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Healthcare Antitrust

FTC Encourages VA to Adopt Proposed Rule Preempting State Laws to Allow Advanced Practice Registered Nurses to Provide Services Without Physician Oversight

by Emily Townsend | Aug 1, 2016 | Consumer Protection/Privacy, DOJ Developments, FTC Developments, Healthcare Antitrust, Joint Ventures/Competitor Collaboration

On July 25, 2016, the Federal Trade Commission (FTC) submitted comments to the Department of Veterans’ Affairs (VA) supporting a proposed rule only affecting VA facilities that would authorize Advanced Practice Registered Nurses (APRNs) to provide primary health care services without the mandatory supervision of physicians, regardless of state or local laws, with limited exceptions. Currently, APRNs in the employ of the VA are subject to VA requirements as well as various regulations on a state-by-state basis, with physician supervision required in over half of the states. Under Proposed Rule RIN 2900-AP44, APRNs that meet VA standards would have the authority to provide a described list of services without such physician supervision.

While the FTC acknowledged the important role of federal and state legislators in determining the “best balance of policy priorities,” the FTC has expressed skepticism of state laws requiring physician supervision. They have noted that such requirements “may raise competition concerns because they effectively give one group of health care professionals the ability to restrict access to the market by another competing group of health care professionals, thereby denying health care consumers the benefits of greater competition.” In fact, the FTC argued that physician supervision requirements may increase the cost of services that APRNs could provide, and by relaxing such requirements, consumers “may gain access to services that would otherwise be unavailable.” This increased access could also address shortages in access to primary and specialty care. As the FTC noted, the US has current and projected health care workforce shortages, particularly in primary care physicians, and the VA has emphasized the need to provide care to veterans in rural areas who have limited access to specialty services, some of which APRNs could provide.

Additionally, the FTC commented that the proposed rule could yield information about models of health care delivery. Under the current system, the VA’s use of APRNs is limited by state regulation. By preempting the state requirements, the FTC argued that the VA would be free to “innovate and experiment with models of team-based care.”

Interestingly, the proposed rule only applies within the scope of VA employment, which falls outside of “competition in the private sector” for which the FTC acknowledged it is typically concerned. But in this instance, the FTC concluded that the VA’s actions could positively impact competition in the health care service provider markets by encouraging entry that could “broaden the availability of health care services” outside of the VA’s system.

This is another example of antitrust regulators’ interest in occupational licensing and competition concerns generally. Just as this letter encourages competition between physicians and nurses for certain health care services, last month, US Department of Justice (DOJ) and FTC jointly submitted a letter encouraging competition between lawyers and non-lawyers in the provision of legal services in North Carolina. We previously analyzed that letter, and other important developments in occupational licensing that have occurred since February 2015, when the Supreme Court affirmed an FTC decision not to apply state action antitrust immunity for [...]

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District Court Blocks FTC and PA AG Challenge to Hershey-Pinnacle Merger

by Daniel Powers | May 17, 2016 | FTC Developments, Healthcare Antitrust, Mergers & Acquisitions

On May 9, 2016, the US District Court for the Middle District of Pennsylvania denied the motion by the Federal Trade Commission and Pennsylvania Office of Attorney General for a preliminary injunction to enjoin the merger of Penn State Hershey Medical Center and PinnacleHealth System. The decision ends a string of victories by the FTC in recent health care merger litigation.

Read the full article.

Sixth Circuit: “Single-Network” Hospitals Not Exempt from Section One Scrutiny

by McDermott Will & Emery | Mar 30, 2016 | Healthcare Antitrust, Joint Ventures/Competitor Collaboration

On March 22, 2016, the U.S. Court of Appeals for the Sixth Circuit allowed a claim to proceed under § 1 of the Sherman Act against four hospitals acting as a single network under a joint operating agreement. Med. Center at Elizabeth Place, LLC v. Atrium Health Sys., No. 14-4166 (6th Cir. Mar. 22, 2016). A divided panel reversed the ruling of the district court, which had granted summary judgment for the defendant hospitals on the premise that they were operating as a single entity and therefore had not engaged in concerted action subject to § 1. The Sixth Circuit’s opinion sheds light on a topic of growing importance in the health care industry: how to distinguish a lawful joint venture from a horizontal conspiracy.

To answer that question, the majority examined “the nature of the business relationship among the defendants, focusing on whether that relationship remain[ed] that of separate, competing entities or whether there [was] a single center of decisionmaking.” Id. at 10 (citing American Needle, Inc. v. Nat’l Football League, 560 U.S. 183 (2010)). Even though the joint venture was “a separate corporate entity with its own management structure” and the “joint operating agreement provide[d] for sharing revenue pursuant to an agreed upon formula,” the court decided the record supported a conclusion that defendants were separate actors capable of conspiring under § 1. Id. In support of this conclusion, the court cited evidence that the intention behind the joint venture was to prevent the plaintiff hospital from entering the local health care market. Id. at 4 (for example, evidence that defendant’s executive told plaintiff, “you are the enemy [and] this is war”). Additional facts supporting this conclusion included that the hospitals “remain[ed] separate legal entities, each with their own assets, filing their own tax returns and maintaining a separate corporate identity with its own CEO and Board of Directors.” Id. at 11. Further, the hospitals continued to compete with each other for physicians and patients and to make their own decisions regarding staffing and patient care. Id.

In recent years, as antitrust regulators have subjected mergers in the health care arena to increasing scrutiny, many have viewed joint operating agreements as an attractive alternative. The Sixth Circuit’s opinion in Elizabeth Place serves as an important reminder that courts “look[] beyond labels” in distinguishing lawful joint venture activities from concerted conduct subject to § 1. Id. at 7. In other words, a formal joint operating arrangement will not spare accused conspirators from antitrust scrutiny, particularly in the face of evidence of anticompetitive intent. Companies should exercise caution to avoid the appearance that a joint venture is being used as a tool to harm competitors or eliminate competition. In both internal documents and external communications, companies should avoid the use of war-like words that may signal anticompetitive intent or effect. It is always prudent to involve counsel in communications with competitors, as these communications pose the highest level of antitrust risk.

FTC and Pennsylvania Attorney General Challenge Health System Combination

by McDermott Will & Emery, Ashley Fischer and Lisa A. Peterson | Jan 7, 2016 | FTC Developments, Healthcare Antitrust, Joint Ventures/Competitor Collaboration, Power Markets

The Federal Trade Commission (FTC) and Pennsylvania Attorney General (AG) have challenged the proposed combination of The Penn State Hershey Medical Center (Hershey) and PinnacleHealth System (Pinnacle) in Harrisburg, Pennsylvania. The FTC complaint alleges that the combination would create a dominant provider, reduce the number of competing health systems in the area from three to two, and result in a 64 percent share of the market for general acute care inpatient hospital services.

Hospitals and health systems pursuing mergers with a competitor should be mindful of the antitrust enforcement climate in health care and incorporate antitrust due diligence into their early transaction planning. Moreover, this case highlights that providers seeking to proactively alleviate the potential anticompetitive effects of a transaction should anticipate continued skepticism by the FTC of claims of procompetitive efficiencies and its dismissal of the merging parties’ newly negotiated, post-closing pricing agreements with payors.

Summary of Administrative Complaint

Parties and Transaction

Hershey is a nonprofit healthcare system headquartered in Hershey, Pennsylvania, about 15 miles west of Harrisburg. The system has two hospitals in the Harrisburg area: the Milton S. Hershey Medical Center, an academic medical center affiliated with the Pennsylvania State University College of Medicine, and the Penn State Hershey Children’s Hospital, the only children’s hospital in the Harrisburg area. Hershey has 551 licensed beds and employs 804 physicians offering the full range of general acute care services. In its 2014 fiscal year, Hersey generated $1.4 billion in revenue and discharged approximately 29,000 patients.

Pinnacle is nonprofit healthcare system headquartered in Harrisburg. Pinnacle’s system includes three hospitals in the Harrisburg area: PinnacleHealth Harrisburg Hospital, PinnacleHealth Community General Osteopathic Hospital, and PinnacleHealth West Shore Hospital. The system has 662 licensed beds divided among the three hospitals. In its 2014 fiscal year, Pinnacle generated $850 million in revenue and discharged more than 35,000 patients.

Pursuant to a letter of intent executed in June 2014, the parties would create a new legal entity to become the sole member of both health systems. The parties would have equal representation on the board of directors of the new entity.

Relevant Markets

The FTC complaint alleges that the appropriate scope within which to evaluate the proposed transaction is the market for general acute care (GAC) inpatient hospital services in a four-county area around Harrisburg. This alleged product market encompasses a broad cluster of medical and surgical diagnostic and treatment services that require an overnight in-hospital stay. Although the effect on competition could be analyzed for each affected medical procedure or treatment, the FTC considered the cluster of services as a whole because it considers the services to be “offered to patients under similar competitive conditions, by similar market participants.”

The FTC limited the geographic market to an area which includes Dauphin, Cumberland, Perry and Lebanon Counties. These four counties, according to the FTC, are “the area in which consumers can practicably find alternative providers of [GAC services].” Consequently, hospitals located outside of this area [...]

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LegalZoom and the North Carolina Bar Settle Antitrust Dispute

by Emily Townsend | Nov 10, 2015 | Healthcare Antitrust

In the latest development from a number of antitrust lawsuits filed against state regulatory boards, LegalZoom.com Inc. signed a consent agreement with the North Carolina State Bar (State Bar) to settle a $10.5 million lawsuit. LegalZoom had alleged multiple violations of federal antitrust laws, including a Section 1 claim that the State Bar had collectively refused to deal with the online legal services provider by refusing to register its prepaid legal services.

Under North Carolina law, the State Bar is tasked with registering prepaid legal services plans, which provide plan-holders access to licensed attorneys to provide legal advice and services. A plan that is not registered may not be sold in North Carolina, nor can licensed attorneys in North Carolina provide services under a plan that is not registered. LegalZoom attempted to register its legal services plans with the State Bar, but the State Bar refused, claiming that LegalZoom’s plans did not meet the N.C. State Bar requirements for registration. LegalZoom then filed a lawsuit, and the parties ultimately reached the settlement at present, which will allow LegalZoom to offer its plans in North Carolina.

This case—and others filed against medical boards, veterinary boards, or state bar associations, to name a few examples—follow from the U.S. Supreme Court’s decision earlier this year in North Carolina State Board of Dental Examiners v. Federal Trade Commission, 574 U.S.___ (Feb. 25, 2015). Prior to that decision, state regulatory boards often claimed state-action immunity from antitrust liability. Under the state-action doctrine, the conduct of states acting in their sovereign capacity is shielded from federal antitrust scrutiny. In North Carolina State Board of Dental Examiners, the Supreme Court reasoned that conduct by state regulatory boards that are controlled by active participants in the profession the board regulates does not constitute exercise of the state’s sovereign power, unless the board is subject to active supervision by the state. Therefore, such state agencies do not receive state-action immunity and are subject to the federal antitrust laws. Here, LegalZoom used the Supreme Court’s decision in North Carolina State Board of Dental Examiners to argue that the State Bar was subject to federal antitrust laws, claiming the board was controlled by active market participants and was not actively supervised by the state. While the parties’ settlement meant that this specific question was never resolved, the lawsuit highlights a trend in antitrust claims filed against state regulatory boards.

We previously analyzed North Carolina State Board of Dental Examiners shortly after the decision came down. As this blog has previously pointed out, “many states regulate professions and occupations through boards controlled by experienced, active practitioners in the fields they regulate. Any state or quasi-state entity composed, in whole or in part, of market participants should take careful note of this case and examine the entity’s structure, composition and operations to assess whether its market participants have “control.” If they do, then the entities and their states must consider changes, either to eliminate the market participants’ controlling role [...]

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FTC Comments Discourage Legislation Purporting to Grant Antitrust Immunity for Health Care Providers

by McDermott Will & Emery | Nov 9, 2015 | FTC Developments, Healthcare Antitrust, Mergers & Acquisitions

In late September, the Federal Trade Commission (FTC) submitted comments to the Virginia and Tennessee Departments of Health regarding each state’s proposed rules concerning hospital cooperation agreements. These proposed rules permit two or more hospitals to consolidate by merger or other combination of assets if, in the departments of health’s view, the benefits of the cooperative agreement outweigh any disadvantages caused by a reduction in competition. While the main purpose of the comments was to offer FTC assistance in the states’ evaluation of such agreements, the FTC re-iterated its position that “legislation purporting to grant antitrust immunity is un-necessary to encourage procompetitive collaborations among health care providers.” In fact, according to the FTC, such legislation is more likely to harm consumers.

The FTC believes the “antitrust laws are consistent with the laudable public policy goals of improving quality, reducing costs, and improving patient access for health care services.” With that position in mind, the FTC’s letters to the Virginia and Tennessee Departments of Health suggest that antitrust regulators should be focused on prohibiting agreements among providers that could harm competition rather than encouraging the creation of new agreements. Specifically, the FTC stressed that “efforts to shield such conduct from antitrust enforcement are likely to harm [state] health care consumers, no matter how rigorous or well-intentioned the regulatory scheme may be.”

Under the proposed rules, the states must weigh the benefits resulting from the cooperation agreements against any potential disadvantages likely to result from a reduction in competition. Both states’ rules specifically outline factors to be considered during the process. Potential benefits of cooperation agreements as noted in the FTC comments include the following:

Enhancement in quality of care and population health status
Preservation of hospital facilities to ensure access to care
Gains in cost-efficiency of hospital services provided
Improvements in utilization of hospital resources and equipment
Avoidance of duplication of hospital resources
Increases in access to hospital services for medically underserved populations
Participation in the state Medicaid program
Reductions in the total cost of care

Dis-advantages of such agreements that the states propose to consider include the following:

The adverse impact on the ability of payers to negotiate reasonable payment and service arrangements with providers
A reduction in competition among providers
An adverse impact on patients in the quality, availability and price of health care services
The availability of alternative arrangements that are less restrictive to competition and achieve the same benefits or a more favorable balance of benefits over dis-advantages

While these factors align with those that the FTC considers when reviewing a potential provider transaction, state authorities and the FTC differ on whether it is sound policy to encourage cooperation agreements among providers. The state legislators seek to allow cooperation agreements to move forward without fear of potential antitrust enforcement. Conversely, the FTC thinks legislation protecting provider cooperation agreements is un-necessary to encourage procompetitive collaborations and potentially harmful to the extent it shields anticompetitive collaborations from antitrust enforcement. In any event, providers entering such [...]

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FTC Comment: Minnesota Law Requiring Public Disclosure of Health Care Contract Data Increases Risk of Anticompetitive Behavior

by McDermott Will & Emery | Jul 14, 2015 | DOJ Developments, FTC Developments, Healthcare Antitrust

On June 29, 2015, the Federal Trade Commission (FTC) responded to a request for comment from two Minnesota state legislators concerning recently enacted amendments to the Minnesota Government Data Practices Act (MGDPA). Under the amendments, the MGDPA would be expanded to cover all data collected by health maintenance organizations, health plans, and other health services vendors that contract with the state to provide health care services to Minnesota residents. In practice, this means that the confidential terms and conditions of health plans’ contracts with health care providers could be subject to public disclosure.

While they commended the “laudable goals” of the MGDPA, the FTC ultimately concluded that the amendments could lead to the disclosure of competitively sensitive information and, therefore, increase the likelihood of anticompetitive behavior. Specifically, there were two major concerns raised in the FTC comment.

First, the amendments likely would lead to the exchange of fees, discounts and other pricing terms among providers, which would increase the likelihood of provider collusion. The comment notes that in markets with a relatively small number of competitors and where those competitors have the ability to accurately monitor each other’s transactions, there is increased risk of collusion.

The second concern is that the exchange of information among providers could impede the ability of health plans to selectively contract among providers. In a typical selective contracting environment “where health care providers do not know each other’s prices, providers are more likely to bid aggressively—offering lower prices—to ensure they are not excluded from selective networks.” If providers know the prices, rebates, and discount arrangements offered by their competitors, they possess a new tool in negotiations with health plans and are less likely to bid aggressively.

The FTC argued that a balance is needed between providing consumers with the information they need to make informed decisions concerning their health care and allowing competitors to share information that could facilitate anticompetitive behavior. The FTC encouraged the Minnesota legislature to consider the types of information that would be the most helpful for consumers in selecting their service, such as actual or predicted out-of-pocket expenses, co-pays, and quality comparisons of plans and providers. However, they urged caution in mandating public disclosure of health plan contract details and fee schedules.

While the FTC’s comment was addressed to legislators, it highlights the kinds of information exchanges that the antitrust regulators believe can lead to anticompetitive behavior in the health care industry. In that sense it builds on the joint FTC and U.S. Department of Justice Statements of Enforcement Policy in Health Care, originally published in 1996. Providers should avoid exchange of any information concerning their fees, discounts and other pricing arrangements with their competitors.

To see the full letter from the FTC, please click here.

ABA Antitrust Spring Meeting Highlight: “Antitrust & Health Care: Square Peg in a Round Hole?”

by Michelle Lowery | Apr 30, 2015 | FTC Developments, Healthcare Antitrust, Mergers & Acquisitions

In this month’s American Bar Association (ABA) Section of Antitrust Law Spring Meeting, the program “Antitrust & Health Care: Square Peg in a Round Hole?” featured debate and discussion about antitrust law treatment of health care transactions and how that treatment might (or should) evolve (via regulation, legislation, or some combination of approaches), or conversely, whether the intersection of antitrust law and health care is more akin to a square peg meeting a round hole. Moderated by Jim Donahue (Office of the Pennsylvania Attorney General), the panel’s speakers included Robert Berenson, MD (The Urban Institute), Alexis Gilman (the Federal Trade Commission (FTC)), Melinda Hatton (American Hospital Association (AHA)) and Elinor Hoffmann (Office of the New York Attorney General (AG)).

Horizontal Mergers

The program first considered a hypothetical merger of specialty physician practices, where the acquiring practice has privileges at one of the market’s two hospitals and the merger would consolidate privileges at that hospital.

The FTC said it would likely look at the transaction on a specialty-by-specialty basis; the New York AG agreed, but thought it was worth considering: is multi-specialty a market itself? She referenced ProMedica’s cluster markets as a possible route for analyzing the transaction (e.g., a parent might take two children to a multi-specialty practice at the same time, one to see a pediatrician and the other to see a dermatologist).

The American Hospital Association (AHA) thought that with the Affordable Care Act’s (ACA’s) incentive to keep the population out of the hospital, hospitals are repurposing services toward population health goals, and referenced remote medicine and affiliations.

Remedies

The FTC stated that it continued to prefer structural remedies in the form of injunctions or divestitures for health care transactions, pointing to its rejection of Phoebe Putney’s proposed conduct remedy. The New York AG agreed that while structural remedies are typically best, the states (particularly Pennsylvania and New York) tend to be more willing to consider conduct remedies, often with the goal of marrying regulation with achievement (efficiencies).

Dr. Berenson posited that physician group acquisitions are the wave of the future, because the current regulatory environment makes solo practice difficult. So, he said, where physicians or specialties must be divested, those doctors are now likely to seek hospital employment.

From the hospital perspective, the AHA noted that health care transactions are a peculiar breed— health care cannot be divorced from regulation, acquisition costs are usually very high, and hospitals must pay fair market value under Stark and Anti-Kickback laws—and commented that the peculiarities of such transactions are not always adequately taken into consideration in merger challenges.

Vertical Mergers; Narrow vs. Broad Networks

The panel next considered a hypothetical merger where a health plan with 60 percent market share in a mid-size city purchases one of the two hospitals and changes its network from broad to narrow.

The FTC noted that although they have not challenged this sort of vertical health care transaction, it would do so under the right circumstances (e.g., if the hospital had no excess capacity, [...]

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FTC Clarifies “Failing Firm” Defense

by McDermott Will & Emery | Apr 2, 2015 | FTC Developments, Healthcare Antitrust, Mergers & Acquisitions

Earlier this week, the Federal Trade Commission (FTC) published an article that offers guidance on the “failing firm” or “flailing firm” defense often invoked in the hospital merger context. The article, written by Debbie Feinstein and Alexis Gilman of the Bureau of Competition, clarifies the circumstances under which this defense is and is not available.

At the outset, Feinstein and Gilman point out the basic requirements for establishing a failing firm defense, as set forth in § 11 of the Horizontal Merger guidelines:

the company is unable to meet its obligations as they come due;
the firm would not be able to reorganize successfully in bankruptcy; and
it has made unsuccessful good-faith efforts to elicit reasonable alternative offers that would keep its assets in the relevant market and pose a less severe danger to competition than does the proposed merger.

The article goes on to emphasize an additional nuance required for the defense—that the acquiring company is the only available purchaser. This goes hand-in-hand with requirement three listed above. As an example, the authors describe a recent FTC investigation that involved “a hospital that was clearly failing.” The hospital’s bankrupt status did not calm the FTC’s concerns about the transaction, because the FTC learned that there was an interested alternate purchaser who did not pose the same competitive risks as the chosen acquirer.

Even if the acquisition price of a “failing” or “flailing” firm is below the Hart-Scott-Rodino reporting threshold, potential acquirers should assess the antitrust risk associated with the transaction and be sure to factor any costs associated with that risk into the sticker price. The failing or flailing firm should be prepared to demonstrate the efforts it made to find an acquirer. Non-reportable transactions are within the FTC’s reach and are often on the agency’s radar, particularly in the health care context.

The full text of the article is available here.

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