Antitrust Lawyer Blog Commentary on Current Developments

Fresinus to Divest Dialisys Clinics to Settle Merger

On March 30th, Fresenius AG agreed to sell 91 outpatient kidney dialysis clinics and financial interests in 12 more to settle Federal Trade Commission charges that Fresenius' purchase of rival dialysis provider Renal Care Group, Inc. would violate federal antitrust laws. When the deal is finalized, Fresenius will be the largest provider of outpatient dialysis services in the United States.
The German firm Fresenius AG, and the companies it controls, including Fresenius Medical Care AG&Co. KGaA; Fresenius Medical Care Holdings, Inc.; and Florence Acquisition, Inc., proposed to acquire RCG for approximately $3.5 billion. In 2005, Fresenius had revenues of approximately $4.1 billion from providing outpatient dialysis services to about 89,000 renal disease patients at about 1,155 outpatient dialysis clinics nationwide. RCG, based in Nashville, Tennessee, is the third-largest provider of outpatient dialysis services in the United States, with approximately 450 clinics serving more than 32,000 patients. In 2005, RCG had earnings of $1.5 billion providing dialysis treatment.

According to the FTC's complaint, most end-stage renal disease patients require dialysis three times a week, in sessions lasting between three and five hours each. For patients with ESRD, dialysis treatments replace the lost function of their kidneys by removing toxins and excess fluid from their blood. The only alternative is a kidney transplant but wait time for donor kidneys can be several years, and some patients are not viable transplant candidates. Dialysis services are local in nature because most patients are unwilling or unable to travel long distances for the service. With few exceptions, the 66 outpatient dialysis markets identified by the Commission have no more than one significant dialysis provider other than Fresenius and RCG. The consent agreement would remedy the illegal anticompetitive effects of the acquisition, by requiring that Fresenius sell 91 outpatient dialysis clinics and RCG's joint venture equity interests in 12 additional clinics to National Renal Institutes, Inc. (“NRI”), a wholly-owned subsidiary of DSI Holding Company, Inc

To ensure that NRI can provide robust competition, the settlement:

1) requires that Fresenius obtain agreement of doctors and lessors of the divested clinics to continue to provide service under the new NRI management;

2) requires that Fresenius provide NRI with the opportunity to interview and hire employees affiliated with the divested clinics and prevents Fresenius from offering the employees incentives to decline NRI's offer of employment;

3) restricts Fresenius from contracting with the medical directors of the divested clinics, or their practice groups for three years;

4) requires Fresenius to provide NRI with a license to Fresenius' policies and procedures, as well as the option to obtain Fresenius' medical protocols, which will enhance NRI's ability to provide continuity of care to patients.