The Use of the Nonprofit "Defense" Under Section 7 of the Clayton Act
Since the early 1980s, for-profit and nonprofit hospitals have undergone an unprecedented number of mergers,' reflecting the dramatic changes in the health care industry. The Federal Trade Commission ("FTC") and Department of Justice ("DOJ") have challenged mergers of both types of hospitals. Recently, however, a handful of nonprofit hospitals have offered nonprofit status as a "defense" to federal challenges to nonprofit hospital mergers. Although not a complete defense-nonprofit status alone does not remove the entity from antitrust scrutiny-a limited "defense" has evolved as nonprofit hospitals claim that a nonprofit merger is less likely to have anti- competitive effects than an equivalent for-profit merger.
Under Section 7 of the Clayton Act, the FTC and DOJ review proposed mergers to determine whether the merger will have any significant anti-competitive effects. Congressional policy underlying these statutes seeks to protect consumer welfare by preserving competition in the market Consumers benefit from competition because it encourages producers to offer the best quality at the lowest price.
Although the Supreme Court has established that the non- profit sector is subject to the antitrust laws and numerous appellate courts have held that nonprofit status alone cannot rebut a presumption of illegality, courts are split on the extent to which nonprofit status can be considered in predicting the competitive effects of a merger. Four district courts have recently determined that nonprofit status deserves consideration when evaluating whether a proposed merger will lessen competition."' In contrast, other courts, including the Seventh and Eleventh Circuits, have rejected the view that non- profits are less likely to act anti-competively and have refused to treat nonprofits differently when determining the potential merger's anti- competitive effects.