On August 6, 2012, the Federal Trade Commission (FTC) agreed by a vote of 5-0 to enter into proposed settlements with Renown Health regarding that group’s recent acquisitions of two cardiology groups in Reno, Nevada. The proposed consent decrees are available at: http://www.ftc.gov/os/caselist/1110101/index.shtm
Renown Health is a healthcare company that operates general acute care hospitals and commercial health plans that serve the Reno area. In late 2010, Renown Health acquired Sierra Nevada Cardiology Associates (SNCA), one of two large cardiology groups in the Reno area. Less than a year later, Renown Health acquired Reno Heart Physicians (RHP), which according to the FTC, was the only other significant cardiology group in the area. Prior to these transactions, Renown Health did not employ any cardiologists.
Renown Health also entered into employment agreements with SNCA and RHP cardiologists that contained non-compete provisions. These provisions prohibited the employed cardiologists from joining medical practices that competed with Renown Health.
According to the FTC’s complaint, Renown Health’s high market share in cardiology services in Reno, Nevada (approximately 88%), coupled with the non-compete provisions in the employment agreements, had anticompetitive effects on price, quality, and other terms of competition. Renown Health’s acquisitions have also increased its bargaining power, which may lead to higher prices. Finally, the FTC’s complaint alleges that entry into the market at a scale large enough constitute a competitive alternative for health plans is unlikely to be timely or sufficient to deter the likely anticompetitive effects.
To settle the FTC’s charges, Renown Health entered into consent decrees with the FTC. Interestingly, the consent decrees do not require Renown Health to unwind either transaction, but attempt to resolve the FTC’s concerns regarding the combination of high concentration and restrictive noncompetition provisions. Accordingly, each consent decree contains an Order to Suspend, which is effective immediately, and a proposed Decision and Order, which the FTC may issue after a 30 day public comment period that ends on September 5, 2012.
- Under the Order to Suspend, the non-compete provisions in the SNCA and RHP agreements are suspended for at least 30 days while the FTC considers any public comments it receives. During this time, former SNCA and RHP cardiologists may leave Renown Health, and must notify a special monitor appointed by the FTC to ensure they are included in a group of up to 10 cardiologists that will be allowed to join competing groups.
- After the public comment period expires, and in the event that the FTC finalizes the proposed Decision and Order, another 30-day release period commences. During this period, other cardiologists may also leave Renown Health, provided that certain conditions are met. For example, departing cardiologists must agree to continue to practice in the Reno area for at least one year. In addition, during the 30 day release period, Renown Health can request that the FTC end the release order if 10 Renown Health cardiologists have left for competing practices. If fewer than six cardiologists have decided to leave Renown Health after the end of this release period, Renown Health will continue to suspend the non-compete provisions until at least six cardiologists have accepted offers with competing practices in the Reno area.
According to the FTC’s press release, the State of Nevada, through its Attorney General, worked with FTC staff to investigate and resolve this matter. The Attorney General has filed a complaint similar to the FTC’s and has entered into an agreement with Renown Health similar to the FTC’s proposed settlement.
The FTC’s settlement with Renown Health is noteworthy, because the FTC typically prefers structural remedies, (i.e., the sale of certain assets or unwinding of a transaction). In addition, the fact that the FTC so closely examined two relatively small transactions reaffirms that provider combinations in concentrated markets will continue to receive significant FTC scrutiny.