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Barry Rosen: FTC attacks, hospitals retreat

The Federal Trade Commission has recently launched antitrust challenges to a hospital system’s acquisition of the only other hospital offering meaningful competition in its region, another hospital system’s acquisition of 16 cardiologists and a third hospital system’s acquisition of a neighboring hospital. In all situations, the FTC claimed that the acquisitions “may substantially lessen competition” in violation of the federal Clayton Act, because the acquisitions would give the acquiring systems too much market power.

Phoebe Putney Health System

Phoebe Putney Health System operates a hospital in Albany, Ga., under a long-term lease with the Hospital Authority of Albany-Dougherty County. In April 2011, the FTC filed a complaint to block Phoebe’s proposed acquisition of essentially the only other competing hospital in the Albany area.

The FTC alleged that the transaction would dramatically reduce competition and enable Phoebe to increase prices for general acute-care hospital services charged to commercial health plans. The FTC specifically claimed that the transaction would give Phoebe a market share of 86 percent. In February 2013, the U.S. Supreme Court concluded that the transaction was not immunized under the “state action” doctrine, under which federal antitrust laws do not apply to certain anticompetitive conduct of a political subdivision.

In June 2013, a stipulated preliminary injunction was entered in federal district court to prevent the further integration of the two Albany hospitals. The parties have prepared a proposed consent agreement that is now being considered by the commissioners.

Renown Health

In January 2011, Renown Health, the largest provider of acute-care hospital services in northern Nevada, acquired a medical practice with 15 Reno-area cardiologists. A few months later, Renown decided to acquire another medical practice with 16 Reno-area cardiologists, and that is when the FTC took action.

The contracts between Renown and its cardiologists also included “non-compete” provisions that prevented the physicians from joining competing medical practices. According to the FTC, as a result of Renown’s medical group acquisitions and the non-compete clauses, Renown controlled 88 percent of the cardiologists treating adults in the Reno area.

To settle the FTC charges, Renown agreed to release 10 of its cardiologists from their non-compete clauses so that they could join other cardiology groups.

OSF Healthcare System

OSF is a nonprofit health care system that owns and operates many acute care hospitals in Illinois, including one in Rockford, Ill. In November 2011, the FTC filed a complaint to block OSF’s proposed acquisition of another hospital in Rockford.

The FTC alleged that the transaction would reduce competition in two markets in the Rockford area: (1) general acute-care inpatient services and (2) primary-care physician services. With respect to general acute-care inpatient services, OSF would control 64 percent of the market after the acquisition and have only one other competitor, SwedishAmerican Health System. With respect to the market for primary-care physician services, the FTC claimed that OSF and SwedishAmerican together would control nearly 60 percent of the market after the acquisition.

In April 2012, the FTC dismissed its complaint, after OSF decided to abandon the proposed acquisition.

Conclusion

After OSF announced its decision to abandon the transaction, then-FTC Chairman Jon Leibowitz stated, “As we said in November when we filed our complaint, health care consumers and employers in Rockford would have paid a price had the deal been allowed to proceed. The FTC remains vigilant and will not hesitate to challenge deals in the health care sector that are likely to decrease competition and lead to higher prices or fewer services.”

The question remains, however, as to when is big too big or where is the tipping point that will trigger FTC action? Eighty-six percent, 88 percent and 64 percent appear to be too big, but how about 50 percent, 40 percent or 30 percent?

FTC guidelines indicate that acquiring a market share of under 30 percent may be safe, but acquiring a market share over 30 percent might raise a concern. Moreover, these recent cases indicate that acquiring a market share over 60 percent will likely attract the FTC’s attention.

Barry F. Rosen is the chairman and CEO of the law firm of Gordon Feinblatt LLC, heads the firm’s Health Care Practice Group and can be reached at 410-576-4224 or brosen@gfrlaw.com. Victor A. Kwansa is an associate at Gordon Feinblatt, and he can be reached at 410-576-4029 or vkwansa@gfrlaw.com.