in hospital services is a sufficient economic nexus to define the development opportunities market in terms of traditional buyer-seller transactions. However, plaintiff has not demonstrated up to this point a reasonable probability of overcoming the legal and factual obstacles necessary to sustain its thesis that there is a "development opportunities" market. Although some testimony indicates that community support is helpful in securing a Certificate of Need, plaintiff has not yet demonstrated whether that connection is necessary, or even typical, in hospital development. While community hostility might be fatal, there is no evidentiary basis for stating what the norm is -- community neutrality, for example, rather than active and vigorous support. Plaintiff simply failed to establish its thesis factually.
The legal obstacles are far more imposing. In defining relevant service markets, the Supreme Court in United States v. Philadelphia National Bank, 374 U.S. 321, 10 L. Ed. 2d 915, 83 S. Ct. 1715 (1963), defined the line of commerce in terms of actual commercial banking services, as delivered, and NOT opportunities to construct new branches. In Grinnell, it held the market was that which existed for the delivery of protection services, and NOT the opportunities to expand through the construction of new central stations. The capacity for, and interest in engaging in the "development" of additional facilities necessary to provide a product or service depend on the ability to attract a buyer for that end product -- the article or service which that buyer desires to have in finished form. Courts have found existing transactions between buyers and sellers to be the appropriate measure of market power. The capacity to expand, or develop new facilities, has been taken into account within that market analysis by the assessment of changing market shares in the basic product market, considered in the light of overall market conditions.
Every merger not only has an impact on the existing market, but also necessarily eliminates the capacity of the target company to expand. The merger of two supermarket chains, for example, each with a recent history of expansion, both eliminates choices for shoppers and for landowners seeking to sell prime locations to the expanding firms. We know of no case that would state that the prospective landowners are persons who have cognizable legal injuries under the antitrust laws.
In the instant case plaintiff claims we must place our primary emphasis on the choices available to the economic equivalent of the landowners -- the " community group ". Plaintiff argues that the group is a functional seller of a necessary resource -- its support in the Certificate of Need process -- and concludes that this process must be protected from the loss of competition. No court has extended the antitrust laws to protect such a peripheral interest. It is the ultimate shopper in this case, the doctor and the patient, whose interests are the ones to be protected.
It is almost impossible to distinguish the fine line that allegedly separates "development through management" from day to day operations of a hospital. Perhaps the economic subtlety of the plaintiff's distinction eludes us, but it does appear that hospital owners enter into management contracts in order to have the managers operate their hospitals. Assuming that "development through management" refers to the competition for management contracts, the activity is still irrelevant. Humana does not compete for management contracts, and plaintiff abandoned any "potential entrant" claim through that door.
The acquisition of hospitals for the purpose of operating and/or expanding them meets the basic conceptual requirements for a market activity. There is a buyer, a seller, and a commercially significant exchange. Medicorp has presented testimony which establishes its purchases of hospitals over the past ten years, as well as its attempts to purchase facilities which were thwarted by other propriety chains.
This testimony has not been sufficient, however, to establish a real commercial world that is at home within this legal construct. To prove the existence of such a market, plaintiff would have to show the number of hospitals that have been sold in the past five years, the purchasers, the existence of public or industry recognition of this market, or other indicia of a distinct sub-market. See Brown Shoe, 370 U.S. at 336. Plaintiff would also have to include changes in ownership which amount to an exchange of value for value, and not limit the market to sales which generate revenue, in order to be consistent with its overall definition of this line of commerce. Even if this factual foundation had been established, the legal basis for this type of market would expand the restrictive effects of Section 7 far beyond the outer limits to which the Supreme Court travelled in United States v. Von's Grocery Co., 384 U.S. 270, 16 L. Ed. 2d 555, 86 S. Ct. 1478 (1966).
Replacement activities refer to both the substitution of new facilities for outmoded ones, and the expansion of services and/or the number of beds in so doing. This activity can only be performed by the owner of the hospital; it is difficult to imagine what competition a hospital would face in replacing itself other than in the context of the regulatory process. The numerous instances cited by Dr. Bradley, a witness called by plaintiff, in which American Medicorp fought with its "competitors" to build new facilities in order to replace existing hospitals, were all cases in which the companies competed to acquire the existing hospital. In this sense "replacement" merely repeats the allegations concerning acquisition.
Competition within the regulatory process refers to the situation in which the hospital that proposes to build an expanded replacement facility is located in a community in which other hospitals also desire to expand in the foreseeable future, so that the total number of beds would be greater than the goal set by the Health Services Plan. Even if this latter activity constituted part of a development market, it could only be analyzed within each Health Services Area defined by federal law, and the appropriate region defined by state law, if any. As plaintiff has yet to define a relevant geographic market for this activity, or present evidence concerning the commercial realities of existing opportunities within particular sections of the country, there is no factual basis whatsoever for considering this alleged aspect of a development market at this time. Evidence concerning past replacement opportunities was not presented within the context of relevant geographic markets and existing state health planning systems, and thus has little relevance in proving the presently existing market for replacement opportunities. We also have serious doubts as to the legal basis for this contention, even if factually established.
5. The Factual Basis:
Plaintiff has not at this point established a factual basis for a definition of a genuine development market. Assuming, arguendo, that a distinct national market for development opportunities was created by government restrictions on hospital construction, Plaintiff cannot rely on past development opportunities to define that market in the face of testimony that government policy contemplates a 10% reduction in the number of hospital beds.
Medicorp, to meet its burden of proof, must establish, by the use of some valid sample of Health Service Areas, the current prospects for development of hospitals in the nation as a whole, or in significant geographic areas.
There must be an evidentiary basis from which we can make proper generalizations with respect to a national, or even a meaningful sectional, range of currently existing hospital development opportunities. Indeed, even as to past developments opportunities, plaintiff has only offered conclusory and fragmentary evidence concerning competition at this point. At a final hearing, plaintiff may be able to meet its evidentiary burden on this score by producing a valid sample of the following:
1. The construction of hospitals from scratch;
2. The significant parties in the "development transactions";