A version of this article was published in The Daily Record on August 22, 2013.
The Federal Trade Commission (FTC) has recently launched antitrust challenges to one hospital system's acquisition of 16 cardiologists and another hospital system's acquisition of a neighboring hospital. In both 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.
A. 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% 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.
B. OSF Healthcare System
OSF is a nonprofit health care system that owns and operates many acute care hospitals in Illinois, including one in Rockford, Illinois. 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 of 2012, the FTC dismissed its complaint, after OSF decided to abandon the proposed acquisition.
After OSF announced its decision to abandon the transaction, 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-eight percent and 64% appear to be too big, but how about 50%, 40% or 30%? FTC guidelines indicate that acquiring a market share of under 30% may be safe, but acquiring a market share over 30% might raise a concern. Moreover, these recent cases indicate that acquiring a market share over 60% will likely attract the FTC's attention.