On June 13, 2019, the U.S. Court of Appeals for the Eighth Circuit affirmed a preliminary injunction granted to the Federal Trade Commission (FTC) and North Dakota Attorney General (NDAG) blocking the proposed acquisition of Mid-Dakota Clinic, P.C. (MDC) – a multispecialty physician group in North Dakota – by Sanford Health, a large South Dakota-based health system (Sanford). This decision may foreclose continued pursuit of MDC by Sanford, and represents another success for the FTC in challenging health care consolidation (see our previous analysis of the granting of the injunction here, and of the FTC’s intervention here).
Sanford and MDC entered into a series of agreements in 2016 and 2017, under which a subsidiary of Sanford would acquire MDC after the group put itself up for sale. MDC is a multispecialty physician practice located in and around Bismarck and Mandan, North Dakota, and Sanford operates an acute care hospital and multiple clinics in the Bismarck-Mandan area. Of relevance to this case, MDC employs approximately 23 adult primary care physicians (PCPs), six pediatricians, eight OB/GYNs, and five general surgeons, whereas Sanford employs approximately 37 adult PCPs, five pediatricians, eight OB/GYNs, and four general surgeons in the same region.
According to the Eighth Circuit opinion, MDC is one of two “main competitors” to Sanford in the Bismarck-Mandan region, and the acquisition would give Sanford the following market shares therein: 99.8 percent of general surgeon services, 98.6 percent of pediatric services, 85.7 percent of adult primary care physician services, and 84.6 percent of OB/GYN physician services.
At issue on appeal was a district court decision granting a preliminary junction on the basis that the FTC and NDAG were likely to prevail on claims that the deal would substantially lessen competition in the market for certain physician services in the Bismarck-Mandan region. In response, Sanford argued against the “ordinary presumption that increased market concentration will lead to increased prices,” claiming that the district court “failed to account for” the dominant position in the market of the state’s largest commercial health plan. Sanford maintained that the dominance of that health plan – 61 percent of the state market in 2016 – allegedly precludes North Dakota providers from raising prices (a “dominant buyer” defense to the deal). Sanford further claimed that the district court failed to properly analyze the “quality efficiencies” to be garnered by the deal, including integration of genetic medicine into primary care, embedding of behavioral health clinicians, cancer care trials and outreach, an integrated electronic health record, and recruitment of subspecialists, among other claims. The Eighth Circuit rejected this “efficiencies defense” as well, upholding the district court’s refusal to recognize that defense as “adequately supported by the record.” The Eighth Circuit also confirmed denial of a “weakened competitor” defense offered by Sanford (proffered on the basis that MDC had put itself up for sale), citing evidence that “the motivation to sell was high share value, not concern about [MDC’s] long-term viability.”
The Eighth Circuit thus affirmed the preliminary injunction against Sanford and MDC’s consummation of the deal. The decision represents a re-affirmation of Circuit-level opposition to the “efficiencies” defense to health care consolidation, and is another victory for the FTC in Clayton Act litigation challenging health care mergers.
This post was co-authored by Michael Lisitano, legal intern at Robinson+Cole. Michael is not yet admitted to practice law.