In a recent decision, the Eighth Circuit upheld a preliminary injunction blocking the proposed merger between Sanford Health, Sanford Bismarck (“Sanford Health”) and Mid Dakota Clinic, P.C. (“Mid-Dakota Clinic”). The Federal Trade Commission and State of North Dakota alleged that the proposed merger would substantially lessen competition in four types of physician services in the Bismarck-Mandan area. The merging parties argued that the district court did not account for the dominant position of Blue Cross Blue Shield of North Dakota (“Blue Cross”). However, after considering the role of Blue Cross, the Eighth Circuit upheld the district court’s determination of the relevant market and concluded that the district court did not err in its review of defendants’ rebuttal arguments.
The Eighth Circuit found that Blue Cross’ alleged dominant position was not relevant to market definition, because “the hypothetical monopolist test evaluates whether an insurer could avoid a price increase by contracting with physicians who offer services that are outside of the proposed services market or who are located in a region outside of the proposed geographic market.” The Eighth Circuit specifically noted that even if Blue Cross could be considered a power buyer, this would not impact its ability to find substitute physician services to those in the alleged relevant market. Further, Blue Cross, like other health plans, would need to include physicians from the four types of services located in the Bismarck-Mandan area in order to offer a competitive health plan in that area. Simply, the Eighth Circuit found that the merging parties’ power buyer argument did not address how insurers would switch from the services in the alleged relevant market to alternative services in response to relative price changes.
The merging parties also argued that the presumption that increased concentration will lead to increased prices does not apply, because Blue Cross is a dominant buyer that sets reimbursement rates using a statewide pricing schedule. However, the Eighth Circuit noted a prior example of Blue Cross modifying its contract terms due to the demands of a near-monopoly provider in another part of North Dakota and found that the district court did not err in its consideration of this evidence.
This decision underlines the continued importance of market specific facts when considering a power buyer argument — including the power buyer’s ability to switch to alternative services and its history of price negotiations.