Chapter 10.D.2 (or 4.D.2) -- Antitrust Price-Fixing
The FTC's comprehensive report, Improving Health Care: A Dose of Competition (July 2004), stresses the anticompetitive potential of "any willing provider laws."
In a bold move, the new health care
reform law (sec. 2706) prohibits any health plan (included self-insured
employers) from "discriminating" against any category of licensed
health care provider. Thus, insurers no longer may flatly exclude
alternative providers, and it is debatable whether or to what extent
they can set special conditions on payment for their services.
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).
FTC rulings on "clinical integration" are
expected to play an important role in whether and how "accountable care
organizations" will take shape. For thorough analysis, see Taylor
Burke & Sara Rosenbaum, Accountable Care Organizations: Implications for Antitrust Policy
(Robert Wood Johnson Foundation, 2010), reprinted in 19 BNA Health L.
Rep. 358 (2010). Especially noteworthy is the FTC's approval of a
PHO joint venture between the only hospital in Hagerstwown Maryland and
most of the area's 300 physicians. In Re Tri-State Health Partners Advisory Letter (April
13, 2009). The FTC accepted the argument that, although the
physicians investment of economic capital was low ($2,500 joining fee),
their investment of "human capital" was sufficient. As Burke
& Rosenbaum, supra, summarize:
TriState is noteworthy in that
it received a favorable review notwithstanding relatively small
financial investments from its existing physician members, lax initial
membership requirements, little detail regarding how it intended to
improve physician performance, the absence of financial incentives, and
substantial market shares of both the physicians, and the hospital. The
TriState opinion was also
the first favorable review of a Physician-Hospital Organization clinical integration program, which can be viewed as the probable forerunner to ACOs that form around hospitals.
Some commentators fear that ACOs will
lead to greater market power for hospitals and doctors, thereby driving
up health care costs and insurance premiums. See, e.g., Robert
Berenson et al., Unchecked Provider Clout in California Foreshadows
Challenges to Health Reform, 29 Health Aff. 699 (2010).
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).
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.See generally David Dranove & Andrew Sfekas, The Revolution in Health Care Antitrust: New Methods and Provocative Implications, 87 Milbank Q. 607 (2009) (analyzing the effects of courts' acceptance of greatly expanded geographic hospital markets).
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); Note, 90 B.U.L. Rev. 431 (2010) (same).
The 8th Circuit upheld
the dismissal of an antitrust suit by cardiologists who were denied
hostpial staff privileges becacuse they also practiced at a competing
specialty hospital owned by physicians. The decision turned on how the
plaintiff physicians sought to define the relevant market. They
measured the market in terms of patients covered only by private
insurance, but the court held that the relevant market consists of all
area patients who might need and be able to pay for cardiology
services. Little Rock Cardiology Clinic PA v. Baptist Health, __ F.3d
___ (8th Cir. 2010). The court reasoned that the claimed economic
injury arises from cardiologists restricted in their access to all
paying patients rather than from a particular set of patients who are
restricted in their access to cardiologists or hospitals. Does that
seem correct to you?
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