[Federal Register Volume 77, Number 44 (Tuesday, March 6, 2012)]
[Notices]
[Pages 13324-13326]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-5331]
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FEDERAL TRADE COMMISSION
[File No. 111 0170]
Fresenius Medical Care AG & Co. KGaA; 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 March 29, 2012.
ADDRESSES: Interested parties may file a comment online or on paper, by
following the instructions in the Request for Comment part of the
SUPPLEMENTARY INFORMATION section below. Write ``Fresenius Liberty,
File No. 111 0170'' on your comment, and file your comment online at
https://ftcpublic.commentworks.com/ftc/freseniuslibertyconsent, by
following the instructions on the web-based form. If you prefer to file
your comment on paper, mail or deliver your comment to the following
address: Federal Trade Commission, Office of the Secretary, Room H-113
(Annex D), 600 Pennsylvania Avenue NW., Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT: Lisa De Marchi Sleigh (202-326-2535),
FTC, Bureau of Competition, 600 Pennsylvania Avenue NW., Washington, DC
20580.
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 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 February 28, 2012), on the World Wide Web, at http://www.ftc.gov/os/actions.shtm. 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.
You can file a comment online or on paper. For the Commission to
consider your comment, we must receive it on or before March 29, 2012.
Write ``Fresenius Liberty, File No. 111 0170'' on your comment. Your
comment--including your name and your state--will be placed on the
public record of this proceeding, including, to the extent practicable,
on the public Commission Web site, at http://www.ftc.gov/os/publiccomments.shtm. As a matter of discretion, the Commission tries to
remove individuals' home contact information from comments before
placing them on the Commission Web site.
Because your comment will be made public, you are solely
responsible for making sure that your comment does not include any
sensitive personal information, like anyone's Social Security number,
date of birth, driver's license number or other state identification
number or foreign country equivalent, passport number, financial
account number, or credit or debit card number. You are also solely
responsible for making sure that your comment does not include any
sensitive health information, like medical records or other
individually identifiable health information. In addition, do not
include any ``[t]rade secret or any commercial or financial information
which is obtained from any person and which is privileged or
confidential,'' as provided in Section 6(f) of the FTC Act, 15 U.S.C.
46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). In particular, do
not include competitively sensitive information such as costs, sales
statistics, inventories, formulas, patterns, devices, manufacturing
processes, or customer names.
If you want the Commission to give your comment confidential
treatment, you must file it in paper form, with a request for
confidential treatment, and you have to follow the procedure explained
in FTC Rule 4.9(c), 16 CFR 4.9(c).\1\ Your comment will be kept
confidential only if the FTC General Counsel, in his or her sole
discretion, grants your request in accordance with the law and the
public interest.
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\1\ In particular, the written request for confidential
treatment that accompanies the comment must include the factual and
legal basis for the request, and must identify the specific portions
of the comment to be withheld from the public record. See FTC Rule
4.9(c), 16 CFR 4.9(c).
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Postal mail addressed to the Commission is subject to delay due to
heightened security screening. As a result, we encourage you to submit
your comments online. To make sure that the Commission considers your
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/freseniuslibertyconsent by following the instructions on the web-
based form. If this Notice appears at http://www.regulations.gov/#!home, you also may file a comment through that Web site.
If you file your comment on paper, write ``Fresenius Liberty, File
No. 111 0170'' on your comment and on the envelope, and mail or deliver
it to the following address: Federal Trade Commission, Office of the
Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue NW.,
Washington, DC 20580. If possible, submit your paper comment to the
Commission by courier or overnight service.
[[Page 13325]]
Visit the Commission Web site at http://www.ftc.gov to read this
Notice and the news release describing it. The FTC Act and other laws
that the Commission administers permit the collection of public
comments to consider and use in this proceeding as appropriate. The
Commission will consider all timely and responsive public comments that
it receives on or before March 29, 2012. You can find more information,
including routine uses permitted by the Privacy Act, in the
Commission's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.
Analysis of Agreement Containing Consent Order To Aid Public Comment
The Federal Trade Commission (``Commission'') has accepted, subject
to final approval, an Agreement Containing Consent Orders (``Consent
Agreement'') from Fresenius Medical Care AG & Co. KGaA (``Fresenius'').
The purpose of the Consent Agreement is to remedy the anticompetitive
effects resulting from Fresenius's purchase of Liberty Dialysis
Holdings, Inc. (``Liberty''). Under the terms of the Consent Agreement,
Fresenius is required to divest 60 dialysis clinics and terminate one
management contract in 43 geographic 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 August 1, 2011, Fresenius proposes
to acquire Liberty for approximately $2.1 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 substantially lessening competition in 43 markets for the
provision of outpatient dialysis services.
The Parties
Headquartered in Bad Homburg, Germany, Fresenius is the largest
provider of outpatient dialysis services in the United States.
Fresenius operates more than 1,800 outpatient dialysis clinics in all
50 states and the District of Columbia treating approximately 131,000
patients. In 2010, Fresenius's revenues were approximately $8 billion.
Liberty, headquartered in Mercer Island, Washington, is a privately
held company and the third-largest provider of outpatient dialysis
services in the United States. Liberty operates 260 dialysis centers,
providing dialysis services to approximately 19,000 patients in 32
states and the District of Columbia.
Outpatient Dialysis Services
Outpatient dialysis services is the relevant product market in
which to assess the effects of the proposed transaction. For patients
suffering from End Stage Renal Disease (``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 treatment 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, ESRD patients have no
alternative to dialysis treatments. ESRD patients who are not
hospitalized must obtain dialysis treatments from outpatient dialysis
clinics.
Dialysis services are provided in local geographic markets limited
by the distance ESRD patients are able to travel to receive treatments.
ESRD patients are often very ill and suffer from multiple health
problems, making travel further than 30 miles or 30 minutes very
difficult. As a result, competition among dialysis clinics occurs at a
local level, corresponding to metropolitan areas or subsets thereof.
The exact contours of each market vary depending on traffic patterns,
local geography, and the patient's proximity to the nearest center.
Entry into the outpatient dialysis services markets identified in
the Commission's Complaint is not likely to occur in a timely manner at
a level sufficient to deter or counteract the likely anticompetitive
effects of the proposed transaction. 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 also 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, the
attractiveness of entry is diminished where certain attributes,
including 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 identified in the Complaint is
highly concentrated. The proposed acquisition represents a merger-to-
monopoly in 17 markets and would cause the number of providers to drop
from three to two in 24 other markets. Additionally, in the remaining
two markets identified in the Complaint, concentration is already very
high and would increase significantly. In these two markets, the fourth
market participant is small and does not meaningfully impact
competition. Further, 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 Fresenius and
Liberty when negotiating rates charged by dialysis providers. The high
post-acquisition concentration levels, along with the elimination of
Fresenius's and Liberty's head-to-head competition in these markets
suggest the proposed combination likely would result in higher prices
and diminished service and quality for outpatient dialysis services in
many geographic markets.
The Consent Agreement
The Consent Agreement remedies the proposed acquisition's
anticompetitive effects in 43 markets where both Fresenius and Liberty
operate dialysis clinics by requiring Fresenius to divest 54 outpatient
dialysis clinics to Dialysis Newco, Inc. (d/b/a DSI Renal) (``New
DSI''); divest one outpatient dialysis clinic to Alaska Investment
Partners LLC (``AIP''), and five outpatient dialysis clinics to Dallas
Renal Group (``DRG''). The Consent Agreement also requires Fresenius to
terminate one management services agreement pursuant to which it
manages an outpatient dialysis clinic on behalf of a third-party owner.
As with the divestitures, termination of this management services
agreement will ensure that this clinic remains a viable independent
competitor.
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 the
[[Page 13326]]
buyers. 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 the buyers. These
provisions ensure that each buyer 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 each buyer with the opportunity to interview
and hire employees affiliated with the divested clinics and prevents
Fresenius from offering these employees incentives to decline any
buyer's offer of employment. This will ensure that each buyer has
access to patient care and supervisory staff who are familiar with the
clinics' 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 each buyer 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, to ensure continuity of patient
care and records as each buyer implements its quality care, billing,
and supply systems, the Consent Agreement allows Fresenius 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 Fresenius to provide each buyer with a
license to use Fresenius's policies, procedures, and medical protocols,
as well as the option to obtain Fresenius's medical protocols, which
will further enhance the buyer's ability to continue to care for
patients in the clinics that will be divested. Finally, the Consent
Agreement requires Fresenius to provide notice to the Commission prior
to any acquisitions of dialysis clinics in the markets addressed by the
Consent Agreement in order to ensure that subsequent acquisitions do
not adversely impact competition in the markets at issue or undermine
the remedial goals of the proposed order.
The Commission is satisfied that New DSI is a qualified acquirer of
the majority of the divested assets. New DSI is currently a significant
operator of dialysis clinics, having been formed to acquire the
divested assets resulting from the 2011 DaVita/DSI investigation. The
company was formed by Frazier Healthcare, a firm with a dedicated focus
on healthcare, and New Enterprise Associates, the world's largest
venture capital firm with over $10.5 billion under management.
Similarly, the Commission is satisfied that AIP is a qualified
acquirer of divested assets in Alaska. AIP is a limited liability
company wholly-owned by Dr. Mary Dittrich, the divested clinic's
medical director, and Dr. William Dittrich. AIP has received financial
support from Crystal Cascades LLC, an investment fund that manages $100
million.
Finally, the Commission is satisfied that DRG is a qualified
acquirer of divested assets in the Dallas, Texas area. DRG is an
integrated care provider in Dallas, Texas with nine nephrologists on
staff and whose nephrologists currently serve as the medical directors
of these divested assets. DRG holds the majority ownership interest in
the five Liberty clinics in Dallas that would be divested, and has a
strong reputation in the Dallas area.
The Commission has appointed Richard Shermer of R. Shermer & Co. as
an Interim Monitor to oversee the transition service agreements, and
the implementation of, and compliance with, the Consent Agreement. Mr.
Shermer assists client companies undergoing ownership transitions, and
has specific experience with transitions of outpatient dialysis
clinics.
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. 2012-5331 Filed 3-5-12; 8:45 am]
BILLING CODE 6750-01-P