FTC and Nevada Attorney General Settle with Renown Health for Anticompetitive Behavior

August 14, 2012 | Health Services

On August 6, the Federal Trade Commission (the “FTC”) and the State of Nevada entered into a settlement with Renown Health (“Renown”) regarding Renown’s anticompetitive actions in the Reno cardiology market. The FTC alleged that Renown’s acquisition of two cardiology groups in the area effectively removed all competition from the market. As part of the settlement, Renown will be prevented from enforcing the non-compete clauses of up to 10 physicians that leave Renown.

Renown originally retained no cardiologists on their staff. In November of 2010, Renown bought Sierra Nevada Cardiology Associates (“SNCA”) for approximately $3.4 million. As part of the purchase, all 15 SNCA cardiologists signed employment agreements with Renown. Then, in March 2011, Renown purchased Reno Heart Physicians for $4 million, and in doing so executed employment agreements with 17 more cardiologists. As a result, Renown employed all but one cardiologist in the Reno area, or 97% of the cardiologists in the relevant services market (which was defined by the sale of cardiology services to commercial health insurers). Following the original purchases, two cardiologists left Renown and three entered, causing Renown to retain 88% of the cardiologists within the Reno market.

All of the physicians employed with Renown have restrictive non-compete clauses. The clauses prevented cardiologists that left Renown from entering into any agreement to provide cardiology services or otherwise practicing cardiology within 50 miles of the physician’s principal place of practice for two years. Further, the physicians were barred from contacting or soliciting any previous patients or causing an entity with a relationship with Renown from severing that relationship for two years. The penalty for violating this non-compete clause was the greater of $150,000 plus a year’s salary or $750,000.

The FTC alleged that the disproportionate share of Renown in the cardiology market in Reno coupled with the non-compete clauses removed competition from the market. Specifically, consolidating the cardiology practices into one group “led to the elimination of competition based on price, quality, and other terms.”[1] The consolidation increased the bargaining power that Renown had with insurers, which the FTC argued could lead to higher prices for cardiology services in Reno. Further, in addition to the consolidation of competition, the non-compete clauses erected a barrier to entry into the market according to the FTC. Since the clauses would prohibit recruiting cardiologists form the area, the FTC argued it would be incredibly difficult to enter the market to compete with Renown. The consolidation of providers, it was argued, resulted in a violation of Section 7 of the Clayton Act (15 U.S.C. § 18) and Nevada unfair trade practice statutes.

The settlement requires Renown take steps to allow for competition to occur within the market, as well as pay Nevada no less than $550,000 and institute a compliance program. The steps to foster competition are:

  1. Renown cannot enforce the non-compete clauses in its cardiologist’s employment agreements from the date of the final order by the FTC to thirty days past that date.
  2. Renown must allow every cardiologist that wishes to terminate his or her contract under the suspension of the non-compete clause to do so for 60 days.
  3. Renown must waive any right to enforce the non-compete clause until at least six cardiologists have terminated their employment agreements.
  4. Renown may not interfere with employment discussions or otherwise take action to discourage any cardiologist from leaving Renown.
  5. Renown must provide transition services required by the physician’s employment agreement.
  6. Renown must provide notice of future cardiology transactions.

The settlement is still subject to court approval and is open for comment through September 5, 2012.

Renown represents an example that may be hard to duplicate in the New York City Metro region, as it is difficult to imagine one particular group gaining upwards of 88% of market share in the region through the consolidation of specialists. However, this settlement does serve as a warning for those participating in and looking to expand “mega-groups.” This action by the FTC does not make it clear where the line is for a group to become anticompetitive, it simply illustrates that 88% is too high. And while part of the action was under Nevada law, New York State has similar laws on unfair trade and competition that could be equally as damaging to a potential violator. It is important for those in growing groups to recognize the potential antitrust issues that such a group may face, as the FTC has illustrated overlooking such issues can be costly.

For the FTC’s press release, please visit http://www.ftc.gov/opa/2012/08/renownhealth.shtm. For a copy of the settlement, please visit http://www.healthlawyers.org/Members/PracticeGroups/Antitrust/emailalerts/Documents/120808_RenownFinalJudgment.pdf. For a copy of the FTC’s complaint, please visit http://www.healthlawyers.org/Members/PracticeGroups/Antitrust/emailalerts/Documents/120808_RenownComplaint.pdf.

[1] FTC Press Release, FTC Order Will Restore Competition for Adult Cardiology Services in Reno, Nevada.

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