FTC Sues To Halt Merger Of ND Physician Groups

June 19, 2017

The Federal Trade Commission has filed a lawsuit in North Dakota federal court to block the merger of two Bismarck-area health care providers, claiming the deal would violate antitrust laws by reducing competition for an array of services in the area.

The FTC, along with the North Dakota attorney general, is seeking to block Sanford Health’s proposed acquisition of Mid Dakota Clinic on the grounds that the transaction would create a physician group with at least a 75 percent to 85 percent share of the markets for adult primary care physician services, pediatric services and obstetrics and gynecology services in the area. The merged group would also be the only provider of general surgery physician services in the region, the agency said.

“This merger is likely to reduce significantly the competitive options available to medical insurance providers, which in turn will lead to deteriorating terms for provision of medical care, including higher prices and lower quality,” Tad Lipsky, acting director of the FTC’s Bureau of Competition, said in a statement.

The two providers are each other’s main rivals in a four-county region with a population of about 125,000, the FTC said. If the deal is allowed to go through, other health care groups are unlikely to provide adequate competition by entering or expanding into the market, the agency said.

Acting FTC Chairman Maureen Ohlhausen and Commissioner Terrell McSweeny both voted in favor of seeking a preliminary injunction against the merger in federal court so the agency can hold an administrative trial, tentatively scheduled for November. The agency asked the court to file the complaint under seal. In its administrative complaint, the FTC alleged the merger violated sections 5 and 7 of the Clayton Act.

Sanford Health and Mid Dakota said they believed the FTC and North Dakota attorney general to be in the wrong as they had consulted several experts to evaluate the transaction.

“We intend to vehemently defend our efforts to enhance medical care in central and western North Dakota,” Craig Lambrecht of Sanford Health said in a statement. The lawsuit came hot on the heels of news of the merger agreement. Sanford Health and Mid Dakota announced they had signed a deal.

Sanford Health, headquartered in Sioux Falls, South Dakota, operates more than 40 hospitals and 250 clinics in nine states, according to the FTC. In the Bismarck area, it operates a 217-bed hospital and employs 160 physicians and 100 other health care providers, the agency said.

Mid Dakota, meanwhile, operates six clinics in Bismarck, as well as a couple of other facilities, and employs 61 physicians and 19 advanced practice practitioners in the region, the FTC said.

The agency is riding a wave of success in challenging mergers in the health care arena. Last year, the FTC won vindication in two separate cases in which circuit courts overturned adverse rulings in hospital merger cases.

In October of last year, the Seventh Circuit overruled a district court order that would have allowed Chicago-area Advocate Health Care and NorthShore University HealthSystem to merge over the FTC’s objections. In September, the Third Circuit similarly reversed a decision in favor of a proposed merger between Harrisburg, Pennsylvania-area facilities Penn State Hershey Medical Center and PinnacleHealth System.

In both cases, the district courts concluded the FTC improperly had defined the geographic market, which was fatal to the agency’s requests for merger injunctions. The Third and Seventh circuits, however, completely rejected the lower courts’ analyses, saying they relied on outdated economic theory.

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