Providers are increasingly pursuing physician practice acquisitions to expand their competitive footprints and enhance patient access. With any merger or acquisition strategy, providers must be mindful of federal antitrust and competition laws that aim to keep the quality of care high, market competition robust, and prices fair. A health system in Idaho was ordered to unwind a 2012 transaction once the Federal Trade Commission (FTC) succeeded in convincing the court that the organization violated federal antitrust laws after acquiring a physician practice.
The Idaho case, the first ever involving a medical group acquisition divestiture, reminds health systems contemplating practice acquisitions to be prepared to respond to questions about the competitive impact of the acquisition. We spoke with Lisa Gingerich at von Briesen & Roper, s.c. to discuss how providers can avoid antitrust pitfalls when acquiring physician practices.
What exactly happened in this physician acquisition case in Idaho, and what implications does this case have on the physician practice acquisition legal landscape?
In 2012, the FTC and the Idaho Attorney General's office began investigating a health system's planned practice acquisition and requested that the transaction not close until they concluded their review. The deal did close and in 2013 it was challenged by government enforcement agencies and other area health care providers.
The challengers claim that the acquisition violated federal antitrust laws because the deal gave the health system a dominant market position resulting in higher health care costs. A January 2014 district court ruling and a February 2015 court of appeals ruling both sided with the FTC and the other challengers, ultimately ordering the health system to unwind the physician practice acquisition.
This particular case is gaining a significant amount of attention because this is the first time the FTC has pursued the divestiture of a physician practice from a health system. Prior to this case in Idaho, the only health provider cases where courts ordered divestiture were related to hospital consolidation and health system merger cases.
This case implies that the FTC will be more mindful of the impact of physician practice acquisitions on market competitiveness moving forward rather than merely focusing on health system and hospital mergers and acquisitions. This case also demonstrates that antitrust enforcement officials will not simply wait and see what happens in a market where there is consolidation. Even where there is progress in achieving the goals of the Affordable Care Act, enforcement officials will take steps to protect and maintain robust competition in the market.
This case is also interesting because of the relatively small size of the acquired physician practice. The system was not acquiring a large physician practice of about 500 physicians, but rather a significantly smaller one comprised of about 40 physicians. In less populated areas and where there is less physician consolidation (the acquired group was the largest in Idaho), the impact of physician practice acquisitions on market competitiveness can be significant even for a relatively small practice.
How can providers avoid legal and regulatory pitfalls when pursuing a physician practice acquisition?
To avoid antitrust challenges post-closing, parties should consider the overall impact of the acquisition on the market and who may be upset by the transaction.
When addressing the possible challenges and identified risks associated with any acquisition, parties may need to modify their deal or pursue unconventional strategies during the due diligence and negotiation process. The primary reason that the Idaho deal was ordered to be unwind is because adult primary care services became too concentrated within the relevant market area after the deal. If the health system had excluded some of the physicians from the acquisition or identified clinic location(s) to exclude prior to the acquisition’s completion, the transaction might have gone unchallenged. Though it may seem unconventional to include some physicians in an acquisition while excluding others, this strategy could ultimately save the deal.
Providers should ask themselves: "Is acquisition the only way to achieve our strategic goals?" There may be alternative mechanisms aside from acquisition that providers can use to achieve their strategic goals and reduce their antitrust risk. Arrangements that focus on practice integration and patient health management may allow parties to accomplish the goals that they intend without full integration.
Furthermore, if a party is claiming that acquisition is the only way to achieve the parties' stated goals, the evidence must support those claims. One of the arguments that this Idaho health system used in its defense was that it had to bring all of the acquired physicians onto the Epic electronic health records system in order to fully achieve all of the system’s clinical integration and patient care strategies. However, prosecutors pointed out that the health system could have licensed Epic to the physician practice and avoided the acquisition altogether. Finally, the district court praised the health system’s efficiencies achieved through coordinated care, risk contracting, population health management and patient outcomes, but concluded that they could have achieved the enhanced results without an acquisition and with less risk of increased cost. Providers must have an upside for every downside that may result from the transaction and be prepared to demonstrate why acquisition was the best option in spite of the risk to competition.
In general, prior to an acquisition's completion, providers must anticipate whatever anticompetitive arguments and challenges may arise and be able to address them. In the Idaho case, the state and federal government enforcement agencies and other providers in the market had objected to the acquisition and asked for the parties to delay closing.
Parties will not always have advance notice that their deal is facing anticompetitive scrutiny, but they should be prepared to respond to challenges nevertheless. Where there is identified anticompetitive risk, engaging in dialogue with the appropriate antitrust enforcement agencies is recommended. Ideally, the parties will obtain the "blessing" of the agencies to proceed. If the challenges continue, the parties must be confident that they can demonstrate that the benefits of the acquisition outweigh any negative impact on market competition.
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