On October 25, 2021, the Federal Trade Commission (FTC) published a policy statement that reinstated its "prior approval" policy applicable to parties subject to an FTC order that are contemplating a future merger, acquisition or other applicable transaction. As explained in the FTC's press release, the "prior approval" policy was previously suspended in a 1995 FTC policy statement, which policy statement has now been rescinded. In summary, organizations subject to a consent order or other FTC order will now be required to provide prior notice to, and obtain prior approval from, the FTC for applicable future transactions (regardless of size or the applicability of Hart-Scott-Rodino pre-merger notice requirements). The FTC's renewed policy may signal that the FTC intends to engage in more rigorous reviews and challenges of potentially anticompetitive transactions in the healthcare industry and beyond.
The FTC cited several reasons for the policy change, including:
- Preventing and deterring potentially anticompetitive transactions by parties that have previously engaged in (or attempted to engage in) anticompetitive transactions;
- Preserving FTC resources by allowing preemptive review/approval of potentially anticompetitive transactions without having to undertake expensive litigation, settlement and/or divestiture (associated with post-closing challenges and/or Hart-Scott-Rodino reviews); and
- Allowing the FTC to proactively review potentially anticompetitive transactions more broadly (including smaller transactions that might not reach Hart-Scott-Rodino thresholds).
The FTC may impose the "prior approval" requirement on parties as part of its divestiture orders, settlement/consent orders or standalone "prior approval" orders implemented after a transaction is subject to an FTC complaint/challenge — such an order may be imposed even if the parties subsequently abandon the transaction, provided that a decision to abandon the transaction will be considered by the FTC in determining whether to impose the order. If the FTC decides to implement a prior approval order, the order will apply for a minimum of ten years. The FTC will also determine the scope of the geographic and product markets covered by the order. In determining the market scope, the FTC will consider, among other things, the party's market power, the nature of the transaction involved, concentration in the applicable markets, the acquisitive history of the party, and any anticompetitive market dynamics.
Moreover, the FTC specifically reserves the right to impose a prior approval order that applies to geographic and product markets beyond those involved in the problematic transaction or even where the parties currently operate. As an illustration of such extended scope, the FTC recently announced that it would seek to impose a prior approval order on future transactions by DaVita, Inc., a Colorado-based dialysis provider with a significant acquisition history, as a result of DaVita's acquisition of dialysis clinics from the University of Utah, which order would also require, among other things, that DaVita divest itself of three of the acquired clinics. Under the proposed order, for a period of ten years, DaVita would be required to seek prior FTC approval of any transaction involving acquisition of a dialysis clinic located anywhere in Utah, a geographic scope beyond that impacted by the University of Utah transaction in question.
The FTC's policy change likely suggests that it will be undertaking a more stringent review of potentially anticompetitive transactions generally (especially involving parties with a history of allegedly anticompetitive conduct). However, reading further between the lines, the FTC's proposed imposition of prior approval requirements on DaVita over an expanded geographic market might also suggest that the FTC will be more aggressive in reviewing and/or challenging transactions in which a party that already has significant market power would expand (via merger or acquisition) into a new contiguous or incremental market in which the party does not already operate.
Traditional horizontal merger analysis tends to focus on the parties involved and existing or likely competition between them in their current potentially overlapping markets, which analysis might overlook a party's ability to incrementally expand its market power into nearby markets where it does not currently operate, especially if the parties do not materially compete and/or do not have significant market overlap. The FTC's announcement is another indication that parties analyzing a merger should take a more comprehensive approach to determine whether a proposed transaction might be considered to have anticompetitive effects, including specifically whether it would permit a party with significant market power to expand such power into new markets and assert anticompetitive leverage.
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