FTC restricts DaVita's Utah dialysis clinic acquisitions, reinstates prior approval policy

The Federal Trade Commission (FTC) has reined in DaVita’s Utah expansion, ordering the kidney care giant to divest itself of three dialysis clinics alongside other new restrictions including a 10-year requirement to seek prior approval for any future acquisitions within the state.

The regulator’s proposed order, issued Monday, follows an investigation into last month’s proposed acquisition of the University of Utah’s dialysis business, which aimed to bring 18 Utah dialysis clinics under DaVita’s wing.

The FTC argued in its complaint (PDF) that there are only three providers of outpatient dialysis services in the greater Provo, Utah, area, with DaVita and the University of Utah managing seven out of eight total clinics.

As new entrants into that market are unlikely, the proposed acquisition “would eliminate actual, direct and substantial competition between DaVita and University in the market for outpatient dialysis services in the relevant area, increasing the ability of the merged entity unilaterally to raise prices for outpatient dialysis services and reducing incentives to improve service or quality in the relevant market,” the FTC wrote in its complaint.

“DaVita has a history of attempting to buy up competing dialysis clinics in an industry that is already highly concentrated, in large part due to the acquisition activity of DaVita and other large dialysis clinic chains,” Bureau of Competition Director Holly Vedova said in the FTC’s announcement. “This is a big concern, and it is compounded by the fact that the limited number of nephrologists available to work at the clinics creates an opportunity for anticompetitive restrictions on labor.”

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Under the proposed consent order for public comment, DaVita is required to sell off three of the Provo clinics to Sanderling Renal Services, which does not currently operate any dialysis centers in Utah, and provide up to a year of transition services.

The proposed order also prohibits DaVita from applying noncompete agreements with University of Utah physicians, restricting Sanderling from soliciting DaVita employees and directly soliciting patients who receive services from the three divested clinics for a period of two years.

The FTC’s decision marks a return of the regulator’s prior approval policy, which had been rescinded back in 1995.

According to a policy statement issued Monday, acquisitive firms will now need to receive the regulator’s signoff when pursuing a deal in any market where harm was alleged to have occurred within the 10 years prior.

“The FTC should not have to waste valuable time and resources investigating clearly anticompetitive deals that should have died in the boardroom,” Vedova said in a statement. “Restoring the long-standing prior approval policy forces acquisitive firms to think twice before going on a buying binge because the FTC can simply say no.”

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The FTC said it will be weighing “a number of factors” such as market concentration and the parties’ history of acquisitiveness when determining the scope of a prior approval provision, noting that such restrictions could be imposed upon areas broader than a single relevant market.

Such will be the case with DaVita, which the FTC said has a “history of fueling market consolidation for these life-saving services.” Under the proposed order, the company will need to seek prior approval from the regulator before acquiring a dialysis clinic anywhere in the state of Utah over the next 10 years.

The proposed order was approved unanimously by the FTC’s five commissioners. Commissioner Christine Wilson wrote in a concurring statement that the order’s prior approval, noncompete and no-poach provisions are appropriate both broadly and in the context of a July indictment in which DaVita was accused of agreements with competitors not to recruit employees.

This week’s action and the restoration of prior approval is a clear sign of the regulator’s tougher stance on mergers and acquisitions.

Over the summer, President Joe Biden had ordered the FTC and other government agencies to review their guidelines for mergers across healthcare and other industries. The FTC has generally been quiet in the time since but did warn businesses to be cautious moving forward with any planned mergers as the regulator made its way through a “tidal wave” of backlogged deals.