[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