FTC Challenges Illegal Agreement to Close, Acquire Dialysis Clinics

The Federal Trade Commission today announced a consent order settling charges that two dialysis clinic operators – American Renal Associates, Inc. and Fresenius Medical Care Holdings, Inc. – unlawfully restrained competition in violation of Section 5 of the FTC Act when ARA paid Fresenius to close clinics located near competing ARA clinics in Rhode Island and Massachusetts. The order also settles charges that ARA’s proposed acquisition of two other Fresenius clinics, in the Warwick/Cranston area of Rhode Island, would violate Section 7 of the Clayton Act.

According to the FTC, agreements to pay a competitor to exit a market, such as the one negotiated between ARA and Fresenius, are unlawful and per se illegal. Similarly, the acquisition as originally proposed would have eliminated direct competition between ARA and Fresenius clinics, and resulted in ARA operating the only dialysis clinics in the Warwick/Cranston area. The parties terminated their agreement containing the offending provisions after FTC staff raised antitrust concerns.

The consent order prohibits ARA and Fresenius from agreeing with any clinic operator to close clinics or otherwise allocate dialysis markets, territories, or customers, and requires ARA to notify the FTC before it acquires any dialysis clinic assets in the Warwick/Cranston area.

“This case reinforces the long-standing and basic principle that a naked agreement to eliminate competition between rivals constitutes a violation of the antitrust laws,” said Jeffrey Schmidt, Director of the FTC’s Bureau of Competition. “The FTC’s action announced today will prevent a recurrence of the conduct alleged here, and preserve the benefits of competition – lower prices and higher service levels – for dialysis patients in the affected areas.”

The Asset Purchase Agreement

The parties entered into an asset purchase agreement dated August 3, 2005, under which ARA proposed to purchase five Rhode Island dialysis clinics from Fresenius. The agreement also required Fresenius to close an additional three clinics – two in Rhode Island and one in Fall River, Massachusetts. The parties terminated the asset purchase agreement on March 13, 2006, after FTC staff raised antitrust concerns.

The Commission’s Complaint

The FTC’s complaint alleges two separate violations of the antitrust laws. First, the Commission charges that the agreement between ARA and Fresenius to close three Fresenius clinics was a naked agreement to eliminate competition in the affected areas (East Providence and North Providence, Rhode Island, and Fall River, Massachusetts), and so constitutes an unfair method of competition under Section 5 of the FTC Act. The effect of this elimination of competition would have been an increase in ARA’s ability to raise prices in these areas and to reduce ARA’s incentives to improve service and quality. Neither party offered a plausible pro-competitive justification for the clinic closing agreement.

Second, the Commission charges that ARA’s proposed acquisition of two Fresenius clinics in Warwick, Rhode Island would substantially reduce competition for outpatient dialysis services in the Warwick/Cranston area, in violation of Section 7 of the Clayton Act. The complaint alleges that the market for outpatient dialysis services in the Warwick/Cranston area is highly concentrated, with ARA and Fresenius the only two providers, and that the transaction as originally proposed would have resulted in a monopoly for ARA. According to the FTC, entry by a competing firm was unlikely to be timely or sufficient to offset the likely anticompetitive effects of the transaction. The result of the transaction as proposed, therefore, would likely be higher prices and reduced incentives to improve service in the Warwick/Cranston area.

Terms of the Consent Order

The Commission’s consent order is designed to remedy each of the charged violations. First, ARA and Fresenius are prohibited from agreeing with any dialysis clinic operator to close any clinic or otherwise allocate any dialysis market, territory, or customer. Second, the order requires ARA to notify the FTC of its intention to acquire any dialysis clinic assets in the Warwick/Cranston area of Rhode Island – the relevant geographic market affected by the challenged acquisition proposal. The Commission included the prior notice requirement because it believes that ARA may remain interested in expanding in Warwick/Cranston, and any acquisitions in the area would likely fall below the Hart-Scott-Rodino (HSR) premerger filing thresholds and so would not otherwise be reported to the Commission. The order will expire in 10 years.

The Commission vote approving issuance of the complaint and consent order was 5-0. The order will be subject to public comment for 30 days, until October 9, 2007, after which the Commission will decide whether to make it final. Comments should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 20580.

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.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at http://www.ftc.gov/competitioncounts.