Trying to block a merger between Sanford Health and Mid Dakota Clinic, the Federal Trade Commission and North Dakota Attorney General’s Office made their case for a preliminary injunction in U.S. District Court.
Monday began the four-day hearing in Bismarck. The first day consisted of opening statements and largely closed testimony by FTC witnesses.
The magistrate’s decision could halt the two medical organizations' merger talks, preserving the status quo until a formal FTC hearing takes place Nov. 28 in Washington, D.C.
In their opening statements, the lawyers haggled over whether the merger would reduce competition for a number of medical services in Bismarck-Mandan, resulting in potential antitrust law violation.
The FTC made the point that a merged Sanford and Mid Dakota would control the lion's share of the market for primary care, pediatric, obstetrics and gynecology, and general surgery.
The agency also said the merger would increase the providers’ bargaining leverage with insurance companies, possibly leading to higher rates, increased premiums and higher co-pays, deductibles, or other out-of-pocket expenses.
Sanford and Mid Dakota turned to the argument of a “powerful buyer,” in the form of Blue Cross Blue Shield of North Dakota, keeping rates in line.
The FTC countered the argument that Blue Cross can thwart any attempt to raise prices, “inflates the powerful buyer definition,” said Thomas Dillickrath, FTC trial council.
In early 2015, Mid Dakota was in talks with both Sanford and CHI St. Alexius Health over potential mergers. In spring 2016, Mid Dakota lawyers said CHI St. Alexius walked away for undisclosed reasons.
“No one can say MDC is failing today,” Sanford's lawyer Bob Cooper said, but he added that the organization was looking to its future, upcoming retirements and a need for a more firm financial footing that a larger, better capitalized organization could provide.
Cooper also said the FTC’s arguments ignore “the market dynamics at play here in North Dakota.”
According to court documents filed by the FTC, Sanford employs 36 primary care physicians and Mid Dakota employs 23. CHI St. Alexius Health President Kurt Schley testified that CHI employs five in its Mandan clinic and has been reliant upon Mid Dakota in Bismarck. There also are a handful of other independent operators in Bismarck.
In pediatrics, Schley testified MDC and Sanford would have 20 physicians, while CHI would have none in an outpatient setting. There also are about 15 OBGYNs between Sanford and Mid Dakota with little competition elsewhere. And the FTC shows 10 general surgeons at Sanford and Mid Dakota with none at CHI.
But Cooper said in other cities in the state, there is no correlation between concentration and payment for services. He argued this is because Blue Cross Blue Shield sets rates rather than negotiating them, resulting in uniform pricing statewide.
“This is not a theory; it’s a fact,” Cooper said.
He said because Blue Cross will still have a corner on the health insurance market, despite having lost the large contract for insuring North Dakota public employees to Sanford's health insurance division, and therefore will continue to set its own prices.
Sanford also argued CHI is "well positioned, well motivated, and well on its way," to increasing its presence in the market and providing competition. Cooper said the competing hospital has already started to recruit more primary care physicians.
The FTC doesn't see it that way, arguing that it will still take time for CHI to build up, and the damage will have been done.
“Harm is harm,” Dillickrath said.