The Federal Trade Commission has proposed a settlement that would allow St. Cloud-based CentraCare to acquire one of its largest competitors for physician services in Central Minnesota.

With the acquisition of St. Cloud Medical Group, CentraCare would have more than 80 percent of the physician service market for adult primary care, pediatric primary care and OB-GYN services, according to an FTC complaint made public Thursday.

FTC calls that level of concentration "presumptively anticompetitive." But St. Cloud Medical Group (SCMG) produced evidence that "it is financially failing, has lost its sole remaining line of credit and appears unlikely to improve its financial condition," FTC said in a statement.

The commission has proposed allowing the merger, with the condition that CentraCare release up to 14 physicians from noncompete agreements so SCMG physicians can join or create competing practices in the St. Cloud area. The settlement also would require CentraCare, under certain conditions, to provide departure payments of $100,000 each for the first five doctors who leave the health system to compete in the St. Cloud area.

"A number of physicians have already left the [SCMG] practice and others are likely to depart — and may leave the St. Cloud area altogether — if the merger does not close," FTC said in a statement. "SCMG's multiyear search did not identify an alternative purchaser to CentraCare for the entire group, but at least one local provider has expressed interest in expanding its practice by hiring some of SCMG's physicians."

In March, the Star Tribune reported Attorney General Lori Swanson had launched an antitrust review of the potential acquisition, and asked the parties to delay any closing.

Swanson said in a statement Thursday that she was "disappointed with and puzzled by the FTC settlement." While the attorney general has not agreed to the terms of the settlement, the FTC's action creates a "practical impediment," she said, to further action.

"The agreement to release some physicians from restrictive covenants does little to provide competition in terms of price or quality in the St. Cloud marketplace," Swanson said in a statement.

CentraCare is one of the 10 largest operators of hospitals and clinics in the state, with about 263 physicians and 85 advanced practice providers. For the fiscal year ending June 2015, CentraCare posted operating income of $63.2 million on $1.1 billion in revenue.

St. Cloud Medical Group, which includes about 60 providers, was rated as one of the eight lowest-cost medical groups in the state during 2014 by a Minneapolis-based nonprofit called MN Community Measurement.

In its complaint, the FTC said: "SCMG is a low-cost provider of health care in St. Cloud, and health insurers have used the competition between CentraCare and SCMG to obtain more favorable contract terms from CentraCare, which is a higher cost health care provider."

In a joint statement Thursday, the two medical groups said they will proceed with a full integration, which will be completed in two phases over the next two years.

The merger will allow for better coordination of patient care for efficiency, said Dr. Ken Holmen, the CentraCare chief executive, in a statement noting the two groups already share many patients. Care provided at St. Cloud Medical Group's current locations will continue, according to the statement.

Dr. Scott Rahm, the president of St. Cloud Medical Group, said the merger comes as health care purchasers are pushing for high quality care with less fragmentation.

"As a group of physicians, we began exploring the best way to ensure that we were meeting those changing expectations and delivering the care that our patients need and value," Rahm said in a statement. "This partnership is the result of that review."

CentraCare officials hope that St. Cloud Medical Group physicians will stay with the health system, said spokesman Anthony Gardner.

"If they choose to leave within a certain period of time, and if they leave for another practice in St. Cloud, and if that practice has five or fewer physicians, only then will the $100,000 payment be distributed," Gardner said via e-mail. "The payment is not for any physician who leaves under any circumstance."

The FTC settlement is subject to a 30-day public comment period, after which the commission will decide whether to make the proposed consent order final. According to FTC's complaint, CentraCare and SCMG intend to finalize the acquisition as early as this month.

Twitter: @chrissnowbeck