Federal Antitrust Enforcement in Health Care
Jan 03, 2012 QuickCounsel Download PDF
By David W. Simon H. Holden Brooks
In the past few years, both of the federal antitrust enforcement agencies, the Federal Trade Commission ("FTC") and Antitrust Division of the Department of Justice ("DOJ") (collectively, "the Agencies") have dedicated significant resources to the area of health care. Long seen as an area of the economy that has great potential to become more efficient through competitor collaboration and consolidation, health care is also an area traditionally seen as being particularly vulnerable to anticompetitive practices. It has been the task of the Agencies to navigate these risks and benefits and to provide guidance to the health care community about how to innovate and work together while minimizing harm to competition. This QuickCounsel is a brief overview of federal antitrust enforcement trends in the area of health care.
Sherman Act Section 1: Competitor Collaboration
Collaboration by competitor health care providers is unlawful under the foundational federal antitrust law, Section One of the Sherman Act, when it runs afoul of the prohibition of any contract, combination, or conspiracy in restraint of trade. Most typically this occurs when groups of health care providers join together to negotiate fees with insurers, constituting a per se violation of the Sherman Act. Despite the fact that "naked" collaboration in the negotiation of fees merits per se treatment under the antitrust laws—the most unyielding standard of review—the Agencies have recognized that when competitor providers are sufficiently integrated, and joint negotiation is "reasonably necessary to accomplish the procompetitive benefits of the integration," the arrangements have the potential to improve the efficiency and quality of health care.
Providing insight into when Agencies will and will not challenge joint ventures is one of the main purposes of the Joint Statements of Antitrust Enforcement Policy in Health Care ("Health Care Statements"), issued by the FTC and DOJ. Statement 8 addresses physician collaborations and sets forth when the Agencies will find a financially integrated joint venture to fall into a "safety zone," meaning the arrangement is unlikely to be challenged, and when an arrangement will be deemed sufficiently integrated, either financially or clinically, to merit review under to so-called "rule of reason." Under this rubric, the Agencies will first define a relevant market and consider and weigh both the anticompetitive and precompetitive effects of the joint venture within that market.
At the outset, Statement 8 establishes "safety zones" within which financially integrated joint ventures will be presumed lawful. Financial integration is the sharing of risk in contracting in order to provide incentives to enhance efficiency. As a threshold matter, the Agencies will apply different standards to financially integrated joint ventures deemed "exclusive" and "non-exclusive" when determining whether the joint venture falls into the safety zone. The above-mentioned terms are defined as follows:
Statement 8 provides that the enforcement agencies are not likely to challenge most exclusive joint ventures if the participating physicians share substantial financial risk and constitute 20 percent or fewer of the physicians in each physician specialty with active hospital staff privileges who practice in the so-called relevant market when defined geographically. With respect to non-exclusive joint ventures, Statement 8 set forth that the enforcement agencies are not likely to challenge most joint ventures in which participating physicians share substantial financial risk and constitute 30 percent or fewer of the physicians practicing in a given specialty practicing in the relevant geographic market.
Statement 8 recognizes that joint ventures that do not fall into a safety zone may merit rule of reason review when they are sufficiently integrated, either financially or clinically. Although Statement 8 provides some insight into what level of clinical integration the Agencies would consider to be sufficient to merit rule of reason review, the FTC has issued several advisory opinion letters to joint ventures seeking an assessment of their clinical integration plans, and these are regarded as the best source of guidance. Arrangements deemed to be sufficiently clinically integrated by the FTC generally include the following features:
Statement 9 concerns multiprovider networks, such as those that involve hospitals and physician providers that jointly market their services. Because of the complexity of these arrangements, there are no safety zones set forth by the Agencies. However, Statement 9 does provide examples of the kind of financial and clinical integration that will likely merit rule of reason treatment by the agencies. With respect to financial risk sharing, Statement 9 cites examples of multiprovider networks enhancing efficiency by, for instance, offering capitated rates, bundled pricing for an extended course of treatment, and providing incentives to physicians to meet cost containment goals. With respect to clinical integration, Statement 9 acknowledges that while it might be possible for multiprovider networks to demonstrate sufficient integration, the Agencies will examine the arrangements on an individualized basis based on the nature of the services offered and the efficiencies claimed.
The advent of the Accountable Care Organization ("ACO"), ushered in by federal health care reform legislation, required the Agencies to respond quickly with guidance for providers about how the new arrangements would be treated under the federal antitrust laws. An ACO is a collaboration among otherwise independent providers and provider groups that seek to participate in the Shared Savings Program through Centers for Medicare and Medicaid Services. At its heart, the Agencies' policy statement on ACOs recognizes the potential benefits ACOs can provide for consumers and "will treat joint negotiations with private payers as reasonably necessary to an ACO's primary purpose of improving health care delivery, and will afford rule of reason treatment to an ACO that meets CMS's eligibility requirements for, and participates in, the Shared Savings Program." In essence, the Agencies treat participation in the Shared Savings Program as a proxy for integration. Thus, providers who participate in qualified ACOs can take comfort in the fact that additional joint contracting by the ACO with private payors will not result in per se condemnation by the agencies. Instead, by applying the rule of reason, the agencies will look at the balance of pro- and anti-competitive effects of a given arrangements and will perform the review within ninety days at the request of the ACO.
In addition, the policy statement creates a safety zone for ACOs whose participating providers have a market share of less than 30% of each common service in each participant's Primary Service Area ("PSA"). A "common service" is one that two or more ACO participants provide. The PSA is defined as the lowest number of contiguous postal zip codes from which the ACO participants draw at least 75% of its patients. The agencies have made it clear that they won't challenge an ACO that falls within the safety zone, absent extraordinary circumstances like collateral collusion. The policy statement also provides a "Rural Exception" safety zone that can apply even when market shares exceed 30%.
ACOs that fall outside the safety zone are not necessarily prohibited from joint contracting with private payors. The Agencies recognize that ACOs whose participants have higher market shares "may be procompetitive and lawful." The policy statement describes certain conduct that will raise anti-competitive concerns and will make it more likely that private joint contracting will be found to violate the antitrust laws.
Sherman Act Section 2: Monopolization
Although the Agencies have not always vigorously pursued actions under Section 2 of the Sherman Act, which prohibits monopolization, attempts to monopolize, and conspiracies to monopolize, it is within their enforcement purview. A violation of Section 2 involves "(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." In 2011, the DOJ pursued and settled an action against a Texas hospital system alleging that its contracting practices, which penalized insurers that contracted with competing hospital systems, constituted a violation of Section 2 and caused consumers to pay higher prices for hospital services. The fact that this action—the first monopolization case brought by the government in over a decade—occurred within the health care area signals that the Agencies consider Section 2 to be a tool for regulating conduct within health care markets.
The Agencies also protect competition in health care markets largely through enforcement of the Clayton Antitrust Act and Federal Trade Commission Act, which provide for broad regulatory oversight of mergers. The FTC or DOJ may challenge unconsummated mergers through the process provided for in the Hart-Scott-Rodino Antitrust Improvement Act of 1976 ("HSR") or unconsummated mergers that fall below HSR thresholds where the Agencies perceive a potential threat to competition. The Agencies may even seek to "unwind" already consummated mergers, as the FTC recently did in a consummated hospital merger in Ohio, where the actual effects of the transaction are seen to have harmed competition. In addition to hospital mergers, the Agencies have recently challenged pharmaceutical company mergers, diagnostic laboratory mergers, health insurance mergers, and mergers by other health care providers. Although the Agencies' track record in merger challenges has been mixed, merger enforcement in the health care area remains a priority.
In 2010, the Agencies revised their joint merger guidelines that describe the factors used by the Agencies in analyzing "horizontal" mergers among competitors. The new guidelines signal that the Agencies have moved to more fact-based approach that deemphasizes the complicated, theoretical task of relevant market definition and that thresholds of market concentration at which the Agencies will consider a transaction to be potentially harmful to competition have risen. Although market share and the degree of diminution in competition that will result from the merger will remain factors for consideration by the Agencies, the approach reflected in the new guidelines is more flexible. Another change is that while the Agencies will continue to consider "coordinated effects"—the effects created in a market where a diminution in the number of competitors makes it easier for remaining competitors to coordinate conduct—there will be an increase in the attention paid to "unilateral effects." Unilateral effects can be observed in the context of a merged entity's conduct, when, for instance, a merger of rivals leads to reduced research and development as a result of the absence of competition between merged entities.
Although the Agencies have made clear that they will continue to make anticompetitive conduct in the area of health care an enforcement priority, they have also sent a strong message that they wish to facilitate procompetitive joint ventures among providers as well. Understanding how to innovate and collaborate within the bounds of the antitrust laws will be an important part of succeeding in the health care arena in the future.
Published on January 2, 2012
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