Physician mergers: Antitrust trends and considerations

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Antitrust scrutiny of physician combinations likely will remain a key area of focus for enforcement as consolidation of physician practices continues through acquisitions by health systems, payers, and private equity (PE) firms. The Federal Trade Commission (FTC) devotes a substantial share of its resources to health care antitrust enforcement, with 21% of enforcement actions in the general health care sector (not including pharmaceuticals and medical devices) in recent years. In 2021, the FTC launched a multiyear study of the effects of physician group and health care facility consolidation that occurred from 2015 through 2020, ordering six health insurance companies to provide claims data for 15 states to allow the FTC to evaluate the horizontal and vertical effects of physician mergers. The FTC expects the outcome to improve its ability to forecast the impact of physician and health care facility mergers on competition.

In September 2023, the FTC commenced litigation against U.S. Anesthesia Partners Inc. (USAP) and its PE sponsor, Welsh, Carson, Anderson & Stowe. The FTC that the two engaged in a decade-long anticompetitive scheme to consolidate anesthesiology practices in Texas. This action continues the trend of the FTC’s commitment to using every available tool to combat consolidation in health care. In February 2024, USAP settled with the Colorado Office of the Attorney General (AG), which had brought an antitrust enforcement action based on conduct that included serial acquisitions of physician practices, entering into exclusive contracts with hospitals and imposing noncompete/nonsolicitation agreements on employed physicians. In March 2024, the FTC hosted a workshop examining the role of PE in health care markets, as well as launched an interagency inquiry with the Antitrust Division of the Department of Justice (DOJ) and Department of Health and Human Services into PE firms’ and other corporations’ control over health care.

Physician practices looking to engage in merger and acquisition activity should be cognizant of the antitrust risks associated with various enforcers’ (including the FTC, DOJ, state AGs, and private plaintiffs) pursuit of novel and nontraditional theories of competitive harm.

FTC enforcement actions

Since 2011, the FTC has pursued enforcement actions or threatened action against a handful of physician combinations. Prior to the United/DaVita matter in 2019, these matters were based on a traditional theory of harm: the loss of horizontal competition between competing physician groups. Horizontal competition in these matters involved individual physician specialties in the same localized geographic area. These matters include as follows:

Providence Health & Services/Spokane Cardiology (2011):A proposed combination of cardiology groups in the Spokane, Washington, area was abandoned after the FTC and state attorney general expressed competition concerns.

Renown Health (2012): After Renown Health acquired two major cardiology groups in the Reno, Nevada, area, it settled with the FTC to allow the acquired cardiologists to seek other employment to restore competition.

St. Luke’s Health System/Saltzer Medical Group (2013): After the FTC and the Idaho attorney general’s office challenged the combination of two primary care physician (PCP) practices in the Nampa, Idaho, area, and prevailed in both district court and the Ninth Circuit, the court ordered divestiture of one of the practices.

Keystone Orthopaedic Specialists (2015): After the merger of six independent orthopedic practices in the Berks County, Pennsylvania, area, Keystone and Orthopaedic Associates of Reading settled with the FTC by agreeing to keep the two practices separate.

CentraCare Health (2017): CentraCare settled with the FTC to allow for a number of physicians to leave the health system in order to resolve the FTC’s allegations that the proposed merger would eliminate competition for adult PCP, pediatric, and obstetrician-gynecologist services.

Sanford Health (2017): The FTC and North Dakota’s attorney general office challenged the proposed acquisition of a large multispecialty clinic and alleged the merger would eliminate competition for adult PCPs, pediatric, obstetrician-gynecologist and general surgery services. After the FTC and North Dakota attorney general’s office prevailed in both district court and the Eighth Circuit, the parties abandoned the suit.

Potential harm from vertical mergers

These matters involved various combinations of physician groups with other health care providers. In addition to employing their own physicians, St. Luke’s and Centra
Care were also health systems that owned hospitals and other outpatient facilities. Moreover, the providers in Providence Health, Renown Health and Sanford Health were health systems that owned both hospitals and an insurance plan. Although not asserted in the FTC’s complaints at the time, these other lines of business could have been the basis for the FTC to also allege a vertical theory of harm in these cases.

Vertical mergers involve a combination of products or services at different levels of a supply chain. A typical vertical theory of competitive harm regarding physician services would involve an allegation of foreclosure (or raising rivals’ costs). For instance, a hospital system that acquired physician practices (Hospital A) could foreclose a rival hospital (Hospital B) from referrals by its newly acquired physicians. Similarly, Hospital A could increase the price of its physician services to Hospital B in order to disadvantage its rival. Foreclosure can also occur in a payer/provider context. A health system (or payer) that had its own insurance plan and acquired physician practices (Insurer A) could foreclose a rival insurer (Insurer B) by withholding the services of its newly acquired physicians. Insurer A could also increase the price of its physician services to Insurer B in order to disadvantage its rival.

In the St. Luke’s case, the merger was also challenged by private plaintiffs that were competitor hospitals in the area. Those competitor hospitals alleged a vertical theory of harm based on foreclosure — i.e., that St. Luke’s control over PCP services could foreclose referrals to rival hospitals. This theory of harm was not addressed by the district court, however, as the court found the merger illegal and ordered divestiture based on the horizontal theory of harm alone.

Challenges to physician combinations

In 2019, the FTC sought an enforcement action involving an acquisition of physician practices by an integrated entity with both an insurance arm and its own physician practices. There are two major takeaways from this matter. First, the FTC alleged both horizontal and vertical theories of harm, with the vertical theory of harm based on the concern that the acquirer could raise the costs of its physician services to rival Medicare Advantage insurers or even withhold those services completely. Second, the physician services at issue in this matter were a bundle of various physician services that the FTC alleged to be a distinct relevant antitrust market as “managed care provider organization services.” The FTC’s alleged bundle market of physician services departs from the definition of the relevant service market in previous merger challenges that involved specific physician specialties (e.g., PCPs, cardiologists).

As previewed above, the FTC’s 2023 case against USAP differed from prior enforcement actions in a number of ways. It marked the first lawsuit against a PE firm alleging a series of roll-up acquisitions, including acquisitions of small groups with small market shares (sometimes even less than 1%). This approach of analyzing a series of acquisitions can now be found in Guideline 8 of the Revised Merger Guidelines that were issued by the DOJ and FTC in December 2023. Although serial acquisitions have generally been associated with PE firms, any corporate entity, including hospital systems and payers, could also be a target of the theory that serial acquisitions of physician practices harm competition. Also, the USAP complaint included allegations similar to a monopoly leveraging or a “cross-market” merger theory of harm in other Texas markets outside of Houston and Dallas, where monopolies are alleged. A “cross-market” merger theory of harm involves providers that do not compete for patients based on geography. For instance, the FTC’s allegations against USAP extended to other parts of Texas (Tyler, Amarillo and San Antonio) where USAP did not previously have any presence — i.e., the acquisitions did not result in any change in concentration in those markets.

In the FTC case against USAP, the FTC was seeking structural relief, which could have included a requirement to divest acquired practices or unwind previous deals. However, the attorney general did not seek structural relief in its settlement with USAP, but instead required a behavioral remedy, including ending its exclusive contracts with hospitals and waiving noncompete/nonsolicitation agreements with physicians.

As seen in the St. Luke’s case, physician combinations can also be challenged by private plaintiffs as well as by the government. First, private plaintiffs can include competitors. In Vasquez v. Indiana University Health, Inc., a vascular surgeon alleged antitrust claims against Indiana University Health, including that it acquired a PCP group in Bloomington, Indiana, and then foreclosed referrals to vascular surgery rivals such as the plaintiff. In St. Francis v. Hartford Healthcare Corp., St. Francis has alleged antitrust claims against Hartford Healthcare, including prior acquisitions of multiple physician groups and subsequent foreclosure of referrals to rival hospitals such as the plaintiff. Second, private plaintiffs can include customers. Private class action suits by customers have also been filed against USAP and Hartford HealthCare.

Antitrust enforcement against the acquisition of physician practices is likely to continue as plaintiffs test novel and nontraditional theories of harm. Unique antitrust issues may arise depending on whether the buyer is a health system, payer, PE firm, or simply another independent physician practice. It will be important to monitor the progress of some of these ongoing cases to see whether courts accept novel and nontraditional theories of competitive harm.

Kevin Hahm, J.D., is a partner at the law firm Hunton Andrews Kurth LLP. He focuses on antitrust merger review, including pretransaction counseling, merger investigations and merger litigations.