[Federal Register Volume 70, Number 195 (Tuesday, October 11, 2005)]
[Notices]
[Pages 59069-59071]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-20312]
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FEDERAL TRADE COMMISSION
[File No. 051 0051]
DaVita, Inc.; Analysis of Agreement Containing Consent Orders 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 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 November 1, 2005.
ADDRESSES: Interested parties are invited to submit written comments.
Comments should refer to ``DaVita, Inc., File No. 051 0051,'' to
facilitate the 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 email messages directed to the
following e-mail box: [email protected].
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\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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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 http://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 Web site. More information, including routine uses permitted by
the Privacy Act, may be found in the FTC's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.
FOR FURTHER INFORMATION CONTACT: Richard H. Cunningham, Bureau of
Competition, 600 Pennsylvania Avenue, NW., Washington, DC 20580, (202)
326-2214.
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 October 4, 2005), on the World Wide Web, at http://www.ftc.gov/os/2005/10/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.
[[Page 59070]]
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 DaVita Inc. (``DaVita''). The purpose of the Consent
Agreement is to remedy the anticompetitive effects resulting from
DaVita's purchase of Gambro Healthcare Inc. (``Gambro'') from Gambro
AB. Under the terms of the Consent Agreement, DaVita is required to
divest 69 dialysis clinics and terminate 2 management services
contracts in 35 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 December 6, 2004, DaVita proposes to
acquire Gambro from Gambro AB for approximately $3.1 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 lessening competition in the market for the
provision of outpatient dialysis services in 35 markets.
II. The Parties
Headquartered in El Segundo, California, DaVita is the second
largest provider of outpatient dialysis services in the United States.
DaVita operates 665 outpatient dialysis clinics in 37 states and the
District of Columbia at which approximately 55,000 end stage renal
disease (``ESRD'') patients receive treatment. In 2003, DaVita's
revenues were approximately $2.1 billion.
Gambro AB is a publicly-traded Swedish corporation with worldwide
operations focused in three business fields: operating dialysis
centers, manufacturing dialysis equipment, and providing technology and
products to blood centers and hospital blood banks. Gambro is Gambro
AB's entire U.S. dialysis services business. Gambro, headquartered in
Denver, Colorado, is the third largest provider of outpatient dialysis
services in the United States, with 565 outpatient dialysis clinics
serving approximately 43,200 ESRD patients in 33 states and the
District of Columbia. In 2003, Gambro's revenues were approximately
$1.8 billion.
III. Outpatient Dialysis Services
Outpatient dialysis services is the appropriate relevant product
market in which to assess the effects of the proposed transaction. For
patients suffering from 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
treatments 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, many ESRD patients have no alternative to
ongoing dialysis treatments.
The relevant geographic markets for the provision of dialysis
services are local in nature. They are limited by the distance ESRD
patients are willing and/or able to travel to receive dialysis
treatments. Most ESRD patients are quite ill and suffer from multiple
health problems. As such, it is difficult for ESRD patients to travel
long distances for dialysis treatment. Generally, ESRD patients are
unwilling and/or unable to travel further than 30 miles or 30 minutes
to receive dialysis treatments, depending on traffic patterns, local
geography, and the patient's proximity to the nearest center. As a
result, competition among dialysis clinics occurs at a local level,
corresponding to metropolitan areas or subsets thereof.
Entry into the outpatient dialysis services markets addressed by
the Consent Agreement 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 to serve as medical directors. By law, each dialysis
clinic must have a nephrologist medical director. As a practical
matter, medical directors are 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, entry
is also inhibited where certain attributes (such as 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 addressed by the Consent Agreement
is highly concentrated. The proposed acquisition represents a merger to
monopoly in 11 markets and would cause the number of providers to drop
from 3 to 2 in 13 other markets. Additionally, concentration increases
significantly in the remaining 11 markets addressed by the Consent
Agreement. In each of these markets, the post-acquisition HHI exceeds
4,000, and the change in HHI is at least 800. The high post-acquisition
concentration levels, along with evidence of DaVita and Gambro's head-
to-head competition in these markets, indicates that the combined firm
would be able to exercise unilateral market power. 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 DaVita and Gambro when negotiating the rates to be charged by
the dialysis provider. As a result, the proposed combination likely
would result in higher prices and diminished service and quality for
outpatient dialysis services in many geographic markets.
IV. The Consent Agreement
The Consent Agreement effectively remedies the proposed
acquisition's anticompetitive effects in 35 markets where both DaVita
and Gambro operate dialysis clinics by requiring DaVita to divest--
prior to acquiring Gambro--68 outpatient dialysis clinics to Renal
Advantage and one outpatient dialysis clinic to its medical directors
and their partners. The Consent Agreement also requires DaVita to
terminate two management services agreements pursuant to which it
manages outpatient dialysis clinics on behalf of third-party owners. As
with the divestitures, termination of these management services
agreements will ensure that these clinics remain viable independent
competitors.
As part of these divestitures, DaVita is required to obtain the
agreement of the medical directors affiliated with the divested clinics
to continue providing
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physician services after the transfer of ownership to Renal Advantage.
Similarly, the Consent Agreement requires DaVita to obtain the consent
of all lessors necessary to assign the leases for the real property
associated with the divested clinics to Renal Advantage. These
provisions ensure that Renal Advantage 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 Renal Advantage with the opportunity to
interview and hire employees affiliated with the divested clinics and
prevents DaVita from offering these employees incentives to decline
Renal Advantage's offer of employment. This will ensure that Renal
Advantage has access to patient care and supervisory staff who are
familiar with the clinics' patients and the local physicians. Second,
the Consent Agreement prevents DaVita from contracting with the medical
directors (or their practice groups) affiliated with the divested
clinics for three years. This provides Renal Advantage with sufficient
time to build goodwill and a working relationship with its medical
directors before DaVita can attempt to capitalize on its prior
relationships in soliciting their services. Third, to ensure continuity
of patient care and records as Renal Advantage implements its quality
care, billing, and supply systems, the Consent Agreement allows DaVita
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 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 care to patients. Finally,
the Consent Agreement requires DaVita to provide prior notice to the
Commission of its planned acquisitions of dialysis clinics located in
the 35 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 Renal Advantage is a qualified
acquirer of the divested assets. Renal Advantage is a newly-formed
company whose management has extensive experience operating, acquiring,
and developing outpatient dialysis clinics. The company has received a
substantial equity investment from Welsh, Carson, Anderson, and Stowe,
which is the largest healthcare-focused private equity firm in the
United States.
The Commission has appointed Mitch Nielson and John Strack of
FocalPoint Medical Consulting Group (``FocalPoint'') as Monitors to
oversee the transition service agreements, and the implementation of,
and compliance with, the Consent Agreement. Messrs. Nielson and Strack
are the principles of FocalPoint, which provides consulting services to
the healthcare industry.
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. 05-20312 Filed 10-7-05; 8:45 am]
BILLING CODE 6750-01-P