HealthTronics, NextMed agree to merge; deal puts kidney stone care under FTC scrutiny

21 March 2019 00:00

HealthTronics and NextMed, two mobile health care providers, have agreed to merge, and the US Federal Trade Commission is investigating the deal's potential impact on competition with a focus on the companies' urology treatments, MLex has learned.

Austin, Texas-based HealthTronics and Tuscon, Arizona-based NextMed would together be the largest US provider of lithotripsy services — a non-invasive treatment for kidney stones — notified the FTC of the deal, and a second request for additional information was made by the FTC in early March, it is understood.

Terms of the deal, including which company is the buyer, were unclear.

HealthTronics operates in nearly every state, while NextMed operates in 35, according to its website. A third company, United Medical Services, is in about 40 states. The next largest competitor operates in roughly 20 states, followed by numerous regional players, meaning the deal could eliminate one of three national companies.

HealthTronics and NextMed provide other services as well, but the bulk of their businesses are focused on urologic treatments.

The market is familiar to the FTC. In 1998, the agency settled with roughly 100 Chicago-area urologists for colluding on the prices of lithotripsy services. Seven years before that, the FTC conducted a similar conduct investigation in Utah and Idaho, according to press reports.

NextMed and HealthTronics didn't respond to requests for comment. HealthTronics' private equity-owner, Altaris Capital, didn't respond to a request for comment. An FTC spokesperson declined to comment.

The business

First discovered as a byproduct of research by German aerospace company Dornier in the 1960s, extracorporeal shock wave lithotripsy uses targeted shock waves to non-invasively break up kidney stones, which can then be passed painlessly.

When the procedure was first used clinically in the mid-1980s, lithotripter machines, sold by companies including Dornier MedTech, were prohibitively expensive for individual urology practices and hospitals. To be cost-effective, urology groups would join forces to purchase and share a machine. Companies like HealthTronics and NextMed later sprung up to manage the service for doctors.

Business models can vary, but HealthTronics, NextMed and others own and service the machines, and provide technicians to operate the equipment. They may partner with one or more urology groups and offer everything doctors need to treat their patients.

For example, several urology groups in a large city or across a state would partner with HealthTronics, which would then set up a route between locations and transport the equipment in customized trucks.

HealthTronics, NextMed and others will often invest in kidney stone treatment centers alongside doctor groups as well. In some instances, the companies have controlling ownership in the lithotripsy partnerships. Those partnerships can take different forms. Some urologists band together to form separate kidney stone management clinics, while other individual practices will also join forces with one of the companies.

Consolidating industry

Market reaction is mixed, according to competitors and partners of HealthTronics who spoke with MLex. Those who did so declined to go on the record due to the ongoing, confidential investigation by the FTC.

Heads of two clinics partnering with HealthTronics who weren't previously aware of the merger said they don't expect much impact on their business if it is completed.

Competitors of HealthTronics and NextMed, however, expressed reservations, saying a combined company would make it harder to enter new markets. As recently as last week, the FTC was focused on how many treatments competitors of HealthTronics and NextMed are able to provide in a given area, it is understood.

The deal continues the industry's consolidation. In 2018, UMS purchased American Kidney Stone Management, all but locking up entirely the lithotripsy market in Michigan.

HealthTronics has been steadily buying up smaller players as well, including the 2016 purchase of Chicago-based United Therapies, the 2015 purchase of lithotripsy providers in North Carolina and California, and 2014 deals for providers in Maryland, California and Washington state.

HealthTronics itself has been acquired at least twice. Endo Pharmaceuticals bought the company in 2010 for $223 million. Four years later, it was sold to private equity firm Altaris for $135 million.

Competitors of the merging companies expressed concern that with little competition, the new company would have less incentive to continuously update and improve its technology, thereby increasing the need for patients to repeat the treatment.

In defense

The merging companies meanwhile are arguing in part to investigators that lithotripsy is a mature, even declining business. Other procedures, including the invasive ureteroscopy, have increased.

One person who runs a HealthTronics-affiliated kidney stone treatment operation, said urologists are increasingly recommending ureteroscopy to treat kidney stones, with the procedure done at a hospital or outpatient surgery center.

And hospitals are viewed as competitors by HealthTronics and NextMed. While in the early days of the treatment it was difficult to justify spending several million dollars on a lithotripter machine, declining costs have made it possible for hospitals to cut out the middleman and offer the service directly to patients.

In rural areas, however, the economics may never work, making it difficult to offer the service without partnerships to shoulder the cost.

One competitor of the merging companies called it a "numbers game." The companies vie to sign up as many doctors as they can to offset low treatment numbers in some areas.

The merging companies could potentially point to HealthTronics' declining sale prices as further evidence of a market in decline.