Consolidation continues to be the watchword in the health care industry. Falling reimbursement, economies of scale, coordination of care and industry uncertainty drove provider consolidation in 2011 and will continue to drive provider consolidation in 2012. As hospitals and physicians look to position themselves strategically for a post-health care reform world, the pace of consolidation, and specifically physician practice acquisitions, will continue to quicken. But beware, antitrust enforcers at the FTC and DOJ and state attorneys general have taken note of this trend and are on the lookout for vertical acquisitions that could lead to market power and increased prices.
2011 Case Studies
- On February 18, 2011, Providence Health & Services abandoned its proposed acquisition of Spokane Cardiology and Heart Clinics Northwest in Spokane, Washington. The acquisition drew the attention of both the FTC and the Washington Attorney General. After investigating, the FTC was concerned the acquisition could have anticompetitive effects leading to increased health care costs. Rather than incur the expense and time to fight a possible enforcement action, the health care providers abandoned the transaction.
- On March 22, 2011, the Maine Attorney General filed a consent decree addressing the acquisition of the only two cardiology practices in Portland by MaineHealth and Maine Medical Center. The Maine AG concluded that, absent proper restrictions, the acquisition could result in higher prices for cardiology services. Under the consent decree, which was approved by the Superior Court on January 3, 2012, MaineHealth and the physician groups agreed to the following conditions for a period of five years: (1) MaineHealth will accept the same default rates from commercial payors for cardiology services as other cardiologists in Maine; (2) the annual increase for rates will not be more than the weighted average increase in charges for all Medical Center services; (3) MaineHealth will continue to offer bundled payments for cardiology services with limits on the annual rate increase; (4) MaineHealth will not seek hospital rates for outpatient cardiology services rendered at the physician groups’ practice sites; (5) the cardiologists will not be subject to any covenant not to compete and will be subject to certain compensation limitations; (6) the cardiology practices will meet certain quality benchmarks by the end of the third year; (7) the cardiology practices will allow access to cardiology services regardless of a patient’s ability to pay; and (8) MaineHealth will allow its cardiologists to participate in physician networks and will not discriminate or exclude non-employed cardiologists from its facilities.
- On September 1, 2011, the Pennsylvania Attorney General entered into a consent decree with Urology of Central Pennsylvania (“UCPA”) in Harrisburg, Pennsylvania. The consent decree resolved the Attorney General’s challenge to a merger of five urology practices that had closed almost six years earlier. The Pennsylvania AG claimed that UCPA held 84% of the market for urology services and had the unimpeded ability to raise prices. Under the consent decree, UCPA must: (1) resolve contract disputes with health plans utilizing last best offer arbitration; (2) not refuse treatment of patients based on the affiliation of the patient’s primary care physician, specialty physician, health plan or the patient’s utilization of non-UCPA physicians; (3) not require its physicians to refer to other UCPA physicians or facilities; (4) not enter into any exclusive contracts with a health plan; (5) not enter into an MFN with a health plan that has 15% or more of UCPA’s volume; (6) not require health plans or patients to purchase radiation oncology or CT imaging services from it; and (7) provide its patients with a list of other area radiation oncology or CT service providers.
- On November 18, 2011, the FTC challenged the proposed acquisition of Rockford Memorial Hospital by OSF Healthcare System in Rockford, Illinois. The FTC stated the merger would create a dominant health system controlling 63.9% of the general acute care inpatient hospital services market. But the FTC did not stop there. It also claimed the acquisition would cause competitive harm in the market for primary care physician (“PCP”) services. The combined entity would control 37.4% of the market for PCP services, and the only remaining health system, SwedishAmerican, would control 20.4%. Surprisingly, the FTC gave no weight to independent PCPs controlling a combined 34.9% of the market. The FTC’s complaint is troubling for several reasons. First, to challenge a post-merger market share of only 37.4% gives one pause when the market includes a competing group of hospital-employed PCPs (20.4%) and a large contingent of independent PCPs (34.9%). Second, the FTC did not need to challenge the competitive effects of the merger in the PCP market because the case is very strong in the acute care hospital services market. And third, the FTC seems to suggest that independent physicians are inferior competitive alternatives to hospital-employed physicians without alleging any facts supporting a conclusion that health plans could not effectively sell a network with nearly 35% of the physicians in the market.
Practical Takeaways
Consolidation, especially physician practice acquisitions, will continue in 2012. Be aware that both federal and state antitrust enforcers are interested and active in looking at all potentially anticompetitive physician acquisitions. The following are simple points to keep in mind:
- Be aware of physician practice acquisitions creating large market shares, and plan for antitrust scrutiny.
- Know that consummated acquisitions are fair game if anticompetitive conduct arises post-acquisition.
- Be wary of post-acquisition price increases that are not tied to increased quality.
- Know that antitrust enforcers might not consider independent physicians as viable substitutes for hospital-employed physicians, and compile evidence to the contrary.
- Even non-reportable acquisitions are on the radar screens of antitrust enforcers.
If you have any questions or would like additional information about this topic, please contact Clifton E. Johnson at 317.977.1430 or cjohnson@hallrender.com, Michael R. Greer at 317.977.1493 or mgreer@hallrender.com or your regular Hall Render attorney.
