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.

Health Antitrust Enforcement Update

On May 3 and 4, 2012, representatives from the Federal Trade Commission (FTC) and U.S. Department of Justice (DOJ) (collectively, Agencies) gathered at the bi-annual Antitrust in Healthcare Conference (Conference) co-sponsored by the American Bar Association and the American Health Lawyers Association. Collectively, they confirmed the Agencies' commitment to antitrust enforcement in the health care industry.

DOJ Active in Antitrust Enforcement in the Health Care Industry

In his first speech as Acting Assistant Attorney General, Joseph Wayland summarized the DOJ's recent enforcement efforts involving health insurers and health care providers, which indicate a renewed interest on the part of the DOJ to police the health care industry. During the Bush administration, the FTC took the lead in enforcing antitrust laws in the health care industry. Specifically, the FTC took aggressive enforcement efforts against so-called "pay-for-delay" patent litigation settlements that would allegedly delay entry by generic pharmaceuticals, physician price-fixing and hospital mergers. However, Wayland highlighted DOJ's recent actions, which indicate that DOJ will be increasingly active in the health care industry as well. Indeed, health plan mergers and health plan contracting practices, in particular, will face increasing scrutiny after enjoying a long period of relative inactivity by DOJ. For example, this spring DOJ required divestitures in several markets to satisfy competitive concerns regarding Humana Inc.'s acquisition of Arcadian Management Services Inc. for Medicare Advantage enrollees. Also, in late 2010, DOJ sued Blue Cross Blue Shield of Michigan over its Most Favored Nation provisions in contracts with hospitals for harming health plan competition by raising rival health plans' costs.

Wayland also described how DOJ will split jurisdiction with the FTC when it comes to hospitals. While the FTC will continue to have jurisdiction over mergers that only involve hospitals, the DOJ will review mergers involving hospitals and health plans, such as the Highmark/West Penn Allegheny Health System transaction that DOJ cleared in April 2012. DOJ will also investigate hospitals' unilateral conduct, such as hospitals' exclusive contracting practices with health plans that might harm competition. For example, in 2011, DOJ settled allegations that a Texas health system's exclusive contracts with health plans harmed competition by foreclosing competition from competing hospitals.

Hospital Mergers and Acquisitions

Jon Leibowitz, Chairman of the FTC, stated that while the FTC has challenged four hospital mergers in the past five years, this represents only a small percentage of the overall hospital mergers that have occurred in the United States during that time. Of the approximately 330 hospital mergers during this period, roughly one-third were reportable to the Agencies under the Hart-Scott-Rodino Act. The FTC issued a second request in approximately one-tenth of the reportable transactions.

Leibowitz said that while reasonable people can disagree on whether transactions reducing the number of competitors from four to three may substantially lessen competition or tend to create a monopoly, and that some people can contend that a transaction reducing the number of competitors from three to two does not raise competitive concerns, people rarely disagree over a merger to monopoly. For this reason, the FTC continues to pursue its challenge of Phoebe Putney Health System Inc.'s acquisition of Palmyra Park Hospital Inc. in Albany, Georgia. The FTC alleges the transaction is a merger to monopoly, and should not be immune under the state action doctrine. The solicitor general on behalf of the FTC recently filed a petition for writ of certiorari before the Supreme Court of the United States following the U.S. Court of Appeals for the Eleventh Circuit affirming the federal district court's dismissal of the action under the state action doctrine.

Data from MSSP and Pioneer ACOs Could Enable FTC to Examine Actual Competitive Effects

Markus H. Meier, Assistant Director, Health Care Division, FTC Bureau of Competition, stated clearly that health care reform legislation does not create an antitrust exemption for providers pursuing health reform activities, despite several interest groups having advocated for it. Further, he stated it is too soon to assess the ultimate competitive effects of accountable care organizations (ACOs) and whether they will live up to their potential. He is hopeful that data the Centers for Medicare & Medicaid Services (CMS) will collect from ACOs participating in the Medicare Shared Savings Program (MSSP) and Pioneer Programs will enable the FTC to examine the actual competitive effects of those ACOs. Meier explained the reason the Policy Statement only applies to ACOs participating in the MSSP is because those ACOs are required to submit certain data and information to the government and, in that respect, are under regulatory oversight, unlike ACOs that operate only in the commercial marketplace. Meier disclosed that the Agencies have received less than a handful of requests for voluntary review under the Policy Statement for ACOs participating in the MSSP. He pointed out that ACOs desiring additional guidance from the Agencies should take advantage of the voluntary review process. The Agencies will apply the advisory opinion procedures to those requests, so expect to publish the results of those reviews. Under the Policy Statement, the government will respond to ACOs requesting voluntary review within 90 days of the Agencies' receipt of sufficient information to evaluate the request.

Essential Health Transaction Planning

Hospital Mergers and Acquisitions

For those transactions raising potential competitive concerns upon which reasonable minds can differ, essential transaction planning can be critical to the parties' defense of their transaction. Developing, assessing and articulating community benefits is an important part of transaction planning.

In hospital mergers with potential competitive implications, the FTC typically contacts area payors regarding their views on the proposed transaction. Payor reaction to proposed hospital consolidation most often ranges from neutral to strong opposition (and sometimes, when transactions offer the potential for new products, services or any agreement for pricing concessions, can be favorable). Where along the continuum payor reaction lies can be significant to the parties' antitrust defense.

Parties have the ability to influence likely payor reaction by identifying, assessing and developing the community benefit or pro-competitive effects of their transaction, and communicating those benefits to payors, employer groups and other stakeholders before those constituencies have developed their own opinions and articulated those opinions to the federal antitrust enforcement agencies. Demonstrating the value of the transaction for the community is also important for not-for-profit hospital transactions subject to review by the state Attorney General as well the exercise of board fiduciary duties.

• As soon as possible after identifying the transaction vision, goals and rationale, assess the benefits of the transaction to the community, for example: quality improvements, cost reductions, new or expanded services, new or expanded locations, etc.
  
• Identifying community benefits is key for demonstrating both the exercise of fiduciary duties by the governing bodies of the parties as well as the pro-competitive efficiencies of the transaction.
  
• Articulate the community benefits of the transaction to key stakeholders.
  
• Garner community support for the transaction from key stakeholders.
  
• Don't speculate about the effects of the transaction on competition, prices and profitability.

ACOs

1. Analyze Your Data Before the Government Does

Capturing and analyzing clinical data is an essential component of the operation of an ACO. All ACOs participating in the MSSP and the Pioneer Program are required to submit to CMS various quality data. The government is hopeful that this data will enable it to conduct an analysis of whether ACOs will succeed in the promise to reduce unnecessary costs and improve quality of care.

• Not only is measuring and demonstrating achievement of cost and quality goals necessary to determine eligibility for shared savings payments, it is a core component of clinical integration within the meaning of the antitrust laws.
  
• ACOs raising competitive concerns should monitor achievement of their cost and quality goals to ensure those benefits outweigh any anti-competitive effects of the ACO.

2. Include Enough, but Not Too Many, and the Right Ones

A successful ACO will have a sufficient number and complement of providers to service contracting payors' beneficiaries. The government is concerned with over-inclusiveness, that is, the point after which the ACO already has a sufficient panel, but continues to include providers in the relevant service area and creates market power among those providers. The government would like to see first-stage competition among providers to be included in networks.

• ACOs should be selective about their network participants.
  
• ACOs targeting for participation a number of providers who, collectively, would exceed thresholds the Agencies have articulated should conduct a service area assessment to determine whether inclusion of all desired participants could raise competitive concerns.
  
• If inclusion of all desired participants could raise competitive concerns, ACOs should consider prioritizing for inclusion those participants who are most likely to further their efficiency objectives.
  
• Irrespective of potential market power concerns, ACOs should prioritize for inclusion and ongoing participation those providers who further the ACO's quality objectives.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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