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Injunction Stalls Sanford Health, Mid Dakota Merger

By John Commins  
   December 14, 2017

The FTC and North Dakota Attorney General’s Office say the deal would hurt competition in the Bismarck area and ultimately result in higher healthcare costs for consumers.

A federal magistrate judge in North Dakota has issued a preliminary injunction blocking the proposed acquisition of Mid Dakota Clinic by Sanford Health.

The suit was brought by the North Dakota Attorney General's Office and the Federal Trade Commission, which contend that the acquisition would adversely affect competition in the Bismarck service area and increase the cost of healthcare for consumers.  

The injunction issued this week follows a four-day hearing in U.S. District Court in Bismarck that heard from 16 witnesses and included more than 1,600 exhibits, and halts the acquisition until a Federal Trade Commission administrative hearing on Jan. 17.

Mid Dakota Clinic employs 61 physicians and 19 advanced practice practitioners and operates six clinics in Bismarck, a women’s health center, and an ambulatory surgery center. The proposed merger was announced in June and immediately drew the attention of state and federal regulators.

The FTC and state officials contend that the acquisition would create a physician group controlling at least 75% to 85% of market for adult primary care, pediatrics, and obstetrics and gynecology services. The merged clinic also would be the only physician group offering general surgery services in the area, and could stifle efforts by other providers to enter or expand in the service area, the complaint states.

Sanford and Mid Dakota said the complaint fails to consider the leveraging power of Blue Cross Blue Shield of North Dakota, the region’s largest commercial payer, which would preclude anticompetitive effects that might result from the acquisition.  

Sanford Health spokesman Jon Berg said the health system is "disappointed" with the ruling but that an appeal is in the works.

"With all due respect, we believe that the court is wrong on the law and wrong on the facts," Berg said. "Put simply, the government’s case rests on theories that are at odds with reality here in North Dakota. Sanford and Mid Dakota Clinic are committed to letting Mid Dakota Clinic follow the course that it has selected for maintaining and building on the care it provides to its patients."

"The court’s decision will delay the realization of improved access and the introduction of new services we can achieve together," Berg said. "But this is not the end of the road. We are committed to fighting for the communities we serve, and look forward to bringing this case to the U.S. Court of Appeals for the Eighth Circuit as quickly as possible."

North Dakota Attorney General Wayne Stenehjen said he was "very pleased with the court’s decision and feel confident that the Court recognized the potential negative consequences for patients in the Bismarck-Mandan area. Today’s decision is in the best interests of the community." 

Federal Trade Commission Acting Bureau of Competition Director Bruce Hoffman called the injunction "good news for patients and their families in the Bismarck and Mandan metropolitan area."

"We look forward to proving at trial that this merger would likely reduce competition, resulting in higher prices and lower quality of adult primary care physician services, pediatric services, obstetrics and gynecology services, and general surgery physician services in that area of North Dakota," Hoffman said.

Jay L. Levine, an antitrust attorney with Porter Wright, and a disinterested observer in the case, says the FTC has to prove the merger will reduce competition in the form of higher prices, reduced output, lower quality and less innovation.

"If the FTC can prove that the merger will result in one entity controlling the market for physician services, such that no managed care company can create a network without including the merged entity, it probably satisfies its burden," Levine says.

Sanford could have a more difficult time making its case, Levine says.

"Sanford can either defend the merger showing that the FTC's allegation of control over the physician market is not accurate, or can try and demonstrate that even despite such control, the merger would not give rise to any of the anti-competitive effects predicted," he said. "They could also try to show that the merger’s efficiencies outweigh any of the harmful competitive effects the merger is likely to cause.  All of these options will be difficult for Sanford."

Sanford, the largest health system in the state, has an extensive presence in the Bismarck area that includes a 217-bed general acute care hospital and a network of primary care and specialty clinics, employing 160 physicians and 100 non-physician healthcare providers.

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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