[Federal Register Volume 71, Number 67 (Friday, April 7, 2006)]
[Notices]
[Pages 17874-17876]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-5053]


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FEDERAL TRADE COMMISSION

[File No. 051 0154]


Fresenius AG; 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 May 2, 2006.

ADDRESSES: Interested parties are invited to submit written comments. 
Comments should refer to ``Fresenius AG, File No. 051 0154,'' to 
facilitate the

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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 e-mail 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 website. 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: Gary H. Schorr, Bureau of Competition, 
600 Pennsylvania Avenue, NW., Washington, DC 20580, (202) 326-3063.

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 March 31, 2006), on the World Wide Web, at http://www.ftc.gov/os/2006/03/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.
    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 Fresenius AG and entities it controls, including 
Fresenius Medical Care AG & Co. KGaA, Fresenius Medical Care Holdings, 
Inc., and Florence Acquisition, Inc. (``Fresenius''). The purpose of 
the Consent Agreement is to prevent the anticompetitive effects that 
would result from Fresenius's purchase of Renal Care Group, Inc. 
(``RCG''). Under the terms of the Consent Agreement, Fresenius is 
required to divest 91 dialysis clinics, and RCG's joint venture equity 
interests in an additional 12 clinics, in 66 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 May 3, 2005, Fresenius proposed to 
acquire RCG for approximately $3.5 billion. The Commission's complaint 
alleges, as summarized in sections II and III below, 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 local 
geographic markets across the United States.

II. The Parties

    Fresenius, based in Germany, has its United States headquarters in 
Lexington, Massachusetts. After acquiring RCG, Fresenius will be the 
largest provider of outpatient dialysis services in the United States. 
In 2005, Fresenius had approximately $4.1 billion in revenues from the 
provision of outpatient dialysis services to approximately 89,000 end 
stage renal disease (``ESRD'') patients at approximately 1,155 
outpatient dialysis clinics nationwide.
    Headquartered in Nashville, Tennessee, RCG is the third-largest 
provider of outpatient dialysis services in the United States, with 
approximately 450 outpatient dialysis clinics nationwide, at which over 
32,000 ESRD patients receive treatment. In 2005, RCG had approximately 
$1.5 billion in revenues from the provision of outpatient dialysis 
services at approximately 450 clinics.

III. Outpatient Dialysis Services

    Outpatient dialysis services is the relevant product market in 
which to assess the effects of the proposed transaction. Most ESRD 
patients receive dialysis treatments in an outpatient dialysis clinic 
three times per week, in sessions lasting between three and five hours. 
The only alternative to outpatient dialysis treatments for ESRD 
patients is a kidney transplant. 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 Commission's complaint alleges that the relevant geographic 
markets for the provision of dialysis services are local in nature. 
They are circumscribed by the distance ESRD patients are able to travel 
to receive dialysis treatments. Most ESRD patients are quite ill and 
suffer from multiple health problems. As such, ESRD patients are 
unwilling and/or unable to travel long distances for dialysis 
treatment. The time and distance a patient will travel in a particular 
location are significantly affected by traffic patterns; whether an 
area is urban, suburban, or rural; local geography; and a patient's 
proximity to the nearest center. The size and dimensions of relevant 
geographic markets are also influenced by a variety

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of other factors including population density, roads, geographic 
features, and political boundaries.
    The Commission alleges that each of the 66 outpatient dialysis 
markets defined in the complaint is highly concentrated. With few 
exceptions, these markets have no more than one significant dialysis 
provider other than Fresenius and RCG. In each of these 66 markets, 
evidence that Fresenius and RCG are actual and substantial competitors 
in these markets, along with the high post-acquisition concentration 
levels, suggest that the combined firm likely would be able to exercise 
unilateral market power. The evidence shows that health plans and other 
private payors who pay dialysis providers for dialysis services used by 
their members benefit from direct competition between Fresenius and RCG 
when negotiating the rates of the dialysis provider. As a result, the 
proposed combination likely would result in higher prices and reduced 
incentives to improve service or quality for outpatient dialysis 
services in the 66 outpatient dialysis markets defined in the 
complaint.
    In the outpatient dialysis services markets defined by the 
complaint, entry 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 who are willing and able to serve as medical directors. 
Federal law requires each dialysis clinic to have a physician medical 
director. As a practical matter, having a nephrologist serve as medical 
director is essential to the success of a clinic because they are the 
primary source of referrals. Entry is also inhibited where certain 
attributes (such as a rapidly growing ESRD population, a favorable 
regulatory environment, average or below average nursing and labor 
costs, and a low penetration of managed care) are not present, as the 
Commission alleges is the case in particular geographic markets defined 
in the Commission's complaint.

IV. The Consent Agreement

    The Consent Agreement effectively prevents the anticompetitive 
effects that the proposed acquisition would otherwise be likely to have 
in the 66 markets where both Fresenius and RCG operate dialysis 
clinics, by requiring Fresenius to divest 91 outpatient dialysis 
clinics, and RCG's joint venture equity interests in 12 additional 
clinics, to National Renal Institutes, Inc. (``NRI''), a wholly-owned 
subsidiary of DSI Holding Company, Inc.
    As part of these divestitures, Fresenius is required to obtain the 
agreement of the medical directors affiliated with the divested clinics 
to continue providing physician services after the transfer of 
ownership to NRI. Similarly, the Consent Agreement requires Fresenius 
to obtain the consent of all lessors necessary to assign the leases for 
the real property associated with the divested clinics to NRI. These 
provisions ensure that NRI 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 will be successful. First, the 
Consent Agreement provides NRI with the opportunity to interview and 
hire employees affiliated with the divested clinics, and prevents 
Fresenius from offering these employees incentives to decline NRI's 
offer of employment. This will ensure that NRI has access to patient 
care and supervisory staff who are familiar with the clinic's patients 
and the local physicians. Second, the Consent Agreement prevents 
Fresenius from contracting with the medical directors (or their 
practice groups) affiliated with the divested clinics for three years. 
This provides NRI with sufficient time to build goodwill and a working 
relationship with its medical directors before Fresenius can attempt to 
capitalize on its prior relationships in soliciting their services. 
Third, the Consent Agreement requires Fresenius to provide NRI with a 
license to Fresenius's policies and procedures, as well as the option 
to obtain Fresenius's medical protocols, which will further enhance 
NRI's ability to provide continuity of care to patients. Finally, the 
Consent Agreement requires Fresenius to provide prior notice to the 
Commission of its planned acquisitions of dialysis clinics located in 
the 66 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 NRI is a qualified acquirer of the 
divested assets. NRI's management team has extensive experience in all 
facets of operating and developing outpatient dialysis clinics. In 
addition, Fresenius will provide transition services to NRI for a 
period of 12 months to ensure continuity of patient care and records as 
NRI implements its quality care, billing, and supply systems. Firewalls 
and confidentiality agreements will ensure that competitively sensitive 
information is not exchanged. NRI has received substantial financial 
backing from Centre Partners, a private equity firm focused on making 
investments in middle market companies.
    The Commission has appointed Richard Shermer as Monitor to oversee 
the transition service agreements, and the implementation of, and 
compliance with, the Consent Agreement. Mr. Shermer is the President of 
R. Shermer & Company, a professional services firm that specializes in 
providing services for companies undergoing transitions in ownership 
through divestitures, mergers, or acquisitions. R. Shermer & Company 
has served as a monitor in connection with other Commission actions.
    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. E6-5053 Filed 4-6-06; 8:45 am]
BILLING CODE 6750-01-P