Fresenius Medical Care AG & Co. KGaA; Analysis of Agreement Containing Consent Orders To Aid Public Comment, 13324-13326 [2012-5331]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 77, Number 44 (Tuesday, March 6, 2012)]
[Notices]
[Pages 13324-13326]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-5331]


=======================================================================
-----------------------------------------------------------------------

FEDERAL TRADE COMMISSION

[File No. 111 0170]


Fresenius Medical Care AG & Co. KGaA; 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 March 29, 2012.

ADDRESSES: Interested parties may file a comment online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write ``Fresenius Liberty, 
File No. 111 0170'' on your comment, and file your comment online at 
https://ftcpublic.commentworks.com/ftc/freseniuslibertyconsent, by 
following the instructions on the web-based form. If you prefer to file 
your comment on paper, mail or deliver your comment to the following 
address: Federal Trade Commission, Office of the Secretary, Room H-113 
(Annex D), 600 Pennsylvania Avenue NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Lisa De Marchi Sleigh (202-326-2535), 
FTC, Bureau of Competition, 600 Pennsylvania Avenue NW., Washington, DC 
20580.

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 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 February 28, 2012), on the World Wide Web, at https://www.ftc.gov/os/actions.shtm. 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.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before March 29, 2012. 
Write ``Fresenius Liberty, File No. 111 0170'' on your comment. Your 
comment--including your name and your state--will be placed on the 
public record of this proceeding, including, to the extent practicable, 
on the public Commission Web site, at https://www.ftc.gov/os/publiccomments.shtm. As a matter of discretion, the Commission tries to 
remove individuals' home contact information from comments before 
placing them on the Commission Web site.
    Because your comment will be made public, you are solely 
responsible for making sure that your comment does not include any 
sensitive personal information, like anyone's Social Security number, 
date of birth, driver's license number or other state identification 
number or foreign country equivalent, passport number, financial 
account number, or credit or debit card number. You are also solely 
responsible for making sure that your comment does not include any 
sensitive health information, like medical records or other 
individually identifiable health information. In addition, do not 
include any ``[t]rade secret or any commercial or financial information 
which is obtained from any person and which is privileged or 
confidential,'' as provided in Section 6(f) of the FTC Act, 15 U.S.C. 
46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). In particular, do 
not include competitively sensitive information such as costs, sales 
statistics, inventories, formulas, patterns, devices, manufacturing 
processes, or customer names.
    If you want the Commission to give your comment confidential 
treatment, you must file it in paper form, with a request for 
confidential treatment, and you have to follow the procedure explained 
in FTC Rule 4.9(c), 16 CFR 4.9(c).\1\ Your comment will be kept 
confidential only if the FTC General Counsel, in his or her sole 
discretion, grants your request in accordance with the law and the 
public interest.
---------------------------------------------------------------------------

    \1\ In particular, the written request for confidential 
treatment that accompanies the comment must include the factual and 
legal basis for the request, and must identify the specific portions 
of the comment to be withheld from the public record. See FTC Rule 
4.9(c), 16 CFR 4.9(c).
---------------------------------------------------------------------------

    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we encourage you to submit 
your comments online. To make sure that the Commission considers your 
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/freseniuslibertyconsent by following the instructions on the web-
based form. If this Notice appears at https://www.regulations.gov/#!home, you also may file a comment through that Web site.
    If you file your comment on paper, write ``Fresenius Liberty, File 
No. 111 0170'' on your comment and on the envelope, and mail or deliver 
it to the following address: Federal Trade Commission, Office of the 
Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue NW., 
Washington, DC 20580. If possible, submit your paper comment to the 
Commission by courier or overnight service.

[[Page 13325]]

    Visit the Commission Web site at https://www.ftc.gov to read this 
Notice and the news release describing it. The FTC Act and other laws 
that the Commission administers permit the collection of public 
comments to consider and use in this proceeding as appropriate. The 
Commission will consider all timely and responsive public comments that 
it receives on or before March 29, 2012. You can find more information, 
including routine uses permitted by the Privacy Act, in the 
Commission's privacy policy, at https://www.ftc.gov/ftc/privacy.htm.

Analysis of Agreement Containing Consent Order To Aid Public Comment

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Orders (``Consent 
Agreement'') from Fresenius Medical Care AG & Co. KGaA (``Fresenius''). 
The purpose of the Consent Agreement is to remedy the anticompetitive 
effects resulting from Fresenius's purchase of Liberty Dialysis 
Holdings, Inc. (``Liberty''). Under the terms of the Consent Agreement, 
Fresenius is required to divest 60 dialysis clinics and terminate one 
management contract in 43 geographic 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 August 1, 2011, Fresenius proposes 
to acquire Liberty for approximately $2.1 billion. The Commission's 
complaint alleges 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 substantially lessening competition in 43 markets for the 
provision of outpatient dialysis services.

The Parties

    Headquartered in Bad Homburg, Germany, Fresenius is the largest 
provider of outpatient dialysis services in the United States. 
Fresenius operates more than 1,800 outpatient dialysis clinics in all 
50 states and the District of Columbia treating approximately 131,000 
patients. In 2010, Fresenius's revenues were approximately $8 billion.
    Liberty, headquartered in Mercer Island, Washington, is a privately 
held company and the third-largest provider of outpatient dialysis 
services in the United States. Liberty operates 260 dialysis centers, 
providing dialysis services to approximately 19,000 patients in 32 
states and the District of Columbia.

Outpatient Dialysis Services

    Outpatient dialysis services is the relevant product market in 
which to assess the effects of the proposed transaction. For patients 
suffering from End Stage Renal Disease (``ESRD''), dialysis treatments 
are a life-sustaining therapy that replaces the function of the kidneys 
by removing toxins and excess fluid from the blood. Most ESRD patients 
receive dialysis treatment three times per week in sessions lasting 
between three and five hours. Kidney transplantation is the only 
alternative to dialysis for ESRD patients. 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, ESRD patients have no 
alternative to dialysis treatments. ESRD patients who are not 
hospitalized must obtain dialysis treatments from outpatient dialysis 
clinics.
    Dialysis services are provided in local geographic markets limited 
by the distance ESRD patients are able to travel to receive treatments. 
ESRD patients are often very ill and suffer from multiple health 
problems, making travel further than 30 miles or 30 minutes very 
difficult. As a result, competition among dialysis clinics occurs at a 
local level, corresponding to metropolitan areas or subsets thereof. 
The exact contours of each market vary depending on traffic patterns, 
local geography, and the patient's proximity to the nearest center.
    Entry into the outpatient dialysis services markets identified in 
the Commission's Complaint is not likely to occur in a timely manner at 
a level sufficient to deter or counteract the likely anticompetitive 
effects of the proposed transaction. The primary barrier to entry is 
the difficulty associated with locating nephrologists with established 
patient pools to serve as medical directors. By law, each dialysis 
clinic must have a nephrologist medical director. As a practical 
matter, medical directors are also essential to the success of a clinic 
because they are the primary source of referrals. The lack of available 
nephrologists with an established referral stream is a significant 
barrier to entry into each of the relevant markets. Beyond that, the 
attractiveness of entry is diminished where certain attributes, 
including a rapidly growing ESRD population, a favorable regulatory 
environment, average or below nursing and labor costs, and a low 
penetration of managed care are not present, as is the case in many of 
the geographic markets identified in the Commission's complaint.
    Each of the geographic markets identified in the Complaint is 
highly concentrated. The proposed acquisition represents a merger-to-
monopoly in 17 markets and would cause the number of providers to drop 
from three to two in 24 other markets. Additionally, in the remaining 
two markets identified in the Complaint, concentration is already very 
high and would increase significantly. In these two markets, the fourth 
market participant is small and does not meaningfully impact 
competition. Further, the evidence shows that health insurance 
companies and other private payors who pay for dialysis services used 
by their members benefit from direct competition between Fresenius and 
Liberty when negotiating rates charged by dialysis providers. The high 
post-acquisition concentration levels, along with the elimination of 
Fresenius's and Liberty's head-to-head competition in these markets 
suggest the proposed combination likely would result in higher prices 
and diminished service and quality for outpatient dialysis services in 
many geographic markets.

The Consent Agreement

    The Consent Agreement remedies the proposed acquisition's 
anticompetitive effects in 43 markets where both Fresenius and Liberty 
operate dialysis clinics by requiring Fresenius to divest 54 outpatient 
dialysis clinics to Dialysis Newco, Inc. (d/b/a DSI Renal) (``New 
DSI''); divest one outpatient dialysis clinic to Alaska Investment 
Partners LLC (``AIP''), and five outpatient dialysis clinics to Dallas 
Renal Group (``DRG''). The Consent Agreement also requires Fresenius to 
terminate one management services agreement pursuant to which it 
manages an outpatient dialysis clinic on behalf of a third-party owner. 
As with the divestitures, termination of this management services 
agreement will ensure that this clinic remains a viable independent 
competitor.
    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 the

[[Page 13326]]

buyers. 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 the buyers. These 
provisions ensure that each buyer 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 are successful. First, the 
Consent Agreement provides each buyer with the opportunity to interview 
and hire employees affiliated with the divested clinics and prevents 
Fresenius from offering these employees incentives to decline any 
buyer's offer of employment. This will ensure that each buyer has 
access to patient care and supervisory staff who are familiar with the 
clinics' 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 each buyer 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, to ensure continuity of patient 
care and records as each buyer implements its quality care, billing, 
and supply systems, the Consent Agreement allows Fresenius to provide 
transition services for a period of 12 months. Firewalls and 
confidentiality agreements have been established to ensure that 
competitively sensitive information is not exchanged. Fourth, the 
Consent Agreement requires Fresenius to provide each buyer with a 
license to use Fresenius's policies, procedures, and medical protocols, 
as well as the option to obtain Fresenius's medical protocols, which 
will further enhance the buyer's ability to continue to care for 
patients in the clinics that will be divested. Finally, the Consent 
Agreement requires Fresenius to provide notice to the Commission prior 
to any acquisitions of dialysis clinics in the markets addressed by the 
Consent Agreement in order to ensure that subsequent acquisitions do 
not adversely impact competition in the markets at issue or undermine 
the remedial goals of the proposed order.
    The Commission is satisfied that New DSI is a qualified acquirer of 
the majority of the divested assets. New DSI is currently a significant 
operator of dialysis clinics, having been formed to acquire the 
divested assets resulting from the 2011 DaVita/DSI investigation. The 
company was formed by Frazier Healthcare, a firm with a dedicated focus 
on healthcare, and New Enterprise Associates, the world's largest 
venture capital firm with over $10.5 billion under management.
    Similarly, the Commission is satisfied that AIP is a qualified 
acquirer of divested assets in Alaska. AIP is a limited liability 
company wholly-owned by Dr. Mary Dittrich, the divested clinic's 
medical director, and Dr. William Dittrich. AIP has received financial 
support from Crystal Cascades LLC, an investment fund that manages $100 
million.
    Finally, the Commission is satisfied that DRG is a qualified 
acquirer of divested assets in the Dallas, Texas area. DRG is an 
integrated care provider in Dallas, Texas with nine nephrologists on 
staff and whose nephrologists currently serve as the medical directors 
of these divested assets. DRG holds the majority ownership interest in 
the five Liberty clinics in Dallas that would be divested, and has a 
strong reputation in the Dallas area.
    The Commission has appointed Richard Shermer of R. Shermer & Co. as 
an Interim Monitor to oversee the transition service agreements, and 
the implementation of, and compliance with, the Consent Agreement. Mr. 
Shermer assists client companies undergoing ownership transitions, and 
has specific experience with transitions of outpatient dialysis 
clinics.
    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. 2012-5331 Filed 3-5-12; 8:45 am]
BILLING CODE 6750-01-P