Confirming that hospital merger enforcement continues to be a priority under the new administration, the Federal Trade Commission (FTC) and the North Dakota Attorney General recently challenged Sanford Health’s proposed acquisition of Mid Dakota Clinic. According to the FTC, the acquisition would combine two of the largest providers across several practice areas in North Dakota’s Bismarck and Mandan metropolitan area.

On June 22, 2017, the FTC and North Dakota Attorney General filed a complaint in federal district court seeking a temporary restraining order and preliminary injunction to block Sanford Health from acquiring Mid Dakota Clinic, P.C. (MDC), its closest rival in the Bismarck-Mandan area. Sanford Health’s subsidiary, Sanford Bismarck, operates a 217-bed hospital in Bismarck, 8 primary care service clinics and a number of specialty clinics. Sanford Bismarck employs about 160 physicians, including 36 primary care physicians, 4 pediatricians, 8 obstetricians/gynecologists (OB/GYNs) and 4 general surgeons. MDC is a multispecialty medical practice in Bismarck that employs 61 physicians, including 23 primary care physicians, 6 pediatricians, 8 OB/GYNs and 6 general surgeons. MDC operates 6 clinics, a Center for Women and an ambulatory surgery center in Bismarck.

The transaction is relatively small, falling below the Hart-Scott-Rodino (HSR) notification thresholds. One overlap of concern raised by the FTC is the combination of the two providers’ OB/GYN groups, each of which consists of only 8 providers. Under the antitrust laws, however, the key issue is the impact on the market, not the size of the entities. In this case, the FTC estimates that the combined entity would have at least a 75% to 85% market share in primary care, pediatric and OB/GYN services and would be the only physician group offering general surgery physician services.

According to the complaint, the two parties currently compete for inclusion in commercial payers’ networks. The theory is that, absent both of these groups, it would be very difficult for a commercial payer to market a health plan to employers in the Bismarck-Mandan area. Elimination of the competition between Sanford Health and MDC, in turn, would increase the combined entity’s leverage and enable it to obtain higher reimbursement rates that would be passed on to employers and their employees. Once they were a combined entity, the two providers allegedly also would cease competing to improve their technology, expand their services, recruit high-quality physicians, and provide patients with convenient and accessible care.

In recent arguments before the FTC’s administrative court, the merging parties asserted that the FTC’s price-effect claims were inaccurate and that there can be no argument that stopping the merger would reduce quality. The parties believe that their merger will help the combined firm hire specialists and create synergies and efficiencies in the delivery of care.

Conclusion: Healthcare Antitrust Enforcement Is a Priority

This challenge serves as an important reminder that deals that raise FTC concerns are not limited to those that are HSR-reportable or are between large corporations or health systems. Healthcare entities should not assume that smaller transactions can slip through under the radar. The FTC has demonstrated that it keeps a close watch on seemingly small transactions and will not hesitate to bring challenges if the agency believes they are warranted.

In light of the FTC’s focus on healthcare, its strong track record of succeeding in its healthcare challenges, and the potentially high costs of unwinding even small transactions, all healthcare entities seeking to enter into mergers, affiliations or other collaborations should strongly consider consulting antitrust counsel.