the merger is presumptively anticompetitive.

                     b. Direct Evidence
       Although the District Court needed no further evidence
to find the FTC had established its prima facie case, the Court
evaluated other evidence of anticompetitive effects presented
by the FTC. This direct evidence strengthens the probability

                              22
that the merger will likely lead to anticompetitive effects and,
thus, the FTC’s prima facie case. See St. Alphonsus, 778 F.3d
at 788 (relying on HHI numbers and direct evidence of
anticompetitive effects to confirm the prima facie case); Chi.
Bridge & Iron Co. N.V. v. FTC, 534 F.3d 410, 431–32 (5th Cir.
2008) (same); Heinz, 246 F.3d at 717 (same). As the District
Court explained, the Hospitals, a consultant hired by
Englewood, and insurance companies all indicated that the
merger would lead to anticompetitive effects or, at the very
least, recognized the Hospitals as competitors.
        First, the Hospitals view each other as competitors.
During Englewood’s partner search, Englewood’s president
expressed hesitation about sharing information with
Hackensack should the deal not go forward. Englewood
representatives also speculated that Hackensack’s motivation
for merging might stem from its competition with Englewood.
Hackensack’s president similarly recognized Englewood as a
competitor. The District Court also found that the Hospitals
monitored each other’s offerings and technology innovations
and made decisions about their own businesses as a result.
        Englewood’s merger consultant likewise concluded that
Hackensack was Englewood’s main competitor. First, the
consultant identified that Englewood and Hackensack draw
their patients from a similar area in northern New Jersey. The
District Court logically concluded that if the Hospitals merged,
a competitor would be lost from that area. When evaluating
merger offers, the consultant advised Englewood that
accepting Hackensack’s offer would slow down competition
between the hospitals, but accepting another northern New
Jersey health system’s offer would intensify competition with
Hackensack.
        Finally, insurers that do business with the Hospitals
recognized that the merger would have anticompetitive effects.

                              23
For example, one insurer testified that under its modeling and
projections, were HUMC to leave its coverage network, fifty
percent of the patients who would have gone there would
choose to go to Englewood. Another insurer provided an
internal analysis that showed that after the merger Englewood,
HUMC, and Pascack Valley would account for sixty-two
percent of the insurer’s inpatient spending.
       The District Court interpreted all of these statements—
from the Hospitals’ representatives, Englewood’s consultant,
and insurers—as evidence that the Hospitals are competitors
and, should they merge, a competitor would be eliminated. The
District Court’s reasoning is sound.
       Dafny also presented the District Court with various
calculations that bolstered the FTC’s prima facie case. First,
she calculated diversion ratios of the hospitals in the market. A
diversion ratio assesses the share of patients that would go to a
certain hospital if their chosen hospital were not available to
them. The higher the diversion ratio, the closer the competition
between the named hospitals. Dafny calculated that nearly
forty percent of Englewood’s patients would choose a
Hackensack hospital if Englewood were not available. Its next
closest Bergen County competitor was at twelve percent.
Dafny concluded that Hackensack places a strong competitive
constraint on Englewood, which affects Englewood’s pricing
and quality. The District Court credited this analysis,
unpersuaded again by the Hospitals’ rigid argument that
diversion ratios should focus only on insurer preferences.
       Dafny also calculated the price impact of the merger and
estimated the Hospitals would be able to increase prices by $31
million after the merger. Dafny used both her patient-based
willingness-to-pay model and information from a peer-
reviewed paper to generate her calculations. The Hospitals
argue that Dafny’s analysis is unreliable because it rests on

                               24
estimates of patient preferences rather than insurer preferences,
and New Jersey claims data shows that there is no statistically
significant correlation between the two. The Hospitals made
the same argument before the District Court, which found the
FTC’s explanation more persuasive.
       We see no clear error in the District Court’s reasoning.
The study Dafny used evaluated twenty-eight hospital mergers
and examined whether there was a statistically significant
correlation between a change in patient preferences and a
change in price. Dafny testified that substantial literature
supports the general proposition that hospitals that perform
more strongly in the willingness-to-pay analysis command
higher negotiated prices in the marketplace. In addition to this
general principle, she explained that she was selective when
using the study to make her calculations. She included only the
mergers without variable cost savings because she had
accounted for any cost savings from this merger as part of her
efficiencies analysis. If she had not eliminated those cost-
saving mergers from her calculations, she would be “double
counting” the savings. Hackensack, 2021 WL 4145062, at *22.
Through this analysis, she found a statistically significant
correlation between changes in patient preferences and
changes in price.
       The Hospitals’ sole argument against Dafny’s
methodology is that she did not use the best data available,
which they say is New Jersey claims data. Their expert used
that data and found no statistically significant correlation
between patient preferences and hospital prices in New Jersey.
Dafny addressed this criticism in the District Court, explaining
that the Hospitals’ expert’s methodology using this data was
“inferior” because it looked at only one point in time, omitted
important variables, and included irrelevant factors that could
lead to misleading estimates. Hr’g Tr. vol. 3, 578:22, ECF No.

                               25
356. Nonetheless, Dafny did an analysis using this data to
refute the Hospitals’ expert’s results, but she adjusted for the
supposed flaws in the other expert’s methodology.6 Her results
using this data showed a statistically significant relationship
between patient preferences and price, and ultimately resulted
in price increase estimates that were higher than those using
her original methodology. Thus, the FTC introduced evidence
showing that the merger would lead to anticompetitive price
increases using Dafny’s preferred data or the Hospitals’
preferred data.
       Outside of the expert analyses, the District Court relied
on previous Hackensack merger contracts to conclude the
merger would lead to anticompetitive price increases.
Contracts between Hackensack and facilities it had merged
with in the past show Hackensack’s ability to raise rates. The
Hospitals challenge the District Court’s reliance on the
contracts, arguing they only reflect past, pre-merger power and
have no bearing on this merger. But the Hospitals miss the

       6
         According to Dafny, the methodology used by the
Hospitals’ expert suffered from several flaws: he used
willingness-to-pay and price measurements that were out of
sync with the standards in the economic literature; although he
controlled for observable factors present in rate negotiations
between hospitals and insurers, such as insurer identity and
system costs, he did not control for unobservable factors, such
as the bargaining skills of the negotiators, that may
independently affect prices; and he used all of northern New
Jersey—an area consisting of fourteen counties—instead of the
four-county area as his baseline, which further exacerbated
problems associated with not controlling for unobservable
factors because competitive conditions are more likely to differ
as the geographic area expands.

                              26
District Court’s point: past behavior is often indicative of
future behavior. Furthermore, according to the Hospitals’
expert and Hackensack’s president, Hackensack has always
been able to negotiate higher rate increases than Englewood.
As the District Court put it, “the reasonable inference” is that
Hackensack will continue to be able to do so after the merger,
having added another Bergen County hospital to its portfolio.
Hackensack, 2021 WL 4145062, at *24. Thus, regardless of
whether the impact is $31 million, as Dafny estimated, or some
lower figure, the District Court did not err in finding that, as a
matter of common sense, there would be a significant price
impact.
                               ***
       The District Court did not clearly err in making these
factual findings. This direct evidence, in addition to the HHI
numbers, establishes a strong prima facie case of
anticompetitive effects.

       Once the FTC establishes a prima facie case that a
merger may substantially lessen competition, the burden shifts
to the Hospitals to rebut the FTC’s case. “[T]he Hospitals must
show either that the combination would not have
anticompetitive effects or that the anticompetitive effects of the
merger will be offset by extraordinary efficiencies resulting
from the merger.” Hershey, 838 F.3d at 347. The “linchpin of
any efficiencies defense” is the language of the Clayton Act,
which “speaks in terms of ‘competition.’” Id. at 349 (quoting
St. Alphonsus, 778 F.3d at 790). The defense “requires proof
that a merger is not, despite the existence of a prima facie case,
anticompetitive” because “the prima facie case portrays
inaccurately the merger’s probable effects on competition.” Id.
(quoting St. Alphonsus, 778 F.3d at 790). This defense

                               27
recognizes that efficiencies created by a merger can “enhance
the merged firm’s ability and incentive to compete, which may
result in lower prices, improved quality, enhanced service, or
new products.” Merger Guidelines, § 10, at 29.
        To combat the likely anticompetitive harms the FTC
established, the Hospitals offer a panoply of procompetitive
benefits that may be reaped from the merger: upgrades and
increased capacity limits at Englewood, the expansion of
complex tertiary and quaternary care at HUMC, cost-savings
that will result from service optimization between the
Hospitals, and quality improvements at both Hospitals. They
argue that these benefits, which the District Court recognized,
show that the FTC did not establish a likelihood that the merger
would substantially lessen competition. They claim they are
not making an efficiencies defense, thus the stringent standard
developed in other circuits need not apply. They say, instead,
that procompetitive effects must simply be weighed in the
balance together with anticompetitive effects when
considering whether they have rebutted the FTC’s prima facie
case.
        The existence of procompetitive benefits does not mean
the absence of anticompetitive harms. The Hospitals’ argument
that there “would not likely be a substantial lessening of
competition when both pro- and anti-competitive effects were
duly considered,” Reply Br. 26, is merely a different way of
saying there would not likely be a substantial lessening of
competition because the procompetitive effects offset the
anticompetitive effects of the merger. Thus, the Hospitals’
procompetitive benefits argument is an efficiencies defense.
        Neither this Court nor the Supreme Court has formally
adopted the efficiencies defense. See Hershey, 838 F.3d at 347.
Other Circuits have at least been tentatively willing to
recognize the defense, though none have held that it was

                              28
successfully invoked. See ProMedica Health Sys., Inc. v. FTC,
749 F.3d 559, 571 (6th Cir. 2014); St. Alphonsus, 778 F.3d at
788–92; Heinz, 246 F.3d at 720; FTC v. Univ. Health, Inc., 938
F.2d 1206, 1222 (11th Cir. 1991). In Hershey, we explained
that we were skeptical such a defense exists. 838 F.3d at 348.
Although we have yet to see an efficiency so great as to justify
a presumptively anticompetitive merger, we do not rule out
that the efficiencies defense may be viable. But as in Hershey,
we are not forced to confront that possibility. Id. Although this
case is much closer than Hershey, the efficiencies defense, as
adopted by other Circuits, is clearly not met here. Nonetheless,
we address the defense and each of the Hospitals’ claimed
procompetitive benefits to clarify any ambiguity in Hershey.
         For the efficiencies defense to be cognizable, the
efficiencies must (1) “offset the anticompetitive concerns in
highly concentrated markets”; (2) “be merger-specific” (i.e.,
the efficiencies cannot be achieved by either party alone); (3)
“be verifiable, not speculative”; and (4) “not arise from
anticompetitive reductions in output or service.” Hershey, 838
F.3d at 348–49 (internal quotation marks and citations
omitted).
         In Hershey, we expounded on the first element—
whether efficiencies offset anticompetitive concerns—in the
context of HHI numbers. Id. at 350.We stated that even if the
hospitals could show an efficiency was verified, was merger-
specific, and did not arise from anticompetitive reduction in
output, the HHI numbers were so great as to “eclipse any others
we have identified in similar cases.” Id. Therefore, the merger
was “so likely to be anticompetitive that ‘extraordinarily great
. . . efficiencies [were] necessary to prevent the merger from
being anticompetitive.’” Id. (quoting Merger Guidelines, § 10,
at 31). The District Court seems to have interpreted Hershey to
mean that “extraordinary” efficiencies must be found in every

                               29
case where a prima facie case is established, regardless of the
HHI numbers. Hackensack, 2021 WL 4145062, at *26, *30.
We now clarify our earlier statements.
        Efficiencies are best understood as a sliding scale. The
magnitude of the efficiencies needed to overcome a prima facie
case depends on the strength of the likely adverse competitive
effects of a merger. At a minimum, the defendant must show
that “the intended acquisition would result in significant
economies and that [those] economies would ultimately benefit
competition and, hence, consumers.” See Univ. Health, 938
F.2d at 1223. Hershey examined the high end of the spectrum.
There, the market had an HHI of 5,984—more than twice the
highly-concentrated-market threshold—and an increase in
HHI of 2,582—more than twelve times the 200-point increase
that triggers a presumption of anticompetitive harm when the
resulting market is highly concentrated. Hershey, 838 F.3d at
347. Recognizing that the HHI numbers were extraordinary,
we declared that any efficiencies would have to be equally
extraordinary to overcome the likely anticompetitive effects.
Id. at 350. But not every invocation of the efficiencies defense
will require that showing. Courts must take their cues from the
HHI numbers and direct evidence presented by the government
in each case.
        Here, the District Court analyzed the Hospitals’ claimed
procompetitive benefits as efficiencies and concluded that they
were insufficient to overcome the FTC’s prima facie case.
Although we agree with that conclusion, to the extent the
District Court required a showing of extraordinary
procompetitive effects, it would have been incorrect. The
presumption of anticompetitive effects established by the FTC
here does not rise to the level seen in Hershey. Nonetheless, we
review conclusions of law de novo, id. at 335, and our review
leads us to the same conclusion. Some procompetitive benefits

                              30
may exist, but they are not significant enough to offset the
likely anticompetitive effects of the merger. Most of the
Hospitals’ claimed benefits were speculative or non-merger-
specific. And the few procompetitive effects that the Hospitals
did establish do not constitute significant economies that will
ultimately benefit competition and, hence, the patients in
Bergen County.
        The District Court found that most of the Hospitals’
commitments to increase Englewood’s capacity and improve
its clinical offerings were merely speculative. What the
Hospitals called “hard commitments” were only commitments
to “explore, assess, and collaborate.” Hackensack, 2021 WL
4145062, at *26. Furthermore, many of these commitments
were not Englewood-specific or enforceable. On the other
hand, the Court noted that Hackensack’s significant capital
contribution could likely amount to a procompetitive benefit to
Bergen County in a few ways, such as upgrading some physical
facilities and providing Englewood with robotic technology,
both of which would offer Bergen County patients more or
upgraded services. But these modest upgrades alone are not
significant enough to overcome the strong evidence of
anticompetitive harms.
        The District Court held that cost savings due to post-
merger service optimization were also too speculative to be
meaningful. The Court found that the $38 million figure the
Hospitals relied on failed to account for the $439 million
capital contribution by Hackensack. Additionally, the Court
found more persuasive the evidence, or rather lack of evidence,
presented about cost savings in past Hackensack mergers.
Hackensack has previously acquired other hospitals in New
Jersey, yet the Hospitals provided no evidence that consumers
benefitted from cost savings due to service optimization
between the merging parties. Whatever savings the merging

                              31
entities may have cashed in on, there was no evidence the
savings ever flowed through to patients.
        The District Court held that the benefit of expanded
complex tertiary and quaternary care was both non-merger-
specific and speculative. To embark on this expansion,
Hackensack claims it must relieve capacity restraints at
HUMC. But the District Court found that the only thing
preventing HUMC from transferring patients to Englewood
was financial or competitive motive. As the District Court
stated, this motive may be legitimate, but it nonetheless
undercuts the Hospitals’ argument that the expansion can only
occur if the merger moves forward. The District Court also
noted that HUMC is currently expanding capacity and
quaternary services through an ongoing upgrade project.
Finally, the District Court rightly pointed out that Hackensack
has three hospitals near HUMC that are not at capacity and
likely could help alleviate HUMC’s capacity restraints. The
Hospitals have offered nothing to combat these findings.
        Furthermore, the District Court found that any
procompetitive benefit gained by easing HUMC’s capacity
restraints is speculative. First, the Hospitals provided no
evidence that they have a plan to transfer patients from HUMC
to Englewood. At best, the Hospitals have a sense of the
number of patients they would like to transfer. Second, the
Hospitals failed to account for the fact that many hospital
referrals come from physicians not employed by HUMC and
those physicians may not recommend their patients seek
services at Englewood. Thus, even the Hospitals’ transfer goals
are speculative. Finally, assuming the capacity restraint
problems were confirmed, the expansion of quaternary
services is speculative. State approval is required for any such
expansion and the process to gain that approval is expensive
and time-consuming. Thus, the District Court correctly found

                              32
that the expansion of services at HUMC is not a cognizable
efficiency.
        As for the Hospitals’ claim that the merger will provide
quality improvements to both Englewood and HUMC, the
District Court found these too were not merger-specific.
Although the Court did not doubt that Hackensack’s capital
commitment would improve facilities and equipment at
Englewood, it explained that such quality improvements were
likely to happen regardless of a merger. Englewood is a high-
quality hospital. It consistently performs well in multiple
quality assessments and is motivated to maintain this quality of
care because of its competition with HUMC. Therefore,
Englewood would likely make similar quality improvements
even if it did not merge with Hackensack. Furthermore,
Englewood scores better than HUMC on multiple important
performance measures, such as hospital safety, patient
experience, timely and effective care, nursing recognition, and
healthcare-associated infection rates. If the merger occurs,
consumers would likely be disadvantaged because Englewood
would no longer have an incentive to outperform HUMC and
HUMC would have no reason to strive for improvement in
those areas.
        The District Court did not directly address the New
Jersey Attorney General’s finding that the merger is in the
public interest under the New Jersey Community Health Care
Assets Protection Act. Under the Act, the New Jersey Attorney
General and the New Jersey Department of Health evaluate
whether a nonprofit hospital transaction is in the public
interest. Relevant to their inquiry, they evaluate whether the
proposed transaction is “likely to result in the deterioration of
quality, availability or accessibility of heath care services in the
affected communities.” N.J.S.A. 26:2H-7.11(b). Here, New
Jersey concluded that Hackensack made commitments to

                                33
enhance Englewood’s offerings to the community. Although
that finding is independent of any antitrust analysis federal
courts may perform, we would be remiss not to consider a
state’s assessment of the effects of a merger within its borders.
Therefore, the District Court should have included the interests
of the community, as assessed by the New Jersey Attorney
General, in analyzing the likely effects of the merger.
        Nonetheless, when we consider this assessment of the
community’s interests along with the modest quality
improvements and upgrades likely to occur because of this
merger, they are not significant enough to overcome the FTC’s
strong prima facie case. We thus conclude that the District
Court did not err in holding that the Hospitals failed to rebut
the prima facie case that the merger is likely to substantially
lessen competition. Therefore, no additional evidence is
necessary for the FTC to carry its ultimate burden of
persuasion. See Hershey, 838 F.3d at 337.

       For these reasons, we will affirm the District Court’s
grant of preliminary injunctive relief.

                               34