On June 22, 2017 the Federal Trade Commission (FTC) filed an administrative complaint and a request for a preliminary injunction in federal court to block a proposed physician practice acquisition in North Dakota (the Transaction), the agency’s latest intervention in opposition to consolidation at the physician practice level. In this case, the FTC (accompanied by the Attorney General of North Dakota) opposes a proposed acquisition of Mid Dakota Clinic, P.C. (MDC) by Sanford Bismarck (a subsidiary of multi-state health system Sanford Health, collectively Sanford) on the grounds that the Transaction, if consummated, would represent an unfair method of competition in violation of Section 5 of the FTC Act (15 U.S.C. § 45) and may substantially lessen competition in violation of Section 7 of the Clayton Act (15 U.S.C. § 18).

Sanford is a not-for-profit vertically integrated health care delivery system that includes a 217-bed general acute care hospital and outpatient clinics, and which employs approximately 160 physicians and 100 advanced practice providers (APPs) in and around the cities of Bismarck and Mandan, North Dakota. MDC is a for-profit physician-owned multispecialty medical practice based in Bismarck that employs 61 physicians and 19 APPs providing primary care and specialty services. According to the FTC, MDC and Sanford are one another’s closest competitors in the Bismarck-Mandan area.

The FTC complaint alleges that the Transaction threatens substantial harm to competition and consumers in the following four relevant markets for services sold and provided to commercial payers and their insured members in and around the four-county Bismarck, ND area (that includes the cities of Bismarck and Mandan), as Sanford and MDC are already the area’s two largest providers of such services:

  1. Adult primary care physician services – with a post-Transaction market share of 77%;
  2. Pediatric services – with a post-Transaction market share of 83%;
  3. OB-GYN services – with a post-Transaction market share of 88%; and
  4. General surgery physician services (i.e., physicians who are board-certified exclusively in general surgery) – with a post-Transaction market share of 100%.

In addition to the post-Transaction market share calculations, the FTC also determined that the Transaction would be presumptively unlawful according to the Herfindahl-Hirschman Index metric for measuring market concentration. The FTC further alleges that the Transaction would increase the combined entities’ bargaining leverage with commercial payers and enable them to secure more favorable reimbursement terms that, in turn, are likely to result in higher care costs being passed from commercial payers to insureds in the form of higher premiums and increased copayments. Finally, the FTC complaint addresses and seeks to reject the claimed efficiencies in support of the Transaction, stating that the efficiencies “do not outweigh the Transaction’s likely harm to competition” and are not merger-specific or capable of being substantiated.

This FTC enforcement action against a physician practice acquisition follows the FTC’s successful challenge to a multispecialty group acquisition in Idaho in the St. Luke’s-Saltzer case (see here and here for previous analysis of that case), and the FTC’s 2016 settlement to mitigate likely anticompetitive effects arising from a physician practice merger in St. Cloud, Minnesota.