Gambro AB, the world's second-largest provider of dialysis services and third-largest manufacturer of dialysis products, must respond by Oct. 14 to charges that it illegally monopolized the outpatient dialysis market in a small corner of western Michigan.
Michigan Attorney General Jennifer Granholm sued Gambro earlier this month in Kent County (Mich.) Circuit Court, saying actions by the international kidney giant, based in Sweden, drove up prices for outpatient dialysis services in that market.
Tim Schoenberg, Gambro's vice president of U.S. investor relations in Aliso Viejo, Calif., declined comment on the lawsuit.
In the past three years, the company has engaged in an acquisition spree in the U.S., buying or building 300 clinics and tripling the number of patients treated at its centers. In the U.S., the company owns 432 clinics, controls 12% of the renal dialysis market and treats more than 33,000 patients per year.
Granholm said her office investigated Gambro because some Michigan health insurers had complained about the company's prices and demands.
Gambro's annual report states that the company pursues "a strategy of forward integration to provide the dialysis products business area with a guaranteed market. Acquisition of dialysis clinics has been identified as a prioritized strategy for Gambro AB so that it may exercise full control of the value chain."
The extent of that control in western Michigan is at the heart of the suit. Granholm alleges that Gambro abused its market power in Kent, Muskegon and Ottawa counties after it bought six freestanding outpatient clinics from Farmington Hills, Mich.-based Mercy Health Services in October 1998. Gambro previously did not operate any dialysis clinics in the market.
Granholm alleged that after the company bought those clinics and inked noncompete and exclusive contracts with other area providers and insurers, it immediately raised prices. Gambro charged from $488 to $610 for dialysis treatments even though most other Gambro clinics in Michigan charged an average of $135, the price Mercy charged before the sale. Granholm also alleged that the company excluded competition.
Granholm said that even though the company increased prices just last spring, consumers and insurers have already been substantially harmed by overpaying for dialysis and drugs.
She projected that treatment costs for some patients would increase by $40,000 to $50,000 per year. Gambro also marked up drug prices 353% to 442% over the wholesale price it paid, she said.
Stephen Shivinsky, a spokesman for 39-hospital Mercy, said Mercy is disappointed that the attorney general had to take such action against Gambro.
"We went through a very extensive due diligence process with Gambro and felt at the time they were our partner," Shivinsky said. "They abided by our requests for caring for the poor and supplying pastoral-care services and many things we cared about."
Shivinsky said Mercy did not anticipate that Gambro would raise its prices so steeply.
Based on Mercy's expectations that Gambro would maintain components of its charitable mission, the system signed standard noncompete contracts with Gambro: The system agreed not to compete with Gambro for outpatient dialysis services if Gambro agreed not to provide inpatient dialysis.
In addition, Gambro signed noncompete agreements with most nephrologists, or kidney specialists, in western Michigan, many of whom it hired as medical directors.
The attorney general's office found that in Kent and Ottawa counties Gambro commands a 95% market share for treatment of end-stage renal disease patients and owns all outpatient clinics.
The attorney general said Gambro owns the only clinics in Muskegon County, commanding a 100% market share.
Paul Novak, Michigan's assistant attorney general for antitrust, said Gambro's agreements with nephrologists prohibited the physicians from working with any competing dialysis centers entering the market.
The contracts did not prohibit the nephrologists from referring patients to other clinics, though.
Granholm filed the civil antitrust suit against the company and its subsidiaries Gambro Healthcare of Michigan and Gambro Healthcare Patient Services of Brentwood, Tenn.
The complaint charges Gambro with four violations of Michigan antitrust law and seeks civil monetary penalties of $50,000 per dialysis patient and an injunction against further violations of the state antitrust law.
In the lawsuit, Granholm included a letter sent last year by Gambro's national director of managed-care contracting, Polli Yount, to Blue Cross and Blue Shield of Michigan: "It is our understanding . . . that we have acquired all of the chronic facilities in this part of the state. I do not intend this statement as a threat or a directive, but only as a fact."
Blue Cross and Blue Shield of Michigan, which has been negotiating a contract with Gambro for nearly one year, has not paid the company for services provided, said a source close to the case.
A spokeswoman for the Blues confirmed that the insurer is still negotiating a contract with Gambro but declined to comment further.