Draft Merger Guidelines: Rebutting a Claim of Substantial Lessening of Competition

In a recent post, we discussed the 13 guidelines set forth in the recently issued proposed Hospital Merger Guidelines (“Draft Guidelines”) issued by the Federal Trade Commission and the Department of Justice (the “Agencies”). The Draft Guidelines are intended to give an overview of 13 principles that the Agencies may use when determining whether a merger is unlawfully anticompetitive under the antitrust laws.

The Draft Guidelines also include a section discussing rebuttal evidence that merging parties may offer to show that no substantial lessening of competition is threatened by the merger notwithstanding that it may result in some degree of lessening of competition.

This post discusses rebuttal evidence. Importantly, on the date this is posted, the Agencies are holding the first of three workshops to facilitate public dialogue on the Draft Guidelines.  The workshop will certainly include a discussion of rebuttal evidence and we will update/supplement this content shortly thereafter.


Merging health care systems have routinely asserted that their merger, even if resulting in the lessening of competition, should nevertheless be allowed because of certain procompetitive and related benefits arising from the merger.

These benefits have typically included, among others, the reduction of costs on account of the consolidation of services, the elimination of duplicative expenses and services optimization, quality improvements, marshaling of resources to meet community need for new, upgraded and expanded facilities and services, adoption of risk-bearing alternative payment models that tie reimbursement to the value of patient outcomes rather than patient volume, enhanced IT capability and enabling financially troubled hospitals to remain in service, and in some instances expand services, to meet community need.

While these asserted benefits have in some cases “carried the day,” in many other instances they have been rejected by the Agencies and the courts typically because they have been considered too speculative or not merger-specific (i.e., they could be accomplished without a merger), and/or the few procompetitive effects did not constitute significant economies that would ultimately benefit competition.

The Third Circuit’s recent decision in FTC v. Hackensack Meridian Health, Inc., 30 F.4th 160 (3d Cir. 2022) is illustrative. In that case, the merging hospitals offered a number of procompetitive benefits that might result from the merger including upgrades and increased capacity, the expansion of complex tertiary and quaternary care, cost-savings resulting from service optimization and quality improvements at both hospitals.

The Court found that most of these claimed benefits were either speculative or non-merger-specific and that the few procompetitive effects the hospitals did establish did not constitute significant economies that would ultimately benefit competition. See also, In the Matter of RWJ Barnabas Health and Saint Peter’s Healthcare System, FTC Matter/File Number 2010145 Docket Number 9409 (FTC rejecting hospitals’ assertion of adequate procompetitive benefits; parties called off their merger).

Another example, this one at the FTC level, involved the suit that the FTC recently brought against Amgen, Inc. and Horizon Therapeutics seeking to block their merger. (The case was recently settled with the merger being allowed to proceed subject to a consent decree.)

In this case, the companies asserted that the merger would be procompetitive because it would result in substantial merger-specific efficiencies, cost synergies and other procompetitive effects that would directly benefit consumers and that these benefits greatly outweighed any and all alleged anticompetitive effects.

More specifically, Amgen and Horizon argued that because they offer pharmaceutical products that treat different conditions and because Horizon when compared with Amgen lacks the corporate infrastructure and experience necessary to deliver those products to patients, the combination would result in cost-savings and the delivery of more medicines to more patients who will benefit from them.

The FTC rejected these arguments, concluding instead that the parties had not adequately demonstrated merger-specific, verifiable, and cognizable efficiencies sufficient to rebut what it believed was evidence of the merger’s likely anticompetitive effects.

Prior to the Agencies’ issuance of the Draft Guidelines and in connection with their preparation, the Agencies requested comments and, with particular reference to the question of benefits arising from mergers, the Agencies requested, among other things, the following information:

  • Do the guidelines reflect the best evidence regarding how often mergers in fact achieve the cost savings and other benefits claimed by merging parties?
  • What are some examples of cases where merger-specific efficiencies were, in fact, realized or not realized?
  • What types of claimed efficiencies and other benefits appear more likely to be realized?
  • What evidence is there concerning the durability of any beneficial effects?
  • For those mergers that appear to yield cognizable efficiencies, what degree of certainty should the guidelines require that they cannot be achieved in any other way?
  • Where a merger is expected to generate cost savings via the elimination of “excess” or “redundant” capacity or workers, should the guidelines treat these savings as cognizable efficiencies?
  • How should the guidelines address the potential for capacity reductions to reduce service quality?

Rebuttal Evidence

Against this background, the Draft Guidelines discuss what the Agencies describe as “Rebuttal Evidence Showing that No Substantial Lessening of Competition is Threatened by the Merger.” This evidence falls into four separate categories (three of which are discussed below): Procompetitve Efficiencies, Failing Firms, Entry and Repositioning, and Structural Barriers to Coordination Unique to the Industry.[1]

  1. Procompetitive Efficiencies

With regard to procompetitive efficiencies as rebuttal evidence (i.e., evidence of efficiencies that shows that no substantial lessening of competition is in fact threatened by the merger notwithstanding other evidence that competition may be lessened), the Draft Guidelines begin by stating that (i) Congress and the courts have indicated their preference for internal efficiencies and organic growth, and (ii) firms can often work together using contracts short of a merger to combine complementary assets without the full anticompetitive consequences of a merger.

The Draft Guidelines do not give examples of what might be considered procompetitive efficiencies. Rather, the Agencies explain that they will examine the evidence presented by the merging parties to determine whether the evidence[2] shows each of the following:

Merger Specificity

    • Evidence that the merger will produce substantial competitive benefits that could not be achieved without the proposed merger. Alternative ways of achieving the claimed benefits will be considered in making this determination.
    • Alternative arrangements might include organic growth of one of the merging firms, contracts between them, mergers with others, or a partial merger involving only those assets that give rise to the procompetitive efficiencies.


    • Evidence that the procompetitive benefits are verifiable and have been verified using reliable methodology and are not dependent on the subjective predictions of the merging parties or their agents.
    • Given that procompetitive efficiencies are often speculative and difficult to verify and quantify, and that efficiencies projected by merging firms often are not realized, unless reliable methodology for verifying efficiencies exists or is otherwise presented by the merging parties, the Agencies will not credit those efficiencies.

Pass Through to Prevent Reduction in Competition

    • To the extent efficiencies merely benefit the merging firms, they are not cognizable. The merging parties must show that, within a short period of time, the benefits will improve competition in the relevant market or prevent the threat that it may be lessened.


    • Any benefits claimed by the merging parties are cognizable only if they do not result from the anticompetitive worsening of terms for the merged firm’s trading partners.
    • Efficiencies are not cognizable if they will accelerate a trend toward concentration or vertical integration.

According to the Agencies, procompetitive efficiencies that satisfy each of these criteria are called cognizable efficiencies. To overcome evidence that a merger may substantially lessen competition, cognizable efficiencies must be of sufficient magnitude and likelihood that no substantial lessening of competition is threatened by the merger in any relevant market. Cognizable efficiencies that would not prevent the creation of a monopoly cannot justify a merger that might otherwise tend to create a monopoly.

The focus of this evidentiary review appears to be on whether the merger will produce substantial competitive benefits, i.e., will improve competition in the relevant market or prevent the threat that it may be lessened. Since no specific examples are provided, it remains unclear as to how this will be applied and assessed in the case of a health care system merger in which the parties assert that the merger, while resulting in increased market concentration, will also result in benefits such as cost reductions, quality enhancements, the provision of new services, expansion of existing services, upgrading of facilities and equipment, increased ability to recruit and retain clinicians, preserving and expanding care to medically underserved areas, new approaches to risk-based contracting and the like.[3]

  1. Failing Firms

When merging parties suggest that the weak or weakening financial position of one of the merging parties will prevent a lessening of competition, the Agencies state that they will examine that evidence under the “failing firm” defense established by the Supreme Court in Citizen Publ’g Co. v. United States, 394 U.S. 131 (1969). This defense applies when the assets to be acquired would imminently cease playing a competitive role in the market even absent the merger.

According to the Agencies, the failing firm defense has three requirements:

    • The evidence must show that the failing firm, in the case of a hospital merger, for example, faces the “grave probability” of a business failure. Evidence in support of this element would be that the allegedly failing hospital would be unable to meet its financial obligations in the near future. Net losses, standing alone, are insufficient to show this requirement is satisfied.
    • The prospects of reorganization of the failing hospital are dim or nonexistent. The Agencies will look for evidence suggesting that the failing hospital would be unable to reorganize successfully under Chapter 11 of the Bankruptcy Act and possibly emerge as a strong competitor. Evidence of the hospital’s actual attempts to resolve its debt with creditors is important.
    • The health care system that acquires the failing hospital or brings it under its dominion is the only available purchaser. The Agencies would typically look for evidence that a hospital has made unsuccessful good-faith efforts to elicit reasonable alternative offers that pose a less severe danger to competition than does the proposed merger.
  1. Entry and Repositioning

The third category of rebuttal evidence involves what the Agencies label “entry and repositioning.” This involves merging parties claiming that a reduction in competition resulting from a merger would induce entry into the relevant market, preventing the merger from substantially lessening competition in the first place.

This claim posits that a merger may, by lessening competition, make the market more profitable for the merged firm and any remaining competitors, and that this increased profitability will induce new entry which will result in new competition whose benefits will offset any harm.

For a variety of reasons, this rebuttal claim likely has limited practical applicability in the case of health care system mergers and especially so where hospitals are involved. Putting aside the regulatory requirements often pertaining to entry, such an expansion into the market seems very unlikely given the obvious cost and expense associated with establishing and staffing new facilities in a new market, the garnering of needed name recognition and the limited revenue opportunities given government and commercial reimbursement rates.

This was most recently illustrated in FTC v. Sanford Health, 926 F.3d 959, 965 (8th Cir. 2019). There, the court rejected the argument that following a merger between a health care system and a large multi-specialty physician group practice that would otherwise impermissibly lessen competition, another health care system would enter the market and effectively compete. It reached this conclusion because the new entrant would face difficulties recruiting physicians in the area and it would “take up to twice as long” to establish a name and reputation that could compete.

That said, in those instances when a rebuttal claim is made by merging parties based on “entry and repositioning,” the Draft Guidelines provide that, to evaluate this rebuttal evidence, the Agencies assess whether entry induced by the merger would be timely, likely, and sufficient in its magnitude, character, and scope to deter or counteract the competitive effects of concern.

A. Timeliness. To show that no substantial lessening of competition is threatened by a merger, entry must be rapid enough to replace lost competition before any effect from the loss of competition due to the merger may occur. Successful entry into a new geographic market in the case of health care systems will almost always take a significant amount of time.

B. Likelihood. Entry induced by lost competition must be so likely that no so substantial lessening of competition is threatened by the merger. The Agencies will analyze why the merger would induce entry that was not planned in pre-merger competitive conditions. The Agencies also assess whether the merger may increase entry barriers because, for example, the merging firms may have a greater ability to discourage or block new entry when combined than they would have as separate firms.

C. Sufficiency. Even where timely and likely, entry may be insufficient due to a variety of constraints that limit an entrant’s effectiveness as a competitor. Entry must at least replicate the scale, strength, and durability of one of the merging parties to be considered sufficient.

An Initial Takeaway

In setting forth this rebuttal evidence, the Agencies also state that it is all subject to legal tests established by the courts and that they will apply those tests consistent with prevailing law.

Given that the courts have in many, if not most, instances rejected arguments that there will be procompetitve benefits from a merger that outweigh competitive harm, it can be expected that under the Draft Guidelines, it will be very difficult for merging parties to establish the presence of rebuttal evidence such as will convince the Agencies not to challenge a merger that would otherwise substantially lessen competition, i.e., the “cognizable” procompetitive effects do not sufficiently benefit competition.


[1] Evidence of structural barriers to coordination unique to the industry would generally not be present in the case of health care system mergers.

[2] In general, evidence related to efficiencies developed by the parties prior to the merger challenge is much more probative than evidence developed during the Agencies’ investigation or litigation.

[3] In the 2010 Merger Guidelines, there is a more detailed articulation of the types of procompetitve efficiencies that may prevent a merger from being anticompetitive.

While the Agencies clearly state in those guidelines that competition usually spurs firms to achieve efficiencies internally and that the greater the potential adverse competitive effect of a merger, the greater must be the cognizable efficiencies and the more they must be passed through to customers, they do provide specific examples of some types of procoompetitive efficiencies that may result in lower prices, improved quality, enhanced services or new products.

For example, they state that merger-generated efficiencies may enhance competition by permitting two ineffective competitors to form a more effective competitor (e.g., by combining complementary assets), incremental cost reductions as a result of the merger may reduce or reverse any increases in the merged firm’s incentive to elevate price, efficiencies may lead to new or improved services even if they do not immediately and directly affect price, and incremental cost reductions may make coordination among providers less likely or effective by enhancing the incentive of a maverick to lower price or by creating a new maverick firm.