United States Court of Appeals
                           For the Eighth Circuit
                       ___________________________

                               No. 17-3783
                       ___________________________

               Federal Trade Commission; State of North Dakota,

                      lllllllllllllllllllllPlaintiffs - Appellees,

                                          v.

          Sanford Health; Sanford Bismarck; Mid Dakota Clinic, P.C.,

                    lllllllllllllllllllllDefendants - Appellants.

                            ------------------------------

State of Minnesota; State of Alaska; State of California; State of Delaware; State
      of Hawaii; State of Idaho; State of Iowa; State of Mississippi; State of
     Massachusetts; State of Pennsylvania; Puerto Rico; State of Wyoming,

                 lllllllllllllllllllllAmici on Behalf of Appellee(s).
                                      ____________

                    Appeal from United States District Court
                   for the District of North Dakota - Bismarck
                                  ____________

                         Submitted: November 13, 2018
                             Filed: June 13, 2019
                                ____________

Before COLLOTON, SHEPHERD, and STRAS, Circuit Judges.
                         ____________
COLLOTON, Circuit Judge.

      This is an antitrust case arising under § 7 of the Clayton Act, 15 U.S.C. § 18.
The Federal Trade Commission and the State of North Dakota moved to enjoin
Sanford Bismarck’s acquisition of Mid Dakota Clinic, P.C., alleging that the merger
would violate the Act. The district court1 granted a preliminary injunction after
determining that the plaintiffs were likely to succeed in proving that the acquisition
would substantially lessen competition in four types of physician services in the
Bismarck-Mandan area. The companies appeal, and we affirm.

      Sanford is an integrated healthcare system operating in North Dakota and
several other States. In the Bismarck-Mandan region, Sanford operates an acute care
hospital and multiple clinics. The company employs approximately thirty-seven adult
primary care physicians, five pediatricians, eight OB/GYN physicians, and four
general surgeons.

      Sanford’s two main competitors in the Bismarck-Mandan region are Mid
Dakota and Catholic Health Initiatives St. Alexius Health. Mid Dakota is a multi-
speciality physician group that includes approximately twenty-three adult primary
care physicians, six pediatricians, eight OB/GYN physicians, and five general
surgeons. Catholic Health employs eighty-eight physicians, the majority of whom are
hospitalists; five are adult primary care physicians.

      In North Dakota, there are three leading commercial insurers: Blue Cross Blue
Shield North Dakota, Medica, and Sanford Health Plan. Blue Cross is the largest,
accounting for 61% of the North Dakota health insurance market in 2016. Blue Cross


      1
       The Honorable Alice R. Senechal, United States Magistrate Judge for the
District of North Dakota, to whom the case was referred for final disposition by
consent of the parties pursuant to 28 U.S.C. § 636(c).

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has a participation agreement with every general acute care hospital in the State and
with approximately 99% of practicing physicians. Sanford and Medica accounted for
31% and 8% of the 2016 market, respectively.

        In 2015, Mid Dakota offered itself for sale, and both Catholic Health and
Sanford submitted purchase proposals. Mid Dakota initially executed a letter of
intent with Catholic Health, but after Catholic Health terminated the deal, Mid Dakota
began negotiations with Sanford. The two entities executed a term sheet in August
2016 providing that Sanford would acquire the assets of Mid Dakota. Ten months
later, they signed a stock purchase agreement in which Sanford agreed to purchase
the outstanding capital stock of Mid Dakota. If the companies merge, then Sanford
will have the following market shares in the Bismarck-Mandan region: 99.8% of
general surgeon services, 98.6% of pediatric services, 85.7% of adult primary care
physician services, and 84.6% of OB/GYN physician services.

       The Federal Trade Commission and North Dakota Attorney General brought
an action seeking to enjoin the merger. Section 7 of the Clayton Act provides that no
person engaged in commerce and subject to the jurisdiction of the FTC shall acquire
the stock or assets of another person if “the effect of such acquisition may be
substantially to lessen competition.” 15 U.S.C. § 18. The FTC alleged that Sanford’s
acquisition of Mid Dakota would contravene this proscription and sought an
injunction under 15 U.S.C. §§ 26 and 53(b). The complaint asserted that Sanford’s
plan “to purchase [Mid Dakota’s] assets through two separate transactions” would
“violate Section 7 of the Clayton Act by substantially lessening competition.” After
a four-day evidentiary hearing, the district court found that the plaintiffs were likely
to succeed on the merits of their claim. The court therefore issued a preliminary
injunction.

       We review the district court’s grant of a preliminary injunction for abuse of
discretion. Lankford v. Sherman, 

, 503 (8th Cir. 2006). “An abuse of

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discretion occurs where the district court rests its conclusion on clearly erroneous
factual findings or erroneous legal conclusions.” 

A district court may
enjoin a proposed merger if the FTC shows that “weighing the equities and
considering the Commission’s likelihood of ultimate success, such action would be
in the public interest.” FTC v. Tenet Health Care Corp., 

, 1051 (8th
Cir. 1999) (quoting 15 U.S.C. § 53(b)).

       To evaluate the FTC’s likelihood of success on the merits, the district court
employed a burden-shifting method endorsed by the D.C. Circuit in United States v.
Baker Hughes Inc., 

, 982-83 (D.C. Cir. 1990). Under this approach, the
plaintiffs must first present a prima facie case that the merger will result in an undue
market concentration for a particular product or service in a particular geographic
area. That showing creates a presumption that the merger will substantially lessen
competition. The burden of production then shifts to the defendant to rebut the
presumption, and, on a sufficient showing, back to the plaintiffs to present additional
evidence of anticompetitive effects. The ultimate burden of persuasion remains at all
times with the plaintiffs.

       The companies argue that the district court improperly shifted the ultimate
burden of persuasion to the defendants when it required them to produce rebuttal
evidence that “clearly shows” that no anticompetitive effects were likely. The district
court cited United States v. Philadelphia National Bank, 

(1963), where
the Court said that “a merger which produces a firm controlling an undue percentage
share of the relevant market, and results in a significant increase in the concentration
of firms in that market, is so inherently likely to lessen competition substantially that
it must be enjoined in the absence of evidence clearly showing that the merger is not
likely to have such anticompetitive effects.” 

(emphasis added). The D.C.
Circuit in Baker Hughes reviewed later decisions that used the term “show” instead
of “clearly show,” and concluded that the Supreme Court, without overruling



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Philadelphia National Bank, “has at the very least lightened the evidentiary burden
on a section 7 

.

       We conclude that there was no legal error by the district court here. The court
followed the analytical framework of Baker Hughes, and specified that “[t]he FTC
has the burden of persuasion at all times.” While Baker Hughes adverted to the
Supreme Court’s shift in terminology since the 1960s, the D.C. Circuit also
recognized that “[t]he more compelling the prima facie case, the more evidence the
defendant must present to rebut it successfully.” 

In the context of this
case, where the plaintiffs presented strong evidence of monopolization or near-
monopolization in each service line, it was necessary for the defendants to make a
strong presentation in rebuttal. We are not convinced that the quotation from
Philadelphia National Bank, read in the context of the district court’s order as a
whole, shifted the burden of persuasion to the defendants or required the defendants
to do anything more than produce evidence showing that the FTC’s prima facie case
“inaccurately predicts the relevant transaction’s probable effect on future
competition.” 

the district court’s findings of fact, we review the court’s
determination of the relevant market for clear error. FTC v. Lundbeck, Inc., 

, 1239 (8th Cir. 2011). The district court first defined the four relevant product
markets as adult primary care services, pediatric services, OB/GYN physician
services, and general surgeon services, and defined the relevant geographic market
as the Bismarck-Mandan area. The district court employed the “hypothetical
monopolist test,” which is commonly used in antitrust actions to define the relevant
market. See Saint Alphonsus Med. Ctr.-Nampa Inc. v. St. Luke’s Health Sys., Ltd.,

, 784 (9th Cir. 2015). The test asks whether a hypothetical monopolist
could impose a “small but significant nontransitory increase in price” in the proposed
market. 

would defeat the price increase by switching to products
outside of the proposed market, then the market definition is too narrow and must be

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redefined. Here, the court found that “commercial health insurers would accept a
hypothetical monopolist’s [small but significant nontransitory increase in price] rather
than market a health insurance plan in the Bismarck-Mandan area that did not include
Bismarck-Mandan area physicians providing adult PCP services, pediatrician
services, OB/GYN services, and general surgeon services.” The court’s
determination was supported by empirical analysis of claims data and testimony of
representatives from North Dakota’s three largest insurance companies, including
Sanford Health Plan—the insurance provider within Sanford Health’s integrated care
system. The representatives each testified that an insurance plan’s network must
include each of these services to be competitive in the Bismarck-Mandan area.

       The companies argue that the district court failed to account for Blue Cross’s
dominant position in the market: a provider in North Dakota, they argue, would not
be able to impose a price increase on Blue Cross. In determining the relevant market,
however, the question is not whether a monopolist would increase prices on an
insurer, but whether the insurer “will shift from one product to the other in response
to changes in their relative costs.” SuperTurf, Inc. v. Monsanto Co., 

,
1278 (8th Cir. 1981). When applied to a merger between health care providers, the
hypothetical monopolist test evaluates whether an insurer could avoid a price increase
by contracting with physicians who offer services that are outside of the proposed
service markets or who are located in a region outside of the proposed geographic
market. See FTC v. Penn State Hershey Med. Ctr., 

, 342 (3d Cir. 2016);
Horizontal Merger Guidelines § 4.1.3 (“The hypothetical monopolist’s incentive to
raise prices depends both on the extent to which customers would likely substitute
away from the products in the candidate market in response to such a price increase
and on the profit margins earned on those products.”) (emphasis added). Blue Cross’s
alleged bargaining power would not impact its ability to find substitute physician
services when facing a price increase; the undisputed testimony was that there are no
functional substitutes to a plan offering adult primary care services, pediatric services,



                                           -6-
OB/GYN physician services, general surgeon services in the Bismarck-Mandan area.
The court thus did not clearly err in defining the relevant market.

       The district court next found that the government made a sufficient prima facie
showing because “[t]he changes in [Herfindahl-Hirschman Index] in each of the four
physician service lines are well above the Merger Guidelines’ threshold for
presumption that the proposed transaction is likely to enhance market power.” In
rebuttal, the companies raised four principal arguments: (1) market concentration has
no relationship to bargaining power in the North Dakota healthcare market, (2)
Catholic Health was poised to enter the market to compete with Sanford after the
merger, (3) merger efficiencies offset the potential to harm consumers, and (4) Mid
Dakota’s weakened condition justified the merger. The district court evaluated the
evidence in support of these contentions and found that the FTC’s evidence still
carried the day.

       The companies first argued that the ordinary presumption that increased market
concentration will lead to increased prices does not apply to the North Dakota
healthcare market, because Blue Cross is a dominant buyer that sets reimbursement
rates using a statewide pricing schedule. Even if a provider has a monopoly or near-
monopoly in one region, they argue, the provider would be unable to increase Blue
Cross’s reimbursement rates, so the merger would not impact prices. The district
court viewed this contention as a “powerful buyer defense,” and evaluated whether
(1) Blue Cross, as a powerful buyer, could use its leverage to sponsor entry to the
market, or (2) whether Blue Cross would be able to obtain lower prices from
alternative suppliers after a merger. See Horizontal Merger Guidelines § 8. Finding
that neither was likely, the court rejected the proffered defense.

       On appeal, the companies dispute the district court’s characterization of their
argument as a powerful buyer defense, and complain again that the district court
shifted the burden of persuasion. Yet however the submission is described, the

                                         -7-
district court expressly placed the burden of persuasion on the plaintiffs, and found
that despite the market power of Blue Cross, there was a relationship between market
concentration after the merger and bargaining leverage. A Blue Cross representative
testified that Sanford, after the proposed merger, would indeed have the power to
force Blue Cross to choose between raising prices or leaving the Bismarck-Mandan
region. And there was evidence that Blue Cross in the past was forced to modify
contract terms with a near-monopoly provider in another area of the State. The
district court did not clearly err in crediting this evidence and finding that it
outweighed the testimony of the companies’ expert that the merged company would
be unlikely to extract higher reimbursements from Blue Cross.

       The companies also argued that Catholic Health, a competitor of Sanford, was
poised to enter and compete in the Bismarck-Mandan market. They contend that
Catholic Health’s entrance would counteract the anticompetitive effects of the
merger. Entry of competitors into a market can offset anticompetitive effects,
however, only if the entrance is “timely, likely, and sufficient in its magnitude,
character, and scope to deter or counteract the competitive effects of concern.”
Horizontal Merger Guidelines § 9; see also FTC v. Cardinal Health, Inc., 

34, 55 (D.D.C. 1998). The court found that Catholic Health would not be able to
enter the market quickly after the merger. Catholic Health’s president testified that
the company faced difficulties recruiting physicians in the Bismarck-Mandan area.
Although the president testified that the company could recruit doctors to enter the
market in the short term, Appellants’ App. I, at 174, he also explained that it would
take up to twice as long to establish a name and reputation that could compete with
Sanford. 

On appeal, the companies point to testimony that Catholic
Health intended to enter the market and had recruited a top physician in Bismarck.
But the district court did not clearly err in giving more weight to Catholic Health’s
testimony that it could not timely compete with Sanford in the Bismarck-Mandan
market, and in finding that entry of this competitor would not come soon enough to
offset anticompetitive effects of the merger.

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       The companies further assert that the district court erred in evaluating the
quality efficiencies that would be generated by the merger. In the district court, the
companies pointed to five consumer benefits that would be available to more
consumers in the Bismarck-Mandan region after the merger: (1) Imagenetics, a
program integrating genetic medicine into primary care, (2) behavioral health
therapists embedded into primary care clinics, (3) cancer care trials and cancer care
outreach to communities outside the Bismarck-Mandan area, (4) a combined and
customized electronic medical record system that would better integrate and
coordinate patient care, and (5) recruitment of subspecialists to the area.

       For these efficiencies to counteract anticompetitive effects, they must be
independently verifiable and derived specifically from the merger: “[T]hey must be
efficiencies that cannot be achieved by either company alone.” FTC v. H.J. Heinz
Co., 

, 721-22 (D.C. Cir. 2001). The district court found, however, that
only the Imagenetics program was merger-specific. This putative benefit was not
enough to offset the anticompetitive effects of the merger, the court found, because
“[e]fficiencies almost never justify a merger to monopoly or near-monopoly.”
Horizontal Merger Guidelines § 10; see also Saint 

.

      The companies argue that the other four proposed efficiencies were also
merger-specific, but the district court’s finding was adequately supported by the
record. The FTC’s expert reported that Mid Dakota could make the other quality
gains without the merger: he provided evidence that patient demands—not practice
size—drive physician recruitment, that a combined electronic medical record system
was neither required nor certain to integrate and coordinate patient care, and that Mid
Dakota and Sanford already provided community outreach services and could expand
those services without the merger. Sanford’s own executive admitted that Mid
Dakota could employ a behavioral health therapist without the merger. The
companies argued in the district court that Mid Dakota did not offer these quality
improvements, but the relevant issue was whether Mid Dakota was capable of

                                         -9-
developing them without the merger. On the record as a whole, the district court’s
finding on merger-specific efficiencies was not clear error.

       The district court also understood the companies to raise a “weakened
competitor” defense, asserting that dim long-term prospects of Mid Dakota justified
its merger with Sanford. The court rejected this argument based on sufficient
evidence that Mid Dakota was financially healthy. Mid Dakota increased revenues
in the three years before the lawsuit; physician compensation was 32% above the
national average; and minutes from a Mid Dakota shareholder meeting in 2015 shows
that the motivation to sell was high share value, not concern about long-term
viability. The companies argue that they did not raise a freestanding “weakened
competitor defense,” but merely urged the district court to consider the financial
status of Mid Dakota in the context of its arguments about efficiencies and potential
entry to the market by Catholic Health. Assuming that is true, the district court’s
findings on those asserted efficiencies were not clearly erroneous.

      The judgment of the district court is affirmed.
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