The Federal Trade Commission has approved UnitedHealth Group's $4.3 billion acquisition of DaVita Medical Group, with conditions.
UnitedHealth Group and DaVita have agreed to divest DaVita Medical Group's provider organization in the Las Vegas Area, known as HealthCare Partners of Nevada, to Intermountain Healthcare in Utah, no later than 40 days after acquisition.
The agreement resolves FTC allegations that the deal would harm competition in healthcare markets in Clark and Nye Counties, Nevada.
However, two commissioners expressed concern that the FTC did not go far enough and that they were prepared to challenge the deal in court.
Commissioners Rebecca Kelly Slaughter and Rohit Chopra said they agreed with the proposed remedy for Nevada, but disagreed with the commission's decision to not pursue an enforcement action in Colorado.
"We believe the evidence uncovered by Commission staff demonstrates that the vertical merger of United's health insurance and DMG's healthcare services businesses would likely result in actionable harm to competition in Colorado. We were prepared to challenge the transaction in court, given the likelihood of harm. We acknowledge that Commission action involving Colorado would have borne significant litigation risks, but we believe such risks were worth taking. Fortunately, the Attorney General of Colorado has taken action in an effort to address some of the harmful effects of the merger in a separate action," they said by statement.
Commissioners Noah Joshua Phillips and Christine S. Wilson said the evidence in support of likely harm in Colorado was not compelling, and therefore a federal judge was unlikely to grant that relief.
The acquisition in Colorado is vertical, Phillips and Wilson said, combining firms that operate at different levels of the supply chain and that do not compete with one another.
"We do not rule out the possibility that vertical mergers can harm competition under a RRC (raising rivals' costs) theory," they said. "But vertical mergers often generate procompetitive benefits that must also factor into the antitrust analysis. A major source of these benefits is the elimination of double-marginalization, which places downward pressure on prices in the output market."
The law on vertical mergers is relatively undeveloped, they said.
"Of course, all litigation presents risks, and sometimes the risks are worth taking. But, faced with a body of evidence of harm that was ambiguous in the first place, we cannot agree with our colleagues that this was a case on which to roll the dice," Phillips and Wilson said.
The Commission voted 4-0 to accept the proposed consent order for public comment, with Chairman Joseph J. Simons recused.
The FTC considers the merger both horizontal and vertical in nature because it combines two competing managed care provider organization service providers and also combines a managed care provider organization and insurance assets.
Without remedy, the proposed acquisition would have eliminated competition between UnitedHealth Group's OptumCare and DaVita Medical Group's HealthCare Partners of Nevada, resulting in a near monopoly controlling more than 80 percent of the market for services delivered by managed care provider organizations to Medicare Advantage insurers, according to the FTC. It would likely have reduced competition for managed care provider organization services and Medicare Advantage plans.
This could have increased healthcare costs, leading to the likelihood that the Centers for Medicare and Medicaid Services would make higher payments to Medicare Advantage insurers, and that seniors in the Las Vegas Area would have incurred higher cost-sharing payments and receive fewer benefits, the settlement said.
The proposed acquisition positioned UnitedHealth Group to raise the cost of its MCPO services to rival Medicare Advantage insurers, or even withhold such services from these rivals, according to the FTC.
Under the proposed settlement order, in addition to the divestiture obligations, UnitedHealth Group and DaVita are required to: provide transition assistance to Intermountain Healthcare; properly transfer all confidential business information; for one year after the divestiture date, provide Intermountain Healthcare with the opportunity to interview and hire employees to fill key information technology and critical services positions in HealthCare Partners of Nevada; and until the divestiture is complete, maintain the assets and marketability of HealthCare Partners of Nevada.
Each violation of such an order may result in a civil penalty of up to $42,530.
The proposed settlement also appoints John P. Harris as monitor to ensure that UnitedHealth Group and DaVita comply with all of their obligations. If not, the order allows the Commission to appoint a divestiture trustee.
Concurrently with the proposed settlement, Intermountain Healthcare will divest its minority stake in rival Las Vegas Area MCPO, P3 Health Partners.
Staff spent more than a year and a half investigating the competitive effects of this acquisition, which involves assets in several states, including Colorado, Florida, New Mexico, Nevada, and Washington.
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