Antitrust and Merging Medical Practices

October 8, 2004

Antitrust Concerns when Merging Medical Practices

When physicians decide to merge their medical practices, this issues of whether or not the new group will or might run afoul of antitrust rules should be addressed. There has been antitrust rulings regarding group practice formation. The following is a summary of all of the recent business review letters that have been issued by the Department of Justice. This information can be found at the following websites located at:

Practice Point: If you are involved in a group practice formation and are concerned about antitrust, go to the detailed discussion of the Allentown Gastroenterology merger ruling discussed located at the websites above. This ruling provides excellent guidance on what the government looks for when practice merge together.

Merger of Pulmonary Associates Ltd. and Albuquerque Pulmonary Consultants P.A.

October 31, 1994

Two pulmonary specialist physician groups in Albuquerque, New Mexico, each employing five doctors, four full time and one part time, proposed to merge. The combined firm, with 8 full time and 2 part time doctors, would be competing against at least 100 other physicians offering similar services in the area.

APPROVED: Because board-certified pulmonologists are not the exclusive providers of the services they provide, but face competition in these services from general surgeons, cardiac surgeons, thoracic surgeons and internists as well as family physicians; because HMOs and other third-party payers in the area currently employ, contract with or reimburse many non-pulmonologists for the same type of services provided by pulmonologists; and because staff privileges at area hospitals are extended to many non-pulmonologists to perform these services, it appears that the new firm would not be able to exercise market power.

Anne Arundel Medical Center Anesthesiologists

October 17, 1996

The sixteen independent practitioner anesthesiologists that currently provide anesthesia services at Anne Arundel Medical Center in Annapolis, Maryland proposed to merge into a single, integrated group to contract with the Medical Center and third party payers. The Medical Center and payers indicated a preference for a single anesthesia group for a variety of reasons including ease of negotiating contracts, scheduling doctors’ time, identifying and budgeting for costs, and establishing and monitoring consistent quality control standards. The proposal would enable the Medical Center to contract with the integrated group about pricing terms in order to offer payers global fee arrangements.

APPROVED: Under any plausible geographic market definition and assumption about the number of market participants, the merger does not raise substantial competitive concern. This conclusion is bolstered by the lack of concern about possible anticompetitive effects by the Medical Center or any third-party payers who utilize the Medical Center. The merged group should face effective competitive constraints on its ability to exercise market power. In addition, the merger may produce substantial efficiencies to the benefit of consumers.

Orthopaedic Associates of Mobile, P.A., and the Bone Joint Center of Mobile

April 16, 1997

Two groups of orthopedic specialists in the greater Mobile, Alabama, area proposed to merge. The combined entity would be an integrated group practice comprised of 16 of the 50 providers of orthopedic services (32%) in the greater Mobile area.

APPROVED: Such a combination could raise competitive concerns, but no managed care plan or other third-party payer expressed any concern that the proposed merger would likely cause any substantial anticompetitive effects. Rather, payers were confident that if the merged group attempted to raise prices, they would have adequate substitutes to defeat such a strategy. Therefore, it does not appear likely that the proposed merger would lessen competition substantially in the greater Mobile area.

CVT Surgical Center (“CVT”) and Vascular Surgery Associates (“VSA”) of Baton Rouge

April 16, 1997

Group of six cardiovascular-thoracic surgeons proposed to merge with group of four peripheral vascular surgeons. The groups were more complementary than competitive, with only 60 procedures performed in common by the two groups — about 15% of the procedures performed by CVT were peripheral procedures also performed by VSA. The groups contended that their geographic market was at least as large as an area within one and one-half hours’ drive from Baton Rouge, including the cities of Hammond, New Orleans, Houma, Lafayette and Thibodaux. In that area the merged entity would represent significantly less than 20% of the surgeons available to perform the relevant procedures. The merging groups accounted for approximately 50% of the vascular surgeons listed in the Baton Rouge Yellow pages.

APPROVED: While the Department doubted that the geographic market was as large as the parties proposed, the payers in the greater Baton Rouge area (a more probable geographic market) needed very few peripheral vascular surgeons to successfully market their plans to consumers. Competing surgeons from the New Orleans area seemed capable of quickly entering the Baton Rouge market, and had in fact begun to do so. Payers in the area were generally confident that the merged group was not likely to acquire market power. The Department concluded that the proposed merger was not likely to have any significant adverse competitive effects and might result in efficiencies benefitting consumers and payers.

Allentown, Pennsylvania Gastroenterologists

July 7, 1997

Three practice groups each comprised of four gastroenterologists proposed to merge into a single 12-person firm in Allentown, Pennsylvania. The group would then represent 12 of 14 gastroenterologists in Allentown (85.7%) and 12 of 19 gastroenterologists in Allentown and nearby Bethlehem (63%). The group suggested that the geographic market area within which to measure the potential market power of the merged firm would be the Greater Lehigh Valley, including Lehigh and Northampton counties and parts of Bucks, Berks, and Carbon counties, because some of the merging physicians regularly traveled to these areas to provide services at outlying hospitals. Within that area, the group would comprise 36% of all board-certified gastroenterologists.

REJECTED: Managed care payers told the Department that they could not market a product that excluded gastroenterologists, and the Department concluded that the medical specialty of gastroenterology was the appropriate product or service market for analyzing the merger. The Department also found the relevant geographic market to be at most the cities of Allentown and Bethlehem, and possibly only the city of Allentown. Managed care payers told the Department that they could not ask enrollees to travel to distant counties or, in many instances, even from Allentown to Bethlehem, to obtain gastroenterologic services in order to defeat a price increase by the merging firms. Based on its investigation, the Department concluded there was a substantial likelihood that the merging group would cause anticompetitive harm in the market for gastroenterologic services in the Allentown/Bethlehem area. It was not apparent that entry within two years of additional gastroenterologists would occur to defeat a price increase, particularly as it appeared there was already an oversupply of gastroenterologists in the area. The parties demonstrated no merger-specific efficiencies to counteract the potential anticompetitive harm posed by this merger. As a result, the Department could not state that it would not take enforcement action against the merger were it consummated as described.

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