No Health Care Merger Too Small for the FTC to Take an Antitrust Look
In our November and December 2016 articles, we discussed the Federal Trade Commission's proclivity to challenge health care mergers, even when the purported anticompetitive effects of the relatively economically limited merger would be confined to a local geographic region.
February 05, 2018 at 01:33 PM
8 minute read
In our November and December 2016 articles, we discussed the Federal Trade Commission's proclivity to challenge health care mergers, even when the purported anticompetitive effects of the relatively economically limited merger would be confined to a local geographic region. For example, in 2014, the FTC, joined by the Idaho state attorney general, in St. Alphonsus Medical Center Nampa v. St. Luke's Health System successfully forced two small hospitals to unwind a consummated merger that affected only 81,557 people in the town of Nampa, Idaho. In 2016, the FTC blocked the merger of Penn State Hershey Medical Center and Pinnacle Health System, both of which mostly operate in a small, four-county area surrounding Harrisburg, Pennsylvania. In 2017, the FTC in In re CentraCare Health challenged and obtained a favorable settlement in a merger in St. Cloud, Minnesota involving a physician group that operated only four health clinics employing only 40 doctors. The merger was small enough to avoid triggering the Hart Scott Rodino Act's reporting rules.
Most recently, in December 2017, the FTC chalked up another win in a localized nonreportable health care merger when, in collaboration with the North Dakota state attorney general's office, it successfully blocked the merger of Bismarck, North Dakota health care providers Sanford Bismarck and Mid Dakota Clinic, P.C. (MCD) in FTC v. Sanford Health.
The Health Care Provider Market
In general, competition in the health care provider market can be divided into two “stages.” In the first stage, providers compete with one another for access to insurance plans offered regionally by commercial health insurers. In the second stage, providers compete to attract patients to their facilities. Competition in the first stage is mostly price centric—that is, providers compete by law only regionally with other providers on reimbursement rates they receive from insurers for medical services provided to patients. Competition in the second stage is mostly service centric—that is, providers compete with other regional providers on quality and cost of services provided, availability of procedures, hours of operation, convenience of facilities, innovative technology, and staffing needs and recruitment.
In Sanford Health, Magistrate Judge Alice Senechal of the U.S. District Court for the District of North Dakota, defined four relevant product markets: adult primary care services, pediatric services, obstetric/gynecologic services and general surgery services. None of the services provided in these four markets, she explained, is fungible with the services provided in any other market. In addition, Senechal defined the relevant geographic market as “the Bismarck-Mandan, North Dakota, Metropolitan Statistical Area.” Comprising just four counties, the authors calculate the 2010 population of this geographic market at 115,000 people, according to information collected by the U.S. Census Bureau.
Anticompetitive Effects of the Merger
Using the hypothetical monopolist test, which assesses a company's ability to impose unilateral price increases on consumers, the district court found that, post-merger, Sanford/MDC would control 85.7 percent of the adult primary care market in Bismarck, 98.6 percent of the pediatric market in Bismarck, 84.6 percent of the OB/GYN market in Bismarck, and 100 percent of the general surgery market in Bismarck. In light of these figures, Judge Senechal agreed with the FTC and the North Dakota attorney general that the merger would be “presumptively unlawful in each of the four physician service lines.”
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