Fresenius AG; Analysis of Agreement Containing Consent Orders To Aid Public Comment, 17874-17876 [E6-5053]
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Federal Register / Vol. 71, No. 67 / Friday, April 7, 2006 / Notices
practice affected the firm’s costs, prices,
risks, sales, shares, and profits.
Participants in markets where other
firms use such practices are invited to
respond with real-world examples of the
practice’s effect on competition in the
market as a whole, including what
market conditions changed when the
practice was instituted or ended and
whether buyers perceive specific
benefits or disadvantages from the use
of the practice and, if so, what they are.
The following lists particular types of
conduct that commenters may wish to
address, followed by sample questions
that commenters may wish to consider
with respect to each or all of the types
of conduct they discuss.
wwhite on PROD1PC61 with NOTICES
Particular Types of Conduct for
Possible Discussion
Bundled Loyalty Discounts and
Market Share Discounts. Sellers
sometimes offer discounts contingent
upon a buyer’s purchase of two or more
different products—for example,
restaurants may offer a choice between
a la carte items and complete meals
(priced at a discount). Sellers also may
offer a discount on all units sold to the
buyer, if the buyer meets a target (e.g.,
volume or market share) for purchases
of a single item.
Product Tying and Bundling. Tying
occurs when a firm conditions the sale
of one product on the customer’s
agreement to buy or to take a second
product. Tying often involves separate
prices for components that purchasers
can use in different proportions, and a
contractual or technological
requirement that if users purchase the
tying product, they must also purchase
the tied product from the same seller.
When a firm charges a single price for
a specified bundle of tied goods, the
practice has been called ‘‘bundling.’’ If
the components are also sold separately,
with a discount for purchasing the
bundle, the practice is called ‘‘mixed
bundling.’’
Exclusive Dealing. Exclusive dealing
includes arrangements in which a seller
agrees to sell its product to only a single
distributor, a seller precludes its
customer from purchasing some product
from another supplier, or a buyer
requires its supplier to sell some
product only to the buyer.
Predatory Pricing. Predatory pricing
involves pricing below ‘‘an appropriate
measure’’ of a firm’s costs, combined
with a dangerous probability that the
firm can later raise its prices to recoup
its prior investment in below-cost
prices.
Refusals to Deal. Refusals to deal
occur when a firm chooses not to make
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a product or service available to another
firm.
Most-Favored-Nation Clauses. A
most-favored-nation clause is a
contractual agreement between a buyer
and a seller that requires the seller to
sell to the buyer on pricing terms that
are at least as favorable as, and
sometimes more favorable than, the
pricing terms on which the seller sells
to any other buyer.
Product Design. Claims may arise
under section 2 that a firm has modified
its product design to exclude a
competitor in a product-related market
(e.g., a market for an attachment that
must fit with the product design), rather
than to improve product design.
Misleading or Deceptive Statements or
Conduct. Misleading or deceptive
statements or conduct by a firm may
potentially implicate section 2.
Sample Questions for Consideration
With Respect to Each or All of the Types
of Conduct That the Commenter
Discusses
1. How should the structure of the
market and the market shares of
participants be taken into account in
analyzing such conduct?
2. What are the likely procompetitive
and antitcompetitive effects of the
conduct in the short run? In the long
run?
3. What specific types of cost savings,
risk reduction, or other efficiencies (e.g.,
elimination of free riding or otherwise
protecting investments in services and
reputation, product improvement or
innovation) could be generated by such
conduct? Would these efficiencies
depend to any extent on the seller
maintaining a certain scale or scope of
operation?
4. Would a business typically analyze
or estimate the likely cost savings from
this type of conduct before engaging in
it? After engaging in it? Why or why
not? What other business practices, if
any, could be used to achieve similar or
greater efficiencies? What factors would
influence the practical or economic
feasibility of such alternative conduct?
5. How might competitors respond to
counteract a loss of sales to the firm
engaging in such conduct? If
implemented by a firm with a very large
market share, could such conduct raise
the costs of the firm’s rivals? If such
conduct could raise the costs of the
firm’s rivals, could that lead to
consumer harm? If so, how and under
what circumstances?
6. Would you expect such conduct to
affect the likelihood of entry into the
market? If so, how and under what
circumstances?
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7. How widespread in your industry
are the types of conduct that you have
discussed? What features of the conduct
may vary and why? What are the typical
business contexts in which such types
of conduct occur? How frequently do
firms that lack market power undertake
such conduct and why?
8. What tests and standards should
courts and enforcement agencies use in
assessing whether such conduct violates
section 2?
9. If any scenario that you have
discussed could result in liability under
section 2, what remedy or remedies
would you propose for consideration?
What tests and standards should courts
and enforcement agencies use in
assessing which remedy to apply in a
section 2 case? Should section 2
remedies address conduct or market
structure, and why should one be
preferred over the other? Would your
preferred remedy require ongoing
oversight by a court or agency—e.g.,
oversight of prices, conduct between
competitors (e.g., licensing), or costs? If
so, please describe how such oversight
could be conducted.
10. In what circumstances, if any,
should an agency decline to pursue a
section 2 case due to an absence of a
practical, judicially manageable, and
economically feasible remedy?
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 06–3366 Filed 4–6–06; 8:45 am]
BILLING CODE 6750–01–P
FEDERAL TRADE COMMISSION
[File No. 051 0154]
Fresenius AG; Analysis of Agreement
Containing Consent Orders To Aid
Public Comment
Federal Trade Commission.
Proposed consent agreement.
AGENCY:
ACTION:
SUMMARY: The consent agreement in this
matter settles alleged violations of
Federal law prohibiting unfair or
deceptive acts or practices or unfair
methods of competition. The attached
Analysis to Aid Public Comment
describes both the allegations in the
draft complaint and the terms of the
consent order—embodied in the consent
agreement—that would settle these
allegations.
DATES: Comments must be received on
or before May 2, 2006.
ADDRESSES: Interested parties are
invited to submit written comments.
Comments should refer to ‘‘Fresenius
AG, File No. 051 0154,’’ to facilitate the
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organization of comments. A comment
filed in paper form should include this
reference both in the text and on the
envelope, and should be mailed or
delivered to the following address:
Federal Trade Commission/Office of the
Secretary, Room 135–H, 600
Pennsylvania Avenue, NW.,
Washington, DC 20580. Comments
containing confidential material must be
filed in paper form, must be clearly
labeled ‘‘Confidential,’’ and must
comply with Commission Rule 4.9(c).
16 CFR 4.9(c) (2005).1 The FTC is
requesting that any comment filed in
paper form be sent by courier or
overnight service, if possible, because
U.S. postal mail in the Washington area
and at the Commission is subject to
delay due to heightened security
precautions. Comments that do not
contain any nonpublic information may
instead be filed in electronic form as
part of or as an attachment to e-mail
messages directed to the following email box: consentagreement@ftc.gov.
The FTC Act and other laws the
Commission administers permit the
collection of public comments to
consider and use in this proceeding as
appropriate. All timely and responsive
public comments, whether filed in
paper or electronic form, will be
considered by the Commission, and will
be available to the public on the FTC
Web site, to the extent practicable, at
https://www.ftc.gov. As a matter of
discretion, the FTC makes every effort to
remove home contact information for
individuals from the public comments it
receives before placing those comments
on the FTC website. More information,
including routine uses permitted by the
Privacy Act, may be found in the FTC’s
privacy policy, at https://www.ftc.gov/
ftc/privacy.htm.
FOR FURTHER INFORMATION CONTACT: Gary
H. Schorr, Bureau of Competition, 600
Pennsylvania Avenue, NW.,
Washington, DC 20580, (202) 326–3063.
SUPPLEMENTARY INFORMATION: Pursuant
to section 6(f) of the Federal Trade
Commission Act, 38 Stat. 721, 15 U.S.C.
46(f), and § 2.34 of the Commission
Rules of Practice, 16 CFR 2.34, notice is
hereby given that the above-captioned
consent agreement containing a consent
order to cease and desist, having been
filed with and accepted, subject to final
approval, by the Commission, has been
1 The comment must be accompanied by an
explicit request for confidential treatment,
including the factual and legal basis for the request,
and must identify the specific portions of the
comment to be withheld from the public record.
The request will be granted or denied by the
Commission’s General Counsel, consistent with
applicable law and the public interest. See
Commission Rule 4.9(c), 16 CFR 4.9(c).
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placed on the public record for a period
of thirty (30) days. The following
Analysis to Aid Public Comment
describes the terms of the consent
agreement, and the allegations in the
complaint. An electronic copy of the
full text of the consent agreement
package can be obtained from the FTC
Home Page (for March 31, 2006), on the
World Wide Web, at https://www.ftc.gov/
os/2006/03/index.htm. A paper copy
can be obtained from the FTC Public
Reference Room, Room 130–H, 600
Pennsylvania Avenue, NW.,
Washington, DC 20580, either in person
or by calling (202) 326–2222.
Public comments are invited, and may
be filed with the Commission in either
paper or electronic form. All comments
should be filed as prescribed in the
ADDRESSES section above, and must be
received on or before the date specified
in the DATES section.
Analysis of Agreement Containing
Consent Order to Aid Public Comment
I. Introduction
The Federal Trade Commission
(‘‘Commission’’) has accepted, subject to
final approval, an Agreement
Containing Consent Orders (‘‘Consent
Agreement’’) from Fresenius AG and
entities it controls, including Fresenius
Medical Care AG & Co. KGaA, Fresenius
Medical Care Holdings, Inc., and
Florence Acquisition, Inc.
(‘‘Fresenius’’). The purpose of the
Consent Agreement is to prevent the
anticompetitive effects that would result
from Fresenius’s purchase of Renal Care
Group, Inc. (‘‘RCG’’). Under the terms of
the Consent Agreement, Fresenius is
required to divest 91 dialysis clinics,
and RCG’s joint venture equity interests
in an additional 12 clinics, in 66
markets across the United States.
The Consent Agreement has been
placed on the public record for 30 days
to solicit comments from interested
persons. Comments received during this
period will become part of the public
record. After 30 days, the Commission
will again review the Consent
Agreement and the comments received,
and will decide whether it should
withdraw from the Consent Agreement
or make it final.
Pursuant to an Agreement dated May
3, 2005, Fresenius proposed to acquire
RCG for approximately $3.5 billion. The
Commission’s complaint alleges, as
summarized in sections II and III below,
that the proposed acquisition, if
consummated, would violate section 7
of the Clayton Act, as amended, 15
U.S.C. 18, and section 5 of the Federal
Trade Commission Act, as amended, 15
U.S.C. 45, by lessening competition in
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17875
the market for the provision of
outpatient dialysis services in local
geographic markets across the United
States.
II. The Parties
Fresenius, based in Germany, has its
United States headquarters in
Lexington, Massachusetts. After
acquiring RCG, Fresenius will be the
largest provider of outpatient dialysis
services in the United States. In 2005,
Fresenius had approximately $4.1
billion in revenues from the provision of
outpatient dialysis services to
approximately 89,000 end stage renal
disease (‘‘ESRD’’) patients at
approximately 1,155 outpatient dialysis
clinics nationwide.
Headquartered in Nashville,
Tennessee, RCG is the third-largest
provider of outpatient dialysis services
in the United States, with
approximately 450 outpatient dialysis
clinics nationwide, at which over
32,000 ESRD patients receive treatment.
In 2005, RCG had approximately $1.5
billion in revenues from the provision of
outpatient dialysis services at
approximately 450 clinics.
III. Outpatient Dialysis Services
Outpatient dialysis services is the
relevant product market in which to
assess the effects of the proposed
transaction. Most ESRD patients receive
dialysis treatments in an outpatient
dialysis clinic three times per week, in
sessions lasting between three and five
hours. The only alternative to outpatient
dialysis treatments for ESRD patients is
a kidney transplant. However, the waittime for donor kidneys—during which
ESRD patients must receive dialysis
treatments—can exceed five years.
Additionally, many ESRD patients are
not viable transplant candidates. As a
result, many ESRD patients have no
alternative to ongoing dialysis
treatments.
The Commission’s complaint alleges
that the relevant geographic markets for
the provision of dialysis services are
local in nature. They are circumscribed
by the distance ESRD patients are able
to travel to receive dialysis treatments.
Most ESRD patients are quite ill and
suffer from multiple health problems.
As such, ESRD patients are unwilling
and/or unable to travel long distances
for dialysis treatment. The time and
distance a patient will travel in a
particular location are significantly
affected by traffic patterns; whether an
area is urban, suburban, or rural; local
geography; and a patient’s proximity to
the nearest center. The size and
dimensions of relevant geographic
markets are also influenced by a variety
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Federal Register / Vol. 71, No. 67 / Friday, April 7, 2006 / Notices
of other factors including population
density, roads, geographic features, and
political boundaries.
The Commission alleges that each of
the 66 outpatient dialysis markets
defined in the complaint is highly
concentrated. With few exceptions,
these markets have no more than one
significant dialysis provider other than
Fresenius and RCG. In each of these 66
markets, evidence that Fresenius and
RCG are actual and substantial
competitors in these markets, along with
the high post-acquisition concentration
levels, suggest that the combined firm
likely would be able to exercise
unilateral market power. The evidence
shows that health plans and other
private payors who pay dialysis
providers for dialysis services used by
their members benefit from direct
competition between Fresenius and
RCG when negotiating the rates of the
dialysis provider. As a result, the
proposed combination likely would
result in higher prices and reduced
incentives to improve service or quality
for outpatient dialysis services in the 66
outpatient dialysis markets defined in
the complaint.
In the outpatient dialysis services
markets defined by the complaint, entry
on a level sufficient to deter or
counteract the likely anticompetitive
effects of the proposed transaction is not
likely to occur in a timely manner. The
primary barrier to entry is the difficulty
associated with locating nephrologists
with established patient pools who are
willing and able to serve as medical
directors. Federal law requires each
dialysis clinic to have a physician
medical director. As a practical matter,
having a nephrologist serve as medical
director is essential to the success of a
clinic because they are the primary
source of referrals. Entry is also
inhibited where certain attributes (such
as a rapidly growing ESRD population,
a favorable regulatory environment,
average or below average nursing and
labor costs, and a low penetration of
managed care) are not present, as the
Commission alleges is the case in
particular geographic markets defined in
the Commission’s complaint.
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IV. The Consent Agreement
The Consent Agreement effectively
prevents the anticompetitive effects that
the proposed acquisition would
otherwise be likely to have in the 66
markets where both Fresenius and RCG
operate dialysis clinics, by requiring
Fresenius to divest 91 outpatient
dialysis clinics, and RCG’s joint venture
equity interests in 12 additional clinics,
to National Renal Institutes, Inc.
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(‘‘NRI’’), a wholly-owned subsidiary of
DSI Holding Company, Inc.
As part of these divestitures,
Fresenius is required to obtain the
agreement of the medical directors
affiliated with the divested clinics to
continue providing physician services
after the transfer of ownership to NRI.
Similarly, the Consent Agreement
requires Fresenius to obtain the consent
of all lessors necessary to assign the
leases for the real property associated
with the divested clinics to NRI. These
provisions ensure that NRI will have the
assets necessary to operate the divested
clinics in a competitive manner.
The Consent Agreement contains
several additional provisions designed
to ensure that the divestitures will be
successful. First, the Consent Agreement
provides NRI with the opportunity to
interview and hire employees affiliated
with the divested clinics, and prevents
Fresenius from offering these employees
incentives to decline NRI’s offer of
employment. This will ensure that NRI
has access to patient care and
supervisory staff who are familiar with
the clinic’s patients and the local
physicians. Second, the Consent
Agreement prevents Fresenius from
contracting with the medical directors
(or their practice groups) affiliated with
the divested clinics for three years. This
provides NRI with sufficient time to
build goodwill and a working
relationship with its medical directors
before Fresenius can attempt to
capitalize on its prior relationships in
soliciting their services. Third, the
Consent Agreement requires Fresenius
to provide NRI with a license to
Fresenius’s policies and procedures, as
well as the option to obtain Fresenius’s
medical protocols, which will further
enhance NRI’s ability to provide
continuity of care to patients. Finally,
the Consent Agreement requires
Fresenius to provide prior notice to the
Commission of its planned acquisitions
of dialysis clinics located in the 66
markets addressed by the Consent
Agreement. This provision ensures that
subsequent acquisitions do not
adversely impact competition in the
markets at issue and undermine the
remedial goals of the proposed order.
The Commission is satisfied that NRI
is a qualified acquirer of the divested
assets. NRI’s management team has
extensive experience in all facets of
operating and developing outpatient
dialysis clinics. In addition, Fresenius
will provide transition services to NRI
for a period of 12 months to ensure
continuity of patient care and records as
NRI implements its quality care, billing,
and supply systems. Firewalls and
confidentiality agreements will ensure
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that competitively sensitive information
is not exchanged. NRI has received
substantial financial backing from
Centre Partners, a private equity firm
focused on making investments in
middle market companies.
The Commission has appointed
Richard Shermer as Monitor to oversee
the transition service agreements, and
the implementation of, and compliance
with, the Consent Agreement. Mr.
Shermer is the President of R. Shermer
& Company, a professional services firm
that specializes in providing services for
companies undergoing transitions in
ownership through divestitures,
mergers, or acquisitions. R. Shermer &
Company has served as a monitor in
connection with other Commission
actions.
The purpose of this analysis is to
facilitate public comment on the
Consent Agreement, and it is not
intended to constitute an official
interpretation of the proposed Decision
and Order or the Order to Maintain
Assets, or to modify their terms in any
way.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. E6–5053 Filed 4–6–06; 8:45 am]
BILLING CODE 6750–01–P
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Announcement of Availability of Funds
for Cooperative Agreement to the New
Mexico Outreach Office To Strengthen
Public Health Services at the New
Mexico-Chihuahua Border
Office of Global Health Affairs,
Office of the Secretary, HHS.
Announcement Type: Cooperative
Agreement—FY 2006 Initial
Announcement. Single Source.
Catalog of Federal Domestic
Assistance: 93.018.
Key Dates: Application Availability:
April 7, 2006. Applications are due by
5 p.m. Eastern Time on May 8, 2006.
Executive Summary: The Office of
Global Health Affairs (OGHA)
announces that up to $345,600 in fiscal
year (FY) 2006 funds is available for a
cooperative agreement to the New
Mexico Department of Health, New
Mexico Outreach Office of the U.S.Mexico Border Health Commission
(USMBHC) to strengthen the binational
public health projects and programs
along the New Mexico-Chihuahua
border. This initiative addresses
outreach and health promotion
activities, evaluation and assessments,
AGENCY:
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]]>Agencies
[Federal Register Volume 71, Number 67 (Friday, April 7, 2006)]
[Notices]
[Pages 17874-17876]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-5053]
-----------------------------------------------------------------------
FEDERAL TRADE COMMISSION
[File No. 051 0154]
Fresenius AG; Analysis of Agreement Containing Consent Orders To
Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement.
-----------------------------------------------------------------------
SUMMARY: The consent agreement in this matter settles alleged
violations of Federal law prohibiting unfair or deceptive acts or
practices or unfair methods of competition. The attached Analysis to
Aid Public Comment describes both the allegations in the draft
complaint and the terms of the consent order--embodied in the consent
agreement--that would settle these allegations.
DATES: Comments must be received on or before May 2, 2006.
ADDRESSES: Interested parties are invited to submit written comments.
Comments should refer to ``Fresenius AG, File No. 051 0154,'' to
facilitate the
[[Page 17875]]
organization of comments. A comment filed in paper form should include
this reference both in the text and on the envelope, and should be
mailed or delivered to the following address: Federal Trade Commission/
Office of the Secretary, Room 135-H, 600 Pennsylvania Avenue, NW.,
Washington, DC 20580. Comments containing confidential material must be
filed in paper form, must be clearly labeled ``Confidential,'' and must
comply with Commission Rule 4.9(c). 16 CFR 4.9(c) (2005).\1\ The FTC is
requesting that any comment filed in paper form be sent by courier or
overnight service, if possible, because U.S. postal mail in the
Washington area and at the Commission is subject to delay due to
heightened security precautions. Comments that do not contain any
nonpublic information may instead be filed in electronic form as part
of or as an attachment to e-mail messages directed to the following e-
mail box: consentagreement@ftc.gov.
---------------------------------------------------------------------------
\1\ The comment must be accompanied by an explicit request for
confidential treatment, including the factual and legal basis for
the request, and must identify the specific portions of the comment
to be withheld from the public record. The request will be granted
or denied by the Commission's General Counsel, consistent with
applicable law and the public interest. See Commission Rule 4.9(c),
16 CFR 4.9(c).
---------------------------------------------------------------------------
The FTC Act and other laws the Commission administers permit the
collection of public comments to consider and use in this proceeding as
appropriate. All timely and responsive public comments, whether filed
in paper or electronic form, will be considered by the Commission, and
will be available to the public on the FTC Web site, to the extent
practicable, at https://www.ftc.gov. As a matter of discretion, the FTC
makes every effort to remove home contact information for individuals
from the public comments it receives before placing those comments on
the FTC website. More information, including routine uses permitted by
the Privacy Act, may be found in the FTC's privacy policy, at https://
www.ftc.gov/ftc/privacy.htm.
FOR FURTHER INFORMATION CONTACT: Gary H. Schorr, Bureau of Competition,
600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 326-3063.
SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec. 2.34 of
the Commission Rules of Practice, 16 CFR 2.34, notice is hereby given
that the above-captioned consent agreement containing a consent order
to cease and desist, having been filed with and accepted, subject to
final approval, by the Commission, has been placed on the public record
for a period of thirty (30) days. The following Analysis to Aid Public
Comment describes the terms of the consent agreement, and the
allegations in the complaint. An electronic copy of the full text of
the consent agreement package can be obtained from the FTC Home Page
(for March 31, 2006), on the World Wide Web, at https://www.ftc.gov/os/
2006/03/index.htm. A paper copy can be obtained from the FTC Public
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW., Washington,
DC 20580, either in person or by calling (202) 326-2222.
Public comments are invited, and may be filed with the Commission
in either paper or electronic form. All comments should be filed as
prescribed in the ADDRESSES section above, and must be received on or
before the date specified in the DATES section.
Analysis of Agreement Containing Consent Order to Aid Public Comment
I. Introduction
The Federal Trade Commission (``Commission'') has accepted, subject
to final approval, an Agreement Containing Consent Orders (``Consent
Agreement'') from Fresenius AG and entities it controls, including
Fresenius Medical Care AG & Co. KGaA, Fresenius Medical Care Holdings,
Inc., and Florence Acquisition, Inc. (``Fresenius''). The purpose of
the Consent Agreement is to prevent the anticompetitive effects that
would result from Fresenius's purchase of Renal Care Group, Inc.
(``RCG''). Under the terms of the Consent Agreement, Fresenius is
required to divest 91 dialysis clinics, and RCG's joint venture equity
interests in an additional 12 clinics, in 66 markets across the United
States.
The Consent Agreement has been placed on the public record for 30
days to solicit comments from interested persons. Comments received
during this period will become part of the public record. After 30
days, the Commission will again review the Consent Agreement and the
comments received, and will decide whether it should withdraw from the
Consent Agreement or make it final.
Pursuant to an Agreement dated May 3, 2005, Fresenius proposed to
acquire RCG for approximately $3.5 billion. The Commission's complaint
alleges, as summarized in sections II and III below, that the proposed
acquisition, if consummated, would violate section 7 of the Clayton
Act, as amended, 15 U.S.C. 18, and section 5 of the Federal Trade
Commission Act, as amended, 15 U.S.C. 45, by lessening competition in
the market for the provision of outpatient dialysis services in local
geographic markets across the United States.
II. The Parties
Fresenius, based in Germany, has its United States headquarters in
Lexington, Massachusetts. After acquiring RCG, Fresenius will be the
largest provider of outpatient dialysis services in the United States.
In 2005, Fresenius had approximately $4.1 billion in revenues from the
provision of outpatient dialysis services to approximately 89,000 end
stage renal disease (``ESRD'') patients at approximately 1,155
outpatient dialysis clinics nationwide.
Headquartered in Nashville, Tennessee, RCG is the third-largest
provider of outpatient dialysis services in the United States, with
approximately 450 outpatient dialysis clinics nationwide, at which over
32,000 ESRD patients receive treatment. In 2005, RCG had approximately
$1.5 billion in revenues from the provision of outpatient dialysis
services at approximately 450 clinics.
III. Outpatient Dialysis Services
Outpatient dialysis services is the relevant product market in
which to assess the effects of the proposed transaction. Most ESRD
patients receive dialysis treatments in an outpatient dialysis clinic
three times per week, in sessions lasting between three and five hours.
The only alternative to outpatient dialysis treatments for ESRD
patients is a kidney transplant. However, the wait-time for donor
kidneys--during which ESRD patients must receive dialysis treatments--
can exceed five years. Additionally, many ESRD patients are not viable
transplant candidates. As a result, many ESRD patients have no
alternative to ongoing dialysis treatments.
The Commission's complaint alleges that the relevant geographic
markets for the provision of dialysis services are local in nature.
They are circumscribed by the distance ESRD patients are able to travel
to receive dialysis treatments. Most ESRD patients are quite ill and
suffer from multiple health problems. As such, ESRD patients are
unwilling and/or unable to travel long distances for dialysis
treatment. The time and distance a patient will travel in a particular
location are significantly affected by traffic patterns; whether an
area is urban, suburban, or rural; local geography; and a patient's
proximity to the nearest center. The size and dimensions of relevant
geographic markets are also influenced by a variety
[[Page 17876]]
of other factors including population density, roads, geographic
features, and political boundaries.
The Commission alleges that each of the 66 outpatient dialysis
markets defined in the complaint is highly concentrated. With few
exceptions, these markets have no more than one significant dialysis
provider other than Fresenius and RCG. In each of these 66 markets,
evidence that Fresenius and RCG are actual and substantial competitors
in these markets, along with the high post-acquisition concentration
levels, suggest that the combined firm likely would be able to exercise
unilateral market power. The evidence shows that health plans and other
private payors who pay dialysis providers for dialysis services used by
their members benefit from direct competition between Fresenius and RCG
when negotiating the rates of the dialysis provider. As a result, the
proposed combination likely would result in higher prices and reduced
incentives to improve service or quality for outpatient dialysis
services in the 66 outpatient dialysis markets defined in the
complaint.
In the outpatient dialysis services markets defined by the
complaint, entry on a level sufficient to deter or counteract the
likely anticompetitive effects of the proposed transaction is not
likely to occur in a timely manner. The primary barrier to entry is the
difficulty associated with locating nephrologists with established
patient pools who are willing and able to serve as medical directors.
Federal law requires each dialysis clinic to have a physician medical
director. As a practical matter, having a nephrologist serve as medical
director is essential to the success of a clinic because they are the
primary source of referrals. Entry is also inhibited where certain
attributes (such as a rapidly growing ESRD population, a favorable
regulatory environment, average or below average nursing and labor
costs, and a low penetration of managed care) are not present, as the
Commission alleges is the case in particular geographic markets defined
in the Commission's complaint.
IV. The Consent Agreement
The Consent Agreement effectively prevents the anticompetitive
effects that the proposed acquisition would otherwise be likely to have
in the 66 markets where both Fresenius and RCG operate dialysis
clinics, by requiring Fresenius to divest 91 outpatient dialysis
clinics, and RCG's joint venture equity interests in 12 additional
clinics, to National Renal Institutes, Inc. (``NRI''), a wholly-owned
subsidiary of DSI Holding Company, Inc.
As part of these divestitures, Fresenius is required to obtain the
agreement of the medical directors affiliated with the divested clinics
to continue providing physician services after the transfer of
ownership to NRI. Similarly, the Consent Agreement requires Fresenius
to obtain the consent of all lessors necessary to assign the leases for
the real property associated with the divested clinics to NRI. These
provisions ensure that NRI will have the assets necessary to operate
the divested clinics in a competitive manner.
The Consent Agreement contains several additional provisions
designed to ensure that the divestitures will be successful. First, the
Consent Agreement provides NRI with the opportunity to interview and
hire employees affiliated with the divested clinics, and prevents
Fresenius from offering these employees incentives to decline NRI's
offer of employment. This will ensure that NRI has access to patient
care and supervisory staff who are familiar with the clinic's patients
and the local physicians. Second, the Consent Agreement prevents
Fresenius from contracting with the medical directors (or their
practice groups) affiliated with the divested clinics for three years.
This provides NRI with sufficient time to build goodwill and a working
relationship with its medical directors before Fresenius can attempt to
capitalize on its prior relationships in soliciting their services.
Third, the Consent Agreement requires Fresenius to provide NRI with a
license to Fresenius's policies and procedures, as well as the option
to obtain Fresenius's medical protocols, which will further enhance
NRI's ability to provide continuity of care to patients. Finally, the
Consent Agreement requires Fresenius to provide prior notice to the
Commission of its planned acquisitions of dialysis clinics located in
the 66 markets addressed by the Consent Agreement. This provision
ensures that subsequent acquisitions do not adversely impact
competition in the markets at issue and undermine the remedial goals of
the proposed order.
The Commission is satisfied that NRI is a qualified acquirer of the
divested assets. NRI's management team has extensive experience in all
facets of operating and developing outpatient dialysis clinics. In
addition, Fresenius will provide transition services to NRI for a
period of 12 months to ensure continuity of patient care and records as
NRI implements its quality care, billing, and supply systems. Firewalls
and confidentiality agreements will ensure that competitively sensitive
information is not exchanged. NRI has received substantial financial
backing from Centre Partners, a private equity firm focused on making
investments in middle market companies.
The Commission has appointed Richard Shermer as Monitor to oversee
the transition service agreements, and the implementation of, and
compliance with, the Consent Agreement. Mr. Shermer is the President of
R. Shermer & Company, a professional services firm that specializes in
providing services for companies undergoing transitions in ownership
through divestitures, mergers, or acquisitions. R. Shermer & Company
has served as a monitor in connection with other Commission actions.
The purpose of this analysis is to facilitate public comment on the
Consent Agreement, and it is not intended to constitute an official
interpretation of the proposed Decision and Order or the Order to
Maintain Assets, or to modify their terms in any way.
By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. E6-5053 Filed 4-6-06; 8:45 am]
BILLING CODE 6750-01-P
