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."

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).

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).

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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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