HEALTH CARE BASICS FOR BANKRUPTCY LAWYERS

United received four bids. The Commissioner was in daily contact with United throughout the sale process. United's Board selected a purchaser, Saint Barnabas, and signed a sale agreement that required United to file Chapter 11. The Commissioner immediately granted a certificate of need ("CON") authorizing United to close the hospital and a CON to Saint Barnabas to operate a pediatric facility.

Concurrently with the filing of the petition, United sought approval of the sale to Saint Barnabas under section 363. The unsuccessful bidders opposed the motion. After a four day hearing, the Bankruptcy Court concluded that United's Board's decision to sell to Saint Barnabas was not a sound business judgment and declared the sale a nullity. The Bankruptcy Court further ordered United to apply to the Commissioner for a reinstatement of the CON for 10 days so the Bankruptcy Court could carry out its functions under section 363. United appealed, and the District Court stayed the Bankruptcy Court order and expedited the appeal.

In reversing the Bankruptcy Court, the District Court found that the Bankruptcy Court had substituted its judgment for that of United's Board. The Bankruptcy Court erred in analyzing the transaction solely in light of the highest bid. The District Court instructed that in analyzing the business reason for a sale, the Bankruptcy Court must consider the debtor's status as a charitable institution whose Board must act in furtherance of the organization's mission. Additionally, the Commissioner's involvement must be considered in evaluating the sale. The District Court counseled that:

[I]n the instant case, the Court must look to the overriding consideration of public health represented by the virtual orchestration of the entire bidding and sale process by the Commissioner. It was the Commissioner who ordered United to find a buyer by a date certain. The public interest in health was at stake. Secondarily, the winding up of an [*17] obviously insolvent business was also involved. Thus, in viewing that totality of circumstances, this Court cannot mechanically apply bankruptcy principles of "highest and best" offer. Rather, the Court must not only weigh the financial aspects of the transaction but also look to the countervailing consideration of a public health emergency. The Court must determine, under the totality of the circumstances, whether the sale was conducted under such circumstances so as not to offend the concepts of good faith required in the review of a pre-bankruptcy sale.

The District Court also concluded that the Bankruptcy Court lacked the expertise to second guess the state authorities on issues of public health and safety. The District Court determined that "the bankruptcy court does not have the power to interfere with state regulations exercised under the state's police powers." Thus, the Bankruptcy Court acted outside the scope of its powers and interfered with the administration of state law in ordering United to request that the Commissioner reconsider his decision. However, the Bankruptcy Court is not powerless when a state agency revokes or refuses to amend a license. If the reason for the revocation or refusal to amend the license is the debtor's failure to pay a dischargeable debt to the state agency, section 525 will protect a health care debtor from this discriminatory treatment.

C. Antitrust Considerations

The principal federal antitrust statutes affecting the acquisition of health care entities are the Sherman Act and the Clayton Act. Section 1 of the Sherman Act generally prohibits contracts, combinations and conspiracies that unreasonably restrain trade. Section 2 of the Sherman Act generally restricts monopolization, attempts to monopolize and conspiracies to monopolize. Section 7 of the Clayton Act prohibits mergers, joint ventures, and consolidations or acquisitions of stock or assets that substantially lessen competition or tend to create a monopoly. In addition to federal regulation, most states have antitrust statutes, often as a part of the state's Uniform Commercial Code. The health care industry is not immune from application of the antitrust laws as a general matter. Moreover, neither the Bankruptcy Code nor other applicable laws explicitly exclude or exempt