The Federal Trade Commission (FTC) is leaving no stone unturned
in its scrutiny of physician acquisitions, as indicated by its
recent enforcement action regarding the acquisition of a small
cardiology group in Reno, Nevada.
The FTC alleged that Renown Health (Renown), an integrated
health network based in Reno, had gained control of the market for
cardiology services by acquiring the only two major cardiology
groups in the area. To settle the matter, Renown entered into a
consent decree under which it would release up to ten of its staff
cardiologists from their post-employment, non-compete contract
provisions. In the Matter of Renown Health, a corporation, FTC File
No. 111 0101, http://www.ftc.gov/os/caselist/1110101/index.shtm.
In November 2010, Renown acquired Reno medical group Sierra
Nevada Cardiology Associates (SNCA) and hired its 15 cardiologists,
becoming a direct competitor of the only other cardiology practice
in the Reno area, Reno Heart Physicians (RHP). Renown had not
previously employed any cardiologists. Renown then doubled its
cardiology practice in March 2011 when it acquired RHP and hired
the approximately 16 cardiologists in that practice. All 31
physicians signed employment agreements containing non-compete
provisions that forbade them from joining medical practices within
50 miles of Renown upon leaving Renown's employ, for a period
of two years.
The two acquisitions represented 97% of the cardiologists in the
Reno/Sparks Metropolitan Statistical Area. By August 3, 2012,
however, as a result of changes in the market due to physician
entry and exit, Renown's market share declined to 88%. The FTC
alleged that despite this new entry, the transaction
"effectively eliminated" competition and would therefore
likely lead to higher prices as a result of its increased
bargaining leverage with health plans and reduced quality for the
provision of cardiology services. In arriving at its conclusion
that the 2-to-1 merger reduced competition, the FTC focused heavily
on the Hershman-Herfindahl Index, the post-employment, non-compete
covenants in the cardiologists' employment contracts, and
insurers' lack of alternative entities with which to
The proposed order settling the FTC's charges is designed to
remedy the anticompetitive effects of Renown's acquisitions and
to restore competition for cardiology services in the Reno area.
Renown has agreed to an order suspending the non-compete provisions
currently in place with its cardiologists for at least 30 days
while the FTC considers public comments. During this time, former
SNCA and RHP cardiologists may contact other employers about
leaving Renown, and will notify the FTC-appointed special monitor
to ensure that they are included in a group of up to 10
cardiologists that will be allowed to join competing groups.
After the FTC finalizes the consent order, another 30-day
release period will begin, during which other cardiologists may
leave Renown, provided certain conditions are met, including the
requirement that they intend to continue to practice in the Reno
area for at least one year.
At any time during this period, Renown can ask the FTC to end
the release order if ten of its cardiologists have left for
competing practices. If fewer than six cardiologists have decided
to leave Renown at the end of this release period, Renown will
continue to suspend the non-compete provisions until at least six
cardiologists have accepted offers with competing practices in the
The Nevada Attorney General, who worked with the FTC on this
matter, has also filed a similar complaint; its similar proposed
settlement is pending court approval.
Non-competes are frequently used in many industries, including
the health care industry, and are usually acceptable under the
antitrust laws when reasonable in scope and duration. The FTC's
challenge here is not based upon its disagreement with either the
scope or duration of the non-competes at issue, but with the
barriers to successful entry of new competition when virtually all
cardiologists already established in the market are prevented from
becoming the foundation of new competitive forces.
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