CentraCare Health System; Analysis To Aid Public Comment, 71095-71098 [2016-24879]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 81, Number 199 (Friday, October 14, 2016)]
[Notices]
[Pages 71095-71098]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-24879]


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FEDERAL TRADE COMMISSION

[File No. 161 0096]


CentraCare Health System; Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair methods of competition. 
The attached Analysis to Aid Public Comment describes both the 
allegations in the complaint and the terms of the consent orders--
embodied in the consent agreement--that would settle these allegations.

DATES: Comments must be received on or before November 7, 2016.

ADDRESSES: Interested parties may file a comment at https://ftcpublic.commentworks.com/ftc/centracareconsent online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write ``St. Cloud Medical 
Group/CentraCare Health, File No. 1610096--Consent Agreement'' on your 
comment and file your comment online at https://ftcpublic.commentworks.com/ftc/centracareconsent by following the 
instructions on the Web-based form. If you prefer to file your comment 
on paper, write ``St. Cloud Medical Group/CentraCare Health, File No. 
1610096--Consent Agreement'' on your comment and on the envelope, and 
mail your comment to the following address: Federal Trade Commission, 
Office of the Secretary, 600 Pennsylvania Avenue NW., Suite CC-5610 
(Annex D), Washington, DC 20580, or deliver your comment to the 
following address: Federal Trade Commission, Office of the Secretary, 
Constitution Center, 400 7th Street SW., 5th Floor, Suite 5610 (Annex 
D), Washington, DC 20024.

FOR FURTHER INFORMATION CONTACT: Robert Canterman (202-326-2107), 
Bureau of Competition, 600 Pennsylvania Avenue NW., Washington, DC 
20580.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34, 
notice is hereby given that the above-captioned consent agreement 
containing consent orders 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

[[Page 71096]]

complaint. An electronic copy of the full text of the consent agreement 
package can be obtained from the FTC Home Page (for October 6, 2016), 
on the World Wide Web, at https://www.ftc.gov/os/actions.shtm.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before November 7, 
2016. Write ``St. Cloud Medical Group/CentraCare Health, File No. 
1610096--Consent Agreement'' 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 privileged or confidential,'' as discussed 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.
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    \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).
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    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/centracareconsent 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 ``St. Cloud Medical Group/
CentraCare Health, File No. 1610096--Consent Agreement'' on your 
comment and on the envelope, and mail your comment to the following 
address: Federal Trade Commission, Office of the Secretary, 600 
Pennsylvania Avenue NW., Suite CC-5610 (Annex D), Washington, DC 20580, 
or deliver your comment to the following address: Federal Trade 
Commission, Office of the Secretary, Constitution Center, 400 7th 
Street SW., 5th Floor, Suite 5610 (Annex D), Washington, DC. If 
possible, submit your paper comment to the Commission by courier or 
overnight service.
    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 November 7, 2016. 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 Orders To Aid Public Comment

I. Overview

    The Federal Trade Commission has accepted, subject to final 
approval, an Agreement Containing Consent Orders (``Consent 
Agreement'') from CentraCare Health that is designed to mitigate the 
anticompetitive effects that would result from CentraCare's acquisition 
of St. Cloud Medical Group, P.A. (``SCMG''), the two largest providers 
of adult primary care, pediatric, and obstetric/gynecological (``OB/
GYN'') services in the St. Cloud, Minnesota area. The Commission's 
willingness to accept this Consent Agreement is premised on the fact 
that SCMG is a financially failing physician practice group that has 
been unable to find an alternative purchaser for the entire practice as 
well as concerns regarding disruptions to patient care and possible 
physician shortages.
    On February 29, 2016, CentraCare entered a definitive agreement to 
acquire all outstanding shares of stock in SCMG (``the Acquisition''). 
Under the terms of the Acquisition, CentraCare is to directly employ 
all of SCMG's physicians and advanced practice providers (``APPs''). 
The Commission's Complaint alleges that the Acquisition, if 
consummated, would violate Section 7 of the Clayton Act, as amended, 15 
U.S.C. 18, by substantially lessening competition for the provision of 
adult primary care, pediatric, and OB/GYN services in St. Cloud, 
Minnesota.
    As the Complaint alleges, however, SCMG has recently lost its sole 
remaining line of credit and appears unlikely to be able to improve its 
financial condition. Physicians are leaving the group, and there is 
compelling evidence that others will depart the practice (and 
potentially the St. Cloud area) if the Acquisition is not consummated. 
Such physician departures would cause an immediate decline in revenues 
that could further destabilize the group. Although SCMG made a good-
faith, but ultimately unsuccessful, multi-year effort to find an 
alternative buyer for the entire medical group, one local provider has 
recently expressed interest in employing a subset of the group, and 
other smaller, independent practices in the St. Cloud area have 
indicated that they also would consider hiring some SCMG physicians.
    In light of this interest, the proposed Consent Agreement is 
designed to facilitate former SCMG physicians finding alternate local 
employment by suspending enforcement of any non-compete provisions 
against any adult primary care, pediatric, or OB/GYN physician from 
SCMG to allow up to 14 such physicians to depart for another St. Cloud 
area practice. It also encourages the creation of new competitors and 
the strengthening of smaller competitors by requiring CentraCare to 
provide sizeable departure payments to the first five physicians who 
leave CentraCare either to create a new medical practice or to join a 
small third-party medical practice in the St. Cloud area.
    The Consent Agreement includes an Order to Suspend Enforcement of 
CentraCare Non-Competes and Maintain Assets, which is final 
immediately, and a Decision and Order, which is subject to the 
Commission's final approval. The Consent Agreement has been placed on 
the public record for 30 days to receive comments from interested 
persons. Comments received during this period

[[Page 71097]]

will become part of the public record. After 30 days, the Commission 
will again review the Consent Agreement and the comments received and 
then decide whether it should withdraw from, modify, or make final the 
proposed Decision and Order.
    The purpose of this analysis is to facilitate public comment on the 
Consent Agreement. The analysis is not intended to constitute an 
official interpretation of the Consent Agreement or to modify its terms 
in any way. Further, the Consent Agreement has been entered into for 
settlement purposes only and does not constitute an admission by 
Respondent that it violated the law or that the facts alleged in the 
Complaint (other than jurisdictional facts) are true.

II. The Parties

    CentraCare is a non-profit organization providing healthcare 
services through its owned hospitals, medical clinics, pharmacies, 
nursing homes, and home health operations throughout central Minnesota. 
CentraCare is the parent entity to CentraCare Clinic, a multi-specialty 
physician practice employing family medicine, internal medicine, 
pediatric, and OB/GYN physicians, among other specialists. CentraCare 
Clinic has 16 locations across central Minnesota, with five of those 
offices located within 20 miles of St. Cloud. CentraCare Clinic is the 
largest provider of adult primary care, pediatric, and OB/GYN services 
in the St. Cloud area, with approximately 102 adult primary care 
physicians, 28 pediatricians, and 25 OB/GYNs.
    SCMG is a physician-owned multi-specialty medical clinic that 
operates four clinics in and around St. Cloud. SCMG's 40 physicians 
mainly provide family medicine, pediatrics, and OB/GYN services, but 
SCMG also offers surgical, occupational medicine, and rehabilitation 
services. SCMG also employs approximately 20 APPs.

III. The Complaint

    The Complaint alleges that the proposed Acquisition will 
substantially increase CentraCare's market share in the St. Cloud area 
for the provision of adult primary care, pediatric, and OB/GYN services 
to commercially insured patients. According to the Complaint, by 
eliminating SCMG as a potential alternative in the St. Cloud area, the 
Acquisition likely will increase CentraCare's bargaining power vis-
[agrave]-vis commercial health plans, allowing CentraCare to increase 
reimbursement rates and to secure more favorable terms. In addition, 
the Complaint alleges that the Acquisition likely will result in the 
loss of non-price competition between CentraCare and SCMG that 
currently results in quality and service benefits to patients. The 
Complaint further alleges that competition eliminated by the 
Acquisition is unlikely to be sufficiently replaced in a timely manner 
by other providers entering the market. The Complaint recognizes, 
however, that SCMG is unlikely to survive on its own, and that, despite 
a good-faith search, it has not identified an alternative buyer for the 
entire group.

IV. The Consent Agreement

    The goal of the Consent Agreement is to mitigate the competitive 
effects of the Acquisition by preserving, to the extent possible, 
competition for adult primary care, pediatric, and OB/GYN services in 
the St. Cloud area. At least one local provider may be a viable 
alternative purchaser to CentraCare for a portion of the practice in 
that they have the capacity and the desire to employ some SCMG 
physicians. Likewise, some SCMG physicians appear interested in these 
opportunities. Those parties need additional time to pursue such an 
arrangement, and other interested local providers looking to add 
physicians may be identified during this time as well.
    The Commission believes that the Consent Agreement presents the 
best opportunity to keep the SCMG physicians in the St. Cloud market, 
ensuring ongoing access to care and minimal disruption for St. Cloud 
area patients, while allowing local competitive alternatives to 
CentraCare for the relevant physician services to expand. The Consent 
Agreement will allow current SCMG physicians to accept alternative 
local employment opportunities post-acquisition without the risk of 
violating non-compete provisions in their employment contracts.
    Specifically, the Consent Agreement provides that following the 
issuance of a final Decision and Order and during the 90-day First 
Release Period, former SCMG physicians can terminate their employment 
with CentraCare without penalty if the physician:
    (1) Submits notice of an intention to terminate employment with 
CentraCare to a monitor who has been appointed by the Commission to 
assist in implementing the Consent Agreement in a manner that assures 
each physician's confidentiality;
    (2) States the intention to continue to practice in the St. Cloud 
area for at least two years;
    (3) Is among the first 14 physicians to submit a notice to 
terminate employment; and
    (4) Leaves employment with CentraCare within 60 days of CentraCare 
receiving notice from the monitor.

CentraCare may request that the First Release Period be terminated as 
soon as the monitor has determined that 14 physicians have met the 
requirements to terminate.
    If, at the end of the First Release Period, fewer than eight 
physicians have notified the monitor of their intent to terminate 
employment, a Second Release Period will commence. During the Second 
Release Period, CentraCare must also suspend the non-compete agreements 
of legacy CentraCare adult primary care, pediatric, and OB/GYN 
physicians (that is, those who did not come from SCMG) so that these 
physicians may explore and accept alternate employment opportunities in 
the St. Cloud area. The Second Release Period will end as soon as the 
monitor has informed CentraCare that eight physicians have met the 
requirements to terminate without penalty.
    To encourage the creation of new competitors and strengthening of 
smaller competitors, CentraCare also will deposit $500,000 into an 
escrow account to be awarded as $100,000 departure payments to the 
first five physicians who leave CentraCare either to create a new 
medical practice or to join a third-party medical practice that has 
five or fewer physicians in the St. Cloud area.
    Paragraphs II and III describe the basic terms under which 
physicians may terminate their employment with CentraCare. They 
prohibit CentraCare from: (1) Enforcing any non-compete, non-
solicitation, or non-interference provisions in their employment 
agreements; (2) pursuing any breach of contract action for violation of 
any of these provisions; or (3) taking any retaliatory action against 
any physician who either leaves under the terms of the Decision and 
Order or who decides not to leave after exploring other employment as 
allowed by the Decision and Order. The Decision and Order does not, 
however, require CentraCare to allow physicians to terminate their 
employment agreements in a manner other than that specified in the 
Decision and Order.
    Paragraph IV includes a number of provisions to ensure that 
CentraCare will not take any actions to discourage physicians from 
exploring opportunities to leave or from leaving CentraCare's 
employment pursuant to the Decision and Order. In addition, Paragraph

[[Page 71098]]

IV.A.1.f prohibits CentraCare from soliciting the employment of any 
physician that has departed CentraCare pursuant to the Consent Orders 
for a period of two years.
    Paragraph V requires CentraCare to give advanced notification for 
future acquisitions or employment contracts involving certain adult 
primary care, pediatrics, and OB/GYN services in the St. Cloud area for 
a period of three years.
    Paragraph VI requires CentraCare during the First Release Period to 
facilitate and not interfere with the search for alternate St. Cloud 
area employment by former SCMG employees, such as APPs and nurses. 
Paragraph VI also prohibits CentraCare from attempting to re-hire those 
employees for a period of two years.
    Paragraph VII specifies the rules governing the work of the 
monitor.
    The remaining order provisions are standard reporting requirements 
to allow the Commission to monitor on-going compliance with the 
provisions of the Decision and Order.
    In addition to the Decision and Order, the Consent Agreement 
includes an Order to Suspend Enforcement of CentraCare's Non-Competes 
and Maintain Assets that goes into effect immediately. The purposes of 
this Order are (1) to permit former SCMG physicians to explore 
alternative employment opportunities in the St. Cloud area; and (2) to 
maintain those assets and personnel from the SMCG to make the 
transition to a different practice as easy as possible.

    By direction of the Commission.
Donald S. Clark
Secretary.

Concurring Statement of Maureen K. Ohlhausen

    I have reason to believe that CentraCare Health System's 
(CentraCare) acquisition of St. Cloud Medical Group, P.A. (SCMG), if 
consummated, would violate Section 7 of the Clayton Act, as amended, 15 
U.S.C. 18, by substantially lessening competition for the provision of 
adult primary care, pediatric, and OB/GYN services in St. Cloud, 
Minnesota. I also believe the Consent Agreement, subject to final 
approval, represents the outcome most likely to minimize competitive 
harm and care disruption to the residents of the St. Cloud area. I 
write separately because, although it is a close determination, I do 
not believe SCMG meets the stringent failing firm criteria set forth in 
the Horizontal Merger Guidelines and case law.\1\
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    \1\ See, e.g., U.S. Dep't of Justice & Fed. Trade Comm'n, 
Horizontal Merger Guidelines Sec.  11 (2010); Citizen Publishing v. 
United States, 394 U.S. 131 (1969) (establishing a three-prong test 
for satisfying the failing firm defense); Fed. Trade Comm'n v. Arch 
Coal, Inc., 329 F. Supp. 2d 109, 154 (D.D.C. 2004).
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    Because of SCMG's financial challenges and facts unique to the SCMG 
practice structure and management, physicians are leaving the group, 
and compelling evidence indicates that, absent the acquisition, 
additional physicians plan to leave the group and possibly the area. 
This would diminish the competitive significance of SCMG and create 
potential disruptions to care and possible physician shortages in the 
St. Cloud area. These circumstances raise serious concerns about the 
likelihood that the Commission will be able to preserve competition and 
access to care for patients if it were to prevail in its challenge.
    Given this difficult scenario, I agree with my colleagues that the 
Consent Agreement presents the best opportunity to keep the SCMG 
physicians in the market, ensure ongoing access to care and minimal 
disruption for area patients, and permit the expansion of local 
competitive alternatives to CentraCare for the relevant physician 
services. Accordingly, I support the Consent Agreement on the basis 
that it is in the public interest.

[FR Doc. 2016-24879 Filed 10-13-16; 8:45 am]
 BILLING CODE 6750-01-P