FTC CHALLENGES CONSUMMATED ACQUISITIONS

On July 24, 2009, the Federal Trade Commission issued an administrative complaint challenging Carilion Clinic’s August 2008 acquisition of two outpatient clinics in the Roanoke, Virginia, area. Prior to the acquisition, the Center for Advanced Imaging (“CAI”) and the Center for Surgical Excellence (“CSE”) had strong reputations for offering high-quality care and convenient services at prices much lower than Carilion’s.

The administrative complaint alleges that Carilion’s acquisition of these outpatient centers eliminated competition and will lead to higher health care costs and reduced incentives to maintain and improve service and quality of care for patients in the Roanoke area. The complaint seeks divestiture of these centers and related assets necessary to restore the competition eliminated by the acquisition.

According to the complaint, Carilion’s $20 million acquisition of CAI and CSE reduced the number of outpatient imaging and surgical services providers in the Roanoke area from three to two. Carilion now faces competition for outpatient imaging and surgical services from only one other provider, HCA, the other major hospital system in the Roanoke area.

The Commission alleges that Carilion’s acquisition of lower-cost providers CAI and CSE will result in higher health care costs for these services, with out-of-pocket costs for many patients likely increasing nearly 900 percent for some treatments. Also, higher prices for outpatient imaging and surgical services will lead to higher premiums and the risk of reduced coverage for needed services.

The Commission vote to issue the administrative complaint was 4-0. The challenge serves as a powerful reminder that the mere fact that a deal is not HSR reportable does not mean that the transaction is free from antitrust review.

The challenge is noteworthy for several reasons. First, the challenge reiterates that the FTC is serious about enforcing the antitrust laws against small mergers that do not meet the HSR thresholds. Second, it demonstrates that completed deals that slip beneath the FTC’s radar screen initially are fair game even if the FTC learns about them later. Third, the fact that a deal is not HSR reportable does not mean that no antitrust issues exist with the combination. Fourth, the Commission can and will challenge a consummated deal if it determines that the deal is anticompetitive. Fifth, the FTC has a particular interest in post-acquisition competitive effects of consummated mergers.

Therefore, parties to a consummated deal that raise significant antitrust issues and avoided HSR scrutiny, for whatever reason, should proceed with reasonable caution and closely monitor post-acquisition conduct. Moreover, corporate and private counsel should be aware of the likely consequences and the risks of consummating transactions that raise significant competitive issues. The risks may include: defending against costly and lengthy government investigations; reorganizing to the government’s demands of possible divestitures even after integration has taken place; and disgorging profits gained form the alleged anticompetitive merger.

Andre Barlow
(202) 589-1834
abarlow@dbmlawgroup.com