Chapter 10.D.2 (or 4.D.2) --
Antitrust Price-Fixing
The FTC maintains a helpful web page on Health Care Antitrust Issues generally, including a link to the DOJ/FTC Antitrust Guidelines.
The FTC's comprehensive report, Improving Health Care: A Dose of Competition (July 2004), stresses the anticompetitive potential of "any willing provider laws."
Reviewing and critiquing federal court rulings over time, see Thomas L. Greaney, Thirty Years of Solicitude: Antitrust Law and Physician Cartels, 7 Hous. J. Health L & Pol'y (2007).
The 5th Circult upheld the FTC's decision striking down as illegal price-fixing a "messenger model" arrangement in which a group that styled itself as an IPA negotiated managed care contracts on behalf of almost 500 independent physicians in Fort Worth, Texas. North Texas Specialty Physicians v. FTC, 528 F.3d 346 (5th Cir., 2008). The Commission noted that the IPA "messenger" polled physician members in advance to determine what minimum prices they would accept and refused to deliver offers it felt would be unacceptable to the majority of physicians. The IPA also had physicians' power of attorney to negotiate, sign, or refuse contracts. The Commission concluded that "this is not really a close case." The Court of Appeals added that there were no substantial pro-competitive benefits to outweigh the potential harms. Despite a finding of per-se illegal price-fixing, however, the physician group suffered no serious legal penalty, only an injunction to cease and desist.
Antitrust enforcers are turning their attention to the price-fixing implications of what are known as "virtual mergers" or "joint operating agreements." In these arrangements, two entities attempt to accomplish the substance of a merger without actual common corporate ownership, through detailed agreements that provide for joint or coordinated operations and management. Sometimes, this is done to avoid various corporate law restrictions that prevent complete merger, but sometimes this is done because the boards of the two entities simply can't agree on a full merger but still want to attempt joint operations. In such cases, the parties run the risk of per se illegal price fixing if the contractual arrangements do not create sufficient financial integration. Compare State of New York v. St. Francis Hosp., 94 F. Supp.2d 399) (S.D.N.Y. 2000) (hospitals retained separate status with HealthAmerica Pennsylvania, Inc. v. Susquehanna Health System, 278 F.Supp.2d 423 (M.D. Pa. 2003) (finding that a joint operating agreement as creating a single entity). For analysis, see Robert W. McCann, I Think I Am Integrated, Therefore I Am, 12 BNA Health L. Rep. 1449 (Sept. 18, 2003).
In an
innovative use of antitrust law, medical residents alleged that medical schools
and teaching hospitals are illegally restraining competition and salaries
through the centralized "matching" system used to assign medical
school graduates to residency programs. See Kristin
Madison, The residency match: competitive restraints in an imperfect world, 42 Hous. L. Rev. 759-836 (2005). The suit was dismissed
based on a special antitrust exemption enacted by Congress after the suit was
filed. Jung v.
Association of American Medical Colleges, 2006 WL 1582667 (D.C. Cir. 2006).
A hospital's use of a most-favored nation's provision with a health insurer
resulted in a $16.2 million antitrust verdict, which the 9th Cir. overturned,
ordering a new trial based on errors in the jury instructions. Cascade Health Solutions
f/k/a McKenzie-Willamette Hospital v. PeaceHealth,
515 F.3d 883 (9th Cir.2007).
Chapter 10.D.3 (or 4.D.3) -- Antitrust
Merger Law
The DOJ and FTC have provided additional Commentary on the Horizontal Merger Guidelines (March 2006).
Critiquing
the federal courts' analysis of hospital merger law, see Barak D. Richman,
Antitrust and nonprofit hospital mergers: a return to basics, 156 U. Pa. L.
Rev. 121-150 (2007):
Courts
reviewing proposed mergers of nonprofit hospitals have too often abandoned the
bedrock principles of antitrust law, failing to pay heed to the most elemental
hallmarks of socially beneficial competition. This Article suggests that
courts' misapplication of antitrust law in these cases reflects a failure to
understand the structural details of the American health care
market. After reviewing recent cases in which courts have rejected challenges
to proposed mergers between nonprofit hospitals, it documents how courts have
engaged in a faulty analysis that ultimately protects nonprofit hospitals from
the rigors of standard antitrust scrutiny. It then identifies the core
principles of antitrust law--preventing supracompetitive
prices, optimizing output, and maximizing allocative
efficiency--that have been absent from, if not violated by, the rulings in
these merger cases.
In a major decision, the FTC
ruled that the previously-approved merger of the only two hospitals in Evanston
IL in fact lessened competition, based on evidence of post-merger behavior and
effects. However, the FTC declined to order divestiture. Instead,
it ruled only that the jointly-owned two facilities must conduct certain of
their operations separately, such as negotiating for managed care
contracts. Evanston
Northwestern Healthcare Corporation, FTC, No. 9315 (Aug. 2, 2007).
For analysis and commentary, see Tom Campbell, Defneindg
Hospitals Mergers af the FTC's Unorthodox Challenge
to the Evanston Northwestern--Highland Park Transaction, 16 Ann. Health L. 213
(2007); http://www.klgates.com/newsstand/Detail.aspx?publication=4059.
("The novelty of the prescribed remedy has raised many questions,
including: (1) whether ENH can practically comply with this order; and (2)
whether, assuming that ENH can and does comply with the FTC order, the
prescribed remedy can actually “undo” the anticompetitive harm that the FTC
cited as its reason for issuing the order.")
See
also Kristin Madison, Hospital mergers in an era of quality improvement, 7 Hous. J. Health L. & Pol'y 265-304 (2007) (discussing
the Evanston Hospital case).
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