Antitrust Competition

Antitrust Alert: Eighth Circuit Upholds Injunction Against Physician Group Acquisition

In a decision that extends the FTC's winning streak in the courts of appeals in healthcare provider merger cases, the Eighth Circuit affirmed the Federal Trade Commission's ("FTC") bid to enjoin Sanford Health's acquisition of Mid Dakota Clinic ("MDC"). This decision follows almost three years of investigation and litigation.

Sanford is a vertically integrated healthcare system operating in eight states, including North Dakota. In the Bismarck-Mandan area, Sanford operates an acute-care hospital and employs approximately 160 physicians. MDC is a 61-physician multispecialty group also in the Bismarck-Mandan area. The transaction, announced in September 2016, attracted the attention of the FTC and North Dakota Attorney General, who sued to enjoin it in June 2017.

The government argued that the transaction would result in shares of 85–100% in four physician service markets (OB-GYN, general surgery, adult primary care, and pediatrics) and would result in anticompetitive price increases. The district court agreed and issued an injunction.

On appeal, the companies argued that the district court improperly shifted the burden of persuasion to them, requiring them to show the acquisition would not harm competition. Unpersuaded, the Eighth Circuit affirmed, holding that the government presented "strong evidence of monopolization or near-monopolization" that the defendants failed to rebut.

Key Lessons

  1. Healthcare providers face high hurdles in defending transactions where combined market shares are high, whether the transaction implicates hospital systems or physicians.
  2. The court credited evidence that the parties' combined market power would force Blue Cross to choose between raising prices or leaving the area, despite the argument that the insurer could resist price increases as a powerful buyer of healthcare services. The so-called "power buyer defense" is not likely to be successful absent evidence that the powerful buyer can sponsor entry or obtain lower prices from alternative suppliers.
  3. Efficiencies, on their own, are not likely to win the day. The court found most of the efficiencies, including new clinical trials and subspecialist recruitment, could occur without the merger.
  4. Finding revenue growth and above-average physician compensation, the court rejected arguments that MDC would struggle financially in the future. These facts contrast with the FTC's decision to permit CentraCare's acquisition of St. Cloud Medical Group because of its poor financial condition, in which the parties demonstrated that St. Cloud lost its line of credit and several physicians departed.
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