                                     PRECEDENTIAL

    UNITED STATES COURT OF APPEALS
         FOR THE THIRD CIRCUIT
                 ______

                   No. 16-2365
                     ______

     FEDERAL TRADE COMMISSION;
   COMMONWEALTH OF PENNSYLVANIA,
                         Appellants

                        v.

  PENN STATE HERSHEY MEDICAL CENTER;
        PINNACLE HEALTH SYSTEM
                 ______

  On Appeal from the United States District Court
      for the Middle District of Pennsylvania
           (M.D. Pa. No. 1-15-cv-02362)
   District Judge: Honorable John E. Jones, III
                      ______

              Argued July 26, 2016
Before: FISHER, GREENAWAY, JR., and KRAUSE,
                 Circuit Judges.

           (Filed: September 27, 2016)
David C. Shonka, Sr., Acting General Counsel
Joel R. Marcus, Director of Litigation
Deborah L. Feinstein
Michele Arington
Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, DC 20580

William H. Efron [ARGUED]
Ryan F. Harsch
Jared P. Nagley
Jonathan W. Platt
Geralyn J. Trujillo
Federal Trade Commission
One Bowling Green, Suite 318
New York, NY 10004
       Counsel for Federal Trade Commission


Bruce L. Castor, Jr., Solicitor General of Pennsylvania
Bruce Beemer, First Deputy Attorney General
James A. Donahue, III, Executive Deputy Attorney General
Tracy W. Wertz, Chief Deputy Attorney General
Jennifer Thomson
Aaron L. Schwartz
Office of Attorney General of Pennsylvania
Strawberry Square
Harrisburg, PA 17120
       Counsel for Commonwealth of Pennsylvania




                            2
Charles I. Artz
Artz McCarrie Health Law
200 North 3rd Street, Suite 12-B
Harrisburg, PA 17101
       Counsel for Amicus Curiae Association of Independent
Doctors

Richard P. Rouco
Quinn Conner Weaver Davies & Rouco, LLP
2 - 20th Street North, Suite 930
Birmingham, AL 35203
       Counsel for Amici Curiae Economics Professors

Lawrence G. Wasden, Attorney General of Idaho
Brett DeLange, Deputy Attorney General
Office of Attorney General of Idaho
Consumer Protection Division
954 West Jefferson Street, 2nd Floor
Boise, ID 83720

Robert W. Ferguson, Attorney General of Washington
Darwin P. Roberts, Deputy Attorney General
Jonathan A. Mark, Senior Assistant Attorney General
Office of Attorney General of Washington
Antitrust Division
800 5th Street, Suite 200
Seattle, WA 98104




                             3
Kamala D. Harris, Attorney General of California
George Jepsen, Attorney General of Connecticut
Lisa Madigan, Attorney General of Illinois
Thomas J. Miller, Attorney General of Iowa
Janet T. Mills, Attorney General of Maine
Maura Healey, Attorney General of Massachusetts
Lori Swanson, Attorney General of Minnesota
Jim Hood, Attorney General of Mississippi
Tim Fox, Attorney General of Montana
Ellen F. Rosenblum, Attorney General of Oregon
       Counsel for Amici Curiae States of Idaho, Washington,
       California, Connecticut, Iowa, Illinois, Massachusetts,
       Maine, Minnesota, Mississippi, Montana, and Oregon

William D. Coglianese
Louis K. Fisher     [ARGUED]
Julie E. McEvoy
Christopher N. Thatch
Adrian Wager-Zito
Alisha M. Crovetto
Jon G. Heintz
Jones Day
51 Louisiana Avenue, N.W.
Washington, DC 20001

James P. DeAngelo
Kimberly A. Selemba
McNees Wallace & Nurick LLC
100 Pine Street
P.O. Box 1166
Harrisburg, PA 17108
       Counsel for Penn State Hershey Medical Center and
PinnacleHealth System




                              4
                            ______

                          OPINION
                           ______


FISHER, Circuit Judge.

        At issue in this case is the proposed merger of the two
largest hospitals in the Harrisburg, Pennsylvania area: Penn
State Hershey Medical Center and PinnacleHealth System.
The Federal Trade Commission (“FTC”) opposes their
merger and filed an administrative complaint alleging that it
violates Section 7 of the Clayton Act because it is likely to
substantially lessen competition. In order to maintain the
status quo and prevent the parties from merging before the
administrative adjudication could occur, the FTC, joined by
the Commonwealth of Pennsylvania, filed suit in the Middle
District of Pennsylvania under Section 13(b) of the Federal
Trade Commission Act (“FTC Act”) and Section 16 of the
Clayton Act, which authorize the FTC and the
Commonwealth, respectively, to seek a preliminary
injunction pending the outcome of the FTC’s adjudication on
the merits. The District Court denied the FTC and the
Commonwealth’s motion for a preliminary injunction,
holding that they did not properly define the relevant
geographic market—a necessary prerequisite to determining
whether a proposed combination is sufficiently likely to be
anticompetitive as to warrant injunctive relief. For the reasons
that follow, we will reverse. We will also remand the case and
direct the District Court to enter the preliminary injunction
requested by the FTC and the Commonwealth.
                        I. Background



                               5
                    A. Factual Background
       Penn State Hershey Medical Center (“Hershey”) is a
leading academic medical center and the primary teaching
hospital of the Penn State College of Medicine. It is located in
Hershey, and it offers 551 beds and employs more than 800
physicians, many of whom are highly specialized. Hershey
offers all levels of care, but it specializes in more complex,
specialized services that are unavailable at most other
hospitals. Because of its advanced services, Hershey draws
patients from a broad area both inside and outside Dauphin
County.
       PinnacleHealth System (“Pinnacle”) is a health system
with three hospital campuses—two located in Harrisburg in
Dauphin County, and the third located in Mechanicsburg in
Cumberland County. It focuses on cost-effective primary and
secondary services and offers only a limited range of more
complex services. It employs fewer than 300 physicians and
provides 646 beds.
       In June 2014, Hershey and Pinnacle (collectively, the
“Hospitals”) signed a letter of intent for the proposed merger.
Their respective boards subsequently approved the merger in
March 2015. The following month, the Hospitals notified the
FTC of their proposed merger and, in May 2015, executed a
“Strategic Affiliation Agreement.”
                   B. Procedural History
       After receiving notification of the proposed merger,
the FTC began investigating the combination. Following the
investigation, on December 7, 2015, the FTC filed an
administrative complaint alleging that the merger violates
Section 7 of the Clayton Act. 15 U.S.C. § 18. On December
9, 2015, the FTC and the Commonwealth of Pennsylvania
(collectively, the “Government”) filed suit in the Middle



                               6
District of Pennsylvania. Invoking Section 13(b) of the FTC
Act, 15 U.S.C. § 53(b), and Section 16 of the Clayton Act, 15
U.S.C. § 26, the Government sought a preliminary injunction
pending resolution of the FTC’s administrative adjudication.
In its complaint, the Government alleged that the Hospitals’
merger would substantially lessen competition in the market
for general acute care services sold to commercial insurers in
the Harrisburg, Pennsylvania market. Am. Compl. ¶ 4, at 3-4
(Dist. Ct. ECF 101). According to the Government, the
combined Hospitals would control 76% of the market in
Harrisburg. See Gov’t Br. 3-4.
       The District Court conducted expedited discovery and
held five days of evidentiary hearings. During the hearings,
the District Court heard testimony from sixteen witnesses and
admitted thousands of pages of exhibits into evidence.
       Following the hearings, the District Court denied the
Government’s request for a preliminary injunction on the
basis that the Government had failed to meet its burden to
properly define the relevant geographic market. Without a
properly defined relevant geographic market, the District
Court held there was no way to determine whether the
proposed merger was likely to be anticompetitive. Thus, the
Government could not show a likelihood of success on the
merits, and its failure to properly define the relevant
geographic market was fatal to its motion. The District Court
also analyzed what it called “equities,” which it held
supported denying the injunction request. The Government
timely appealed.
                       II. Jurisdiction
       The District Court had jurisdiction under Section 13(b)
of the FTC Act, 15 U.S.C. § 53(b), which authorizes the FTC
to request a preliminary injunction in cases involving



                              7
violations of the Clayton Act, and under Section 16 of the
Clayton Act, 15 U.S.C. § 26, which likewise authorizes the
Commonwealth of Pennsylvania to seek a preliminary
injunction. We have appellate jurisdiction under 28 U.S.C.
§§ 1291 and 1292(a)(1).
                   III. Standard of Review
       We begin with the familiar standard of review. We
review the District Court’s “findings of fact for clear error, its
conclusions of law de novo, and the ultimate decision to grant
the preliminary injunction for abuse of discretion.” Miller v.
Mitchell, 598 F.3d 139, 145 (3d Cir. 2010). This standard,
though easy enough to articulate, often proves difficult to
apply, particularly where, as here, we are asked to review
determinations made by the District Court that cannot be
neatly categorized as either findings of fact or conclusions of
law.
        The Government argues that the District Court made
“three independent legal errors” in rejecting its proffered
geographic market. Gov’t Br. 26. Because the errors are legal,
the Government would have us apply no deference to the
District Court’s determination and exercise plenary review of
its conclusions. Id. at 30-31. The Hospitals disagree. They
argue that market definition is a factual dispute to which we
should apply the most deferential standard: clear error. Hosps.
Br. 15.
       On several occasions, this Court, and others, have
reviewed district courts’ determinations of the relevant
geographic market for clear error. E.g., Gordon v. Lewistown
Hosp., 423 F.3d 184, 211-13 (3d Cir. 2005); St. Alphonsus
Med. Ctr.-Nampa Inc. v. St. Luke’s Health Sys., Ltd., 778
F.3d 775, 783-84 (9th Cir. 2015). In determining that clear-
error review applied, the Ninth Circuit in St. Alphonsus



                                8
reasoned that “[d]efinition of the relevant market is a factual
question ‘dependent upon the special characteristics of the
industry involved.’” 778 F.3d at 783 (quoting Twin City
Sportservice, Inc. v. Charles O. Finley & Co., 676 F.2d 1291,
1299 (9th Cir. 1982)). This characterization of the relevant
market arose from the Supreme Court’s recognition that
“Congress prescribed a pragmatic, factual approach to the
definition of the relevant market and not a formal, legalistic
one.” Brown Shoe Co. v. United States, 370 U.S. 294, 336
(1962). Thus, where the definition of the geographic market
depends on the “special characteristics” of the healthcare
market, we may not overturn the District Court’s factual
findings unless they are clearly erroneous.
        That does not mean, however, that we will always
review the District Court’s determination of the relevant
market for clear error. “Although market definition is
generally regarded as a question of fact, a trial court’s
determination of the market may be reversed where that
tribunal has erred as a matter of law.” Am. Motor Inns, Inc. v.
Holiday Inns, Inc., 521 F.2d 1230, 1252 (3d Cir. 1975);
accord White & White, Inc. v. Am. Hosp. Supply Corp., 723
F.2d 495, 499 (6th Cir. 1983) (“[T]he preponderance of
authority holds that the determination of a relevant market is
composed of the articulation of a legal test which is then
applied to the factual circumstances of each case.”); Little
Rock Cardiology Clinic PA v. Baptist Health, 591 F.3d 591,
599-600 (8th Cir. 2009) (holding that “the theory upon which
[the plaintiff] relies to reach the conclusion that a single city
is the relevant geographic market is legally flawed”).
       In American Motor Inns, we held that the district court
erred as a matter of law where its opinion did “not
demonstrate a consideration of sufficient factors to constitute
the type of economic analysis explicated by the Supreme



                               9
Court.” 521 F.2d at 1252. There, the district court purported
to apply the correct standard to determine the relevant product
market. The standard was a three-part test set out in Tampa
Electric Co. v. Nashville Coal Co., 365 U.S. 320 (1961).
Relevant here, the third step of the Tampa Electric analysis
required the district court to find that “the competition
foreclosed by the contract … constitute[d] a substantial share
of the relevant market.” Am. Motor Inns, 521 F.2d at 1250
(quoting Tampa Elec., 365 U.S. at 328). The Supreme Court
directed lower courts that, to ascertain whether competition in
a substantial share of the market had been foreclosed,
       it is necessary to weigh the probable effect of
       the contract on the relevant area of effective
       competition, taking into account the relative
       strength of the parties, the proportionate volume
       of commerce involved in relation to the total
       volume of commerce in the relevant market
       area, and the probable immediate and future
       effects which pre-emption of that share of the
       market might have on effective competition
       therein.


Id. (quoting Tampa Elec., 365 U.S. at 329).
       Although the district court in American Motor Inns
cited to Tampa Electric and purported to apply the Tampa
Electric test, it did not consider the “the probable immediate
and future effects which pre-emption of that share of the
market might have within the competitive context of that
industry, nor did it in any way advert to the relative strength
of the parties.” Id. at 1252 (internal quotation marks omitted).
We explained that by failing to consider this factor required
by the economic analysis as announced by Tampa Electric,



                              10
the district court applied the incorrect legal standard. And
application of an incorrect legal standard is error as a matter
of law. Id.
        Consistent with the teaching of our precedent, where a
district court applies an incomplete economic analysis or an
erroneous economic theory to those facts that make up the
relevant geographic market, it has committed legal error
subject to plenary review. This understanding of economic
theory as legal analysis also comports with the Supreme
Court’s recent observation that it has “felt relatively free to
revise [its] legal analysis as economic understanding evolves
and … to reverse antitrust precedents that misperceived a
practice’s competitive consequences.” Kimble v. Marvel
Entm’t, LLC, 135 S. Ct. 2401, 2412-13 (2015).
       As we explain further below, the District Court here
cited the hypothetical monopolist test and purported to apply
it. Both the Government and the Hospitals agree that the
hypothetical monopolist test is the correct standard to apply.
But the District Court’s application of the hypothetical
monopolist test was incomplete and, in many respects, more
closely mirrors an economic test that the FTC has abandoned
because the test “misperceived a practice’s competitive
consequences.” Id. at 2413. Although we accept all of the
District Court’s factual findings unless they are clearly
erroneous, this failure to apply the correct legal standard, i.e.,
the economic theory behind the relevant geographic market,
renders our review plenary.
                         IV. Analysis
       The Government alleges that the proposed merger of
Hershey and Pinnacle violates Section 7 of the Clayton Act.
In order to prevent the parties from merging until the FTC can
conduct an administrative adjudication on the merits to



                               11
determine whether the merger violates Section 7, the
Government seeks a preliminary injunction under Section
13(b) of the FTC Act.
        Section 13(b) of the FTC Act empowers the FTC to
file suit in the federal district courts and seek a preliminary
injunction to prevent a merger pending a FTC administrative
adjudication “[w]henever the Commission has reason to
believe that a corporation is violating, or is about to violate,
Section 7 of the Clayton Act.” FTC v. H.J. Heinz Co., 246
F.3d 708, 714 (D.C. Cir. 2001) (quoting FTC v. Staples, Inc.,
970 F. Supp. 1066, 1070 (D.D.C. 1997)); see 15 U.S.C.
§ 53(b).
        A district court may issue a preliminary injunction
“[u]pon a proper showing that, weighing the equities and
considering the Commission’s likelihood of ultimate success,
such action would be in the public interest.” 15 U.S.C.
§ 53(b). The public interest standard is not the same as the
traditional equity standard for injunctive relief. Under Section
13(b), we first consider the FTC’s likelihood of success on
the merits and then weigh the equities to determine whether a
preliminary injunction would be in the public interest. FTC v.
Univ. Health, Inc., 938 F.3d 1206, 1217-18 (11th Cir. 1991).
           A. Likelihood of Success on the Merits
       We first consider the FTC’s likelihood of success on
the merits. In its administrative adjudication, the FTC must
show that the proposed merger violates Section 7 of the
Clayton Act. 15 U.S.C. § 18. Section 7 bars mergers whose
effect “may be substantially to lessen competition, or to tend
to create a monopoly.” Id. “Congress used the words ‘may be
substantially to lessen competition’ … to indicate that its
concern was with probabilities, not certainties,” Brown Shoe,
370 U.S. at 323, rendering Section 7’s definition of antitrust



                              12
liability “relatively expansive.” California v. Am. Stores Co.,
495 U.S. 271, 284 (1990). At this stage, “[t]he FTC is not
required to establish that the proposed merger would in fact
violate section 7 of the Clayton Act.” H.J. Heinz, 246 F.3d at
714. Accordingly, “[a] certainty, even a high probability,
need not be shown,” and any “doubts are to be resolved
against the transaction.” FTC v. Elders Grain, Inc., 868 F.2d
901, 906 (7th Cir. 1989).
        We assess Section 7 claims under a burden-shifting
framework. First, the Government must establish a prima
facie case that the merger is anticompetitive. If the
Government establishes a prima facie case, the burden then
shifts to the Hospitals to rebut it. If the Hospitals successfully
rebut the Government’s prima facie case, “the burden of
production shifts back to the Government and merges with
the ultimate burden of persuasion, which is incumbent on the
Government at all times.” St. Alphonsus, 778 F.3d at 783
(quoting Chi. Bridge & Iron Co. v. FTC, 534 F.3d 410, 423
(5th Cir. 2008)).
       To establish a prima facie case, the Government must
(1) propose the proper relevant market and (2) show that the
effect of the merger in that market is likely to be
anticompetitive.
                    1. Relevant Market
       “Determination of the relevant product and
geographic markets is ‘a necessary predicate’ to deciding
whether a merger contravenes the Clayton Act.” United States
v. Marine Bancorporation, Inc., 418 U.S. 602, 618 (1974)
(quoting United States v. E.I. du Pont de Nemours & Co., 353
U.S. 586, 593 (1957)). “Without a well-defined relevant
market,” an examination of the merger’s competitive effects
would be “without context or meaning.” FTC v. Freeman



                               13
Hosp., 69 F.3d 260, 268 (8th Cir. 1995). The relevant market
is defined in terms of two components: the product market
and the geographic market. Id.; see Brown Shoe, 370 U.S. at
324.
                 a. Relevant Product Market
       There is no dispute as to the relevant product market.
The District Court found, and the parties stipulated, that the
relevant product market is general acute care (“GAC”)
services sold to commercial payors. App. 9. GAC services
comprise a number of “medical and surgical services that
require an overnight hospital stay.” Id. Though the parties
agree as to the relevant product market, the Hospitals strongly
dispute the relevant geographic market put forth by the
Government.
               b. Relevant Geographic Market
       The relevant geographic market “is that area in which
a potential buyer may rationally look for the goods or services
he seeks.” Gordon, 423 F.3d at 212. Determined within the
specific context of each case, a market’s geographic scope
must “correspond to the commercial realities of the industry”
being considered and “be economically significant.” Brown
Shoe, 370 U.S. at 336-37 (footnote and internal quotation
marks omitted). The plaintiff (here, the Government) bears
the burden of establishing the relevant geographic market. St.
Alphonsus, 778 F.3d at 784.
       A common method employed by courts and the FTC to
determine the relevant geographic market is the hypothetical
monopolist test. Under the Horizontal Merger Guidelines
issued by the U.S. Department of Justice’s Antitrust Division
and the FTC, if a hypothetical monopolist could impose a
small but significant non-transitory increase in price




                              14
(“SSNIP”)1 in the proposed market, the market is properly
defined. Merger Guidelines, § 4, at 7-8.2 If, however,
consumers would respond to a SSNIP by purchasing the
product from outside the proposed market, thereby making
the SSNIP unprofitable, the proposed market definition is too
narrow. Id. Important for our purposes, both the Government
and the Hospitals agree that this test should govern the instant
appeal. See Gov’t Br. 25; Hosps. Br. 17-20.
       The Government argues, as it did before the District
Court, that the relevant geographic market is the “Harrisburg
area.” More specifically, the four counties encompassing and
immediately surrounding Harrisburg, Pennsylvania: Dauphin,
Cumberland, Lebanon, and Perry counties.
       The District Court rejected the Government’s proposed
geographic market. It first observed that 43.5% of Hershey’s
patients—11,260 people—travel to Hershey from outside the
four-county area, which “strongly indicate[d] that the FTC
had created a geographic market that [was] too narrow
because it does not appropriately account for where the
Hospitals, particularly Hershey, draw their business.” App.
13. Second, it held that the nineteen hospitals within a sixty-
five-minute drive of Harrisburg “would readily offer
consumers an alternative” to accepting a SSNIP. Id. Finally,
the District Court found it “extremely compelling” that the
Hospitals had entered into private agreements with the two

       1
         The SSNIP is typically about 5%. U.S. Dep’t of
Justice & Fed. Trade Comm’n, Horizontal Merger
Guidelines, § 4.1.2, at 10 (2010) (“Merger Guidelines”).
       2
         “Although the Merger Guidelines are not binding on
the courts, they are often used as persuasive authority.” St.
Alphonsus, 778 F.3d at 784 n.9 (citations and internal
quotation marks omitted).



                              15
largest insurers in Central Pennsylvania, ensuring that post-
merger rates would not increase for five years with one
insurer and ten years with the other. App. 13-14. Refusing to
“blind [itself] to this reality,” the District Court declined to
“prevent [the] merger based on a prediction of what might
happen to negotiating position and rates in 5 years.” App. 14.
The failure to propose the proper relevant geographic market
was fatal to the Government’s motion, and the District Court
denied the preliminary injunction request.
       We conclude that the District Court erred in both its
formulation and its application of the proper legal test.
Although the District Court correctly identified the
hypothetical monopolist test, its decision reflects neither the
proper formulation nor the correct application of that test. We
find three errors in the District Court’s analysis. First, by
relying almost exclusively on the number of patients that
enter the proposed market, the District Court’s analysis more
closely aligns with a discredited economic theory, not the
hypothetical monopolist test. Second, the District Court
focused on the likely response of patients to a price increase,
completely neglecting any mention of the likely response of
insurers. Third, the District Court grounded its reasoning, in
part, on the private agreements between the Hospitals and two
insurers, even though these types of private contracts are not
relevant to the hypothetical monopolist test.
               i. Formulation of the Legal Test
      In formulating the legal standard for the relevant
geographic market, the District Court relied primarily on the
Eighth Circuit’s decision in Little Rock Cardiology, 591 F.3d
591. According to the District Court, to determine the
geographic market, a court must apply a two-part test. First, it
must determine “the market area in which the seller operates,




                              16
its trade area.” App. 12 (internal quotation marks omitted)
(quoting Little Rock Cardiology, 591 F.3d at 598). Second, it
“must then determine whether a plaintiff has alleged a
geographic market in which only a small percentage of
purchasers have alternative suppliers to whom they could
practicably turn in the event that a defendant supplier’s
anticompetitive actions result in a price increase.” Id.
(quoting Little Rock Cardiology, 591 F.3d at 598). Under the
District Court’s inquiry, the “end goal” of the relevant
geographic market analysis is “to delineate a geographic area
where, in the medical setting, few patients leave … and few
patients enter.” Id. (alteration in original; internal quotation
marks omitted) (quoting Little Rock Cardiology, 591 F.3d at
598).
       This formulation of the relevant geographic market test
is inconsistent with the hypothetical monopolist test. Rather,
it is one-half of a different test utilized in non-healthcare
markets to define the relevant geographic market: the
Elzinga-Hogarty test. The Elzinga-Hogarty test consists of
two separate measurements: first, the number of customers
who come from outside the proposed market to purchase
goods and services from inside of it, and, second, the number
of customers who reside inside the market but leave that
market to purchase goods and services.
       The Elzinga-Hogarty test was once the preferred
method to analyze the relevant geographic market and was
employed by many courts. See, e.g., California v. Sutter
Health Sys., 130 F. Supp. 2d 1109, 1020-24 (N.D. Cal. 2001);
FTC v. Freeman Hosp., 911 F. Supp. 1213, 1217-21 (W.D.
Mo.), aff’d, 69 F.3d 260 (8th Cir. 1995); United States v.
Rockford Mem’l Corp., 717 F. Supp. 1251, 1266-78 (N.D. Ill.
1989), aff’d, 898 F.2d 1278 (7th Cir. 1990). But subsequent
empirical research demonstrated that utilizing patient flow



                              17
data to determine the relevant geographic market resulted in
overbroad markets with respect to hospitals. Professor
Elzinga himself testified before the FTC that this method
“was not an appropriate method to define geographic markets
in the hospital sector.” In re Evanston Nw. Healthcare Corp.,
2007 WL 2286195, at *64 (F.T.C. Aug. 6, 2007).
       The Hospitals dispute that the District Court’s
formulation of the relevant geographic market standard is the
Elzinga-Hogarty test. The District Court’s opinion does not
specifically name or address Elzinga-Hogarty; neither does
the Eighth Circuit’s opinion in Little Rock Cardiology. But
Little Rock Cardiology’s statement that the market is one in
which “‘few’ patients leave … and ‘few’ patients enter,” 591
F.2d at 598 (alteration in original), is a direct quote from
Rockford Memorial, 717 F. Supp. at 1267.
        In Rockford Memorial, the Northern District of
Illinois, after observing that, “[i]deally, an area should be
delineated where ‘few’ patients leave an area and ‘few’
patients enter an area to obtain hospital services,”
immediately outlined a step-by-step methodology put forward
by the defendants’ expert “to implement the Elzinga-Hogarty
test.” Id. This methodology proceeded as follows: first,
determine the merging hospitals’ service area; second,
determine the collective service area of all hospitals located
within the merging hospitals’ service area (this area satisfies
the “little out from inside” test); finally, determine the area
containing those hospitals that supply 90% of all the business
that comes from patients residing in the collective service
area (this area satisfies the “little in from outside” test). Id.
      The standard articulated by the District Court in this
case parallels the standard from Rockford Memorial, which
the Rockford Memorial court acknowledged was based on




                               18
Elzinga-Hogarty. And the District Court’s analysis here
proceeded in accordance with the way it articulated the
standard. Consistent with this “few patients leave … and few
patients enter” test, the District Court relied primarily on the
fact that 43.5% of Hershey’s patients travel from outside of
the Harrisburg area (the Government’s proposed geographic
market) in order to receive GAC services. This number is a
measure of patient inflows—one of the two primary
measurements relevant to the Elzinga-Hogarty analysis.
       As the amici curiae Economics Professors3 have
persuasively demonstrated, patient flow data—such as the
43.5% number emphasized by the District Court—is
particularly unhelpful in hospital merger cases because of two
problems: the “silent majority fallacy” and the “payor
problem.” See Br. of Amici Curiae Economics Professors 11-
17. “The silent majority fallacy is the false assumption that
patients who travel to a distant hospital to obtain care
significantly constrain the prices that the closer hospital
charges to patients who will not travel to other hospitals.”
Evanston Nw., 2007 WL 2286195, at *64 (citing testimony of
Professor Elzinga). The constraining effect is non-existent
because patient decisions are based mostly on non-price
factors, such as location or quality of services. This fallacy is
particularly salient here, where the District Court relied
almost exclusively on the fact that Hershey attracts many
patients from outside of the Harrisburg area. In deciding that
patients who travel to Hershey would turn to other hospitals
outside of Harrisburg if the merger gave rise to higher prices,

       3
         Amici are a group of 36 economics professors—
including Professor Elzinga—who argue that the District
Court engaged in faulty economic reasoning, particularly with
regard to geographic market definition.



                               19
the District Court did not consider that Hershey is a leading
academic medical center that provides highly complex
medical services. We are skeptical that patients who travel to
Hershey for these complex services would turn to other
hospitals in the area.
       Although the District Court did not employ strict
cutoffs to determine whether too many patients enter or leave
the proposed market, the silent majority fallacy renders the
test employed by the District Court unreliable even in the
absence of precise thresholds. In other words, the inadequacy
of using patient flow data to determine the geographic market
does not depend on whether the District Court used an exact
percentage or whether it used a more flexible approach:
relying solely on patient flow data is not consistent with the
hypothetical monopolist test.4

       4
         The Hospitals further dispute that the District Court
applied the Elzinga-Hogarty test because, according to the
Hospitals, Elzinga-Hogarty is a “static” test in which courts
look at patient inflows and outflows and, upon reaching a
certain threshold, stop the inquiry and decide whether the
numbers support the relevant geographic market. The
Hospitals characterize the District Court’s analysis as
“dynamic,” claiming that, although it considered the patient
inflow measure, it did not stop at that finding. The difference,
the Hospitals claim, is that the District Court considered that
these patients—the 43.5% that travel to Hershey—could
practicably utilize a different hospital to defeat a price
increase. However, in arriving at the conclusion that patients
would turn to other hospitals, the District Court relied
exclusively on this measure of patient inflow, save its
observation that Central Pennsylvania is largely rural and
often requires driving large distances for services. App. 13.



                               20
       Moreover, even assuming that relying strictly on
patient flow data is consistent with the hypothetical
monopolist test, the District Court did not consider the other
half of the equation: patient outflows. The Government
presented undisputed evidence that 91% of patients who live
in Harrisburg receive GAC services in the Harrisburg area.
Gov’t Br. 10.5 Such a high number of patients who do not
travel long distances for healthcare supports the
Government’s contention that GAC services are inherently
local and that, in turn, payors would not be able to market a
healthcare plan to Harrisburg-area residents that did not
include Harrisburg-area hospitals. Although the District Court
was not required to cite every piece of evidence it received, or
even on which it relied, citing only patient inflows and
ignoring patient outflows creates a misleading picture of the
relevant geographic market.
ii. Likely Response of Payors
       The next problem with utilizing patient flow data—the
payor problem—underscores the second error committed by
the District Court. By utilizing patient flow data as its primary
evidence that the relevant market was too narrow, the District
Court failed to properly account for the likely response of
insurers in the face of a SSNIP. In fact, it completely
neglected any mention of the insurers in the healthcare
market. This incorrect focus reflects a misunderstanding of
the “commercial realities” of the healthcare market. Brown
Shoe, 370 U.S. at 336.
       As the FTC and several courts have recognized, the

       5
         We cite to the parties’ briefs for facts in the sealed
record that have been made public by virtue of the parties’
without objection including them in their publicly-filed briefs.



                                21
healthcare market is represented by a two-stage model of
competition. See St. Alphonsus, 778 F.3d at 784 n.10 (calling
the two-stage model the “accepted model”). In the first stage,
hospitals compete to be included in an insurance plan’s
hospital network. In the second stage, hospitals compete to
attract individual members of an insurer’s plan. Gregory
Vistnes, Hospitals, Mergers, and Two-Stage Competition, 67
Antitrust L.J. 671, 672 (2000). Patients are largely insensitive
to healthcare prices because they utilize insurance, which
covers the majority of their healthcare costs. Because of this,
our analysis must focus, at least in part, on the payors who
will feel the impact of any price increase. Id. at 682, 692.
       The Hospitals argue that there is no fundamental
difference between analyzing the likely response of
consumers through the patient or the payor perspective. We
disagree. Patients are relevant to the analysis, especially to the
extent that their behavior affects the relative bargaining
positions of insurers and hospitals as they negotiate rates. But
patients, in large part, do not feel the impact of price
increases.6 Insurers do. And they are the ones who negotiate

       6
          The Hospitals put forth evidence that patients are
becomingly increasingly sensitive to prices. Hosps. Br. 29.
We do not disagree. But despite the increasing sensitivity of
patients to pricing—e.g., through high-deductible plans,
coinsurance, and tiered networks—the majority of patients do
not feel the impact of the price of a specific procedure or at a
specific hospital. The Hospitals’ own study showed that only
2% of respondents considered out-of-pocket costs in choosing
a hospital. Corrected Reply Br. 24. Moreover, the Hospitals
have not drawn our attention to any specific evidence about
the use of health plans that would result in price sensitivity to
patients.



                               22
directly with the hospitals to determine both reimbursement
rates and the hospitals that will be included in their networks.
        Imagine that a hospital raised the cost of a procedure
from $1,000 to $2,000. The patient who utilizes health
insurance will still have the same out-of-pocket costs before
and after the price increase. It is the insurer who will bear the
immediate impact of that price increase. Not until the insurer
passes that cost on to the patient in the form of higher
premiums will the patient feel the impact of that price
increase. And even then, the cost will be spread among many
insured patients; it will not be felt solely by the patient who
receives the higher-priced procedure. This is the commercial
reality of the healthcare market as it exists today.
        Thus, consistent with the mandate to determine the
relevant geographic market taking into account the
commercial realities of the specific industry involved, Brown
Shoe, 370 U.S. at 336, when we apply the hypothetical
monopolist test, we must also do so through the lens of the
insurers: if enough insurers, in the face of a small but
significant non-transitory price increase, would avoid the
price increase by looking to hospitals outside the proposed
geographic market, then the market is too narrow. This view
has been confirmed by several courts. E.g., St. Alphonsus, 778
F.3d at 784 & n.10; see also FTC v. OSF Healthcare Sys.,
852 F. Supp. 2d 1069, 1083-85 (N.D. Ill. 2012) (concluding
that managed care organizations will not be an effective
constraint on the ability of the merged entity to use its market
power to raise prices). It is also consistent with the FTC’s
view. In re ProMedica Health Sys., Inc., 2012 WL 1155392,
at *1-10, *23 n.28 (F.T.C. Mar. 28, 2012), adopted as
modified, 2012 WL 2450574 (F.T.C. June 25, 2012). It was
error for the District Court to completely disregard the role
that insurers play in the healthcare market.



                               23
       We do not mean to suggest that, in the healthcare
context, considering the effect of a price increase on patients
constitutes error standing alone. Patients, of course, are
relevant. For instance, an antitrust defendant may be able to
demonstrate that enough patients would buy a health plan
marketed to them with no in-network hospital in the proposed
geographic market. It would necessarily follow that those
patients who purchased the health plan would have to turn to
hospitals outside the relevant market (lest they pay significant
out-of-pocket costs for an out-of-network hospital). In this
scenario, patient response is clearly important, but it is not
important with respect to patients’ response to the price
increase demanded by the post-merger Hospitals. The District
Court here did not address this correlated behavior. And
although it is possible that this scenario could play out in
some healthcare market, to assume that it would in Harrisburg
defies the payors’ testimony. The payors repeatedly said that
they could not successfully market a plan in the Harrisburg
area without Hershey and Pinnacle. In fact, one payor that
attempted to do just that (with Holy Spirit, a Harrisburg-area
hospital, no less) lost half of its membership. Gov’t Br. 13-14.
That is to say nothing about whether payors would be able to
successfully market a plan without any Harrisburg-area
hospital, which is the less burdensome question the
Government was tasked with answering under the
hypothetical monopolist test.
iii. Private Pricing Agreements
       Finally, the District Court erred in resting part of its
analysis of the relevant geographic market on the private




                              24
agreements between the Hospitals and the payors.7 The
District Court found it “extremely compelling” that the
Hospitals had already entered into contractual agreements
with two of Central Pennsylvania’s largest payors to maintain
the existing rate structure for five years with Payor A and ten
years with Payor B. App. 13-14. Because of the agreements,
the District Court believed that the FTC was “asking the
Court [to] prevent this merger based on a prediction of what
might happen to negotiating position and rates in 5 years.”

       7
           The Hospitals argue that the District Court did not
rest its decision on the private agreements, and that, in fact, it
had already come to the conclusion that the relevant
geographic market was too narrow before it even discussed
the private agreements. Although it is impossible for us to
know the exact extent of the District Court’s consideration of
and reliance on the price agreements, the District Court
clearly used the price agreements in its assessment of the
relevant geographic market when, after noting that the
Hospitals cannot walk away from the two insurers or raise
their rates for at least five years, it stated:
         The Court simply cannot be blind to this reality
         when considering the import of the hypothetical
         monopolist test advanced by the Merger
         Guidelines. Thus, the FTC is essentially asking
         the Court [to] prevent this merger based on a
         prediction of what might happen to negotiating
         position and rates in 5 years.
App. 14. And regardless of whether the private agreements
were the sole basis for, or only a part of, the District Court’s
decision, we conclude that they are not at all relevant to the
economic analysis. Thus, considering them, even if not
relying on them, is error.



                                25
App. 14. It declined to make such a prediction “[i]n the
rapidly-changing arena of healthcare and health insurance.”
Id.
       This reasoning is flawed. We have previously
cautioned that, in determining the relevant product market,
private contracts are not to be considered. See Queen City
Pizza, Inc. v. Domino’s Pizza, Inc., 124 F.3d 430, 438-39 (3d
Cir. 1997). This same reasoning applies to the relevant
geographic market. In determining the relevant market, we
“look[] not to the contractual restraints assumed by a
particular plaintiff,” id., but instead, we answer whether a
hypothetical monopolist could profitably impose a SSNIP.
       For this reason, private contracts between merging
parties and their customers have no place in the relevant
geographic market analysis. The hypothetical monopolist test
is exactly what its name suggests: hypothetical. This is for
good reason. If we considered the agreements, then our
inquiry would be simple: the Hospitals would not be able to
profitably impose a SSNIP because the agreements forbid
them from doing so. Determination of the relevant geographic
market is a task for the courts, not for the merging entities.
Although the District Court declined to predict what might
happen to negotiating position and rates, making predictions
about parties’ and consumers’ behavior is exactly what we are
asked to do. See United States v. Phila. Nat’l Bank, 374 U.S.
321, 362 (1963) (noting that the question “whether the effect
of the merger ‘may be substantially to lessen competition’ in
the relevant market” requires a “prediction of [the merger’s]
impact upon competitive conditions in the future”).
       Moreover, if we allowed such private contracts to
impact our analysis, any merging entity could enter into
similar agreements—that may or may not be enforceable—to




                             26
impermissibly broaden the scope of the relevant geographic
market. This would enable antitrust defendants to escape
effective enforcement of the antitrust laws. See Queen City
Pizza, 124 F.3d at 438 (“Were we to adopt plaintiffs’ position
that contractual restraints render otherwise identical products
non-interchangeable for purposes of relevant market
definition, any exclusive dealing arrangement, output or
requirement contract, or franchise tying agreement would
support a claim for violation of antitrust laws.”). Although
private pricing agreements may be an effective tool for the
FTC and merging parties to utilize in regulatory actions, they
have no place in the antitrust analysis we engage in today.
                        *     *      *
       These errors together render the District Court’s
analysis economically unsound and not reflective of the
commercial reality of the healthcare market. In recent years,
economists have concluded that the use of patient flow data
does not accurately portray the relevant geographic market in
the hospital merger context. Instead, economists have
proposed, and the FTC has implemented, the hypothetical
monopolist test. The realities of the healthcare market—in
which payors negotiate prices for GAC services and will
therefore feel the impact of any price increase—dictate that
we consider the payors in our analysis. The District Court did
not properly formulate the hypothetical monopolist test, nor
did it properly apply that test. Because our antitrust analysis
must be consistent with the evolution of economic
understanding, Kimble, 135 S. Ct. at 2412-13, and must be
tied to the commercial realities of the specific industry at
issue, Brown Shoe, 370 U.S. at 336, we hold that the District
Court committed legal error in failing to properly formulate
and apply the hypothetical monopolist test.




                              27
        We emphasize, however, that our holding is narrow.
We are not suggesting that the hypothetical monopolist test is
the only test that the district courts may use in determining
whether the Government has met its burden to properly define
the relevant geographic market. In our case, the District
Court, the Hospitals, and the Government all agreed that the
hypothetical monopolist test was the proper standard to apply.
The District Court identified the standard and purported to
apply it. But in doing so, it incorrectly defined and misapplied
that standard. This was error.
iv. The Government Has Properly Defined the Relevant
Geographic Market
       Our conclusion that the District Court incorrectly
formulated and misapplied the proper standard does not end
the inquiry. We must still determine whether the Government
has met its burden to properly define the relevant geographic
market. We conclude that it has.
        The Government presented extensive evidence
showing that insurers would have no choice but to accept a
price increase from a combined Hershey/Pinnacle in lieu of
excluding the Hospitals from their networks. First, two of
Central Pennsylvania’s largest insurers—Payor A and Payor
B—testified that they could not successfully market a
network to employers without including at least one of the
Hospitals. Gov’t Br. 13-14, 37-38. Payor A’s representative
stated in his deposition that “[y]ou wouldn’t have a whole lot
of choice” if Hershey and Pinnacle raised their prices
following a merger and there was no price agreement; that
“there would be no network without” a combined Hershey
and Pinnacle; and that the combined entity would have more
bargaining leverage. Id. at 14; see Corrected Reply Br. 13-14.
He estimated that the insurer would lose half of its




                              28
membership in Dauphin County if they tried to market a plan
that excluded Pinnacle and Hershey. Gov’t Br. 13-14;
Corrected Reply Br. 14 n.9.
       He further testified that the insurer previously used the
possibility of creating a network that included only Holy
Spirit and Hershey in the Harrisburg market in order to get
Pinnacle to accept lower prices. Corrected Reply Br. 13.
According to him, insurers used the separate existence of
Pinnacle and Hershey at the bargaining table: in order to
resist a large price increase from Pinnacle, Payor A
threatened to form a network with Holy Spirit and Hershey,
excluding Pinnacle. After making this threat, Payor A and
Pinnacle were able to come to an agreement that included
only modest rate increases. The representative conceded that,
without the ability to create a network with Hershey, this
threat would not have been credible—Payor A could not have
threatened to form a network with only Holy Spirit. Gov’t Br.
15. This is strong evidence that the separate existence of
Pinnacle and Hershey constrains prices.
       A representative from a second large insurer, Payor B,
also expressed concerns that the Hospitals would control
greater than 50% of the market and would have too much
leverage. Gov’t Br. 16, 38. He testified that the insurer would
need to market a combined Hershey/Pinnacle in its network in
order to be marketable. Id. at 14-15, 37-38; Corrected Reply
Br. 14. Employers in the area similarly stated that they would
have a difficult time marketing a health plan without the
Hospitals after the merger. Corrected Reply Br. 20 n.12.
       The results of one natural experiment also support the
insurer’s testimony. From 2000 until 2014, Payor E was able
to market a viable network in Harrisburg that included only
Holy Spirit and Pinnacle but did not include Hershey. In




                              29
August 2014, Pinnacle terminated its agreement with Payor
E. After losing Pinnacle from its network, Payor E negotiated
substantial discounts with Holy Spirit and large hospitals in
York and Lancaster counties and was able to offer plans at a
substantial discount. Despite being priced much lower than its
competitors, Payor E lost half its members, who switched to
other health plans. Gov’t Br. 13-14. Brokers informed the
Payor E representative that it no longer had a viable network
without Pinnacle, and even in the face of substantial discounts
for Payor E’s health plan, patients were willing to pay more
to other insurers for health plans that included Hershey or
Pinnacle. Corrected Reply Br. 16.
       Finally, payors testified that they consider the
Harrisburg area a distinct market and do not consider
hospitals in other areas, such as York or Lancaster counties,
to be suitable alternatives. Gov’t Br. 18 & n.4.
       The Hospitals argue that the payors have enough
bargaining leverage that they would be able to defeat a
SSNIP. In the Hospitals’ view, the payors, which supply
patients to the Hospitals, can threaten to exclude the Hospitals
from their network; this would in turn cause the Hospitals to
lose significant numbers of patients. Such a loss would render
the SSNIP unprofitable and therefore does not satisfy the
hypothetical monopolist test. No one disputes that the parties
both have bargaining leverage when negotiating
reimbursement rates. The question here, however, is whether
the merger will cause such a significant increase in the
Hospitals’ bargaining leverage that they will be able to
profitably impose a SSNIP and, in the face of demand for the
SSNIP, whether the payors will be forced to accept it. In other
words, whatever leverage the payors will have after the
merger, they have that leverage now. The Government’s
evidence shows that the increase in the Hospitals’ bargaining



                              30
leverage as a result of the merger will allow the post-merger
combined Hershey/Pinnacle to profitably impose a SSNIP on
payors.
       All of the aforementioned evidence answered an even
narrower question than the one presented: the Government
was not required to show that payors would accept a price
increase rather than excluding the merged Hershey/Pinnacle
entity from their networks; it was required to show only that
payors would accept a price increase rather than excluding all
of the hospitals in the Harrisburg area. That is the inquiry
under the hypothetical monopolist test. Considering the
evidence put forth by the Government, we conclude that the
Government has met its burden to properly define the relevant
geographic market. It is the four-county Harrisburg area.
                     2. Prima Facie Case
       “Once the relevant geographic market is determined, a
prima facie case is established if the plaintiff proves that the
merger will probably lead to anticompetitive effects in that
market.” St. Alphonsus, 778 F.3d at 785. Market
concentration is a useful indicator of the likely competitive,
or anticompetitive, effects of a merger. Merger Guidelines,
§ 5.3, at 18; see also H.J. Heinz, 246 F.3d at 715-16
(“Increases in concentration above certain levels are thought
to raise a likelihood of interdependent anticompetitive
conduct.” (internal quotation marks and alterations omitted)).
       Market concentration is measured by the Herfindahl-
Hirschman Index (“HHI”). The HHI is calculated by
summing the squares of the individual firms’ market shares.
In determining whether the HHI demonstrates a high market
concentration, we consider both the post-merger HHI number
and the increase in the HHI resulting from the merger.
Merger Guidelines, § 5.3, at 18-19. A post-merger market



                              31
with a HHI above 2,500 is classified as “highly
concentrated,” and a merger that increases the HHI by more
than 200 points is “presumed to be likely to enhance market
power.” Id. § 5.3, at 19. The Government can establish a
prima facie case simply by showing a high market
concentration based on HHI numbers. See St. Alphonsus, 778
F.3d at 788 (“The extremely high HHI on its own establishes
the prima facie case.”); H.J. Heinz, 246 F.3d at 716
(“Sufficiently large HHI figures establish the FTC’s prima
facie case that a merger is anti-competitive.”).
       The Government put forth undisputed evidence that
the post-merger HHI is 5,984—more than twice that of a
highly concentrated market. The increase in HHI is 2,582—
well beyond the 200-point increase that is presumed likely to
enhance market power. Gov’t Br. 20. These numbers, the
accuracy of which the Hospitals conceded at oral argument,
are significantly higher than post-merger HHIs and HHI
increases that other courts have deemed presumptively
anticompetitive. See ProMedica Health Sys., Inc. v. FTC, 749
F.3d 559, 568 (6th Cir. 2014) (post-merger HHI of 4,391 and
HHI increase of 1,078 was presumptively anticompetitive),
cert. denied, 135 S. Ct. 2049 (2015); H.J. Heinz, 246 F.3d at
716 (post-merger HHI of 4,775 and HHI increase of 510 was
presumptively      anticompetitive).    Furthermore,      the
Government has alleged that the post-merger combined
Hershey/Pinnacle will control 76% of the market in
Harrisburg. Gov’t Br. 3-4, 20. Together, these numbers
demonstrate that the merger is presumptively anticompetitive.
              3. Rebutting the Prima Facie Case
       Once the Government has established a prima facie
case that the merger may substantially lessen competition, the
burden shifts to the Hospitals to rebut the Government’s




                             32
prima facie case. In order to rebut the prima facie case, the
Hospitals must show either that the combination would not
have anticompetitive effects or that the anticompetitive
effects of the merger will be offset by extraordinary
efficiencies resulting from the merger. See H.J. Heinz, 246
F.3d at 718-25. The Hospitals present two efficiencies-based
defenses. First, they put forth considerable evidence in an
attempt to show that the merger will produce procompetitive
effects, including relieving Hershey’s capacity constraints and
allowing Hershey to avoid construction of an expensive bed
tower that would save $277 million—savings which could be
passed on to patients. Second, the Hospitals claim that the
merger will enhance their efforts to engage in risk-based
contracting. And finally, in addition to their efficiencies
defense, the Hospitals argue that, because of repositioning by
other hospitals in the area, the merger will not have
anticompetitive effects.
                      a. Efficiencies Defense
        We note at the outset that we have never formally
adopted the efficiencies defense. Neither has the Supreme
Court. Contrary to endorsing such a defense, the Supreme
Court has instead, on three occasions, cast doubt on its
availability. First, in Brown Shoe, the Supreme Court, though
acknowledging that mergers may sometimes produce benefits
that flow to consumers, reasoned that “Congress appreciated
that occasional higher costs and prices might result from the
maintenance of fragmented industries and markets. It
resolved these competing considerations in favor of
decentralization.” 370 U.S. at 344. Next, in Philadelphia
National Bank, the Supreme Court made clear that
      a merger the effect of which “may be
      substantially to lessen competition” is not saved
      because, on some ultimate reckoning of social



                              33
       or economic debits and credits, it may be
       deemed beneficial. … Congress determined to
       preserve our traditionally competitive economy.
       It therefore proscribed anticompetitive mergers,
       the benign and the malignant alike, fully aware,
       we must assume, that some price might have to
       be paid.
374 U.S. at 371. Finally, in FTC v. Procter & Gamble Co.,
386 U.S. 568 (1967), the Supreme Court cautioned that
“[p]ossible economies cannot be used as a defense to
illegality.” Id. at 580.8
       Based on this language and on the Clayton Act’s
silence on the issue, we are skeptical that such an efficiencies
defense even exists. Nevertheless, other courts of appeals
have held that the efficiencies defense is cognizable. E.g.,
Univ. Health, 938 F.2d at 1222 (“We think … that an
efficiency defense to the government’s prima facie case in
section 7 challenges is appropriate in certain
circumstances.”). And still others have analyzed the
efficiencies to determine whether they might overcome the
presumption of illegality. See St. Alphonsus, 778 F.3d at 788-

       8
         Some commentators have argued that, because the
efficiencies defense has never been squarely presented to the
Supreme Court, the issue has never been definitively decided.
Moreover, they suggest that, although possible economies are
not a defense, efficiencies that do not lessen competition and
are certain, as opposed to merely possible, may be enough to
rebut the presumption of illegality. See Mark N. Berry,
Efficiencies and Horizontal Mergers: In Search of a Defense,
33 San Diego L. Rev. 515, 525 (1996); Timothy J. Muris, The
Efficiency Defense Under Section 7 of the Clayton Act, 30
Case W. Res. L. Rev. 381, 412-13 (1980).



                              34
92 (expressing skepticism that the defense exists but
nevertheless addressing it); H.J. Heinz, 246 F.3d at 720
(acknowledging that the Supreme Court has never
“sanctioned the use of the efficiencies defense,” but noting
that “the trend among lower courts is to recognize the
defense”); see also ProMedica Health, 749 F.3d at 571
(recognizing that merging parties often put forth the
efficiencies defense). The FTC’s Merger Guidelines also
recognize the defense. See Merger Guidelines, § 10, at 30
(“The Agencies will not challenge a merger if cognizable
efficiencies are of a character and magnitude such that the
merger is not likely to be anticompetitive in any relevant
market.”). Because we conclude that the Hospitals cannot
clearly show that their claimed efficiencies will offset any
anticompetitive effects of the merger, we need not decide
whether to adopt or reject the efficiencies defense. However,
because the District Court concluded otherwise, we address
the requirements of the efficiencies defense and each of the
Hospitals’ claimed benefits in turn.
       Those courts of appeals to recognize the defense have
articulated several requirements, which are also found in the
Merger Guidelines. In order to be cognizable, the efficiencies
must, first, offset the anticompetitive concerns in highly
concentrated markets. See St. Alphonsus, 778 F.3d at 790.
Second, the efficiencies must be “merger specific,” id.—
meaning, “they must be efficiencies that cannot be achieved
by either company alone.” H.J. Heinz, 246 F.3d at 722.
Otherwise, “the merger’s … benefits [could] be achieved
without the concomitant loss of a competitor.” Id. Third, the
efficiencies “must be verifiable, not speculative,” St.
Alphonsus, 778 F.3d at 791; they “must be shown in what
economists label ‘real’ terms.” Univ. Health, 938 F.2d at
1223 (quoting Procter & Gamble, 386 U.S. at 604 (Harlan, J.,



                             35
concurring)). Finally, the efficiencies must not arise from
anticompetitive reductions in output or service. Merger
Guidelines, § 10, at 30.
       Remaining cognizant that the “language of the Clayton
Act must be the linchpin of any efficiencies defense,” and that
the Clayton Act speaks in terms of “competition,” we must
emphasize that “a successful efficiencies defense requires
proof that a merger is not, despite the existence of a prima
facie case, anticompetitive.” St. Alphonsus, 778 F.3d at 790.
The presumption of illegality may be overcome only where
the defendants “demonstrate that the intended acquisition
would result in significant economies and that these
economies ultimately would benefit competition and, hence,
consumers.” Univ. Health, 938 F.2d at 1223.
       Efficiencies are not the same as equities. In assessing
whether a preliminary injunction may issue in a Section 7
case, a court must always weigh the equities as part of its
determination that granting the injunction would be in the
public interest. This essential step is expressly required by
Section 13(b) of the FTC Act: “Upon a proper showing that,
weighing the equities and considering the Commission’s
likelihood of ultimate success, such action would be in the
public interest … a preliminary injunction may be granted …
.” 15 U.S.C. § 53(b) (emphasis added). The efficiencies
defense, on the other hand, is a means to show that any
anticompetitive effects of the merger will be offset by
efficiencies that will ultimately benefit consumers. It is not
mentioned in Section 7 of the Clayton Act, nor is it part of the
standard for granting a preliminary injunction.
       Some of the considerations may overlap, but they are
properly viewed as distinct inquiries, in part, because of the
rigorous standard that applies to efficiencies, which must be




                              36
merger specific, verifiable, and must not arise from any
anticompetitive reduction in output or service. And
importantly, the efficiencies defense, because it is aimed at
rebutting the Government’s prima facie case that the merger
is anticompetitive, must “demonstrate that the prima facie
case portrays inaccurately the merger’s probable effects on
competition.” St. Alphonsus, 778 F.3d at 790 (internal
quotation marks and alterations omitted). The District Court
analyzed several claimed efficiencies and concluded that they
weigh in favor of denying the preliminary injunction. But it
did not address whether those claimed efficiencies meet the
demanding scrutiny that the efficiencies defense requires.9
       Our review of the Hospitals’ claimed efficiencies leads
us to conclude that they are insufficient to rebut the
presumption of anticompetitiveness. With respect to the
Hospitals’ capacity constraints and capital savings claims, the
District Court found that the merger will alleviate Hershey’s

       9
          The District Court engaged in an analysis of what it
called “equities,” even though it held that the Government
failed to demonstrate a likelihood of success on the merits.
But after articulating the standard for weighing the equities as
required by Section 7, the District Court immediately
articulated the standard for the efficiencies defense. App. 16-
17. It then, in its discussion of the equities, considered the
Hospitals’ claims that: (1) the proposed merger would
alleviate Hershey’s capacity constraints, App. 17-23; (2)
repositioning by competitors will constrain prices at Hershey
and Pinnacle, App. 23-25; (3) the merger will increase the
Hospitals’ ability to adapt to risk-based contracting, App. 25-
27; and (4) the public interest will be served by the merger,
App. 27-28.




                              37
capacity constraints because, upon consummating the merger,
Hershey will immediately be able to transfer patients to
Pinnacle. The District Court also credited the testimony of
Hershey CEO Craig Hillemeier that, because Hershey will
transfer patients to Pinnacle, it can avoid constructing a new
planned bed tower aimed at providing additional beds at
Hershey, resulting in capital savings of nearly $277 million.
       The parties dispute whether capital savings can
constitute efficiencies. Compare FTC v. Butterworth Health
Corp., 946 F. Supp. 1285, 1300-01 (W.D. Mich. 1996)
(capital savings are cognizable efficiencies), with FTC v.
ProMedica Health Sys., Inc., No. 3:11-cv-47, 2011 WL
1219281, at *36-37 (N.D. Ohio Mar. 29, 2011) (capital
savings are not cognizable efficiencies). We turn to the
Merger Guidelines in answering this question. As the Merger
Guidelines explain, competition is what “usually spurs firms
to achieve efficiencies internally.” Merger Guidelines, § 10,
at 29. One of the rationales for recognizing the efficiencies
defense is that a merger may produce efficiencies that “result
in lower prices, improved quality, enhanced service, or new
products.” Id. Thus, although capital savings, in and of
themselves, would not be cognizable efficiencies, we can
foresee that an antitrust defendant could demonstrate that its
avoidance of capital expenditures would benefit the public by,
for example, lowering prices or improving the quality of its
services. In such a case, so long as the capital savings result
in some tangible, verifiable benefit to consumers, capital
savings may play a role in our efficiencies analysis.
       Our recognition that capital savings are cognizable
efficiencies does not decide this issue, however, because even
if capital savings are efficiencies, they must nonetheless be
verifiable and must not result in any anticompetitive
reduction in output. It is on these requirements that the



                              38
Hospitals’ efficiencies claim fails. As an initial matter, we are
bound to accept the District Court’s findings of fact unless
they are clearly erroneous. And, as the District Court
observed, we do not second guess the business judgments of
Hershey’s able executives. We do, however, require that the
Hospitals provide clear evidence showing that the merger will
result in efficiencies that will offset the anticompetitive
effects and ultimately benefit consumers. First, the evidence
is ambiguous at best that Hershey needed to construct a 100-
bed tower to alleviate its capacity constraints. The Hospitals’
own efficiencies analysis shows that Hershey needs only
thirteen additional beds in order to operate at 85% capacity,
which is a hospital’s optimal occupancy rate. App. 18;
Corrected Reply Br. 28 n.18. Second, Hershey’s ability to
forego building the 100-bed tower is a reduction in output.
The Merger Guidelines expressly indicate that the FTC will
not consider efficiencies that “arise from anticompetitive
reductions in output or service.” Merger Guidelines, § 10, at
30.
        Even if we were to agree with the Hospitals that their
ability to forego building a new 100-bed tower as a result of
the merger is a cognizable efficiency that is verified, merger
specific, and did not arise from any anticompetitive reduction
in output, we cannot overlook that the HHI numbers here
eclipse any others we have identified in similar cases. They
render this combination not only presumptively
anticompetitive, but so likely to be anticompetitive that
“extraordinarily great cognizable efficiencies [are] necessary
to prevent the merger from being anticompetitive.” Id. § 10,
at 31. This high standard is not met here—nor, we note, has
this high standard been met by any proposed efficiencies
considered by a court of appeals.
       Second, the Hospitals claim that the merger will



                               39
enhance their efforts to engage in risk-based contracting.
Risk-based contracting is an alternative payment model to the
traditional fee-for-service model in which healthcare
providers bear some of the financial risk and upside in the
cost of treatment.10 The Hospitals’ expert testified that large
systems that control the entire continuum of care are better
suited to risk-based contracting, partly because they are able
to spread out the financial risk involved. App. 26. The
Government disputes that a system as large as the combined
Hershey/Pinnacle system has any advantages over a smaller,
albeit still large, healthcare system. Gov’t Br. 53; Corrected
Reply Br. 29. The District Court seemingly agreed with the
Government that both Pinnacle and Hershey are capable of
independently operating under the risk-based contracting
model. App. 26. But it found that the merger will be
beneficial to the Hospitals’ ability to engage in risk-based
contracting, which in turn will allow Hershey “to continue to
use its revenue to operate its College of Medicine and draw
high-quality medical students and professors into the region.”
Id.
      Irrespective of whatever benefits the merger may
bestow upon the Hospitals in increasing their ability to

      10
          In risk-based contracting, healthcare providers bear
some financial risk and share in the financial upside based on
the quality and value of the services they provide. Consider
the following hypothetical example: A payor would pay the
hospital $300 per member per month to care for a member. If
the patient is generally in good health and goes to the doctor
once per year, the hospital still receives the $300/month
payment and can keep the excess. But if the patient is sick
and requires much more expensive treatment, the hospital still
receives only $300/month and must bear the excess cost.



                              40
engage in risk-based contracting, the Hospitals must
demonstrate that such a benefit would ultimately be passed on
to consumers. It is not clear from the record how this would
be so beyond the mere assertion that it would save the
Hospitals money and such savings would be passed on to
consumers. We cannot credit the District Court’s observation
that, because of the benefits to risk-based contracting,
Hershey will be able to continue to use its revenue to operate
its College of Medicine and draw high-quality medical
students and professors to Hershey. An efficiencies analysis
requires more than speculative assurances that a benefit
enjoyed by the Hospitals will also be enjoyed by the public. It
is similarly unclear how this ability to engage in risk-based
contracting will counteract any of the anticompetitive effects
of the merger. Finally, the District Court’s finding that both
Pinnacle and Hershey are capable of independently engaging
in risk-based contracting contravenes its conclusion that this
is a cognizable efficiency because the benefit is not merger
specific. See H.J. Heinz, 246 F.3d at 722 (the efficiencies
must not be achievable by either company alone; otherwise,
the merger’s benefits could be achieved without the loss of a
competitor).
                  b. Anticompetitive Effects
       In an attempt to show that the merger will not, despite
high HHI numbers, produce anticompetitive effects, the
Hospitals claim that repositioning—the response by
competitors to offer close substitutes offered by the merging
firms—will be sufficient to constrain post-merger prices. The
Merger Guidelines recognize that, in certain cases,
repositioning by other competitors may be sufficient to deter
or counteract the anticompetitive effects of a merger. Merger
Guidelines, § 6.1, at 22. In evaluating repositioning, the
Merger Guidelines call for consideration of “timeliness,



                              41
likelihood, and sufficiency.” Id. The District Court noted that
“the market that Hershey and Pinnacle exist within has
already been subject to extensive repositioning.” App. 23. It
specifically noted that Geisinger Health System recently
acquired Holy Spirit Hospital near Harrisburg; WellSpan
Health acquired Good Samaritan Hospital in Lebanon
County; the University of Pennsylvania acquired Lancaster
General Hospital in Lancaster County; and Community
Health Systems acquired Carlisle Regional Hospital in
Cumberland County. App. 24. We agree that these recent
affiliations and acquisitions, at least in the Harrisburg area,
assuage some of the concerns that the proposed combination
will have anticompetitive effects. We do not believe,
however, that repositioning by these hospitals would have the
ability to constrain post-merger prices, as evidenced by the
extensive testimony by payors that “there would be no
network” without Hershey and Pinnacle.
        We therefore conclude that the Hospitals have not
rebutted the Government’s prima facie case that the merger is
likely to be anticompetitive. Accordingly, we hold that the
Government has carried its burden to demonstrate that it is
likely to succeed on the merits.
                   B. Weighing the Equities
       “Although the [Government’s] showing of likelihood
of success creates a presumption in favor of preliminary
injunctive relief, we must still weigh the equities in order to
decide whether enjoining the merger would be in the public
interest.” H.J. Heinz, 246 F.3d at 726; see 15 U.S.C. § 53(b).
The question is whether the harm that the Hospitals will
suffer if the merger is delayed will, in turn, harm the public
more than if the injunction is not issued. See Univ. Health,
938 F.2d at 1225. Once we determine that the proposed




                              42
merger is likely to substantially lessen competition, the
Hospitals “face a difficult task in justifying the nonissuance
of a preliminary injunction.” Id.
        Although the statute mandates that we weigh the
“equities,” it is silent as to what specifically those equities
are. The prevailing view is that, although private equities may
be considered, they are not to be afforded great weight. See
id. (“While it is proper to consider private equities in deciding
whether to enjoin a particular transaction, we must afford
such concerns little weight.”); H.J. Heinz, 246 F.3d at 727
n.25 (same). But see FTC v. Food Town Stores, Inc., 539 F.2d
1339, 1346 (4th Cir. 1976) (Winter, J., sitting alone) (“All of
these reasons go to the private injury which may result from
an injunction … . [T]hey are not proper considerations for
granting or withholding injunctive relief under § 13(b).”).
Because private equities are afforded little weight, they
cannot outweigh effective enforcement of the antitrust laws.
FTC v. Weyerhaeuser Co., 665 F.2d 1072, 1083 (D.C. Cir.
1981) (Ginsburg, J.). Thus, although we may consider private
equities in our weighing of the equities, wherever the
Government “demonstrates a likelihood of ultimate success, a
countershowing of private equities alone would not suffice to
justify denial of a preliminary injunction barring the merger.”
Id.
       “The principal equity weighing in favor of issuance of
the injunction is the public’s interest in effective enforcement
of the antitrust laws.” Univ. Health, 938 F.2d at 1225. The
purpose of Section 13(b) is to preserve the status quo and
allow the FTC to adjudicate the anticompetitive effects of the
proposed merger in the first instance. Food Town Stores, 539
F.2d at 1342. This factor is particularly important here
because should the Hospitals consummate the merger and the
FTC subsequently determine that it is unlawful, divestiture



                               43
would be the FTC’s only remedy. At that point, since it is
extraordinarily difficult to “unscramble the egg,” Univ.
Health, 938 F.2d at 1217 n.23,11 “it will be too late to
preserve competition if no preliminary injunction has issued.”
H.J. Heinz, 246 F.3d at 727; see Univ. Health, 938 F.2d at
1225.
        On the other side, the Hospitals claim that granting the
injunction would “preclude the many public benefits
recognized by the [district] court.” Hosps. Br. 49. In making
this argument, the Hospitals misconstrue our equities inquiry.
By statute, we are required to weigh the equities in order to
decide whether granting the injunction would be in the public
interest. In answering this question, therefore, we consider
whether the injunction, not the merger, would be in the public
interest.
       Mindful of the limited scope of our inquiry, we
believe that the injunction will not deprive the public of the
many benefits found by the District Court. All of the
Hospitals’ alleged benefits will still be available upon
consummation of the merger, even if we were to grant an

       11
          Although the District Court was correct that it may
not be impossible to order divestiture, courts have repeatedly
recognized that it is difficult to do so, especially considering
the practical implications of denying the preliminary
injunction request. For instance, upon consummating the
merger, the Hospitals will presumably share confidential
information and begin transferring patients from Hershey to
Pinnacle. Should the FTC adjudication determine that the
merger is unlawful, the FTC will be tasked with divorcing the
Hospitals’ now-shared confidential information and forcing
patients to return to Hershey. These practical difficulties
cannot be written off so easily.



                              44
injunction and the FTC were to subsequently determine the
merger is lawful. Although the Hospitals have indicated in
their briefs to this Court that they “‘would have to abandon
the combination rather than continu[e] to expend substantial
resources litigating’ if an injunction is issued,” Hosps. Br. 49
(quoting Hosps. Pre-Hrg. Br. 2), they offer no support beyond
mere recitation that they would do so. Even more, the District
Court made the exact opposite finding below. See App. 27
(“[W]e note that the parties have not emphasized, and we do
not credit, any argument that an injunction would kill this
merger … .” (internal quotation marks omitted)).
        Nevertheless, even accepting the Hospitals’ assertion
that they would abandon the merger following issuance of the
injunction, the result—that the public would be denied the
procompetitive advantages of the merger—would be the
Hospitals’ doing. We see no reason why, if the merger makes
economic sense now, it would not be equally sensible to
consummate the merger following a FTC adjudication on the
merits that finds the merger lawful.
       On balance, the equities favor granting the injunction.
None of the private equities, or those equities that may have
public benefit, on the Hospitals’ side of the ledger are
sufficient to overcome the public’s strong interest in effective
enforcement of the antitrust laws. We recognize that certain
extrinsic factors have made these types of mergers
beneficial—perhaps even necessary—to the continued
success of some hospital systems. Yet, in this case, we are
tasked with deciding only whether preliminary injunctive
relief would be in the public interest. Opining on the
soundness of any legislative policy that may have compelled
the Hospitals to undertake this merger is not within our
purview.




                              45
                       V. Conclusion
       We therefore conclude that, after determining the
Government’s likelihood of success and weighing the
equities, a preliminary injunction would be in the public
interest. Accordingly, we will reverse the District Court’s
denial of the Government’s motion for a preliminary
injunction. We will also remand the case and direct the
District Court to preliminarily enjoin the proposed merger
between Hershey and Pinnacle pending the outcome of the
FTC’s administrative adjudication.




                            46
