Regular readers of health care news sources know the Department of Justice and Federal Trade Commission are increasingly standing in the way of large-player mergers in the health care industry. It may be less well known that similar scrutiny is being placed on many middle market transactions that are submitted for Hart Scott Rodino ("HSR") review.

Whether or not a transaction is substantial enough to require an HSR filing, each party involved must be aware that disclosure of confidential information to a competitor, as part of the due diligence process, can be seen by regulators or whistleblowers as anticompetitive conduct. 

Why is this important? 

Disclosure of certain confidential information by competitors can enable price fixing and market allocation.

If one competitor knows details about the other’s reimbursement rates, wage and salary structure, this can easily result in an anticompetitive movement by the recipient toward more profitable financial metrics based on knowledge of the competitor’s operations, following a breakdown of merger discussions. Similarly, detailed knowledge of each party’s relative strength in each shared market, potentially combined with multi-year non-solicitation covenants, can result in behavior that can be seen as a tacit agreement to allocate each shared market based on market information received through the due diligence process.

What should a health care company considering a combination with a potential competitor do to address these concerns?  

1. Do not assume the party with which you are negotiating is not a competitor or that you or the other party are too small for antitrust laws to be of concern. Go into the process with the goal of complying with antitrust law and preventing the other party from using information gained through due diligence to unfairly compete with you if the transaction you are negotiating does not close.
2. Enter into carefully considered confidentiality agreements, and delay access to the most sensitive financial information until greater assurance is present that the contemplated transaction will close--often at the point at which the parties confirm to each other that the purchase agreement and other material agreements are in substantially final form. For some transactions, the most sensitive information would properly be withheld until near the eve of closing.

Short of withholding sensitive information, certain data can be provided to the other party in a redacted form. An example would be providing basic information regarding multiple offices where services are provided without identifying the office by location. Where the circumstances warrant additional protective measures, highly sensitive data can be provided to “clean teams” where individuals who receive sensitive information are individuals who would not be able to use that information for anticompetitive purposes. This could be senior executives of the receiving party whose job functions would exclude involvement in the departments within the receiving party’s business in which the sensitive data would be relevant. Alternatively, individuals receiving data could be independent third parties who would be sufficiently knowledgeable to evaluate the data but would not share it.

Things to remember when dealing with transactions:

1. Each health care transaction is different. In terms of whether the parties considering a combination are competitors and, if they are, what confidential information, if shared, would result in an anticompetitive effect. 
2. Begin with an informed perspective regarding the need to maintain confidentiality and avoid conduct which could be seen as having an anticompetitive effect.