Antitrust and Physician Mergers (Connecticut and New Jersey)
While the acquisition or merger of most physician practices generally will not rise to the level which would require approval from the Federal Trade Commission or the United States Justice Department under the Hart-Scott-Rodino Act, a statute adopted earlier this year in the State of Connecticut (P.A. 14-168) has now taken effect that mandates that parties to any transaction resulting in “material changes” to a group medical practice must notify the Attorney General at least 30 days in advance of the effective date of the transaction. While there is no such requirement in the State of New Jersey, the State of New Jersey has in the past floated, and on a limited basis implemented, proposals under which the New Jersey Department of Health (as opposed to the Board of Medical Examiners) would regulate certain aspects of the private practice of medicine. Those efforts have largely been suppressed by various decisions rendered over the years, including the decision of the New Jersey Appellate Division in Marsh v. Finley, 160 N.J. Super. 193 (1978), in which the Appellate Division found that New Jersey’s Health Care Facilities Planning Act (and the regulations adopted thereunder) did not apply to a physician’s private practice.
In a statement released on September 29, 2014, Connecticut Attorney General George Jepsen noted that “[a]cquisitions and mergers often make business sense, and may lead to some efficiencies and more integrated care, but they also may lessen competition, leading to higher prices and fewer consumer options”. Jepsen further noted that “[t]he notice requirement enacted this year will allow us to better monitor the health care market and, where appropriate, to enforce antitrust laws designed to protect Connecticut consumers.” The new law was apparently proposed in response to a number of mergers and consolidations of physician practices in Connecticut.
While there are other technical requirements in the new Connecticut law, it is clear that the overall purpose of the law is to enable the state to proactively enforce the State’s antitrust laws against “anticompetitive” results, when, as determined by the Connecticut Attorney General, there is a possibility that a proposed merger, consolidation or acquisition involving a physician practice could raise the price of services or severely lessen competition. At the federal level, the St. Alphonsus Medical Center v. St. Luke’s Health System case, in which the United Stated District Court for the District of Idaho held that the acquisition of a large physician practice (the largest independent multi-specialty group in the state) by a health care system that operated seven hospitals throughout the state violated the antitrust laws and rejected a defense involving the concept of the accountable care organizations, is clear notice that such transactions are being closely monitored and may be challenged if not properly structured to comply with state and federal antitrust laws.
The application of both federal and state antitrust laws (even in New Jersey, which has a state antitrust statute), therefore must be considered by physicians practicing in the State of New Jersey, whenever a transaction involving the acquisition or merger of a physician practice with or into a health care system or other physician practice is proposed. Although neither New Jersey law nor the federal Hart-Scott-Rodino law contains a notification requirement similar to the notification requirement adopted in Connecticut, a transaction involving the acquisition or merger of a physician practice with or into a health care system or other physician practice can still, as in theSt. Luke’s case, be challenged under the federal or state antitrust laws if it is not carefully planned and structured to comply with antitrust laws.