- Under the terms of an initial decision and order issued by Chief Administrative Law Judge Stephen J. McGuire on October 17, 2005, and announced by the Federal Trade Commission on that day, Evanston Northwestern Healthcare Corporation (“ENH”), located in Evanston, Illinois, must sell Highland Park Hospital (“Highland Park”) within 180 days. ENH was formed in January 2000, as a result of Evanston Hospital (“Evanston”) and Glenbrook Hospital’s (“Glenbrook”) acquisition of Highland Park, which is located on Chicago’s North Shore. According to Judge McGuire’s decision, which upheld Count I of an administrative complaint issued by the FTC in February 2004, ENH’s acquisition of Highland Park has resulted in “substantially lessened competition” and higher prices for insurers and healthcare consumers for general acute care inpatient services sold to managed care organizations in the geographic market defined by the ALJ.
In January 2000, ENH acquired Highland Park in a transaction valued at more than $200 million. The acquisition combined ENH’s Evanston and Glenbrook Hospitals – located in Cook County, Ill. – with Highland Park, the nearest hospital to the north. With Highland Park added to its existing hospitals, ENH became a more significant provider of health care services to payers who needed hospital access in northeast Cook County and southeast Lake County, Ill. The administrative complaint alleged that following the acquisition, ENH was able to raise its prices far above price increases of other comparable hospitals as a result of the transaction. According to the complaint, ENH’s acquisition of Highland Park resulted in significantly higher prices charged to health insurers, and therefore higher costs to insurance purchasers and hospital services consumers. The complaint alleged that the merger violated the Clayton Act, based on an analysis conducted under the Horizontal Merger Guidelines and on the actual competitive effects, in the form of higher prices actually charged by ENH after the merger. The complaint contemplated a remedy to restore competition to the benefit of consumers seeking competitively priced health care.
The judge’s initial decision in this matter is subject to review by the full Commission on its own motion, or at the request of any party. If an appeal from the initial decision is not received within 30 days after it is served, or 30 days after a timely notice of appeal is filed, whichever is later, and the Commission does not take certain other actions detailed in its Rules, the initial decision will become the decision of the Commission.
- On October 25, the Federal Trade Commission and the Department of Justice’s Antitrust Division held a one-day joint workshop entitled “Competition Policy and the Real Estate Industry.” Prompted by the substantial changes in the real estate brokerage marketplace and consumers’ interest in a competitive real estate brokerage industry, the workshop covered such topics as new and innovative brokerage business models, multiple listing services, and the implications of state-imposed minimum-service requirements.
- On October 20, the Federal Trade Commission and U.S. Department of Justice issued a joint letter urging the Michigan Senate Committee on Economic Development, Small Business, and Regulatory Reform to reject House Bill 4849 as currently drafted, as the legislation would reduce consumer choice and cause Michigan consumers to pay more for real estate brokerage services. According to the letter, the bill would change current law to restrict the ability of licensed real estate brokers to offer consumers the option to pick the specific brokerage services they want. Currently, Michigan home sellers and buyers can choose between a traditional, full-service package of real estate brokerage services and a fee-for-service option that allows home sellers and buyers to purchase individual services from an a lá carte menu. If the bill becomes law, customers will be forced to buy potentially unwanted additional services. The joint FTC/DOJ letter stated the bill would likely harm competition in two ways. First, consumers who live in areas where real estate professionals are required to enter into exclusive brokerage agreements before they can post listings on the MLS will have to purchase these additional services, and can expect to pay more. Second, without competition from fee-for-service brokers, the prices for traditional, full-service packages likely will increase.
- On October 19, an interagency task force requested comments from the public pertinent to a study of competition in wholesale and retail electric energy markets required by the Energy Policy Act of 2005. The task force, comprised of representatives from the Federal Trade Commission, Federal Energy Regulatory Commission, the Department of Energy , the Department of Justice, and the Department of Agriculture, is to deliver its report to Congress in August 2006.
A notice from the task force, requesting public comments, appeared in the Federal Register on or about October 19, 2005. The notice invites interested parties to respond to questions pertaining to participation in wholesale electricity markets, generation ownership, generation adequacy, transmission investment and regulation, and the transparency and availability of information concerning wholesale electricity markets. The notice also invites responses to questions concerning experiences with retail choice, retail service providers, demand-side participation, and the impacts of changing fuel prices on retail markets. The task force will draw upon these responses to prepare a report that will analyze and report to Congress on the critical elements for effective wholesale and retail competition, the status of each element, impediments to realizing each element, and suggestions for overcoming these impediments.
The members of the task force are:
- Michael Bardee, Associate General Counsel, Federal Energy Regulatory Commission
- J. Bruce McDonald, Deputy Assistant Attorney General, Antitrust Division, U.S. Department of Justice
- Karen Larsen, Office of Assistant Administrator, Electric Programs, Rural Utilities Service, U.S. Department of Agriculture
- David Meyer, Deputy Director, Division of Permitting, Siting, and Analysis, Office of Electricity Delivery and Energy Reliability, U.S. Department of Energy
- Michael Wroblewski, Assistant General Counsel for Policy Studies, Federal Trade Commission
- On October 4, the Federal Trade Commission accepted for public comment an order resolving the competitive issues raised by DaVita, Inc.’s (“DaVita”) proposed $3.1 billion purchase of rival outpatient dialysis clinic operator Gambro Healthcare Inc. (“Gambro”) from Gambro AB. Pursuant to the order, DaVita will sell 69 dialysis clinics and end two management services contracts in 35 markets across the United States within 10 days of consummating its purchase of Gambro. The Commission has approved Renal Advantage Inc. as the buyer of most of the clinics to be divested, and entered into an order to maintain assets with DaVita to ensure that the assets are maintained as competitive and viable entities pending their sale and transfer.
The consent agreement is designed to remedy the alleged illegal anticompetitive impact of DaVita’s acquisition of Gambro. It requires DaVita – within ten days of acquiring Gambro – to divest 68 outpatient dialysis clinics to Renal Advantage and one outpatient dialysis clinic to its medical directors and their partners. The agreement also requires DaVita to end two management services agreements through which it manages outpatient dialysis clinics on behalf of third-party owners. Ending such agreements will result in the clinics remaining viable independent competitors after the acquisition of Gambro.
In addition, DaVita is required to ensure that the medical directors affiliated with the divested clinics will continue providing physician services after the assets are transferred to Renal Advantage, and to take other steps to ensure Renal Advantage will have the necessary assets to operate the divested clinics in a competitive manner. Specifically, to ensure the divestitures are successful, the consent agreement provides Renal Advantage with the opportunity to interview and hire employees affiliated with the divested clinics and prevents DaVita from offering the employees incentives to keep them from joining Renal Advantage. The agreement also prevents DaVita from contracting with the medical directors (or their practice groups) affiliated with the divested clinics for three years, which will provide Renal Advantage with the time necessary to build goodwill and working relationships with these directors.
To ensure the continuity of patient care and records as Renal Advantage implements its new systems, the agreement allows DaVita to provide transition services to Renal Advantage for one year. It also requires DaVita to provide Renal Advantage with a license to use DaVita’s policies and procedures, as well as the option to obtain DaVita’s medical protocols, which will further enhance Renal Advantage’s ability to provide continuity of patient care. The agreement also provides that after the divestitures, DaVita is prohibited for two years from directly soliciting Renal Advantage clinic patients and from attempting to hire the Renal America clinic employees. Finally, the agreement requires DaVita to alert the FTC before it buys any dialysis clinics in the 35 markets addressed in the consent order to ensure continued competition in these markets in the future.
- On May 6, Magellan Midstream Partners, L.P. (“Magellan”) filed a petition requesting the Commission’s approval of the proposed divestiture of certain assets recently acquired from Shell Oil Company (“Shell”). Under the terms of the FTC’s consent order concerning Magellan’s acquisition of certain pipeline and terminal assets from Shell, Magellan is required to divest a refined petroleum products terminal in Oklahoma City, Oklahoma. Through this application, Magellan requested Commission approval to divest the former Shell Oklahoma City Terminal, as that asset is defined in the order, to TransMontaigne, Inc. The Commission approved the divestiture on or around November 4, 2005.
- On November 2, the Federal Trade Commission announced a consent agreement that will protect competition and consumers in three significant medical device product markets affected by Johnson & Johnson’s (“J&J”) proposed $25.4 billion acquisition of Guidant Corporation (“Guidant”). The agreement will allow the transaction to proceed, provided the parties comply with its terms. Under the terms of the order conditionally approving the transaction, J&J is required to 1) grant to a third party a fully paid-up, non-exclusive, irrevocable license, enabling that third party to make and sell drug eluting stents (“DESs”) with the Rapid Exchange (“RX”) delivery system, 2) divest to a third party J&J’s endoscopic vessel harvesting (“EVH”) product line, and 3) end its agreement to distribute Novare Surgical System, Inc.’s (“Novare”) proximal anastomotic assist device (“AAD”).
The Commission’s consent order is designed to remedy the alleged anticompetitive impact of J&J’s acquisition of Guidant, not to improve pre-transaction competition in the relevant product markets. First, it requires J&J to license Guidant’s intellectual property surrounding the RX delivery system at no minimum price to an up-front buyer with a DES program in development within 10 days of the acquisition’s consummation. The parties proposed Abbott Laboratories (“Abbott”), one of the two companies best positioned to replicate the competition provided by Guidant in this market in the relevant time frame, as the up-front buyer of this divestiture package. The Commission believes Abbott’s experience with both drugs and vascular stents will enable it to become a strong competitor in the DES market at its time of expected entry in late 2007, the same time Guidant would have entered with its DES on an RX delivery system. Still, the RX license defined in the agreement is transferable, so if Abbott’s DES program is unsuccessful, Abbott will have the incentive and ability to transfer the license to another firm to ensure continued competition with J&J/Guidant.
Second, the order remedies the acquisition’s potential anticompetitive effects in the market for EVH devices by requiring J&J to divest its EVH product line to a Commission-approved buyer within 15 days of its acquisition of Guidant. J&J has reached an agreement to sell these assets to Datascope, which currently has a line of products used in cardiac surgery, including products used in CABG procedures. The order allows Datascope to enter into a supply agreement with J&J for up to two years to ensure Datascope has time to receive required regulatory approvals and to begin manufacturing and/or packaging EVH device kits in its own facility.
Finally, the order will remedy the competitive concerns in the market for proximal AADs by requiring J&J to end its distribution agreement with Novare for Novare’s proximal AAD, eNclose. The FTC expects Novare will be able to find a new eNclose distribution partner within the next couple of months.
Robert W. Doyle, Jr.