Physician Mergers, Acquisitions, and Joint Ventures

• Pages: 171-224

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CHAPTER VI

PHYSICIAN MERGERS, ACQUISITIONS, AND

JOINT VENTURES

A. Introduction

Changes in the regulatory landscape have led to increasing

consolidation among physician groups, as well as acquisitions of

physician practices by hospitals. The passage of the Affordable Care Act

and the costs of compliance along with pressure on reimbursement rates

is only one example of regulation leading to consolidation. Although

consolidation has the potential to improve quality of care, reduce costs

and achieve other efficiencies,1 at the same time it presents the potential

for anticompetitive effects. This Chapter focuses on physician mergers,

acquisitions, and formation of partially integrated networks and the

antitrust risks that may arise under each of these scenarios.

B. Overview of Applicable Antitrust Analysis

The federal antitrust laws apply to acquisitions and mergers of

physician practices just as they do to acquisitions and mergers of other

types of businesses. The principal federal statutes that apply to

acquisitions and mergers are Section 7 of the Clayton Act2 and Section 1

of the Sherman Act.3 There are other federal antitrust laws4 that may

apply to certain physician acquisitions or mergers, although with

considerably less frequency than Section 7 or Section 1. Similarly, there

are state antitrust laws that often apply to physician acquisitions or

1. See generally U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N,

STATEMENTS OF ANTITRUST ENFORCEMENT POLICY IN HEALTH CARE

(1996) [hereinafter 1996 HEALTH CARE STATEMENTS], available at

http://www.justice.gov/sites/default/files/atr/legacy/2 007/08/14/0000.pdf;

U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, HORIZONTAL MERGER

GUIDELINES (2010) [hereinafter MERGER GUIDE LINES], available at

www.ftc.gov/os/2010/08/100819hmg.pdf.

2. 15 U.S.C. § 18.

3. 15 U.S.C. § 1.

4. See, e.g., Sherman Act, 15 U.S.C. § 2; FTC Act, 15 U.S.C. § 45.

172 Health Care Mergers and Acquisitions Handbook

mergers, but the applicable state antitrust laws typically track and have

the same substantive analysis as federal antitrust laws.5

1.

Relevant Markets for Physician Practice Mergers

In mergers or acquisitions of physician practices, the relevant

product and geographic markets can be difficult to delineate with

certainty. Under the Merger Guidelines,6 a relevant market is defined

as a product or service (or group of products and services) and

corresponding geographic area within which a hypothetical monopolist

could successfully impose a small but significant and non-transitory

price increase. Under the Merger Guidelines, market definition focuses

solely on demand substitution: customers’ ability and willingness to

substitute away from one product to another.7 The Merger Guidelines

consider supply substitution – the responsive actions of suppliers to

changes such as a price increase – but do so when analyzing market

participants, market shares, competitive effects and entry, not when

defining the market.8 As discussed below, in most physician mergers

relevant product market, and then turns to identification of the relevant

geographic market or markets.

a. Relevant Product Markets

Analyzing the relevant product market for a physician practice

merger or acquisition typically begins by determining the types of

services offered by the physicians involved. Physician services markets

are often defined as either “primary care,” referring to relatively non-

complex services typically provided by family or general practitioners, or

as the distinct services of recognized specialties, such as cardiology.9 The

5. For a description of the antitrust laws in all U.S. states, see AB A SECTION

OF ANTITRUST LAW, STATE ANTITRUST PRACTICE AND STATUTES (4th ed.

2009).

6. See MERGER GUIDELINES, supra note 1, § 1.0.

7. Id. § 4.

8. Id.

9. See, e.g., CentraCare Health, 2016 WL 5930294, at *3 (FTC 2016) (FTC

complaint defining distinct product markets for adult primary care,

pediatric primary care, and OB/GYN services); Keystone Orthopaedic

Specialists, LLC, 2015 WL 6384952, at *3 (FTC 2015) (FTC complaint

limiting the product market to “the provision of orthopedic physician

services,” which includes “physicians who specialize as o rthopedists to

Physician Mergers, Acquisitions, and Joint Ventures 173

“primary care” category is relatively broad, including physicians who

provide routine medical services and are considered by patients to be

their “regular doctors.” Thus, the “primary care” category may include

family practitioners, general practitioners, and internists as well as

obstetrician/gynecologists and pediatricians. Under certain

circumstances, the relevant product market may be defined to include or

exclude a subset of primary care services, such as the services of

pediatricians.10 In CentraCare Health, however, the FTC defined distinct

product markets for adult primary care, pediatric primary care, and

OB/GYN physician services.11

Although surgeons in different specialties may provide some of the

same services, this does not mean that the services of the physicians are

reasonably substitutable. General surgeons, for example, may perform

some of the same types of surgery as orthopedic surgeons, but their

services on the whole are likely not viewed as interchangeable by health

treat injuries and diseases of the musculoskeletal system”); Morgenstern

v. Wilson, 29 F.3d 1291, 1296 (8th Cir. 1994) (limiting product market to

heart surgery service s); Antitrust Divisio n Business Review Letter from

Anne K. Bingaman, Assistant Att’y Gen., U.S. Dep’t o f Justice, to James

Matthews of Lindquis t & Vennum on behalf o f Itasca Clinic and Gra nd

Rapids Medical Associates (Mar. 19, 1996) [hereinafter Itasca Clinic

Business Review Letter], available at

http://www.justice.gov/atr/public/busreview/0626 .htm (finding two

different relevant product markets existed for, respectively, primary care

services and general surgical services); see also 1996 HEALTH CARE

STATEMENTS, supra note 1, Statement 8 at 74. See Chapter II for a more

complete discussion of defining relevant product markets.

10. See St. Alphonsus Med. Ctr. - Na mpa v. St. Luke’s Heal th Sys., 2014

U.S. Dist. LEXIS 182869, *17-18 (D. Idaho 2014) (findings of fact and

conclusions of law) (product market limited to adult primary care

services, defined as physicians practicing internal medicine, family

practice, and general practice); aff’d St. Alphonsus Med. Ctr.-Nampa v.

St. Luke’s Health Sys., 778 F.3d 775 (9th Cir. 2015); Antitrust Division

Business Review Lett er from Anne K. Bingama n, Assistant Att’y Gen. ,

U.S. Dep’t of Justice, to Steven J. Kern & Robert J. Conroy of Kern

Augustine Conroy & Schoppman, P.C. on behalf of Children’s

Healthcare, P.A. (Mar. 1, 1996) [hereinafter Children’s Healthcare

Business Review Le tter], available at http://www.justice.gov/atr/

public/busreview/0555.htm (finding product market was limited to

pediatricians, excluding other types of primary care physicians even

though they may treat some childre n).

11. 2016 WL 5930294, at *3.