Two Pennsylvania Orthopedic Practices Settle FTC Charges That Merger Harmed Competition and Inflated Prices

February 3, 2018

An orthopedic practice in Berks County, Pennsylvania, created through a combination of six independent orthopedic practices in 2011, has agreed to settle FTC charges that the merger was anticompetitive and violated U.S. antitrust law.

In its complaint against Keystone Orthopaedic Specialists, LLC, the FTC alleged that the merger combined 19 of the 25 orthopedists in Berks County into a single practice, giving Keystone a 76 percent share of the market for orthopedic physician services and substantially reducing competition for such services in Berks County.

The complaint alleges that in the competitive market that existed before the merger, health plans operating in Berks County could choose among the different independent practices and could form a network with some, but not all of them. However, the merger eliminated this competition and enabled Keystone to negotiate prices with health plans on behalf of all its formerly independent member practices, the FTC alleged. According to the agency, Keystone used its newly acquired market power to raise prices with most health plans operating in Berks County.

There are no merger-specific efficiencies that offset the anticompetitive harm the merger has produced, according to the complaint. Entry or expansion also is unlikely to counter the anticompetitive effects of the merger, according to the complaint. In addition, recruiting new orthopedists to enter the market is difficult, expensive, and time intensive.

The complaint also names Orthopaedic Associates, one of the six practices that merged into Keystone in 2011. The practice and six of its associates split off from Keystone in 2014, and has become a major player in the market, with eight orthopedists. Although market conditions have changed since Orthopaedic Associates separated from Keystone, a recombination of the two groups could raise serious antitrust concerns. Therefore, the proposed settlement is designed to maintain competition in the relevant market by, among other things, preserving Orthopaedic Associates’ separation, and allowing health plans to avail themselves of current market conditions by renegotiating existing Keystone contracts.

Under the terms of the settlement, Keystone and Orthopaedic Associates are required to obtain prior approval from the Commission before acquiring any interests in each other, before acquiring another orthopedic practice in Berks County, and before hiring or offering membership to an orthopedist who has provided services in Berks County in the past year.

Keystone and Orthopaedic Associates also are prohibited from anticompetitive, illegal activity such as coordinating their prices with other orthopedists in the market and jointly negotiating with or refusing to deal with payors. They also must terminate, without penalty, any existing contracts with payors for the provision of orthopedic physician services at the payors’ request.

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