In a February 13, 2013, advisory opinion, the Federal Trade Commission (FTC) Bureau of Competition stated that it has no present intention to recommend that the FTC challenge a clinical integration program proposed by Norman Physician Hospital Organization, a multi-specialty physician-hospital organization in Oklahoma. The opinion is the fifth advisory opinion the FTC has issued concerning a clinically integrated managed care contracting network. Four of the advisory opinions were favorable, and one was unfavorable to the respective requesting parties. This White Paper summarizes the Norman Physician-Hospital Organization advisory opinion and its key takeaways, and compares the opinion to the FTC’s previous four advisory opinions on clinical integration programs.
On January 16, the U.S. Department of Justice Antitrust Division issued a Business Review Letter in which it disclosed its intention not to challenge the Greater New York Hospital Association’s (GNYHA) voluntary "gainsharing" program for its hospital members and the physicians who practice at their hospitals.
GNYHA’s program is designed to encourage physicians to become more cost-conscious in their treatment decision-making and reward them for greater efficiency. Important aspects of the program include:
that it is non-exclusive and voluntary;
each participating hospital will have its own quality-standards;
it will apply to commercial health insurance and Medicaid and Medicare managed care products;
each hospital will choose how much savings to share with its physicians (or none at all) subject to other regulatory requirements; and
the information that will be shared among GNYHA members is already publicly available.
The Antitrust Division concluded that the program was neither an agreement among competitors to set physician compensation levels nor an anticompetitive information exchange.
The Antitrust Division’s business review letter should provide guidance to hospitals and physicians looking to reduce costs of care. Importantly, however, the program and the Antitrust Division’s business review letter only addressed gainsharing between hospitals and their physicians and not joint contracting or "clinical integration" arrangements among competing providers, for example.
To read the Antitrust Division’s press release, click here.
The Supreme Court of the United States has granted the government’s petition for a writ of certiorari in FTC v. Watson Pharmaceuticals, agreeing for the first time to address the antitrust and patent law implications of so-called “pay-for-delay” or “reverse payment” patent settlement agreements between branded and generic pharmaceutical manufacturers. The Court’s ruling will likely resolve this contentious issue, which has divided the federal courts and which the Federal Trade Commission has pursued for more than a decade.
In oral argument in FTC v. Phoebe Putney Health System, Supreme Court Justices focused on whether the state legislature clearly articulated a state policy to displace competition with regulation, in a case challenging the application of the state action doctrine to a hospital merger to monopoly.
During an American Bar Association (ABA) program on antitrust and health care issues on October 1, 2012, U.S. Federal Trade Commission (FTC) Deputy Director for Health Care and Antitrust, Leemore Dafny, said that the FTC will focus on how patients purportedly react to price increases, as measured by "diversion ratios," when deciding which hospital mergers to investigate further for potential anticompetitive effects.
Dafny stated that the FTC will focus on diversion ratios rather than geographic markets because relying on geographic market overlaps in hospital mergers may do a poor job of identifying the true source of potential competition problems. Instead, the FTC has and will continue to evaluate hospital mergers to look at whether patients would be willing and able to substitute one hospital for the other if one hospital decided to raise prices for services, using the diversion ratio or the proportion of patients who would switch between them in response to a change in prices. Importantly, the diversion ratio does not rely on any one particular geographic market definition to give the FTC what it believes to be an accurate idea of how a hospital merger might affect competition.
To the extent the FTC considers geography, its staff begins by examining the primary service area of the hospitals – the area from which the hospitals draw about 75 percent of their patients – when conducting a preliminary evaluation of a merger to determine whether overlaps exist. According to Dafny, the more significant the overlaps, the higher the likelihood of a potential competition problem.
On June 12, 2012, the Federal Trade Commission (FTC) announced the appointment of Leemore Dafny to assume the newly created position of Deputy Director for Health Care and Antitrust, effective August 1, 2012.
Dafny is an Associate Professor of Management and Strategy at the Kellogg School of Management of Northwestern University, where she has served on the faculty since 2002. She is a microeconomist whose research focuses on competition in health care markets.
Her appointment to a newly created position signals the FTC’s continuing focus on the U.S. health care industry for antitrust scrutiny and, if anything, an effort to increase its expertise/jurisdiction over health care in relation to the U.S. Department of Justice. According to economists with whom McDermott regularly works, clients should not expect a change in the FTC’s enforcement posture as a result of her appointment, but Dafny should bring a broader perspective given her work with health insurance markets, experience the FTC is currently lacking.
The FTC’s press release announcing Dafny’s appointment can be found here.
On June 7, 2012, Pennsylvania, through its Attorney General (AG), filed an antitrust complaint and consent order in U.S. District Court (M.D. Pa.), settling charges that Geisinger Health System’s acquisition of Bloomsburg Hospital violated section 7 of the Clayton Act and the state common law prohibition on suppression of competition. The core allegation is that the merging of Geisinger and Bloomsburg — two of three principal rival hospitals in the Columbia County area and employers of physicians — would lead to higher prices for (i) primary and secondary inpatient acute care services and (ii) primary and non-tertiary specialist physician services. Notably, the AG did not seek to enjoin the deal but elected to accept a multi-faceted "conduct" remedy.
Probably the most significant of the many conduct restrictions is the enablement of health plans to trigger (with AG involvement) independent third party review of Geisinger’s price proposals. Geisinger’s prices must be based on Bloomsburg Hospital costs, not System costs, to obtain "a reasonable profit margin for similarly sized and well run community hospitals." In other words, Geisinger may not readily apply System prices to Bloomsburg. The settlement also prohibits Geisinger from requiring payors to contract with the whole System in order to contract with Bloomsburg, and from requiring a payor to exclude a competitor hospital from the network in order to obtain a contract with Geisinger. A few observations:
PA implied that it accepted a conduct remedy over an injunction in light of Bloomsburg’s dire financial condition. Bloomsburg said that by October 2012 it would have insufficient cash to meet its obligations and could not continue operations. The AG said it consented to the order "[g]iven the Acquired Parties’ financial condition and the potential for the loss of 900 jobs."
The Federal Trade Commission (FTC) was not a party to this action, for reasons we do not know. The FTC has traditionally been unwilling to accept conduct restrictions in lieu of divestitures to resolve concerns that a prospective hospital merger is anticompetitive. An exception was in the unusual case of a merger that had been consummated for seven years prior to the FTC’s finding of antitrust liability, at which point the FTC concluded that divestiture would do more harm than good and instead required separate contracting between the merged hospitals. (This was 2007’s decision in Evanston Northwestern/Highland Park.)
The Geisinger case is one of "good news/bad news" for hospitals. The good news is that, at least at the state level, it shows a potential path forward for deals that raise antitrust concerns. The bad news is that consummation came with the cost of an extensive set of restrictions on contracting and other activities that require rigorous monitoring for compliance. Especially for hospitals facing difficult financial challenges, moreover, there is — again, from the limited perspective of state enforcement — the good news that alliances with a large and financially sound competitor may be obtainable, but also the bad news that the rival’s more favorable rate structure [...]
Federal antitrust enforcement agencies continue to challenge transactions in the health industry that they view as anticompetitive. This newsletter provides an update on recent public comments by government officials overseeing antitrust enforcement in the health industry and outlines some of the key steps that parties to certain types of transactions with potential competitive implications in the health industry should take to position themselves for defending against a government review.
Last week, Sharis Pozen, Acting Assistant Attorney General for the Antitrust Division of the U.S. Department of Justice, spoke at the World Annual Leadership Summit on Mergers and Acquisitions in Health Care, where she affirmed that protection of competition in the health care industry is a top priority of the Division. Pozen highlighted the Division’s recent enforcement activities in insurance and provider markets, including challenges to insurance company mergers and contracting practices used by dominant insurers or providers such as Most Favored Nation (MFN) provisions and exclusivity agreements.
Of note, Pozen remarked that the Division undertook a comprehensive evaluation of health insurance markets, the results of which have caused the Division to regard with increasing skepticism the ability of new entry to constrain a merged health insurance firm. Pozen explained that new entrants face obstacles because they need provider discounts to attract enrollees but have difficulty obtaining them without a large number of enrollees. Pozen stated that the Division will focus more attention on entry analysis to protect markets from harmful consolidation, especially markets dominated by one or two plans. Regarding provider markets, Pozen described the Division as "on the lookout for agreements or arrangements purported to improve quality but where the real goal is simply to raise prices." This is especially relevant given the Affordable Care Act’s encouragement of provider collaboration in the form of Accountable Care Organizations (ACOs).
Pozen’s comments highlight the need for health care companies considering collaborative arrangements with competitors or contracting arrangements such as MFNs or exclusivity agreements to consult counsel and articulate a clear pro-competitive basis for such conduct.
On October 20, 2011, the Federal Trade Commission and Department of Justice issued a final policy statement on accountable care organizations (ACOs) participating in the Medicare Shared Savings Program (MSSP). Significantly, the Agencies eliminated mandatory antitrust review of certain ACOs seeking to participate in the MSSP, but declined to adopt other stakeholder recommendations.
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