[Federal Register Volume 59, Number 189 (Friday, September 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24213]
[[Page Unknown]]
[Federal Register: September 30, 1994]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States and State of Florida v. Morton Plant Health System,
Inc. and Trustees of Mease Hospital, Inc.; Public Comments and Response
on Proposed Final Consent Judgment
Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C.
16(b)-(h), the United States publishes below the comments received on
the proposed Final Consent Judgment in United States and State of
Florida v. Morton Plant Health System, Inc., and Trustees of Mease
Hospital, Inc. Civil No. 94-748-CIV-T-23E, United States District Court
for the Middle District of Florida, together with the United States'
response to the comments.
Copies of the public comments and the response are available on
request for inspection and copying in Room 3235 of the Antitrust
Division, U.S. Department of Justice, Tenth Street and Pennsylvania
Avenue, NW., Washington, DC 20530, and at the Office of the Clerk of
the United States District Court for the Middle District of Florida,
United States Courthouse, 611 North Florida Avenue, Room B-100, Tampa,
Florida 33602.
Joseph H. Widmar,
Deputy Assistant Attorney General, Antitrust Division.
The United States' Response To Public Comments
Pursuant to Section 2(d) of the Antitrust Procedures and Penalties
Act, 15 U.S.C. 16(b)-(h) (the ``APPA''), the United States hereby
submits and responds to the public comments it has received regarding
the proposed Final Consent Judgment (``Judgment'') in this civil
antitrust proceeding.
This action began on May 5, 1994, when the United States and the
State of Florida filed a Verified Complaint alleging that the proposed
consolidation of Morton Plant Health System, Inc. and Trustees of Mease
Hospital, Inc. would tend to substantially lessen competition in the
provision of acute inpatient hospital services in North Pinellas
County, Florida in violation of Section 7 of the Clayton Act, as
amended, 15 U.S.C. Sec. 18. On June 17, 1994, the parties filed a
Stipulation and a proposed Judgment, and on July 1, the United States
filed a Competitive Impact Statement regarding the proposed Judgment.
As explained in the Competitive Impact Statement, the proposed
Judgment permits Morton Plant and Mease to achieve cost savings by
consolidating some hospital and administrative services, but it enjoins
the proposed consolidation and requires Morton Plant and Mease to
continue competing in the provision of inpatient hospital services as
separate corporate entities, thus preserving that competition upon
which consumers have relied to reduce the cost of hospital care.
The APPA requires a sixty-day period for the submission of public
comments on the proposed Judgment [15 U.S.C. 16(b)]. The sixty-day
comment period expired on September 12, 1994. The United States
received two comments. The comments and the United States' response to
these comments are being published with this notice.\1\ What follows is
a brief summary of the comments and the United States' response.
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\1\The comments and the individual responses are attached as
Exhibit 1.
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1. The Textile Rental Services Association criticized language in
the proposed Judgment that, the Association claims, would authorize
Morton Plant and Mease to establish a tax-exempt joint venture to
provide hospital laundry services. Currently, such a venture would not
be tax-exempt. The United States' response to this comment points out
that, in drafting the proposed Judgment, the parties did not intend to
create any new federal or state tax exemption. Morton Plant and Mease
confirmed in writing that they neither intend, nor will they interpret,
the proposed Judgment to provide them with any such tax-exemption.
In our view, the parties' written commitment that they will not
interpret the proposed Judgment as creating or providing any new
federal or state tax exemption fully meets the Textile Rental Services
Association's concern that the Judgment could be read to provide such
tax relief. A key point, however, is that the criticism about the tax
consequences of the proposed Judgment is entirely unrelated to the key
issue before the Court: the effectiveness of the Judgment in remedying
the antitrust violation alleged in the Complaint.
2. Ms. Ann E. Castro, who represents an employment agency for
temporary nurses, criticized provisions of the proposed Judgment that
would permit Morton Plant and Mease to combine their purchases of
temporary nursing services. She believes that the hospitals' joint
venture might decide to purchase nursing services from foreign-born
nurses, who, she claims, typically charge less than the nurses her
client represents.
In response, the United States pointed out that purchasing nursing
services at lower prices is a legitimate, pro-competitive goal. A
reduction in Morton Plant's and Mease's costs for nursing services
would likely translate into lower charges for hospital care, and hence,
benefit health care consumers. Consequently, this criticism does not
warrant rejecting the proposed Judgment, but instead underscores its
salutory effect.
Dated: September 23, 1994.
Respectfully submitted,
Anthony E. Harris, Attorney, Antitrust Division U.S. Department of
Justice, Washington, D.C. 20001 (202) 307-0951
Exhibit 1
Galland, Kharasch Morse & Garfinkle, P.C.
Canal Square
1054 Thirty-First Street, NW.
Washington, DC. 20007-4496
(202) 342-5200
Telecopy: (202)342-5219, (202) 337-8787
August 9, 1994
VIA HAND DELIVERY
Ms. Gail Kursh
Chief, Professions and Intellectual Property Section
U.S. Department of Justice
Antitrust Division
555 4th Street, NW., Rm 9903
Washington, DC. 20001
Re: Public Comment on Proposed Final Consent Judgment, Stipulation
and Competitive Impact Statement in the matter of United States and
State of Florida v. Morton Plant Health System, Inc. and Trustees of
Mease Hospital, Inc., No. 94-748-CIV-T-23E (M.D. Fla., Filed May 5,
1994).
Dear Ms. Kursh:
This letter is filed on behalf of this firm's client, the
Textile Rental Services Association (``TRSA'') with respect to the
above-captioned action (the ``Stipulation''), in partial objection
to the terms of the Stipulation.
TRSA is a nonprofit trade association. Its mission is to
protect, promote, and professionalize the industry of its members,
which are companies engaged in textile maintenance and provision of
rental services to commercial, industrial and institutional
accounts. Members of TRSA account for about 90 percent of the annual
sales of the linen supply industry and about 75 percent of the sales
of the industrial laundering industry. The combined textile rental
industry had estimated 1993 sales of about $6 billion. Linen supply
and industrial laundering companies employ 110,000 people.
Article II, paragraph (G), and Article V, paragraph (B) of the
Stipulation, as published in the Wednesday, July 13, 1994 Federal
Register (59 Fed. Reg. 35,752, 35754) provide that Morton Plant
Health System (``Morton Plant'') and Trustees of Mease Hospital
(``Mease'') may form a ``nonprofit, tax-exempt organization'' which
``may own and operate any . . . Eligible Partnership Administrative
Service and may provide such service to Morton Plan and Mease.'' The
Stipulation defines ``Eligible Partnership Administrative Service''
to include, among other things, ``housekeeping and laundry''
services and ``all miscellaneous services not related to patient
care and not exceeding an expenditure of $250,000.00 annually.''
As is discussed in greater detail below, the implication in the
Stipulation that a tax-exempt organization may perform laundry
services is directly contrary to law, and the open-ended grant of
authority to perform ``miscellaneous services'' may be interpreted
in a manner which is inconsistent with law. TRSA objects to the
content and potential effect of these provisions.
The Supreme Court specifically ruled in HCSC-Laundry v. United
States, 450 U.S. 1,101 S.Ct. 836, 67 L.ED.2d 1 (1981) that a
``cooperative hospital service organization'' formed for the express
purpose of providing laundry services for two or more hospitals
(which were themselves tax-exempt organizations under Sec. 501(c)(3)
of the Internal Revenue Code) was not eligible for tax exempt
status. Section 501(e) of the Internal Revenue Code directly
addresses the capacity of a hospital service organization to qualify
for tax exempt status, and provides a list of services which such
qualified organizations can perform. Laundry services are not
expressly nor implicitly included in that list.\1\
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\1\Section 501(e) provides, in pertinent part, as follows
(emphasis added):
For purposes of this title, an organization shall be treated as
an organization organized and operated exclusively for charitable
purposes if--(1) such organization is organized and operated
solely--(A) to perform, on a centralized basis, one or more of the
following services which, if performed on its own behalf by a
hospital which is an organization described in [Sec. 501(c)(3)] and
exempt from taxation under subsection (a), would constitute
activities in exercising or performing the purpose or function
constituting the basis for its exemption: data processing,
purchasing, warehousing, billing and collection, food, clinical,
industrial, engineering, laboratory, printing, communications,
record center and personnel (including selection, testing, training,
and education of personnel)
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The petitioner in HCSC Laundry asserted that the list of
services in Sec. 501(e) was not intended as an exclusive list, and
that the service entity providing laundry services could qualify for
tax-exempt status under the general qualification standards of
Sec. 501(c)(3) applied to other companies. The Supreme Court
rejected the petitioner's argument, and upheld the Third Circuit's
ruling that compliance with Sec. 501(e) was, in fact, the only way
for a hospital service organization to attain tax-exempt status. The
Court noted that the omission of laundry services from Sec. 501(e)
by lawmakers in 1968 was not inadvertent, and that the inclusion of
laundry services was expressly considered and rejected in 1968
(during original legislative action), and 1976 (when an effort was
made to amend the law to include laundry services). 101 S. Ct. at
839.
We acknowledge that the issues before the District Court and the
Department of Justice, and the compromises contained in the
Stipulation, focus on antitrust and anticompetitive concerns and
that the Stipulation is not necessarily cognizant of federal income
tax implications. Nevertheless, the Stipulation implies a range of
authority which is inconsistent with current law, and we urge you to
revise the Stipulation to reflect current law on permissible tax-
exempt activities for hospital service organizations.
TRSA requests the opportunity to submit further comments or to
otherwise participate in any other proceeding concerning this
subject. Please contact the undersigned if you have any questions
regarding the foregoing, or if you need any further information.
Sincerely,
Steven John Fellman,
Counsel to the Textile Rental Services Association.
cc: Mr. John Burke,
Employee Plans and Exempt Organizations
Mr. J.C. Contney
Executive Director, Textile Rental Services Assn.
September 23, 1994
BY FACSIMILE AND U.S. MAIL
Steven John Fellman, Esquire
Galland, Kharasch, Morse & Garfinkle, P.C.
Canal Square
1054 31st Street, N.W.
Washington, D.C. 20007-4492
Re: Public Comment on Proposed Consent Decree in United States and
State of Florida v. Morton Plant Health Systems, Inc., et al., No.
94-748-CIV-T-23E (M.D. Fla., filed May 5, 1994)
Dear Mr. Fellman:
This letter responds to your recent letter, submitted on behalf
of the Textile Rental Service Association, commenting on the
possible tax ramifications of the joint venture that Morton Plant
Health System, Inc. and Trustees of Mease Hospital, Inc. are
permitted to establish under the terms of the proposed consent
decree in this case.
In your letter, your correctly point out that the proposed
decree authorizes Morton Plant and Mease to form a ``nonprofit, tax-
exempt organization'' that ``may own and operate [and provide to
Morton Plant and Mease] any * * * Eligible Partnership
Administrative Service,'' and that such services may include inter
alia, ``housekeeping and laundry'' services and ``all miscellaneous
services not related to patient care and not exceeding an
expenditure of $250,000 annually.'' Final Consent Judgment II (G)
and V(B). This language could be read to imply that the partnership
organized under the decree can perform laundry services and other
unspecified miscellaneous services and remain a ``nonprofit, tax-
exempt organization'' under federal tax laws.
However, current federal tax statutes and court decisions
interpreting them indicate that a ``cooperative hospitals service
organization'' formed to provide laundry services for two or more
non-profit hospital is not eligible for tax exempt status. HCSC-
Laundry v. United States, 450 U.S. 1, 6-8 (1981). It is also quite
possible that a joint venture formed by the hospitals to provide
other ``miscellaneous services not related to patient care''--and
not specifically listed as a tax-exempt service in Section 501(e) of
the Internal Revenue Code--would not be entitled to tax-exempt
status.
The United States certainly does not view this consent decree as
affording Morton Plant or Mease a new exemption from federal (or
state) taxes. Moreover, Morton Plant and Mease have provided written
assurances that they do not intend to interpret the consent decree
as providing an amendment to or exemption under any tax law. (A copy
of that written assurance from the hospitals' trial counsel is
enclosed.)
In short, the proposed consent decree is clearly not intended,
and should not be read, to alter or amend tax laws, rules, or
regulations, or to create any new tax exemptions or loopholes. In
order to qualify for tax-exempt status, the hospitals' joint venture
must satisfy any applicable tax regulations, not simply rely upon
the language of the proposed decree.
I trust that this responds to the concerns you have expressed.
Thank you for your keen interest in the enforcement of our federal
antitrust and tax laws.
Sincerely yours,
Anthony E. Harris,
Attorney, Professions & Intellectual Property Section.
Enclosure
cc: Mr. John Burke
Assistant Commissioner,
Employee Plans and Exempt Organizations
Internal Revenue Service.
Macfarlane Ausley Ferguson & McMullen
Attorneys and Counselors At Law
September 21, 1994
in reply refer to: Clearwater
ALSO SENT VIA FAX 1-202-514-1517
Anthony E. Harris, Esq.
Trial Counsel
U.S. Department of Justice
Antitrust Division
555-4th Street, N.W., Room 9901
Washington, DC 20001
Re: USA v. Morton Plant and Mease
Dear Tony:
It is my understanding that you requested written assurances in
reference to one of the comments received in relation to the Consent
Decree. In that regard, please accept this correspondence as my
clients' written assurance that they do not intend to violate the
tax laws in relation to implementation of this Consent Decree, nor
do they intend to claim any exemption to which they are not
entitled, nor did they intend, nor do they interpret the Consent
Decree to give them any additional exemptions not provided for in
the tax codes, federal or state. This matter has been reviewed by
appropriate tax counsel who are advising the entities accordingly.
If you have additional questions, please do not hesitate to call.
Sincerely,
James A. Martin, Jr.
JAM:knk
cc:
Mr. Frank V. Murphy
Mr. Phil Beauchamp
John P. Frazer, Esq.
Emil C. Marquardt, Jr., Esq.
Steve Kiess, Esq.
H:/DATA/ATY/JAM/MPH/MEASE/HARRIS LTR
Law Offices
Ann Elaine Castro P.A.
September 12, 1994
Ms. Gail Kursh
Chief, Professions and Intellectual Property Section
U.S. Department of Justice
Antitrust Division
555 4th Street, N.W.
Room 9903
Washington D.C. 20001
In Re: United States and State of Florida v. Morton Plant Health
System, Inc. and Trustees of Mease Hospital, Inc. No. 94-748-CIV-T-
23E (M.D., Fla., Filed May 5, 1994)
On behalf of my client, a nursing contractor doing business in
Pinellas County Florida, this public comment is being submitted as
there is considerable concern that the combination of Morton Plant
and Mease may substantially lessen competition in the provision of
health care services in North Pinellas County in violation of
Section 7 of the Clayton Act, 15 U.S.C. 18.
Specifically, the gravamen of my client's concern lies in the
suspicion that should the merger go forward, staff relief nurses and
other health care professionals will be injured. At 59 Fed. Reg.
357555 (July 13, 1994), Part VI (B) Independent Activities, the
Final Consent Judgment reads as follows:
Morton Plant and Mease shall each price and sell its services,
both those owned and operated and operated separately and those
purchased from the Partnership, in active competition with each
other. Morton Plant and Mease shall each exercise its own
independent judgment on how to market and price its patient care
services and shall not discuss, communicate, or exchange with each
other or any other hospital information relating to the marketing,
pricing, negotiating, or contracting of any patient care services,
including those purchased from the Partnership.
On information and belief Morton Plant has participated in
predatory pricing. Morton Plant together with nineteen of twenty-
three major hospitals in the Tampa Bay area previously engaged in
activities which set forth a federal anti-trust investigation. This
investigation was conducted in 1988-9 to look into alleged abuses by
the hospitals. An organization by the name of SASSA alleged that the
nineteen hospitals were acting in concert to attempt to eliminate
competition in the staff relief nurse industry throughout the Tampa
Bay area, and to drive prices below community standards for the
relief nurses.
Although the federal investigation of the anti-trust activities
ended when the hospitals dropped their plan, the hospitals have
continued to act in concert to try to eliminate competition in the
staff relief nurse industry and to drive prices below community
standards for the relief nurses. A new alliance was formed after the
1988-9 investigation called the Bay Area Hospital Council. (BAHC).
BAHC has actively recruited foreign nurses to supply area hospitals
with cheaper temporary nurses, and this collective activity has
further damaged the nursing contractor that this firm represents, as
the foreign relief nurses have been working for wages well below
community standards for temporary nurses.
Although Morton Plant has engaged in utilizing relief nurses on
H-1A nurses, Mease has not. The nursing contractor this firm
represents has been doing business with Mease, but had been doing no
business at all with Morton Plant, until the contractor would agree
to do business with Morton Plant at rates below community standards
for relief workers. This demand for cheaper rates commanded by
Morton Plant has still not translated into significant return of
business to the contractor who had historically provided Morton
Plant with a large portion of its staff relief nurses.
Should the merger go forward, there will certainly be an adverse
affect on staff relief nurses desiring to work in north Pinellas
County, in that their ability to work at Mease Hospital will be
uncertain, should Mease be influenced by the practices that Morton
Plant has adopted.
Further information has been supplied to Jerome Hoffman of the
Florida Attorney General's Office in Tallahassee, Florida.
Sincerely,
Ann Elaine Castro P.A.
September 23, 1994
BY FACSIMILE AND U.S. MAIL
Ann Elaine Castro, Esquire
Griffin Professional Building
1455 Court Street
Clearwater, Florida 34616
Re: Public Comment on Proposed Consent Decree in United States and
State of Florida v. Morton Plant Health System, Inc., et al., No.
94-748-CIV-T-23E (M.D. Fla., filed May 5, 1994)
Dear Ms. Castro:
This letter responds to your September 12, 1994 letter regarding
the potential impact of the proposed consent decree on competition
in the provision of temporary nursing services to Tampa Bay area
hospitals.
As I understand your concerns, your client is an employment
agency that supplies temporary nurses to hospitals in the Tampa Bay
area, including Mease. Apparently, your client has had difficulty
competing in the provision of nursing services because Morton Plant
and 19 other area hospitals, acting through a trade association, Bay
Area Hospital Association, actively recruit foreign-born nurses,
who, you say, are willing to work at temporary positions at much
cheaper rates than the nurses your client employs. You believe that
if Morton Plant and Mease combine their purchases of nursing
services, as they are permitted to do under the proposed consent
decree, their joint venture may elect to purchase the services of
foreign-born nurses, rather than continue doing business with your
client.
In our view, the concerns you have expressed provide no
justification for reconsidering the merits of the proposed decree.
First, the factual premise of your argument--that Morton Plant
favors the use of foreign-born temporary nurses--is suspect. There
is no evidence that Morton Plant, in fact, routinely fills temporary
nursing positions at its hospitals with lower-paid foreign-born
nationals. The materials you submitted to the Florida Attorney
General's Office in support of your complaint indicate that, as
recently as 1992, Morton Plant did not hire a single foreign
national as a temporary nurse.
Second, neither hospital is today precluded from hiring foreign-
born nurses to fill temporary positions, and there is no proper
basis for restricting the joint venture's hiring of foreign-born
nurses. Indeed, such employment discrimination is likely unlawful.
Finally, even if Morton Plant routinely fills temporary nursing
positions with lower-paid foreign nationals, and the hospital joint
venture organized pursuant to the decree adopts that practice and
expands it to Mease, paying less expensive rates for nursing
services is likely to have significant procompetitive effects. This
practice promises to reduce the cost of nursing care at these
hospitals, and it has not been suggested that that will lead to any
diminution in the quality of care. The reduction in nursing costs
will likely lead to a reduction in prices paid for hospital-related
services, precisely the pro-consumer result the parties anticipated
when they agreed to the settlement now pending before the Court.
I trust this information will help you to understand the basis
for the Department's action and the proposed settlement in this
matter. Thank you for sharing your views with us.
Sincerely yours,
Anthony E. Harris,
Attorney, Professions & Intellectual Property Section.
[FR Doc. 94-24213 Filed 9-29-94; 8:45 am]
BILLING CODE 4410-01-M
