NERA Economists Play Key Role in Favorable Decision in Hospital Corporation of America Case

23 September 2011

New York -- NERA Economic Consulting Senior Vice Presidents Dr. Elaine Buckberg and Dr. Thomas McCarthy filed a joint economic expert report and testified in court on behalf of the Hospital Corporation of America during the remedies phase of the Foundation for Seacoast Health vs. Hospital Corp of America case. HCA prevailed on all the material points it raised.

In 2006, the Foundation for Seacoast Health sued the Hospital Corporation of America (HCA) and certain of its subsidiaries seeking the right to buy back the Portsmouth Regional Hospital (PRH) on grounds that HCA's corporate-wide leveraged buyout had triggered its right to do so. The courts rejected this claim, but during discovery in the case, the Foundation learned that there had been an intracorporate transfer of the hospital in 1999 when HCA restructured the company for tax reasons. The plaintiff amended its complaint, alleging that this 1999 transfer violated the original Asset Purchase Agreement and triggered the Foundation's right of first refusal to buy back PRH. In December 2009, Rockingham County Superior Court Judge Kenneth McHugh ruled that the 1999 transfer wasn’t permitted under the original Asset Purchase Agreement between the two companies, and ordered a second trial to consider damages or other remedies for the technical breach.

Dr. Buckberg and Dr. McCarthy's testimony in the remedies phase of the Foundation for Seacoast Health vs. Hospital Corp of America trial showed that it was highly unlikely the Foundation could have purchased PRH in 1999 using debt financing because the Foundation would have had to issue an unprecedented amount of debt. The NERA economists also discussed with the court why the Foundation's interpretation of the Asset Purchase Agreement did not make economic sense. Finally, in the event the Foundation was entitled to damages, the opinions of Dr. Buckberg and Dr. McCarthy supported HCA's contention that the damages would be zero because the Foundation would not have and could not have purchased PRH, even if given the right to buy the hospital.

Judge McHugh ruled that the Foundation had no contractual right to purchase PRH as a result of the 1999 transfer of the hospital. Consistent with Dr. Buckberg and Dr. McCarthy's conclusions, he also ruled that the Foundation would not have and could not have bought the hospital, thus, there could be no damages, Furthermore, Judge McHugh held that a repurchase by the Foundation would not be an appropriate equitable remedy. The court found instead that the appropriate equitable remedy would be a rescission of the 1999 transfer, and therefore ordered HCA to move the hospital back to the same corporate structure that existed prior to 1999.

Dr. McCarthy directs NERA's Health Care Practice, which specializes in the economic analysis of regulatory, public policy, and litigation matters in health care markets. Dr. McCarthy has analyzed the competitive issues raised by a wide variety of mergers and antitrust claims in all segments of the health care industry, including hospitals, hospital systems, health insurers, physician groups, physician practice management companies, medical device companies, pharmaceutical companies, PBMs, and home health care companies. He holds a PhD and MA in economics from the University of Maryland. He was assisted in his analysis by former NERA Senior Consultant Dr. Sourav Chatterjee.

Dr. Buckberg provides expert testimony and litigation support in the areas of securities economics, finance, valuation, and regulation. She has also directed engagements involving fraudulent conveyance and bankruptcy. Her testimony and litigation experience includes regulatory, criminal, and civil securities cases. Dr. Buckberg earned her PhD in economics from MIT. She was assisted in her analysis by NERA Senior Consultant Dr. Alan Grant.

NERA worked with Latham & Watkins and McLane, Graf, Raulerson, & Middleton in Foundation for Seacoast Health vs. Hospital Corp of America. The decision can be read here:
 http://static.djlmgdigital.com/scn/seacoastonline/graphics/spclReports/linked/20110919_HCA_decision.pdf.

About NERA

NERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For over half a century, NERA's economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world's leading law firms and corporations. We bring academic rigor, objectivity, and real world industry experience to bear on issues arising from competition, regulation, public policy, strategy, finance, and litigation.

NERA's clients value our ability to apply and communicate state-of-the-art approaches clearly and convincingly, our commitment to deliver unbiased findings, and our reputation for quality and independence. Our clients rely on the integrity and skills of our unparalleled team of economists and other experts backed by the resources and reliability of one of the world's largest economic consultancies. With its main office in New York City, NERA serves clients from more than 25 offices across North America, Europe, and Asia Pacific.