MGMA 2009 Annual Conference, Oct. 12, 2009

Wait! Before you merge, make sure your arrangement is legal

Practices need to review antitrust laws before joining forces

By Matthew Vuletich, MGMA senior writer/editor

The growing movement toward medical practice mergers has attracted the attention of the Federal Trade Commission (FTC) and Department of Justice (DOJ), said Christi J. Braun, JD, MPH, an associate with Ober Kaler, a law firm with offices in Maryland, Virginia and Washington, D.C. She cautioned attendees at the MGMA 2009 Annual Conference in Denver to make sure they avoid the antitrust traps that can ensnare practice integration efforts.

Antitrust laws

Laws that govern medical practice mergers include:

  • Sections 7 and 7a of the Clayton Act
  • Sections 1 and 2 of the Sherman Antitrust Act
  • Section 5 of the FTC Act

Analyzing a merger

Some 48 states have antitrust laws in addition to the federal ones, Braun said. The FTC/DOJ Horizontal Merger Guidelines can serve as a resource for practices contemplating a merger. The guidelines are not laws but explain how antitrust agencies and the courts analyze mergers, Braun said. They: 

  • Define relevant product market: the type of medical practice, e.g., primary care, cardiology, orthopedics
  • Define relevant geographic market: generally a 5-mile radius from the office for primary care practices and larger areas for specialty organizations
  • Calculate market share: measured by revenue or patient population
  • Determine market power and anticompetitive concerns: the ability of a group to raise and sustain prices above competitive levels and to potentially diminish the quality of the product/service provided so that it is below competitive levels.
  • Precompetitive efficiencies: the increased ability of a merged group to buy new equipment that it was unable to afford before integration

The FTC and DOJ recently announced that they will review whether the Horizontal Merger Guidelines need to be updated, Braun said, suggesting that medical practice professionals might want to weigh in on that discussion.

Go all the way

Braun urged medical practice considering a merger to make sure they fully integrate or achieve "single-entity status." While a practice can have multiple sites, it should have single governance and administrative structures, as well as single production and administrative plans.

"Eat-what-you-kill" compensation plans that pay physicians solely based on their own production tend to attract regulators' attention, Braun cautioned. She urged practices to include a shared compensation component in their plans.

She cited another example of two medical practices that merged on only a surface level in Washington State. They kept staffs, offices, billing functions and records separate but attempted to negotiate reimbursement contracts with payers as a single practice. Federal regulators coaxed the groups to dissolve the pseudo merger without having to take legal action.    

Lessons for practices

When integrating, practices should: 

  • Not increase market share too much
  • Ensure that the merger offers precompetitive efficiencies
  • Ensure that they have no documents stating that the reason to integrate is to increase reimbursement rates – not even in meeting minutes

Also, don't be greedy. "We have a saying in the office: Pigs get fat, hogs get slaughtered," she said. A hog would raise its raise immediately after a merger, for example.

While the FTC and the DOJ are the organizations that investigate potentially illegal mergers, they usually receive tips on who to investigate from payers or a practice's competitors. Failing to measure your potential merger from a regulatory perspective before you integrate could end in a government-forced breakup.

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MGMA 2009 Annual Conference

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