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From Antitrust Law Daily, June 22, 2017

Combination of North Dakota physician groups challenged by FTC

By Jeffrey May, J.D.

Anti-merger enforcement efforts are heating up at the FTC. For the second time within a week, the agency has issued a merger challenge. The FTC is seeking to block the combination of the two largest providers of adult primary care physician services in the Bismarck, North Dakota, area, the agency announced today. The transaction, combining Sanford Health and Sanford Bismarck with Mid Dakota Clinic, P.C. (MDC) would purportedly create by far the largest group of physicians offering adult primary care physician (PCP) services, pediatric services, obstetrics and gynecology (OB/GYN) services, and general surgery physician service in the market. Sanford and MDC have pledged to defend their merger (In the Matter of Sanford Health, FTC Dkt. 9376, File Number 171 0019).

Sanford disclosed its plans to acquire MDC last September. Sanford Health, headquartered in Sioux Falls, South Dakota, describes itself as one of the largest health systems in the nation with 45 hospitals and nearly 300 clinics in nine states and four countries. In the Bismarck-Mandan area, subsidiary Sanford Bismarck operates a 217-bed general acute care hospital and a network of primary care and specialty clinics, employing 160 physicians and 100 non-physician healthcare providers. MDC is a multi-specialty practice with over 90 providers and over 400 staff. It has five locations with nine clinics in Bismarck.

According to the FTC's administrative complaint, the transaction threatens substantial harm to competition in four relevant service markets: (1) adult PCP services; (2) pediatric services; (3) OB/GYN services; and (4) general surgery physician services. The relevant geographic market is defined as the four-county Bismarck, North Dakota, Metropolitan Statistical Area, which includes Burleigh, Morton, Oliver, and Sioux counties. Sanford and MDC are the two largest providers of each of the relevant services in the Bismarck-Mandan area, according to the FTC.

The transaction would create a group of physicians with at least 75 to 85 percent share in the provision of adult primary care physician services, pediatric services, and obstetrics and gynecology services. It would be the only physician group offering general surgery physician services in the affected area, the FTC contends. In addition to pursuing a Clayton Act, Section 7 claim, the FTC asserts that a term sheet executed by the parties constituted an unfair method of competition in violation of Section 5 of the FTC Act.

"This merger is likely to reduce significantly the competitive options available to medical insurance providers, which in turn will lead to deteriorating terms for provision of medical care, including higher prices and lower quality," said Acting FTC Bureau of Competition Director Tad Lipsky. "The parties currently compete to join commercial insurers’ provider networks, stimulating each other to improve their technology, expand services, recruit high-quality physicians and provide patients with convenient and accessible physician and surgical services. The transaction would eliminate that competitive pressure."

An administrative trial would begin before the end of the year. To prevent the consummation of the acquisition, the agency authorized the staff, joined by the North Dakota Attorney General, to seek a temporary restraining order and preliminary injunction in federal district court in North Dakota.

Reaction of merging parties. Today, Sanford and MDC issued a joint statement saying that the FTC and North Dakota attorney general "have their facts and legal arguments wrong" and that they intend to finalize their partnership.

"The best way to describe our reaction is that we are exasperated with the delay that the FTC’s inquiry has already caused, and that these proceedings will continue to cause," said Shelly Seifert, M.D., Mid Dakota Clinic Board Chair. "It is very disappointing because patients rely on us to continually look for ways to enhance care, improve quality and expand service and access for them and their families. That’s exactly what this merger does."

"We intend to vehemently defend our efforts to enhance medical care in central and western North Dakota," said Craig Lambrecht, M.D., Executive Vice President of Sanford Bismarck. "This partnership is good for patients, the community, and anyone who would come to us in their time of need. We are honestly shocked that the FTC and attorney general would continue to deprive people of access to enhanced medical care for an unknown period of time. It just doesn’t make any sense."

Companies: Sanford Health; Mid Dakota Clinic, PC

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