Philly Hospital Fights Bid To Quash Subpoena In Merger Case

By Matthew Perlman
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Law360 (May 22, 2020, 5:21 PM EDT) -- Albert Einstein Healthcare Network has told a Pennsylvania federal court that it needs documents from an area nursing home operator to show they compete against each other as it tries to fend off a merger challenge from the Federal Trade Commission and the state.

Einstein is defending its planned $599 million merger with Jefferson Health and issued a subpoena to Shannondell Inc. on March 30, requesting documents it said would show the nursing home operator competes against it for certain services.

Shannondell asked the court to quash the subpoena a month later, arguing that the request is overly burdensome, especially in light of the COVID-19 pandemic and the risk it poses to patients at its facilities.

In a response brief on Thursday, Einstein said it certainly understands the difficulties health care providers are currently facing since it, too, is grappling with the outbreak. But, Einstein said, it needs the information to show that the complaint challenging the merger construes the market too narrowly and should be rejected.

"Proving that the merger will reduce competition in a relevant market for antitrust purposes are essential elements of plaintiffs' claims under the Clayton Act," the response said. "Jefferson and Einstein strongly dispute plaintiffs' allegations regarding these elements of their claims and require certain evidence from third-parties such as Shannondell to rebut them."

Quashing the subpoena because of COVID-19 would also open the door for any third party that's been asked to hand over information to refuse, according to the response.

"Einstein is entitled to defend itself against this lawsuit despite the health care crisis that is wholly outside of its control, and it cannot do so effectively without this discovery," the response said.

The motion to quash also contended that the information is irrelevant because Shannondell does not compete with Einstein or Jefferson. The company runs an independent living retirement community, a personal care home and a skilled nursing facility in Montgomery County, Pennsylvania. But when its residents require acute inpatient services, the motion said, they go to Einstein or Jefferson.

But Thursday's response argued that Einstein and Jefferson still compete with providers such as Shannondell for acute rehab services and that the only support Shannondell has for its position is that enforcers don't allege that it's in the same market as the other providers.

"Shannondell misses the entire point: Einstein disputes these complaint allegations and is seeking the discovery necessary to rebut them, as it is entitled to do," the response said. "The discovery sought would support Einstein's defense that the plaintiffs have failed to account for the extent of competition facing Jefferson and Einstein."

Einstein also argued that other contentions from Shannondell — that Einstein and Jefferson could use the information to gain an unfair competitive advantage — directly contradict the assertion that the providers do not compete.

"Shannondell cannot have its cake and eat it too," the response said. "Einstein either is a competitor, in which case the discovery sought is relevant to the action ... or it is not, in which case the subpoena will not harm Shannondell's competitive position. Either way, the motion to quash must be denied."

Jefferson entered into a definitive agreement to acquire Einstein in 2018, with the networks announcing their intent to bring their respective academic medical centers and nationally recognized rehabilitation hospitals under one roof. Terms of the deal were not disclosed.

The FTC and the Pennsylvania attorney general's office sued to block the merger Feb. 27, contending that combining the two Philadelphia-area health care systems would destroy their incentive to compete and reduce the quality of care for patients.

According to the complaint, a combined network would control 60% of the market for inpatient general acute care services in and around North Philadelphia and at least 45% of the market for those services in and around Montgomery County. It would also control some 70% of the market for inpatient rehabilitation services in the Philadelphia area for those recovering from serious, acute conditions such as a stroke, traumatic brain injury or spinal cord injury, the complaint said.

The networks have responded to the merger challenge saying that combining their academic medical centers will result in high-quality care for patients and the advancement of their academic vision. They said the deal will also preserve access and enhance service for residents of North Philadelphia.

The value of the $599 million transaction was revealed in March when U.S. District Judge Gerald J. Pappert refused to grant Einstein a protective order that would have permanently sealed the portion of the complaint that discusses the deal's monetary value.

The FTC and Pennsylvania attorney general responded to Shannondell's bid to quash the subpoena May 14, saying that they agree it's not a competitor of Einstein's and that they're only requesting the information that gets turned over to the merging parties. They also said Shannondell's concerns about confidential information are misplaced considering that the protective order governing the case provides safeguards to control what's disclosed.

Representatives for Einstein and the FTC declined to comment Friday. Representatives for Jefferson and Shannondell did not immediately respond to requests for comment.

The FTC is represented by Mark Seidman, Charles Dickinson and James Weingarten of the commission's Bureau of Competition. Pennsylvania is represented by its attorney general's office.

Einstein is represented by Stephen A. Loney Jr., Virginia A. Gibson, Garima Malhotra, Alexander B. Bowerman, Leigh L. Oliver, Justin W. Bernick, Robert F. Leibenluft, Kimberly D. Rancour and Kathleen K. Hughes of Hogan Lovells LLP.

Jefferson is represented by Paul H. Saint-Antoine, Alison M. Agnew, Daniel J. Delaney, John L. Roach IV, John S. Yi, Kenneth M. Vorrasi and Jonathan H. Todt of Faegre Drinker Biddle & Reath LLP.

Shannondell is represented by Kimber L. Latsha and Brian A. McCall of Latsha Davis & Marshall PC.

The case is FTC v. Thomas Jefferson University et al., case number 2:20-cv-01113, in the U.S. District Court for the Eastern District of Pennsylvania.

--Additional reporting by Bryan Koenig and Kevin Stawicki. Editing by Jay Jackson Jr.

For a reprint of this article, please contact reprints@law360.com.

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Case Information

Case Title

FEDERAL TRADE COMMISSION et al v. THOMAS JEFFERSON UNIVERSITY et al


Case Number

2:20-cv-01113

Court

Pennsylvania Eastern

Nature of Suit

Other Statutes: Anti-Trust

Judge

GERALD J. PAPPERT

Date Filed

February 27, 2020

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