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Antitrust Risk Rising: Challenges Faced By Health Plans in the Post-

Reform Environment

William E. BerlinSeptember 15, 2011

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Post-Reform?

Still evolving: final ACO regs; GOP rollback; reimbursement changes

Many (most?) changes driven by market not health reform Diminished profitability of traditional core insurance

products Provider consolidation

Competition from providers -- e.g., captive insurers

Increased FTC/DOJ enforcement?

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Health Plan Responses to Reform & Market Changes

Buying providers/forming ACOs Selling back-room services to providers (e.g.,

practice management) Merging with other health plans?

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What Antitrust Issues Do Health Plan Responses Raise?

Mergers: Horizontal v. Vertical; Plans and Providers

ACO Rules Provider Contracting/Exclusionary Conduct By

Dominant Firms Information Sharing/Gun Jumping

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Enforcers

Antitrust Division, United States Department of Justice Civil injunctive relief Criminal prosecution: penalties include fines and

prison

U.S. Federal Trade Commission Civil injunctive relief only (but can refer criminal

violations to DOJ) Disgorgement

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Enforcers (Cont’d.)

State attorneys general Enforce state antitrust laws and bring damage actions

under federal antitrust laws Typically follow and defer to FTC/DOJ

Private parties injured by the conduct Triple the actual damages Attorneys fees Often tag-along on government cases

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Health Plan, Hospital and Physician Group Mergers --Clayton Act, Section 7

Prohibits all types of mergers, acquisitions, and joint ventures whose effect may be to substantially lessen competition

Horizontal = Increased market power/coordination Vertical = Foreclosure of competitors

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Mergers (and Joint Ventures)

Threshold consideration: Ensure the merger results in a single entity for antitrust purposes – American Needle v. NFL (2010)

Integration of firms must be near-total If not, the firms continue to constitute separate competing firms

for antitrust purposes If so, their agreeing on prices, etc. constitutes unlawful price

fixing (unless integrated and ancillary) or other Section 1 violation

Sherman Act Section 1: Prohibits agreements between competitors that unreasonably restrain competition

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Mergers:2010 Horizontal Merger Guidelines

First revision since 1997 (minor), 1992 More aggressive approach More flexible, less mechanistic Better conform to existing agency practice

To achieve better results in court?

But is the bar raised?

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Revised Horizontal Merger Guidelines

Significant changes relevant to healthcare mergers: Emphasize anticompetitive effects

analysis/deemphasize market definition Increased importance of other evidence of likely

or actual adverse effects

Implications for healthcare transactions

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Horizontal Mergers -- Warning Signs:

Merging firms, together, have a 35 to 40% or larger market share

Four largest firms have a 50% or larger market share Customers complain because merged firm would be able

to increase prices significantly (or decrease payments to providers)

Few efficiencies New firms would not enter the market (New) Merging firms can raise (or have raised) prices or

harm competition Other new requirements?

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Health Plan Mergers (Horizontal)

Past DOJ Antitrust Division enforcement criticized by providers

Three prior challenges: Prudential/Aetna (1999) UnitedHealth/PacifiCare (2006) United Health/Sierra Health Services (2008)

Partial divestitures in each AHA lists 14 investigations since 1993 Many with no geographic overlap DOJ investigation of Blue Care Network of Michigan -

Physicians Health Plan of Mid-Michigan (2010): monopsony concern

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Provider Mergers (Horizontal)

Bottom lines: Hospital and hospital-physician mergers on the upswing

in 2010-11

More aggressive enforcement under revised Guidelines

Increasing emphasis on:

Pricing analysis and direct effects (retrospective review)

Effect on employers, health plans (key role) Increased provider concentration/bargaining power?

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Provider Mergers:Agency Enforcement Activities

FTC v. Evanston (2005, aff'd 2007): retrospective; pricing evidence

FTC v. Inova (2008): effect on small employers; skeptical of efficiencies/quality claims; fast track procedure

Pro Medica – St. Luke’s Hospital (2011)

Phoebe Putney – Palmyra Park Hospital (2011)

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Health Plan Acquisition/Integration of Providers (Vertical)

Concern is foreclosure/exclusion of competitors

Can also be horizontal issue if health plan acquires large percentage of provider specialty/type

Highmark-West Penn Allegheny Health System

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The FTC/DOJ ACO Policy Statement

To which entities does the Policy Statement apply?

Steps in analysis How to mitigate antitrust risk Agency review process Health plan perspective

one form of vertical acquisition/integration increased concentration of horizontal providers

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To Which ACOs Does The Statement Apply?

Competing providers (even if with health plan) Criteria for Shared Savings Program Contracting with commercial insurers Clinical integration

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Streamlined Analysis Based on ACO’s Share

How to calculate the PSA shares necessary to make threshhold determinations

Safety zone – 30% Rural exception – can exceed 30% Dominant provider limitation – single provider can exceed

50%

Mandatory review for ACO’s exceeding 50%

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ACOs: How to reduce risk of investigation or mitigate antitrust

concern

Same factors used for ACOs with shares between 30-50% and over 50%. Don’t: Prevent payor steering

Tie ACO services to services of providers outside of ACO (including participants)

Make ACO providers exclusive to the ACO (except PCPs)

Restrict payors ability to provide info to enrollees to select NW providers

Share price info among ACO participants

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ACOs: Agency Review Process

Documents and information required

90 day review period

Agency approval required for ACOs exceeding 50%

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ACO Bottom Line

Little provider interest now; health plan interest?

New regulations, models?

Provider ACOs able to exercise market power in bargaining with health plans?

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Dominant Firm Exclusionary Conduct-- Section 2 of the Sherman Act

Prohibits “monopolization,” “attempted monopolization,” and “conspiracies to monopolize” Monopolization and attempted monopolization don’t

require an agreement -- unilateral action sufficient Typically result where a single firm has substantial

market power and takes action to exclude its competitors from the market

A conspiracy to monopolize is basically the same as a Section 1 agreement unreasonably restraining competition

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Dominant Firm Exclusionary Conduct-- Section 2 Monopolization

Requirements: “Monopoly power”: Typically, a 70% or larger market

share “Predatory conduct”: Conduct that excludes competitors

from the market, not based on the predator’s competitive merits

Defense: A “legitimate business justification” That is, the conduct benefits consumers

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Dominant-Firm Exclusionary Conduct

U.S. v. BCBS of Michigan – latest DOJ challenge of MFN clauses

Focus on monopsony (buyer-side) effects

U.S. v. United Regional HealthCare Defining and identifying predatory conduct: difficult, fact-

specific Unreasonable agreement can also be predatory conduct

(e.g., DOJ alleged only Section 1 claim v. BCBS Michigan)

Typically enforced by DOJ (protracted, complex investigation/litigation)

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Guidelines for M&A Due Diligence and Providing Management Services

Information sharing Gun-jumping Omnicare v. UnitedHealth and Pacificare FTC/DOJ Healthcare Policy Statement 6

Safety Zone: third party; information 3 months old; aggregated

Public information OK; future prices not

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Resources: Federal Policy Framework

U.S. Dep’t of Justice & FTC, Merger Guidelines (1992, as amended 2010)

(http://www.ftc.gov/os/2010/08/100819hmg.pdf )

Statements of Antitrust Enforcement Policy in Health Care (Aug 28, 1996) (www.ftc.gov/reports/hlth3.shtm) (Healthcare Guidelines)

FTC/DOJ Report, Improving Health Care: A Dose of Competition (2004)(www.ftc.gov/reports/healthcare/040723healthcarerpt.pdf)

FTC/DOJ Proposed Statement of Antitrust Enforcement Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program (April 2011)(http://gpo.gov/fdsys/pkg/FR-2011-04-19/pdf/2011-9466.pdf)

FTC and U.S. Dep’t of Justice, Antitrust Guidelines for Collaborations Among Competitors (2000)

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Federal Policy Framework (cont.)

Business Review Letters/Advisory Opinions FTC -

www.ftc.gov/bc/healthcare/industryguide/opinionguidance.htm

DOJ - www.usdoj.gov/atr/public/busreview/letters.htm

Enforcement Actions FTC - www.ftc.gov/bc/healthcare/antitrust/index.htm DOJ - www.usdoj.gov/atr/cases.html

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Other Helpful Resources

ABA Section of Antitrust Law, Antitrust Law Developments (6th ed. 2007)

ABA Section of Antitrust Law, Antitrust Health Care Handbook III (2004) (revised edition forthcoming 2009)

Paul J. Felstein, Health Care Economics (6th ed. 2005)

Herbert Hovenkamp, Federal Antitrust Policy (3d ed. 2005)

1-5 John J. Miles, Health Care & Antitrust Law (Supp. 2008)

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Questions?