United States: FTC Skeptical Of West Virginia Legislature's Proposal To Immunize Certain Health Care Providers' Activities From Antitrust Laws

We recently wrote about the FTC filing a complaint, In re Cabell Huntington Hospital (FTC Docket No. 9366), objecting to the merger of two West Virginia hospitals. The FTC filed its complaint against the wishes of West Virginia's antitrust enforcer, Attorney General Patrick Morrisey, who approved the merger. In addition to challenging the merger, the FTC's complaint portrays West Virginia's regulation of healthcare facilities as inherently anticompetitive.

The West Virginia legislature has now entered the controversy. Both houses passed legislation that would foster "cooperative agreements" among healthcare providers, as long as one of the providers is "a teaching hospital which is a member of an academic medical center."1 The cooperative agreements include "the sharing, allocation, consolidation by merger or other combination of assets, or referral of patients, personnel, instructional programs, support services, and facilities or medical, diagnostic, or laboratory facilities or procedures or other services traditionally offered by hospitals or other health care providers."2

The legislation would exempt these activities from federal antitrust laws as long as they comply with the guidance, orders, or regulations issued by the West Virginia Health Care Authority:

Actions of the authority shall be exempt from antitrust action under state and federal antitrust laws. Any actions of hospitals and health care providers under the authority's jurisdiction, when made in compliance with orders, directives, rules, approvals or regulations issued or promulgated by the authority, shall likewise be exempt. Health care providers shall be subject to the antitrust guidelines of the federal trade commission and the department of justice.3

The West Virginia legislature asked the FTC to comment on the pending legislation. The Federal Trade Commission's Office of Policy Planning, Bureau of Competition, and Bureau of Economics responded to the request, expressing its "strong concerns" about the legislation.4 Although the letter does not purport to express the views of the FTC or any individual commissioner, the commission authorized the sending of the letter.

The letter began by noting that the Federal Trade Commission has long advocated against any legislative proposal to exempt conduct in healthcare markets, such as collective negotiations by healthcare providers, from antitrust scrutiny because such exemptions are likely to harm consumers.5 With regard to West Virginia's proposed legislation, the letter expressed two particular concerns.

First, the letter questioned the need for any new regulatory oversight of cooperative agreements. The letter rejected what it considered an inherent assumption that the FTC and antitrust laws prohibit mergers, acquisitions, and collaborations that would benefit healthcare consumers in West Virginia. The letter cited guidance issued by antitrust authorities permitting pro-competitive mergers and other combinations. For example, the FTC and Department of Justice's Statements of Antitrust Enforcement Policy in Health Care and their Horizontal Merger Guidelines recognize that mergers or other collaboration among competitors can have pro-competitive effects. Thus, the letter concluded that any additional legislation to foster pro-competitive collaboration among healthcare providers is unnecessary.

Second, the letter expressed "deep[] concern[]that the Bill would mainly serve to encourage mergers and conduct that likely would not pass muster under the antitrust laws because they would reduce competition, raise prices, diminish incentives to improve quality, and provide relatively small or no benefits to consumers."6 Specifically, the immunity provisions of the proposed legislation intended to benefit teaching hospitals would also reduce competition among other healthcare providers with whom those teaching hospitals collaborated.7

The letter noted that healthcare providers and physicians have repeatedly lobbied for exemptions from the antitrust laws, but that Congress and antitrust enforcement agencies declined to provide such an exemption.8 Further, the letter cited the Supreme Court's recent decisions in FTC v. Phoebe Putney Health System, Inc., 133 S. Ct. 1003 (2013), and North Carolina State Board of Dental Examiners v. FTC, 135 S. Ct. 1101 (2015), as reiterating the Court's "long-standing position that, given the antitrust laws values of free enterprise and economic competition, 'state-action immunity is disfavored.'"9 Exempting mergers or other collaboration among competing healthcare providers that would otherwise not pass antitrust scrutiny would confer market power on certain healthcare providers, which would inevitably harm healthcare consumers.

The FTC's letter concluded that the proposed legislation is "likely to foster mergers and conduct that are anticompetitive, inconsistent with federal antitrust law and policy, and liable to cause serious harm to West Virginia health care consumers."10 Thus, "[t]he Bill's apparent attempt to confer antitrust immunity is ... unnecessary for legitimate collaborations and, if effective, would encourage groups of private health care providers to engage in blatantly anticompetitive conduct."11

Although the FTC Staff's letter does not reference the FTC's recently filed complaint, it does not appear that the pending legislation would ease the FTC's concerns about antitrust regulation of the healthcare industry in West Virginia.

Footnotes

1. The letter cited Committee Substitute for Senate Bill 597 by Senators Ferns and Plymale, Originating in the Senate Committee on Health and Human Resources; reported on February 16, 2016 (hereinafter S. 597).

2. S. 597 at § 16-29B-28(a)(2).

3. Id.

4. Federal Trade Commission Office of Policy Planning Letter to Hon. Mike Pushkin (Mar. 9, 2016) (hereinafter "FTC Staff Letter"), at 1. The letter is reproduced at https://www.ftc.gov/system/files/documents/advocacy_documents/ftc-staff-comment-west-virginia-house-delegates-regarding-sb-597-competitive-implications-provisions/160310westvirginia.pdf.

5. FTC Staff Letter, at 2.

6. Id. at 5.

7. Id.

8. Id. at 6.

9. Id.

10. Id. at 7.

11. Id.

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