The Federal Trade Commission today 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 that will be issued, 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. (Renal Advantage) 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.
“Every consumer who uses the healthcare system in the United States is aware of the rising costs of necessary services,” said Susan Creighton, Director of the FTC’s Bureau of Competition. “The consent agreement announced by the Commission today will ensure that consumers who need outpatient dialysis services will be protected from the higher prices that likely would have resulted from the transaction as proposed.”
Outpatient Dialysis Services
DaVita and Gambro both operate outpatient dialysis clinics throughout the United States. DaVita is the second-largest provider of outpatient dialysis services nationwide, with 665 outpatient clinics in 37 states and the District of Columbia, at which approximately 55,000 end stage renal disease (ESRD) patients receive treatment. Gambro, a subsidiary of Sweden’s Gambro AB, is the third-largest provider of such services in the United States, with 565 clinics serving approximately 43,200 ESRD patients in 33 states and the District of Columbia.
For patients with ESRD, dialysis treatments replace the lost function of their kidneys by removing toxins and excess fluid from their blood. Most patients receive three treatment sessions per week, with each session lasting between three and five hours. The only therapeutic alternative to ongoing dialysis treatments for ESRD patients is kidney transplantation, but some patients are not viable transplant candidates and the wait-time for a donor kidney can exceed five years during which the patients must continue receiving dialysis treatments.
The FTC’s Complaint
According to the Commission’s complaint, DaVita’s proposed acquisition of Gambro would be anticompetitive and in violation of Section 5 of the FTC Act and Section 7 of the Clayton Act, as amended. DaVita and Gambro account for a significant proportion of the dialysis clinics and treatment stations in many local areas in the United States, and the acquisition, if consummated, would lessen competition for outpatient dialysis services in 35 markets nationwide.
In its investigation, the Commission determined that the relevant geographic markets for the provision of dialysis services are local in nature and are limited by factors such as the distance beyond which it would be burdensome for ESRD patients to travel for treatment, geographic barriers, travel patterns, and whether an area is urban, suburban, or rural. In general, most ESRD patients are not willing to travel for a long time or distance in order to receive dialysis treatment. As a result, competition among dialysis clinics occurs at a local level.
The complaint states that entry into the local market for outpatient dialysis services on a level necessary to alleviate the competition lost by the transaction as proposed is not likely to occur in a timely manner. In each of the markets identified in the Commission's complaint, such entry would be unlikely due to factors such as the difficulty associated with locating nephrologists with established patient pools to serve as clinic medical directors.
Each of the markets identified in the FTC’s complaint is highly concentrated, with the proposed transaction likely to result in monopolies for outpatient dialysis clinic provision in 11 markets and a reduction in the number of providers from three to two in 13 other markets. In the remaining 11 markets, concentration would increase significantly without the relief provided by the Commission’s consent agreement. The evidence shows that DaVita and Gambro are head-to-head competitors in these markets and that health insurance companies and other private payors who pay for dialysis services used by their members benefit from this direct competition between DaVita and Gambro when negotiating the rates to be charged by the dialysis provider. As a result, the proposed combination of DaVita and Gambro would likely lead to higher prices and diminished services and quality for outpatient dialysis treatment services in the markets identified in the complaint.
Terms of the Consent Agreement
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.
The consent agreement contains a separate order to maintain assets that will ensure the assets to be divested remain viable and competitive pending their sale to Renal Advantage. The Commission also has appointed two monitors to oversee the transitional service agreement and to monitor DaVita’s compliance with the terms of the consent agreement.
The Commission vote to approve the complaint, consent order, order to maintain assets, and interim monitor agreement was 4-0. The order will be subject to public comment for 30 days, until November 1, 2005, after which the Commission will decide whether to make it final. Comments should be sent to the Federal Trade Commission, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 20580. The Attorney Generals’ Offices in California, Michigan, Florida, and Maryland assisted in the investigation of this matter.
NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.
Copies of the complaint, consent agreement, order to maintain assets, and an analysis to aid public comment are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC’s Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC. 20580, Electronic Mail: email@example.com; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws,” which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.
(FTC File No.: 051-0051)