U.S. Federal Trade Commission Renews Focus on Health Care Antitrust Enforcement
July 2002
The U.S. Federal Trade Commission (FTC) has a renewed interest in, and has reinvigorated its enforcement efforts with respect to, the health care industry. This renewed interest may have been sparked by the appointment of Timothy J. Muris as the chairman of the FTC in June 2001. Chairman Muris has identified the health care industry as a priority for antitrust enforcers in several public statements since last June. But his interest in health care is not new: Commissioner Muris, who has served in various capacities at the FTC, was the director of the Bureau of Competition from 1983 to 1985, during which time the FTC pursued and won several hospital and physician conduct cases. There are several developments that suggest health care providers are under increased FTC scrutiny, which include the following:
- The FTC has created a new Mergers Office that will investigate pending and consummated mergers and acquisitions, including mergers and acquisitions of health care providers. (Numerous hospitals, including those mergers that were cleared without challenge and those that previously defended successfully against merger lawsuits filed by the FTC, have received written requests for information.) As a result of this internal FTC reorganization, the Health Care Office at the FTC will focus its resources exclusively on physician and hospital conduct cases.
There has also been a dramatic increase in enforcement with respect to health care mergers and acquisitions. In the past two months, the FTC has begun investigations into at least two previously consummated health care mergers.
- The FTC is presently investigating Pediatrix Medical Group’s May 2001 acquisition of Magella Health Care Corp. On June 6, 2002, Pediatrix Medical Group, based in Fort Lauderdale, received written requests for information (i.e., a subpoena) from the FTC in connection with its investigation of Pediatrix’s acquisition of Dallas-based Magella Health Care Corp. The $173.6 million deal united the two largest physician staffing services of neonatologists and perinatologists and resulted in consolidations in three markets (Dallas, Austin and Las Vegas). The parties reportedly filed a pre-merger notification under the Hart-Scott-Rodino (HSR) Act.
- In addition, the FTC is investigating Genzyme Corp.’s September 2001 acquisition of Novazyme Pharmaceuticals, Inc. On May 15, 2002, Genzyme Corp. announced that the FTC is reviewing its acquisition of Novazyme Pharmaceuticals, Inc. Novazyme uses unique engineering technologies to enhance the uptake of replacement enzymes. Genzyme develops products for the treatment of lysosomal storage disorders, genetic diseases caused by the absence of certain cellular enzymes. At the time of the acquisition, both companies were developing enzyme replacement therapies for Pompe disease. The acquisition reportedly was not subject to the HSR pre-merger notification requirement.
There has been a significant increase in enforcement with respect to physician and hospital contracting and other conduct. Whereas the FTC brought only one antitrust case against physicians in 2001 in Alaska Health care Network, Inc., C-4007, (consent order issued April 25, 2001) (FTC Commission Actions: April 27, 2001), this year it has already settled three cases involving physicians.
- On May 17, 2002, the FTC announced a settlement agreement in an action involving Obstetrics and Gynecology Medical Corporation of Napa Valley (OGMC). According to the FTC complaint, the physician members of OGMC agreed to bargain collectively and to refuse to deal individually with any health plan. They also allegedly agreed to boycott a local risk-sharing independent practice association (IPA) if it did not give in to their price demands. The IPA subsequently went out of business and several health plans discontinued providing coverage in the area. On May 13, 2002, the FTC announced a settlement agreement with Physician Integrated Services of Denver (PISD). According to the FTC complaint, PISD represented many of the general practitioners in the southern part of the Denver metropolitan area and purported to use a "traditional messenger model" to deal with payors. The FTC alleged, however, that PISD offered payors the choice of contracting at inflated rates or not contracting with the members of the group at all. The members of the group also allegedly refused to contract individually with payors. The FTC claimed that most payors capitulated to the group’s price demands.
- On May 13, 2002, the FTC also announced a settlement agreement with Aurora Associated Primary Care Physicians. This organization represented 45 general practitioners in the Denver suburb of Aurora. The facts alleged and the settlement reached were virtually identical to those in the matter of Physician Integrated Health. In addition to the aforementioned investigations, we are aware of several nonpublic investigations involving previously consummated health care mergers as well as physician contracting activities.
