United States: FTC Fashions Creative Remedy To Permit Presumptively Anticompetitive Merger For Financially Failing Medical Practice

The Federal Trade Commission (the "FTC" or "Commission") has made its preference known for structural, rather than conduct, remedies when attempting to craft consent solutions in reviewing antitrust provocative mergers. In consolidating health care provider markets, many of the antitrust sensitive transactions involve physician groups, which make structural solutions difficult where the major assets are people, physicians and other providers. The FTC has also been relatively strict—across industries—before accepting a failing company defense to allow an otherwise problematic merger to proceed. Yet, when the FTC faced this dynamic last week, it found an envelope-pressing consent solution to allow a physician acquisition to proceed.

The FTC entered into a proposed settlement with two Minnesota health care providers, allowing them to proceed with a planned merger that, according to the agency, combines "the two largest providers of adult primary care, pediatric, and OB/GYN services in the St. Cloud area." The Commission's willingness to accept the proposed settlement permitting CentraCare Health's ("CentraCare") acquisition of St. Cloud Medical Group P.A. ("SCMG") was "premised on the fact that SCMG is a financially failing physician practice...[and] concerns regarding disruptions to patient care and possible physician shortages." In the Matter of CentraCare Health System, FTC File No. 161-0096 (Oct. 6, 2016). The proposed settlement attempts to mitigate the likely anticompetitive effects of the combination by suspending certain non-compete agreements, facilitating the finding of alternate local employment with competing practices for former SCMG physicians, and offering financial stipends paid by CentraCare to induce some physicians to leave the merged entity. This proposed settlement is further notable for the immediate nature of certain provisions that commonly are subject to a 30-day comment period.

CentraCare is a not-for-profit health system that operates several hospitals, pharmacies, nursing homes, and multiple clinics, and employs approximately 270 physicians. SCMG is a for-profit, physician-owned practice that operates four clinics and employs approximately 40 physicians. According to the FTC, CentraCare and SCMG are the two largest providers of primary, pediatric, and OB/GYN services in the St. Cloud, Minnesota area. CentraCare entered into an agreement to acquire SCMG's medical practice on February 29, 2016.

>FTC's Allegations

The FTC defined the relevant markets as adult primary care, pediatric primary care, and OB/GYN services in the greater St. Cloud, Minnesota residential area. The FTC alleged that within each relevant physician service market, CentraCare's post-acquisition market share will be over 80%. The FTC further charged that the merger is presumptively illegal under the U.S. Department of Justice and FTC Horizontal Merger Guidelines, based on market concentration levels, as measured by the Herfindahl-Hirschman Index.

The FTC alleged that anticompetitive effects would result from the elimination of competition between CentraCare and SCMG, the resulting increased bargaining leverage of CentraCare, and the loss of non-price competition for quality of care and services. According to the FTC, entry by a sufficient number of physicians to counteract the anticompetitive effects from the transaction will not be likely, timely, or sufficient. Further, the FTC stated in the complaint that the parties cannot demonstrate cognizable efficiencies that would be sufficient to rebut the presumption of illegality.

Failing Firm Defense

The FTC entered into the proposed settlement based on evidence suggesting that without the transaction, SCMG is likely to exit the market due to its failing financial situation. SCMG demonstrated that it has no access to credit, with a lender freezing its only line of credit after reviewing the practice's recent financial statements. The evidence also indicated that some SCMG physicians have already left the practice, and that others plan to leave the practice—and possibly the St. Cloud area—if the transaction is not consummated. Moreover, SCMG was unable to find an alternate buyer after conducting a good-faith, multi-year search.

Remedy

The proposed settlement is designed to preserve competition to the extent possible, and to resolve concerns regarding disruption to patient care and possible physician shortages in the St. Cloud area that would likely occur if the merger is blocked and SCMG dissolves as a result of its failing financial state. The proposed settlement includes an Order to Suspend Enforcement of CentraCare Non-Competes and Maintain Assets ("Non-Compete and Asset Order") and a Decision and Order.

Non-Compete Suspension and Asset Maintenance—Effective Immediately

Using its authority under Commission Rule 2.34, 16 C.F.R. § 2.34, "because there may be interim competitive harm," the FTC has specified that the requirements of the Non-Compete and Asset Order are final immediately. Under that order, CentraCare is prohibited from enforcing any non-compete provisions against the first 14 SCMG physicians who submit notice to terminate employment with CentraCare if they have a stated intent to continue practicing elsewhere in the St. Cloud area for at least two years. If within 90 days of the date of the order (the "First Release Period") fewer than eight SCMG physicians have submitted such notice, the prohibition on CentraCare's enforcement of any non-compete will extend to legacy CentraCare physicians until a total of eight physicians have terminated employment with CentraCare. The order further forbids CentraCare from taking any action to "discourage, impede, or otherwise prevent" a physician from seeking to terminate employment. The suspension of the non-competes is intended to allow current SCMG physicians to accept alternative local employment without risking violation of non-compete provisions in their employment contracts.

Moreover, the Non-Compete and Asset Order also requires CentraCare to deposit $500,000 into an escrow account, to be used as "departure bonuses" ($100,000 each) for the first five physicians terminating employment with CentraCare who either create a new practice or join an existing practice with five or fewer physicians. The departure bonuses are meant to encourage the creation of new competitors and to strengthen smaller competitors in the relevant market.

During the First Release Period, CentraCare is also required to maintain all assets (including office space, physician workloads, support employees, and payor contract terms) of the SCMG practices, so that SCMG physicians can easily leave CentraCare to create new practices or join others.

The Non-Compete and Asset Order also includes the appointment of a monitor to oversee compliance and monthly compliance reports.

Commission Rule 2.34 explicitly provides for asset-maintenance or hold-separate orders to be effective immediately, when appropriate, in contrast to other provisions of proposed consent agreements that must be placed in the public record for a 30-day comment period. The Commission appears to interpret this rule liberally here, making the suspension of the non-competes effective immediately as well.

Decision and Order

The Decision and Order is subject to the Commission's final approval, pending the 30-day public comment period that expires on November 7, 2016. It incorporates the terms of the Non-Compete and Asset Order.

The Decision and Order also includes additional provisions to support competition created by the SCMG and CentraCare physicians who leave CentraCare under the terms of the Non-Compete and Asset Order. For example, for a period of two years, CentraCare is prohibited from soliciting for employment any such physicians. For a period of three years, CentraCare is further prohibited from denying, terminating, or suspending medical staff privileges for any such physicians.

In addition, CentraCare is prohibited in the relevant market, without providing advance written notice to the Commission, from acquiring any assets or financial interest in a practice with three or more physicians, or from entering into an employment agreement with physicians in the relevant market. Such notice will trigger a 30-day waiting period during which the transaction cannot be consummated, and must include material that would be responsive to Items 4(c) and 4(d) of the HSR Notification, even if the transaction is not HSR reportable.

In a concurring statement, Commissioner Ohlhausen stated that she does not believe that SCMG meets the stringent failing firm criteria. Nonetheless, she agreed that the proposed settlement represents the best opportunity to keep SCMG physicians in the market and to minimize competitive harm and care disruption.

The Minnesota Attorney General (the "AG") had also launched an antitrust review of the transaction earlier this year. After the FTC announced the proposed settlement, the AG released a statement that she was "disappointed with and puzzled by the FTC settlement... [because the] agreement to release some physicians from restrictive covenants does little to provide competition in terms of price or quality in the St. Cloud marketplace." Nonetheless, the AG acknowledged that the proposed settlement creates a "practical impediment" to any further action.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Bruce D. Sokler
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.