Antitrust Enforcement and the Future of Healthcare Competition
Abstract and Keywords
This chapter examines the role of antitrust law in the governance of healthcare competition in the United States as the Patient Protection and Affordable Care Act of 2010 (ACA) takes full effect. It provides an overview of U.S. antitrust law before turning to recent and ongoing controversies involving antitrust law and healthcare, including those relating to hospital mergers, consolidation in the health insurance industry, accountable care organizations, and generic drugs. It then steps back to consider deeper questions of competition policy in the post-ACA era that may determine the economic sustainability and quality of the U.S. healthcare system.
Keywords: antitrust law, healthcare competition, Patient Protection and Affordable Care Act of 2010, healthcare, hospital mergers, healthcare reform, health insurance industry, professional ethics, generic drugs, accountable care organizations
As in other democratic nations, the U.S. economy generally operates as a competitive market. In this endeavor, it is aided by social norms, sound monetary policy, general laws protecting private property and facilitating commercial transactions, and specific “antitrust” laws prohibiting private anticompetitive organization and conduct. Health systems in these same democracies deviate from market principles to varying degrees and in different respects. Although its largely private health insurers and its almost entirely private healthcare providers have enabled the United States to claim (or be accused of) outlier status in this respect, the ongoing implementation of the Patient Protection and Affordable Care Act of 2010 (ACA) both confirms and challenges the conventional account of U.S. healthcare as uniquely reliant on free enterprise.
In its expansion of health insurance coverage, the ACA honors a long-standing conception of healthcare access, cost, and quality as an iron triangle of national trade-offs requiring mandatory redistribution of resources. As a result, it reduces many competitive pressures on the private insurance industry by prohibiting traditional underwriting practices, subsidizing premiums for low-income individuals, and promoting risk-sharing among competitors. At the same time, however, the ACA rejects explicit rationing, emphasizing instead the “Triple Aim” of reducing inefficiencies at both the individual and population levels that impair quality and waste money. To succeed, this process relies on heightened competition among providers of care (perhaps working collaboratively with insurers) and a greater focus on measurable benefits for consumers.1
The ACA therefore contemplates an important role for competition oversight through antitrust law, as well as a reorientation of preexisting healthcare regulation to unleash the dynamism and choice associated with market competition without compromising the law’s commitment to near-universal health insurance coverage. Much as the Triple Aim is less an achievement than an iterative process of incremental improvement, optimal governance of (p. 607) healthcare competition will necessarily be an adaptive process that continually reconsiders major questions and redirects its enforcement focus. Which types of competition are more desirable, and which less so? How can competitive change be reconciled with the need for universally accessible, financially stable health insurance coverage? What balance of competition and collaboration best advances population health within communities? Can healthcare competition generate substantial savings without chilling biomedical innovation? How compatible is heightened competition with medical ethics, medical professionalism, and other forms of consumer protection?
Although each country has different priorities and constraints, improving the efficiency of healthcare while assuring access to coverage and promoting public health is a global priority for the twenty-first century. In the United States, market competition is most needed to pare down annual waste of approximately $1 trillion tied to outdated production processes, poor information, and blunted incentives. At the same time, however, a powerful set of private actors entrenched by regulation is often able to resist change despite significant market, professional, consumer, and technologic pressures for innovation. Any “competition policy” that guides the U.S. healthcare system must recognize and attempt to address both of these realities.
This chapter begins by summarizing U.S. antitrust law, which constitutes the general framework for the legal defense of competition. It then describes recent and ongoing controversies involving antitrust law and healthcare. Finally, it identifies and discusses questions central to formulating a sound competition policy as the U.S. healthcare system adapts and develops in the post-ACA era. Not unexpectedly, answering these questions turns out to be less about policing purely private anticompetitive activity and more about redesigning healthcare regulation to facilitate competition and competition oversight where and how it is most needed.
I The Basics
There are no special antitrust laws that govern the healthcare sector. Antitrust enforcers and the courts apply the same statutes and procedures when considering healthcare matters as they do with antitrust issues that arise in any other economic sector. Nonetheless, challenging questions may arise when antitrust principles encounter the special needs and traditions of healthcare markets.
a. The Key Antitrust Statutes
Almost all federal antitrust enforcement in healthcare is based on a handful of statutes enacted over a century ago, each of which contains relatively few lines of rather general language. Although the early history of “trust-busting” included multiple goals such as preventing the accumulation of political power by industry and preserving independent small businesses, modern interpretations focus exclusively on “consumer welfare,” meaning the economic benefits to buyers of maintaining competitive market conditions. When sellers exercise market power by raising prices, they unfairly appropriate economic surplus from (p. 608) buyers. More importantly, the output restriction necessary to increase price results in goods and services that could be sold for more than the cost of production not being produced at all, which is a “dead-weight” efficiency loss to society.
The Sherman Antitrust Act provides for both civil and criminal liability. Civil remedies may be sought by both private parties and the government, while only the U.S. Department of Justice may prosecute criminal violations. Section 1 of the Sherman Act makes unlawful “[e]very contract, combination … or conspiracy in restraint of trade …”2 A violation requires proof of an agreement between two independent entities—a party cannot violate Sherman Act Section 1 unilaterally—and that the conduct in question unreasonably restrains trade.
Unilateral conduct is the subject of the Section 2 of the Sherman Act, which is aimed at entities that seek to obtain or maintain a monopoly by predatory or exclusionary conduct. To violate Sherman Act Section 2, an entity must have a high market share (generally 60%–70% or more), and have engaged in some form of anticompetitive conduct. Simply possessing monopoly power or achieving it through “growth or development as a consequence of a superior product, business acumen, or historic accident” is not illegal.3 Courts have wrestled with defining the scope of anticompetitive conduct that can be the basis of a monopolization claim. The challenge is to distinguish between conduct that discourages rivals from competing and conduct, even if aggressive, that enhances productive efficiency. In the United States, charging a monopoly price is not itself an antitrust violation, in part because it makes the market more attractive to new competitors.
Mergers and acquisitions are the subject of Section 7 of the Clayton Act, which prohibits such transactions “where in any line of commerce … the effect … may be substantially to lessen competition, or to tend to create a monopoly.”4 Under the Hart-Scott-Rodino (HSR) Act,5 prior notification must be given to the federal antitrust enforcement agencies of transactions that exceed a certain size and which are not otherwise exempt under the statute. This requirement gives the agencies the opportunity to investigate a transaction prior to closing; the Act’s provisions do not affect the substantive standards for review. Insurance, hospital, and pharmaceutical mergers and acquisitions generally trigger HSR reporting, but transactions involving physicians often do not (because they typically do not exceed the size of transaction threshold).
There are other antitrust statutes that occasionally are implicated by healthcare matters, but they warrant less attention. The Federal Trade Commission (FTC) is authorized to enforce Section 5 of the FTC Act, which makes illegal “unfair methods of competition.” While the potential reach of Section 5 is not entirely clear,6 the overwhelming majority of cases brought by the FTC also could be initiated under the Sherman or Clayton Acts. Occasionally, questions may arise under the Robinson-Patman Act, which makes it illegal “to discriminate in price between different purchasers of commodities of like grade and quality … where the effect of such discrimination may be substantially to lessen competition …”7 (p. 609) Since the 1980s, however, the government has brought almost no cases under the Robinson-Patman Act, and private plaintiffs who have brought such challenges in the healthcare sector (typically involving pharmaceuticals) have succeeded only rarely. Finally, most states have their own state antitrust laws, but for the most part these parallel the federal antitrust statutes and have been interpreted in the same way.
b. Analytical Framework
The three principal areas of antitrust enforcement—joint conduct under Sherman Act Section 1, unilateral conduct under Sherman Act Section 2, and mergers and acquisitions under Clayton Act Section 7—have several things in common. First, the touchstone under all of these statutes is the effect of the conduct or transaction at issue on the competitive process rather than the fortunes of particular firms. Thus, it is commonly stated that the antitrust laws are aimed at “the protection of competition, not competitors.”8 Second, courts will reject arguments that the antitrust analysis should take into account issues other than competition.9 There is no exemption under the antitrust laws for healthcare professionals or nonprofit institutions.10 Third, in undertaking antitrust review, both the agencies and the courts rely on economic evidence, often based on econometric models and historical data. Fourth, in recognition of the complexities of antitrust analysis and the absence of recent Supreme Court precedent on some issues, the federal antitrust agencies have issued statements and guidelines that describe their enforcement policies and priorities. These include statements aimed specifically at antitrust enforcement in healthcare,11 as well as more general statements dealing with such matters as horizontal mergers,12 competitor collaborations,13 and intellectual property.14 In addition, agency officials often explain their enforcement agenda in speeches, advisory opinions, testimony, reports and other documents. While such pronouncements do not have the force of law, they offer very useful guidance to practitioners and market participants, and often may be persuasive to courts.
(p. 610) ii. Per Se Conduct
Some conduct is considered so unlikely to have redeeming qualities that it is condemned as per se illegal, without the need to examine market conditions or consider possible justifications. Examples include “naked” agreements among competitors to fix prices, allocate markets, or engage in certain types of concerted refusals to deal (boycotts). These agreements are not related to and reasonably necessary to achieve other legitimate goals. For example, in April 2016 the DOJ settled a suit against two West Virginia hospitals that had agreed not to advertise in each other’s territories.15 By contrast, competitors who establish a joint venture that creates a new service, and then set a price for that service, would not be viewed as engaging in per se unlawful price-fixing.
iii. Rule of Reason and Merger Analysis
Most conduct is analyzed under a “rule of reason” to determine whether it will have an adverse effect on competition. The starting point for rule-of-reason analysis is to identify the relevant product and geographic markets (e.g., acute care hospital services in the Houston metropolitan area) that might be affected. In a typical case, the relevant markets encompass the alternative sellers to whom buyers could turn in response to a price increase by the sellers. The antitrust analysis proceeds by considering whether the defendant has market power in the relevant market. This can be demonstrated by high market share, or by direct evidence showing that the defendant has been able to increase prices above competitive levels. The defendant may seek to rebut such evidence by showing, for example, that its market share overstates its competitive significance because of changing market conditions, or that significant entry or expansion by new or existing competitors is probable. If the plaintiff has established that the defendant has market power and the challenged conduct is likely to produce adverse competitive effects, the defendant can try to prove that the conduct has offsetting procompetitive benefits. If the defendant proves that procompetitive benefits exist, the plaintiff then has the burden of proving that those benefits could be achieved with less restrictive means or that they are outweighed by the adverse competitive effects.
The extent of the rule-of-reason inquiry depends on the particular conduct alleged, and often is a crucial issue to be determined by the trial court. A full-blown rule of reason analysis is very fact-dependent and often economically complex, and presents a very high bar for plaintiffs to surmount. In recent years, courts have recognized that a “truncated” or “quick-look” analysis may be sufficient where there is a great likelihood of anticompetitive effects. For example, the Supreme Court held that a detailed market analysis was not required to condemn an agreement among competing dentists not to provide x-rays to insurers who requested them in order to determine the appropriateness of dental services.16
While the rule of reason approach discussed above is used for joint conduct cases brought under Sherman Act Section 1, it is generally similar to the analysis used for monopolization (p. 611) cases under Sherman Act Section 2. In the latter cases, the plaintiff must establish that the defendant has engaged in unjustified exclusionary or predatory conduct that enabled it to obtain or maintain monopoly power in a relevant market. The analysis is also similar to that undertaken in Clayton Act Section 7 cases under the Horizontal Merger Guidelines. The Guidelines provide that where a merger increases concentration by certain threshold amounts in a market that is already highly concentrated, there is a presumption that it will reduce competition. The principal concerns are that a merger could increase the likelihood of “coordinated interaction” by reducing the number of competitors in the relevant market who might then collude, or produce “unilateral effects” on competition by eliminating close rivalry between the merging parties. Unilateral effects were emphasized in the most recent Horizontal Merger Guidelines, which also suggested that evidence of reduced competition such as “diversion analysis” might render formal market definition unnecessary.17 A presumption of anticompetitive effects can be overcome by showing that market entry will make those effects unlikely, that efficiencies specific to the merger are likely to offset competitive concerns, or that one of the merging parties is either failing or flailing such that the merger will not reduce competition.
Three defenses to an antitrust challenge are often relevant in healthcare cases. First, in a long series of decisions, the Supreme Court has established that the antitrust laws do not apply to actions of a sovereign state, nor do they apply to private actors where (1) the challenged conduct has been “clearly articulated and affirmatively expressed as state policy,” and (2) is “actively supervised” by the state itself.18 State action immunity also may apply to subordinate government entities, such as municipalities and professional licensing boards, provided certain conditions are met. In an important case, the Supreme Court recently held that an unsupervised state dental board controlled by “active market participants” could be subject to antitrust liability even though it is formally a government entity.19 Second, antitrust immunity based on First Amendment rights applies to political action under the Noerr-Pennington doctrine, allowing joint efforts to influence governmental actions, including those of the legislature, administrative agencies, and the courts. Political action immunity can be lost, however, if the petitioning is a “sham” and the defendant is using the government process as an “anticompetitive weapon.”20 Finally, the McCarran-Ferguson Act exempts insurers from federal antitrust scrutiny where (1) the challenged practice is part of the “business of insurance”; (2) the practice is “regulated by State law”; and (3) the challenged conduct does not consist of acts or agreements involving “boycott, coercion, or intimidation.”21 As a practical matter, however, health insurers remain subject to the antitrust laws for almost all purposes.
(p. 612) c. Public Enforcement
Two federal agencies are responsible for antitrust enforcement: the Federal Trade Commission (FTC), an independent agency led by five commissioners; and the Antitrust Division of the U.S. Department of Justice (DOJ). To a very large extent the agencies have overlapping jurisdiction and their analytic approach is essentially the same. Differences include the following: (1) only the DOJ has authority to prosecute price-fixing and other criminal antitrust offenses; (2) the FTC lacks jurisdiction over the conduct of nonprofit entities; (3) the FTC is responsible for consumer protection as well as antitrust enforcement, more often conducts general fact-finding apart from specific enforcement actions, and engages in “competition advocacy” vis-à-vis state government; and (4) when the FTC challenges a merger, it typically seeks a preliminary injunction in federal court that will prohibit consummation of the transaction pending internal review by an FTC administrative law judge and consideration by the full Commission. By contrast, the DOJ lacks internal adjudicatory processes and must seek permanent relief in federal court.
Both the DOJ and FTC have had a strong interest in healthcare since the late 1970s. Historically, the FTC has focused on matters involving healthcare providers and the pharmaceutical and device industries. The DOJ has focused on insurer/health plan conduct and mergers, conduct involving nonprofits, and possible criminal violations.
The DOJ and FTC have acquired substantial knowledge and experience involving healthcare, which is spread among the lawyers and economists who form the agencies’ investigative teams. On an informal basis, the DOJ and FTC also will obtain input from other federal agencies, particularly the Food and Drug Administration. In recent years, both agencies have shared their expertise with the Centers for Medicare and Medicaid Services. For example, the DOJ and FTC issued a joint statement regarding the antitrust issues raised by accountable care organizations participating in the Medicare Shared Savings Program.22
State attorneys general vary with respect to health antitrust matters, with the larger states such as New York, California, Florida, and Texas having particularly active enforcement efforts. Much state enforcement is focused on local healthcare provider mergers and allegations of anticompetitive conduct, although task forces spanning many states have been convened for mergers or conduct that covers broad geographical areas, such as “reverse payment” cases in the pharmaceutical industry.
The primary forms of relief sought by the government in antitrust cases are structural remedies that may involve blocking a transaction or requiring a divestiture, or conduct remedies requiring that the respondent not engage in certain behavior in the future. Generally, the federal agencies have a strong preference for structural relief as they believe such remedies are more effective and avoid the need for ongoing expert supervision. On criminal matters, the DOJ can obtain substantial criminal fines, and in unusual cases the FTC has sought disgorgement of ill-gotten gains.
(p. 613) d. Private Enforcement
Private parties are also active as plaintiffs in healthcare antitrust matters, especially in pharmaceutical cases where class action lawsuits have been brought on behalf of direct purchasers alleging conduct that has driven up drug prices. Antitrust plaintiffs must have standing to sue, and must establish that they have suffered “antitrust injury,” which means an injury of the type that the antitrust laws were designed to prevent, and which was caused by the antitrust violation. A successful plaintiff can recover three times the actual damages, plus attorney fees.
II Recent Controversies
Competitive considerations implicate nearly all sectors of the $3 trillion U.S. healthcare system. As many commentators have observed, the healthcare system has been highly fragmented—a product of traditional medical professionalism reinforced by law over the course of more than a century. Since the 1980s, however, many healthcare organizations have consolidated by merger or acquisition, while others have affiliated by contract. Previously independent community hospitals have combined into large regional and national systems, though many remain nonprofit enterprises. Physicians who were in solo or near-solo practice now work in large single-specialty or multi-specialty groups, participate in contractual networks that do business with large health insurers, and increasingly are becoming employees of hospitals and managed care organizations. Nonprofit Blue Cross and Blue Shield plans have affiliated contractually, merged, and in many cases converted to for-profit status, while other prominent private insurers have merged into a few very large organizations. Pharmaceutical manufacturers (and many medical device companies) compete in a global marketplace where size confers advantages; even generic drugs are often produced by large companies. Similarly, giant chain drugstores and pharmacy benefit managers have largely eclipsed small, independent pharmacies.
Antitrust law comes into play in each of these areas. Despite the national and global reach of some aspects of healthcare services, many markets for healthcare services remain local, making dominance by one or a few providers of genuine concern for competition as consolidation accelerates in response to the ACA. U.S. antitrust law has limited ability to break up dominant organizations that already exist, but possesses greater capacity to prevent monopolies or oligopolies from forming and to police agreements among competitors that might result in cartelization or other harms to consumers. This applies to otherwise independent physicians who join together contractually, with or without health facilities, to serve privately insured patients, to large organizations that use agreements to shield their existing business models from new competition, and to pharmaceutical manufacturers attempting to prevent generic drug makers from eroding their patent or regulatory exclusivity. The professional nature of healthcare services continues to influence the legal analysis of transactions involving physicians and other trained, licensed individuals, but the general framework of health antitrust law differs minimally from that applied to other industries.
(p. 614) The examples discussed in this section illustrate these dynamics and more. For ease of exposition, they are divided into three analytic categories: structural cases, conduct cases, and cases that arise from the interaction between competition law and healthcare regulation. It is important to note that DOJ or FTC enforcement actions and private antitrust lawsuits typically assert multiple theories of legal violations and associated harm to consumers, which are defended on all available grounds. For purposes of this chapter, however, it is useful to focus readers’ attention on particular aspects of the selected disputes.
i. Hospital Mergers and Healthcare Reform
From the late 1980s through the early 2000s, the DOJ, FTC, and state enforcers lost seven consecutive challenges to hospital mergers.23 The reasons were multiple, though largely unique to the healthcare industry. Antitrust law exists to protect the welfare of consumers, meaning buyers. In the healthcare system of the time, buyers increasingly were newly formed managed care organizations that negotiated with established medical care providers, mainly hospitals and physicians. To judges, the former were ethically suspect interlopers, while the latter were charitable and professional pillars of the community.
This was in part a moral and political judgment, but it also reflected the economics of the times insofar as hospitals supported local employment, provided charity, and instilled civic pride, whereas health insurers—particularly the large, for-profit variety—seemed to act only on behalf of giant employer customers and their own shareholders and executives. Analytically, the enforcement agencies suffered from a temporary “econometrics gap,” in which defendants’ experts were able to reinforce the narrative of good and evil by casting economic uncertainty on the government’s case—expanding the alleged geographic market to include more competitors or conjuring data on nonprofit hospitals’ unwillingness to exploit any market power they might acquire.
This changed a decade later. During the 2000s, as the pace of consolidation slowed, agency economists and academic researchers studied both the mergers that had been allowed and the more general relationship between provider consolidation and market outcomes. This research was collected and analyzed by a Robert Wood Johnson Foundation initiative called the Synthesis Project, which published a report in 2006 and an update in 2012.24 The Synthesis Project concluded that less competitive hospital markets have higher prices and (p. 615) may have lower quality. Moreover, there was no relationship between hospitals’ behavior and their status as charitable or proprietary entities.25
Amid mounting concern over continued healthcare cost increases, with particular focus on exorbitant hospital prices and their indulged, overpaid executives—and with managed care no longer considered a public menace—the antitrust agencies applied their new research findings to enforcement, and succeeded first in unwinding and then in halting several hospital mergers.26 In the first few years following the enactment of the ACA, for example, the FTC succeeded in obtaining a preliminary injunction in federal district court and then blocked a hospital merger in Toledo, Ohio (upheld by the Sixth Circuit), and a preliminary injunction against a proposed merger in Rockford, Illinois.27 In reaching these outcomes, decision-makers have focused on the superior bargaining power of merged hospitals with respect to the terms of participation in private insurance networks.
In ProMedica Health Sys., Inc. v. FTC, the Toledo case, the government successfully prevented a merger between two of the four hospital systems in Lucas County—ProMedica, the county’s dominant health provider, and St. Luke’s, a small independent community hospital. Before the merger, ProMedica and St. Luke’s were competitors in general acute care services with 46.8% and 11.5% shares of care in the county, respectively. Granting a preliminary injunction pending the outcome of an FTC administrative proceeding, the district court observed that St. Luke’s hospital was, before the merger, a low-cost and high-quality provider that was “well-positioned to take advantage of the pending healthcare reform.”28 It distinguished the ProMedica transaction from a potentially procompetitive accountable care organization (ACO) because an ACO “agrees to be accountable for quality, cost, and overall care in exchange for a share of the savings achieved.” The district court further reasoned that the shared savings of an ACO can be achieved by arrangements other than merger, such as contractual relationships and joint ventures.
The administrative law judge found that the merger would substantially lessen competition in violation of Section 7 of the Clayton Act and ordered ProMedica to divest St. Luke’s. The full Commission affirmed, and ProMedica petitioned the Sixth Circuit for review of the Commission’s order. The Sixth Circuit upheld the Commission, finding that the merger would enhance ProMedica’s market power to “levels rarely tolerated in antitrust law.”29 The court also upheld the FTC’s alleged product market, even though it clustered together different types of healthcare services. The court noted that a merger could potentially overcome a presumption of illegality by creating efficiencies that enhance consumer welfare, such as “lower prices, improved quality, enhanced services, or new products,” but found (p. 616) that ProMedica did not even attempt to argue that the merger would benefit consumers—an omission that the court considered “remarkable.”
As a result of ProMedica and similar recent cases, large hospitals in markets with few existing facilities are on notice that further consolidation will attract scrutiny and that courts are unlikely to find special circumstances that might except healthcare cases from standard economic presumptions. In particular, both the agencies and the courts have rejected claims by the merging entities that “health reform” (sometimes meaning the ACA specifically and sometimes meaning a broader shift to healthcare value) either forced or blessed the transactions. Instead, antitrust enforcers and the courts typically have concluded that the hospitals would remain financially viable as independent facilities and that the claimed efficiencies with respect to cost and quality were either speculative or achievable in ways not requiring merger.
Continuing this trend, in late 2015 the FTC challenged three more hospital mergers: Advocate Health Care Network’s proposed merger with NorthShore University Health System in Chicago (also joined by the Illinois attorney general), Penn State Hershey Medical Center’s merger with Pinnacle Health System in the Harrisburg, Pennsylvania, area (also joined by the Pennsylvania attorney general), and Cabell Huntington Hospital’s acquisition of St. Mary’s Medical Center in the Huntington, West Virginia, area (interestingly not joined by the West Virginia attorney general, who supported the transaction after the hospitals made certain commitments about cost and quality). In all these cases, the combined entity would control more than 50% of general acute care inpatient hospital services in the markets alleged by the FTC (which are disputed by the defendants). To the surprise of most economists, the district court hearing the Hershey case found in favor of the defendants, rejecting the government’s proposed geographic market as not in keeping with how patients in rural Pennsylvania choose hospitals and opining that long-term agreements that had been signed by the hospitals and large payers would prevent price increases.30 That case is currently on appeal, and the other cases remain in litigation.
Still, the federal enforcement agencies refrain from challenging the great majority of mergers and acquisitions.31 Across all industries in 2013, the agencies were notified of 1,326 transactions, of which FTC challenged 23 and DOJ challenged 15. Of 59 transactions involving healthcare services and meeting the Hart-Scott-Rodino pre-merger notification thresholds, the government challenged only three.
ii. Physician Practice Mergers and Hospital Acquisitions of Physician Practices
The competitive analysis of physician consolidation is more varied. Physician practice has been highly fragmented for decades, with many sole proprietorships and small groups still in existence. These physicians are often reluctant to relinquish their independence and share (p. 617) financial risk as part of a corporate organization. For this reason, antitrust controversies involving physicians often relate to joint conduct short of full merger, raising important questions regarding price-fixing and other forms of cartelization. These cases are discussed below under the heading “Defragmentation and Clinical Integration.”
When physicians do form larger practice groups, most are single-specialty entities that are paid on a conventional fee-for-service basis. Full-service multi-specialty groups tend to be associated with selected markets that are amenable to risk contracting and prepayment; many of these are historically significant organizations such as the [Kaiser-]Permanente Medical Group or the Mayo or Marshfield Clinics. Large single-specialty groups are often associated with hospital-based fields such as anesthesiology, emergency medicine, radiology, and various surgical specialties. These organizations can raise significant antitrust concerns as they grow and merge; although barriers to new competitive entry may be lower for physician than for hospital markets, entry may be retarded by existing physician-hospital contracts, by difficulties in obtaining medical staff privileges, or by entrenched referral patterns from primary care physicians. Still, challenges to these transactions are uncommon, in part because the merging organizations typically have revenues below the legal thresholds for mandatory premerger notification.
When physicians join together in larger organizations, moreover, they often trade sole proprietorship or partnership for employment. They can become employees of other physicians who continue to own the larger practice, they can work for practices under the control of national or regional practice management groups (e.g., US Oncology for cancer care), or they can become hospital employees. When smaller physician groups are acquired by larger organizations, the core of the transaction generally is the absorption of the small group’s physicians into the larger organization as employees rather than the value of the small group as a going concern. As a result, some transactions attract antitrust scrutiny because they appear to be corporate combinations (including the St. Luke’s case discussed below), while others with very similar substance escape notice because they seem merely to be employment arrangements.
In 2012, Renown Health settled charges that its acquisitions of two local cardiology groups reduced competition for the provision of adult cardiology services in the Reno, Nevada, area.32 Renown agreed to release its staff cardiologists from “noncompete” contract clauses they had signed, allowing up to ten of them to join competing cardiology practices. On one hand, this was an indication that the enforcement agencies regard physician practice mergers as potentially anticompetitive. On the other hand, voiding noncompete agreements does not do much to restore competition if the merged entity in fact has market power, because physicians may not be motivated to leave an enterprise that is able to charge supra-competitive prices.
To date, physician-hospital transactions have not been analyzed as generating efficiencies through true joint production of clinical services. Instead, they have been seen as increasing the risk in conventional fee-for-service markets that physician consolidation will result in market power, that captive physicians will restrict referrals and thereby mute competition (p. 618) among hospitals, or that hospitals will be able to bill outpatient services at higher, hospital-based rates. Indeed, economic studies performed in the current practice environment suggest that physician-hospital integration is associated with short-term provider price increases for outpatient services paid by private insurers.33 However, discouraging hospital acquisitions of physician groups perpetuates fee-for-service commerce in random inputs and isolated care processes, and makes it harder to assemble complex services at lower cost and offer them on a packaged and warranted basis, which is a goal of the ongoing move toward “Alternative Payment Systems.”34
The tension between old-market and new-market perspectives was evident in a 2014 case, FTC v. St. Luke’s Health System, Ltd.,35 in which the federal government, the state of Idaho, and a rival hospital sued a hospital system that had acquired a forty-one-physician group practice in Nampa, Idaho, outside Boise, where the hospital already had an inpatient facility. After a hearing, a federal judge ordered the hospital to divest itself of the acquired physicians, finding that the transaction had increased the hospital’s bargaining leverage with health insurers in the market for “adult primary care physician” services.36 The judge construed the geographic market narrowly as only the town of Nampa, not broadly to include Boise about twenty minutes away. The judge also concluded that the acquisition would increase prices for certain diagnostic services ordered by the newly affiliated physicians because the hospital would be able to apply more lucrative billing codes associated with hospital-based care.37 The district court ruling was affirmed by the Ninth Circuit Court of Appeals the following year.38
At the same time, however, the judge praised the hospital for preparing to compete in a post-ACA environment in which payment will be based on patient outcomes rather than the volume of services. The court recognized that using primary care physicians to coordinate care might well increase value for patients, but noted that integrated practice could be achieved through means other than acquisition of a large existing medical group. “In a world that was not governed by the Clayton Act,” he wrote, “the best result might be to approve the Acquisition and … see if the predicted price increases actually occurred…. But the Clayton Act … does not give the Court discretion to … conduct a health care experiment.”39
Indeed, keeping physicians economically independent of hospitals is not a desirable policy over the long term because integrated care can be produced more efficiently and offered at a bundled price. Similarly, a market for primary care physician services should lose its coherence as other professionals and other modalities become available to provide basic (p. 619) medical care, including from more distant locations through telehealth.40 Retail medical clinics, for example, are actual and potential competitors for a variety of outpatient services that can be provided in a standardized way at low prices using cost-effective staffing such as advanced practice nurses.41 The court also failed to recognize that Medicare would very likely change its rules to reduce the payment differential for hospital-based and non-hospital outpatient services, as in fact it did in late 2015.42
iii. Health Insurer Consolidation
The medical profession has sounded the alarm over insurer consolidation since the 1990s, worrying that large insurers would use market power to lower physician reimbursement.43 In 2015, a series of high-profile mergers were announced among health insurers, including combinations of Aetna with Humana, CIGNA with Anthem, and Health Net with Centene.44 The last of these was cleared by the DOJ in March 2016 and has been finalized; the other two remain under close political and legal scrutiny. If the CIGNA and Aetna transactions are approved and consummated, the health insurance industry would consist of a few very large organizations (including United Healthcare, Kaiser, and the largest Blue Cross plans) surrounded by many smaller health plans and financing entities serving niche markets. According to analyses performed by the American Medical Association, the proposed insurance mergers would reduce competition in up to ninety-seven metropolitan areas in seventeen states.45
There are several possible motives for sudden consolidation among insurers, including economies of scale, better insulation from adverse selection, countervailing bargaining power against large hospital systems, and maintaining dominance in local markets. An important factor appears to be a perceived need for political strength when doing business with the federal government in Medicare managed care (Medicare Advantage) and with both states and federal regulators in the ACA’s health insurance exchanges. Arguably, the largest consolidated insurers would be “too big to fail,” potentially insulating them from government payment reductions and strengthening their claims for subsidies or bailouts should (p. 620) market conditions deteriorate. In these respects, the consolidation of health insurers today is reminiscent of defense contractors following the end of the Cold War.46
However, the competitive implications of health insurance mergers are challenging to model, and the economic outcomes of negotiations between consolidated insurers and dominant hospitals—termed “bilateral monopoly”—are even more difficult to predict. In theory, healthcare financing has few barriers to entry by new competitors, and can cross geographic boundaries in ways that would be impractical for most healthcare services. In practice, however, health insurance is tightly regulated by states and relies on complex local negotiations with hospitals and physicians regarding their inclusion in provider networks and the associated fees they receive for serving enrolled beneficiaries. While the overall gains in price and quality for consumers from this stylized and costly process are hard to demonstrate empirically, one or a few large insurers may be able to use network negotiations to lock up providers, deter potential market entrants, and gain market power. In fact, studies that have been done of health insurer consolidation suggest that the merged entity may act both monopsonistically to reduce provider payments and monopolistically to impose higher premiums on employers and beneficiaries.47
Because commercial insurers act as purchasing intermediaries, not actual consumers of healthcare, they are at best weak agents for buyers and at worst self-interested middlemen. Under prevailing conditions, many bear little true insurance risk, serving instead as administrators for self-insured employers or as claims clearinghouses for government programs. This trend was bolstered by the ACA, which simultaneously prohibited many underwriting practices and promised government assistance if actual liabilities exceed projections. All in all, health insurers turn a more-than-respectable profit from the trillions of dollars of claims they process annually, and have every reason to maintain their existing market role and business practices, a deterrent to innovation which consolidation could make even stronger.
On the other hand, an argument for insurer consolidation is that annual churn of covered individuals from insurer to insurer, which competition arguably increases, makes it difficult for any single insurer to capture value from long-term health coverage and therefore spend money today to prevent more costly diseases tomorrow. For example, new drug cures for hepatitis C infection are clearly cost-effective in the long term, but because their very high price must be paid by whatever insurer is financially responsible when definitive treatment is sought, they are harder to justify actuarially than less effective medications whose total cost could be spread over years of chronic disease coverage.48 ACA exchange coverage and Medicaid are especially transitory markets, in which frequent disenrollment (sometimes but not always in pursuit of lower premiums) can undercut incentives for cost-effective coverage.
(p. 621) In Medicare Advantage, by contrast, beneficiaries gain permanent eligibility at age 65 and tend not to shift carriers once enrolled (probably because they fear having to change providers). Now that total enrollment has grown large enough to discourage cherry-picking of healthier seniors, Medicare Advantage plans constitute a stable marketplace in which insurers can take a longer view. However, Medicare Advantage markets are also very concentrated, with eighty-one of the one hundred largest by Medicare population deemed noncompetitive in a 2015 report.49
i. Defragmentation and Clinical Integration
One of the most daunting problems involving competition and health policy is “defragmenting” the provision of healthcare without either facilitating cartelization—which has always been a risk in professional activities—or swinging the pendulum too far toward consolidation given the relatively small geographic markets typically associated with service industries.50 As repeatedly documented in recent decades, lack of coordinated treatment, redundant and unnecessary services, poor communication and information exchange, inattention to prevention and follow-up, and inadequate measurement of clinical and patient-reported outcomes have revealed a “quality chasm” between traditional medical practice and what is expected of other industrial sectors.51 Yet individual physician expertise, compassion, and loyalty—fairly compensated by society without excessive commercialism or government oversight—are still prized as ethical norms.
The American medical profession’s influence over the regulation of care delivery and payment has perpetuated fragmentation, even as medical science has advanced rapidly in both complexity and expense.52 Consequently, physicians practicing in small offices with minimal capital investment of their own can earn substantial amounts performing technically complex procedures that require large physical plants, costly technology, and skilled staffing—with those inputs available on demand from corporate enterprises (or loosely coordinated with other physicians) but billed separately to patients, private insurers, or government programs.
When private insurers finally sought greater control over physicians’ fees and referrals in the 1980s and 1990s, physicians attempted a collective response to the perceived economic threat. Rejecting arguments about threats to professionalism and the quality of medical care, however, antitrust enforcers and the courts held firmly to the principle that price-fixing among competitors was a per se violation of Section 1 of the Sherman Act.53 Physicians (p. 622) lobbied actively in state legislatures and Congress to secure antitrust exemptions that would have allowed them to bargain collectively, but with little success.54 In order to negotiate jointly with health insurers, physicians therefore must share “substantial financial risk” as do joint ventures among competitors in other industries, must not have market power, and must be equally scrupulous in avoiding behavior that would risk spillover collusion outside the scope of the joint venture, such as coordinating prices charged to other customers.
These restrictions proved both cumbersome (e.g., the now-defunct “messenger model”) and ineffective. As a result, since the mid-1990s, the antitrust agencies have permitted independent physicians who participate in provider networks and are “clinically integrated” to jointly negotiate fees with insurers without it automatically constituting unlawful price-fixing.55 Clinical integration was rationalized by the enforcement agencies as akin to offering a new product, which might justify joint pricing as an “ancillary” rather than “naked” restraint even without shared financial risk.56 However, nothing approximating the delivery of fully assembled products—which would be indisputably new—has been demanded of physicians. Instead, the agencies have accepted a variety of joint investments in quality or efficiency of care as clinical integration, such as shared health information systems, common treatment protocols, and uniform processes for reviewing the quality and cost-effectiveness of care.57
ii. Most-Favored-Customer Clauses and Other “Contracts Referencing Rivals”
“Most-favored-customer clauses” (also called “most-favored-nation” clauses, or MFNs), which assure the contracting party of a supplier’s best price, demonstrate the difficulties of applying standard market assumptions to the healthcare industry. Traditionally, courts regarded MFNs as “standard devices by which buyers try to bargain for low prices” and therefore procompetitive.58 As MFNs became common among large medical and dental insurers in their provider agreements with hospitals and health professionals, however, the weight of antitrust opinion turned against them. This is because MFNs are a subset of what economist Fiona Scott Morton calls “contracts referencing rivals,” which can be used anticompetitively.59
One concern is that a large insurer may be sufficiently dominant in a given geographic area to demand a true monopsony price, which would depress sales volume below the (p. 623) efficient point and produce dead-weight loss equivalent to a seller monopoly. A second concern is that most health insurers are purchasing disaggregated medical services for resale as covered benefits, not as inputs for their own production processes (much less their direct use as would a normal buyer). Absent regulation to assure that low prices paid by the insurer are passed on to insured individuals as low premiums or reduced cost-sharing, the pro-consumer posture of the antitrust laws should not immunize MFNs from scrutiny. Third, MFNs can be used by dominant insurers to raise costs for smaller rivals or potential rivals in fee contracting with hospitals or physicians. A provider will not cut prices to a new insurance entrant for a small increment of care if the provider is obligated to offer the same discount in connection with most of its insured patients. Fourth, many health insurers came into existence years ago as contracting vehicles controlled by hospitals (the original Blue Cross plans) or physicians (the original Blue Shield plans). Where that control remains in place, an MFN may benefit the providers rather than the insurer by stabilizing prices at a higher than competitive level. MFNs therefore can facilitate provider cartels and harm consumers much like any other collective restraint of trade.60
Three lawsuits have been brought against Blue Cross Blue Shield of Michigan for its use of MFN clauses in contracts with hospitals, with the first filed by the DOJ and the state of Michigan in 2010.61 At the time, the defendant’s health plans covered 60% of Michigan’s commercially insured population, and it had agreements containing MFNs with over 40% of Michigan’s general acute care hospitals. The hospitals were seen as having little choice and were not named as defendants; the court’s opinions suggest that a hospital that declined to sign would have been paid up to 16% less by Blue Cross. Michigan subsequently enacted laws banning the use of MFNs by the health insurance industry.
Large hospitals may also disadvantage potential rivals by contract. In Palmyra Park Hospital, Inc. v. Phoebe Putney Memorial Hospital, a smaller for-profit hospital alleged that a dominant nonprofit forced health insurers to exclude it from their provider networks for all services, in violation of the Clayton Act’s prohibition on tying arrangements.62 In United States v. United Regional Health Care System of Wichita Falls, Texas,63 the DOJ and the Texas attorney general brought suit to enjoin United Regional from inserting terms into contracts with insurers that prevented those insurers from contracting with its competitors. United Regional had a market share of approximately 90% for inpatient hospital services and 65% for outpatient hospital services, and insurers unwilling to contract exclusively with it paid substantially more for services. Similarly, Sutter Health in California has been accused of using its market power in some hospital markets to force health plans to contract with it in all markets where it does business (“all-or-nothing” clauses) and to promise to “actively encourage” members to utilize Sutter hospitals rather than its competitors’.64
(p. 624) iii. Mutual Advantage (“Cahoots”)
Breaking up cozy relationships that keep out other competitors is a valuable aspect of antitrust enforcement. Large providers and large insurers often have a mutual interest in maintaining the status quo. For example, a well-publicized “standoff” between Partners HealthCare in Boston and Blue Cross Blue Shield of Massachusetts ended in an infamous “handshake in the snow” that used each party’s size and reputation to reinforce the other’s market position and was almost certainly adverse to consumers.65
Another example is in Western Pennsylvania, which has experienced over a decade of contractual maneuvering intended to keep new competitors out of the market. Private healthcare in Pittsburgh and environs has long been dominated by the University of Pittsburgh Medical Center (UPMC), which owns a majority of the hospital beds and employs a very large number of physicians, and by Highmark, a nonprofit health insurer that combines the former Blue Cross and Blue Shield plans of western Pennsylvania. In the early 2000s, Highmark attempted to undermine UPMC’s dominant position by supporting a smaller, financially strained hospital system, West Penn Allegheny Health System (WAHS) and UPMC responded by creating its own health plan to compete against Highmark. In 2005, however, Highmark and UPMC began to act more like allies. UPMC refused to discount fees for hospital services to other health plans that were considering entering the Pennsylvania market, and Highmark increased its reimbursement rates to UPMC. UPMC scaled back its own health plan, and Highmark shut down its low-cost insurance option that had not included UPMC. Highmark declined to refinance its loan to WAHS, and UPMC began a systematic effort to hire away WAHS’ best physicians. WAHS eventually filed an antitrust suit against UPMC and Highmark that paints a clear picture of Highmark and UPMC “[conspiring] to protect one another from competition.”66
iv. Blue Cross Class Actions: Market Division or Trademark Protection?
Lack of strong competition among health insurers has also given rise to accusations of cartelization. For their first half-century of existence, Blue Cross plans (for hospital coverage) and Blue Shield plans (for physician coverage) were large but sleepy entities that were chartered as nonprofit organizations, offered coverage on a community-rated basis that often attracted the sickest enrollees, and existed primarily to assure hospitals and physicians in their communities of payment for services. For these reasons, Blue Cross plans almost died out in the 1980s and early 1990s in the face of competition from for-profit health maintenance organizations (HMOs), only to have their fortunes revived later in the decade as tightly managed care faded and broad networks of providers under contract once again became desirable. This financial success brought new scrutiny to their business practices, however, in part because the Blue Cross and Blue Shield trademarks remained controlled by a national association, which began to allow for-profit health plans to use the marks while still limiting their use to one plan in any geographic area.
(p. 625) Two class action antitrust suits were filed in 2012 against thirty-seven independently owned health plans that use the Blue Cross or Blue Shield brand names, as well as against the national Blue Cross and Blue Shield Association. The suits allege that the Blue Cross and Blue Shield plans act as a cartel and agree to divide geographic markets among themselves, which if proved would likely be a per se violation of Section 1 of the Sherman Act. The insurers, by contrast, assert that non-overlapping markets are a reasonable condition of licensing the Blue Cross and Blue Shield trademarks. In 2014, the federal district judge overseeing the litigation ruled against a motion to dismiss the plaintiffs’ claims, and the case remains ongoing.67
v. Gamete Donation and Professional Ethics
Bioethics met competition law in Kamakahi v. American Society for Reproductive Medicine, an unusual class action lawsuit brought against two professional associations by young women who “donate” human ova for infertility treatment. In their complaint, the plaintiffs alleged a conspiracy among professional associations, fertility clinics, and egg agencies to fix maximum prices for egg donor compensation. Ethics guidelines promulgated by the American Society for Reproductive Medicine (ASRM) suggested that the amount a woman be paid for her eggs not exceed $10,000 so as to “not be so excessive as to constitute undue inducement.” These maximum price guidelines allegedly were widely adopted by ASRM-affiliated fertility clinics and the egg agencies serving those clinics. Women providing eggs to these organizations claimed that they were paid less for their services than they would have been absent the ASRM pricing rules, which they alleged to be a violation of Section 1 of the Sherman Act.
ASRM and the other named defendants moved to have the case dismissed, but the U.S. District Court for the Northern District of California denied the motion, holding that the complaint alleged sufficient facts defining the relevant market and did not suffer from any “fatal legal defect.”68 The court rejected as premature the defendants’ argument that the suit should be dismissed because the maximum price guidelines were designed to protect the health and safety of egg donors. In February 2016, ASRM settled the case, agreeing to remove language relating to donor compensation from its guidelines, and to pay $5,000 to each of the named plaintiffs plus $1.5 million in attorney fees.
Kamikahi poses interesting questions about the proper relationship between professional ethics and competition in a highly profitable subsector of the healthcare system that primarily caters to the wealthy and well insured.69 Issues raised include the unrestricted market for sperm donation by men, the very large payments made in unregulated markets for eggs from women with desirable physical or intellectual traits, and whether payment should be prohibited by law (as for solid organ donation under the National Organ Transplant Act) because of the potentially significant health consequences of the hormone regimen that precedes egg harvesting, particularly for women making repeated donations. Some commentators (p. 626) have also argued that pricing guidelines are necessary not only to prevent the exploitation of young women but also to keep donated eggs affordable and accessible for families seeking fertility services, an assertion at odds with conventional economic understandings of supply and demand.
c. Antitrust-Regulatory Interactions
i. Accountable Care Organizations
Health maintenance organizations using dedicated physicians and facilities to deliver comprehensive care for a preset annual premium have been part of the U.S. healthcare landscape since the 1940s.70 These have often been physician-led, nonprofit organizations, which recent health policy tends to treat sympathetically as “good guys” bearing insurance risk.71
“Accountable care” is the name currently favored for physician-hospital collaborations that seek the benefits of defragmentation without the risks associated with “managed care” in its pejorative sense. ACOs tend to function as joint ventures rather than unitary corporate entities. In theory, ACOs fulfill the long-standing promise of primary care medicine, emphasizing holistic, community-based, accessible services that reduce the need for acute or specialized care and manage it well when it is required.72 In practice, ACOs are frequently controlled not by community-based physicians but by hospitals that have both sufficient capital and a developed organizational structure, adding an additional dimension to the competitive analysis.
ACOs may enable physicians and hospitals to work together more efficiently because of greater transparency, stronger accountability metrics, and better-designed incentives. There are now several hundred ACOs across the country serving both Medicare patients and private insurance beneficiaries. Medicare has launched three separate ACO initiatives: the Pioneer Program, the Medicare Shared Savings Program (MSSP), and the NextGen program, which reward physician-hospital partnerships that meet quality benchmarks at lower cost than traditional, fee-for-service Medicare.
To prevent the accumulation of market power in particular physician specialties and to reduce barriers to entry for potential competing ACOs, the enforcement agencies initially proposed requiring Medicare ACOs exceeding certain physician participation thresholds to obtain antitrust preclearance,73 but retreated from that position in the final rule.74 The DOJ and FTC continue to prefer nonexclusive to exclusive physician contracts in ACOs participating in the MSSP. However, opinion among health antitrust experts is beginning to swing (p. 627) back toward allowing exclusive contracting in order to foster more meaningful clinical collaboration that responds to strongly shared, consistent financial incentives.75
Creating a workable framework for ACOs challenges competition law to address a host of specific regulatory interactions. In addition to the statement by the DOJ and FTC clarifying when ACOs would and would not risk antitrust liability, the Centers for Medicare and Medicaid Services issued regulations excusing properly structured ACOs from fraud-related prohibitions on kickbacks, physician self-referral, and physician-hospital gainsharing. Moreover, the Internal Revenue Service issued an opinion that by saving money for Medicare, ACOs were acting in furtherance of a charitable purpose because they were “relieving the burden on government”—and therefore that nonprofit hospitals operating ACOs remained in compliance with tax-exempt organization law even though the physician practices controlling expenditures and sharing in savings are for-profit actors.
ii. Self-regulation and “Active Supervision” of Professional Licensing Boards
In 1962, libertarian economist Milton Friedman concluded a scathing critique of occupational licensing with the following: “I am myself persuaded that licensure has reduced both the quantity and quality of medical practice; that it has reduced the opportunities available to people who would like to be physicians, forcing them to pursue occupations they regard as less attractive; that it has forced the public to pay more for less satisfactory medical service, and that it has retarded technological development both in medicine itself and in the organization of medical practice.”76 Well-intentioned but often insular and unimaginative, many state medical and dental boards continue to favor their own licensees over potential rivals and to prohibit or restrict new forms of practice organization, marketing, and service delivery. Until recently, most parties seeking to counter anticompetitive board rules or disciplinary proceedings in court were limited to legal theories that favored the licensing boards, such as state administrative law challenges or First Amendment claims.
The Supreme Court’s 2015 decision in North Carolina State Board of Dental Examiners v. FTC, discussed above, will give professional licensing boards throughout the country significant pause before adopting ad hoc policies that disadvantage competing professionals or nonprofessionals, and should lead to a constructive conversation regarding the accountability of self-regulatory bodies to actual state government.77 The case concerned cease-and-desist letters sent by North Carolina’s dental licensing board to nondentist teeth-whitening businesses, warning them that the unlicensed practice of dentistry is a crime. Affirming the Fourth Circuit Court of Appeals, the court held that a state professional regulatory board controlled by active market participants in the occupation the board regulates cannot claim immunity unless it is “actively supervised” by the state itself.
In the aftermath of the North Carolina State Board decision, private plaintiffs have begun to bring antitrust claims against state licensing boards. For example, the Texas Medical Board (p. 628) has been sued under the Sherman Act by a Dallas-based telehealth company that contracts with licensed Texas physicians to provide telephonic consultations to patients in the state, a care model that the board had attempted to discourage for several years by an increasingly stringent set of interpretations and amendments to its rules for issuing prescriptions. A federal district judge in Austin issued an injunction against the Medical Board in 2015, and the case is currently on appeal to the Fifth Circuit.78
Because self-regulatory bodies cannot function effectively under a constant threat of private litigation against themselves and their members, the most important issue raised by the case is how states will actively supervise their professional licensing boards. FTC staff has issued a guidance document regarding “active supervision,” but its analysis leaves more uncertainty on state boards than seems advisable. For example, the guidance requires active oversight not only of blanket rules but also of individual disciplinary actions which, absent a pattern of selective enforcement, are much less likely to be anticompetitive.79 Medical self-regulation faced an analogous problem thirty years ago when the Supreme Court exposed physicians’ collective refusal to grant newcomers hospital privileges to potential antitrust liability, which Congress solved by granting legislative immunity conditioned on compliance with standards for good faith peer review.80 Federal standards for state board conduct are an outside possibility, but it is more likely that states will enact one or more model practice acts that would promote uniformity among boards and assure their accountability to state government.
iii. Pharmaceuticals, Patents, and Generic Competition
Considerable innovation in healthcare lies at the intersection of patent law, antitrust law, food and drug law, and civil procedure. Since the enactment of the Hatch-Waxman Amendments in 1984, a large number of disputes have involved titrating incentives to develop new chemical and biochemical entities by awarding intellectual property rights while making existing drugs cheaper and more accessible by facilitating generic production.81
“Reverse payment” settlements (also called “pay for delay”) resolve patent infringement litigation by transferring value from a patent holder to an accused infringer (i.e., a generic drug maker) instead of, as would be expected, from infringer to patent holder. To the antitrust enforcement agencies, a reverse payment agreement between the maker of a patented drug and generic drug manufacturers creates a cartel in which potential competitors, rather than becoming actual competitors, share the spoils of patent-generated market power with a current monopolist. After years percolating in the lower federal courts, the Supreme Court ruled on reverse payment settlements in FTC v. Actavis (2012), holding that when reverse payments are “large and unjustified,” they may constitute unreasonable restraints of trade prohibited by the antitrust laws. However, the Court applied a “rule of reason” analysis to the practice, rather than declaring it presumptively illegal as the FTC had argued.
(p. 629) Since the Actavis decision, the federal courts have held that benefits of various types offered by a patent holder to an apparent infringer conditioned on the infringer delaying generic market entry may violate the antitrust laws. In the K-Dur litigation, the Third Circuit held that cash payments for delay were presumptively illegal.82 In 2015, the California Supreme Court issued a similar ruling under state antitrust law.83 Most recently, the First Circuit held that a brand drug firm’s payment to a generic firm to delay entering the market could violate the antitrust laws not only if it takes the form of cash but also if it includes other types of consideration.84
In New York ex rel. Schneiderman v. Actavis PLC,85 the Second Circuit departed from usual antitrust practices by approving a “conduct remedy” to redress competitive harm from another patent-related practice of the pharmaceutical industry called “product hopping.” Pharmaceutical manufacturer Actavis held the patent for a twice-daily drug to treat Alzheimer’s disease, Namenda IR. As Namenda IR neared the end of its patent exclusivity period, Actavis introduced a once-daily version—Namenda XR—carrying its own exclusivity period lasting until 2029. Actavis then withdrew Namenda IR from the market to force Alzheimer’s patients to switch to Namenda XR before the generic versions of Namenda IR would become available.
In September 2014, the New York attorney general brought a lawsuit alleging that this “force-switch scheme” violated federal and state antitrust laws. The district court agreed, and issued a preliminary injunction requiring Actavis to keep Namenda IR on the market until thirty days after generic entry, as well as to inform healthcare providers of the injunction and the continued availability of Namenda IR. The Second Circuit affirmed the district court’s order. The court reasoned that the combination of withdrawing a successful drug from the market and introducing a reformulated version of the drug was both anticompetitive and exclusionary. However, the court also indicated that efforts to persuade patients to shift to the reformulated version (a “soft” switch) would be permissible.
III Deeper Issues and the Path Forward
Healthcare markets are systematically challenged to achieve both competitive processes and competitive outcomes. Care is rarely produced at the lowest possible expense, prices seldom reflect the cost of production, quality is often ill-defined and unmeasurable, and inexpensive alternatives to established treatments are usually not available. Reversing these problems will require more than vigorous antitrust enforcement against private parties. It will require competition policy-makers to engage in a serious and sustained manner with the market imperfections created by roughly a century of accreted healthcare regulation, professional privilege, and public subsidy. These policies originally were adopted to strengthen and protect the therapeutic relationship between patients and their individual physicians, but now (p. 630) often serve mainly to shelter powerful interest groups and impede both competition and innovation. Improving competition also will require looking beneath conventional labels and questioning assumptions that antitrust analysis often takes for granted. Competitive landmarks in healthcare markets can be ambiguous, and substance can depart from form in many transactions and relationships.
Using these insights, competition policy-makers will need to develop workable strategies for dislodging the status quo, including recalibrating decades of regulation. Because U.S. antitrust law has few tools with which to dissipate market power after it has been acquired, a particularly challenging task will be to improve healthcare efficiency without simultaneously creating an oligopoly (or worse) of large integrated financing and delivery systems that cannot easily be deconsolidated later.
a. Agency, Information, and Professionalism
Two forms of agency failure permeate the healthcare system. First, physicians control over two-thirds of healthcare spending as patients’ expert agents “ordering” hospitalization, specialty consultation, diagnostic testing, prescription therapy, and a variety of other services. These professional judgments, while usually well intentioned, are made under conditions that virtually guarantee their inefficiency: fragmented decision-making, disorganized production models, limited or biased information, fictitious input pricing even when cost is considered, and financial incentives ranging from studied apathy to outright self-enrichment. Second, financing intermediaries such as insurance companies, employers sponsoring benefit plans, and third-party administrators aggregate medical services into packaged coverage and underwrite (with various public subsidies and cushions) the associated financial risk. These agents do not always honor the preferences of the individuals who ultimately pay for coverage and receive care, an environment that not only creates “moral hazard” for both patients and healthcare providers but also tends to stabilize current market practices including anticompetitive norms.
Information failures justify and are intensified by these flawed agency relationships. Medical knowledge is both incomplete and asymmetric between expert professionals and patients. More generally, norms of medical professionalism coupled with generous insurance have detached pricing from cost and value throughout the system, distorting the contextual information that prices typically convey in competitive markets. Proponents of “big data” believe that generating and sharing comprehensive information about disease burden and treatment alternatives can spawn a “learning healthcare system” that achieves efficiency through collaboration more than competition.86 However, most data elements currently available in electronic health records and the All-Payer Claims Databases (APCDs) that many states are constructing were collected in order for someone in the current healthcare system to get paid, and may prove less enlightening than expected.87
(p. 631) Whether or not medical professionalism requires some degree of market power remains an open question in health policy.88 Urgency and vulnerability still dominate mental images of medical need, the impulse to rescue is strong, and the notion of valuing life unsettling. The public therefore seeks perfection from its physicians, and character matters as well, justifying limits on the supply of professionals to those who meet peer standards of ethical purity in addition to technical competence. Collegiality and consultation are prized even at the risk of collusion. Compassion and charity are expected of both ethical health professionals and mission-driven nonprofit hospitals.
The result of these ethical preferences, which economist Kenneth Arrow once suggested may partially compensate for the information asymmetries referenced above,89 is to erect substantial regulatory barriers to both competitive entry and consumer self-help. Deference to professional control also attenuates competition in health insurance, especially in a post-ACA world in which competition is channeled away from risk selection and into care management, where it comes face-to-face with professional and charitable norms.
b. The Regulatory Interface
A chicken-and-egg problem like rent control and the supply of affordable housing, healthcare regulation is so long-standing and so pervasive that it is no longer clear whether market failure necessitates regulation or regulation instantiates market failure. Regulation as much as market forces determines the structure of healthcare delivery, the form and amount of payment, and the opportunities for entry and innovation. Reinvigorating competition therefore requires not only compatible regulation at the federal level but also incremental reconsideration of state law and professional self-governance through organizations such as licensing bodies, medical specialty societies, and the Joint Commission.
The ACA generally invites competition and attempts to channel it into productive health system change, but suffers from several tensions and inconsistencies. Following the standard playbook of “managed competition” from the 1990s, the ACA curtails health plan competition based on risk of illness (e.g., cherry-picking healthy enrollees) by prohibiting medical underwriting and enforcing standardized benefits while using transparency, new payment methods, and new forms of healthcare delivery to intensify competition based on effectiveness and efficiency of care. However, its multiple layers of risk-adjustment through cross-subsidies among health plans participating in individual health insurance exchanges encourage speculative pricing and dampen incentives for careful management. The ACA also tries to defragment healthcare delivery and reorient it to prevention and community health by chartering entities such as ACOs and patient-centered medical homes (PCMHs) but, as discussed above, broad provider collaboration and consolidation can result in oligopoly, facilitate spillover collusion outside the scope of the joint venture, and create bottlenecks that erect barriers to entry by new competitors.
More generally, federal healthcare law—which has mainly been enacted in connection with Medicare payment rather than underlying practice—rests on assumptions of (p. 632) independent physicians recruiting outside resources to serve individual patients that are increasingly at odds with system-wide competitive priorities. As noted above, waivers or facilitative interpretations were needed from several federal administrative agencies to enable physicians and hospitals to collaborate on accountable care in the Medicare program. Other competitive issues are raised by federal drug and medical device regulation (e.g., FDA, Hatch-Waxman), which also focuses on suppliers to physicians rather than integrated medical practice, including the interactions with federal patent law discussed in connection with reverse payment settlements and product-hopping.
State law presents an even more varied and difficult-to-alter landscape, short of major preemptive federal legislation. Although the FTC frequently engages in “competition advocacy” that urges state lawmakers to avoid blatantly anticompetitive approaches, the state action doctrine reflects long-standing congressional intent that federal antitrust law defer to state regulation. As a result, states responding to stakeholder pressure often disadvantage nonphysician health professionals, impose certificate-of-need requirements on new health facilities, and otherwise erect or maintain barriers to competitive entry.
North Carolina State Board therefore is a potentially significant step along the path that the healthcare system must travel from guild monopoly to ethical but competitive industry. National licensure, or at least reciprocity, for physicians and some nonphysician health professionals may eventually follow. However, even a wholesale revision of state licensing laws would leave in place many other laws that discourage competition and innovation, such as medical staff regulations that partition physicians from hospitals, corporate practice prohibitions that limit the organizational forms of professional services, insurance laws that structure coverage by conventional category and mandate particular benefits, and even medical malpractice and product liability laws that apportion responsibility for harm selectively among market participants.
c. Ambiguous Competitive Landmarks
An important implication for competition policy of the agency-related, informational, and regulatory distortions just discussed is that economic landmarks used by the antitrust enforcement agencies and by courts hearing antitrust lawsuits may be misleading. Over the past half-century, legal analysis under the federal antitrust laws has settled into a generally well-accepted, relatively predictable set of criteria and tools predicated on standard microeconomics, albeit with strategic refinements drawn from fields such as game theory and behavioral economics. This is a far cry from the original premises of the Sherman Act, which included favoring small over large businesses for reasons of personal independence and participatory democracy as well as consumer welfare, a conceptual strand that survived in merger analysis into the 1970s.90 Even for professional services, few recent courts have strayed from mainstream economic analysis, notwithstanding the leeway offered by a footnote in the Supreme Court’s seminal Goldfarb decision.91
(p. 633) Healthcare antitrust law therefore uses standard economic terminology to describe market structure and conduct (“buyers and sellers,” “vertical and horizontal”), to measure the product and geographic characteristics of each, and thereby to assess their competitive implications. These analytic frames are summarized and explained in a series of guidance documents issued over the years by the DOJ and FTC, which are not industry-specific and are illustrated using examples from much less regulated sectors than the healthcare system. The agencies make occasional joint pronouncements focused on healthcare, but these tend to offer market participants the reassurance of “safety zones” rather than modifying antitrust analysis.
The problem in a post-ACA world that acknowledges the existence of gross inefficiencies even in seemingly vigorous healthcare markets is that many standard descriptors were not outgrowths of a normal competitive dynamic and therefore should be questioned if those inefficiencies are to be reduced. For example, “vertical” transactions in normal industries are those that combine two or more levels in a standard supply chain (suppliers, manufacturers, distributors, retailers, etc.), while in healthcare the term is used to describe transactions between hospitals and physicians who are seldom part of a standard supply chain but rather are legally partitioned co-producers of complex care. In the St. Luke’s case discussed above, the court ruled only on what seemed to be a straightforward acquisition of market power in physician primary care and did not grapple with ultimately more interesting issues regarding contractual and employment relationships between hospitals and medical groups that could, in the end, result in more coordinated and higher quality services.
Consider as well the “two-stage model” of competition that antitrust enforcers have used to analyze hospital and physician consolidation for the past twenty years.92 That model posits that hospitals (and, to a lesser extent, physicians) first compete among themselves for inclusion in private insurance “networks” and then compete a second time if so included for the opportunity to care for individual patients. At the first stage of this model, insurers negotiate the lowest possible prices with each hospital for a full complement of services, making it important that there are enough hospitals to bargain against and that no hospital is so special that beneficiaries (or, more typically, their employers) will not buy insurance that omits it. At the second stage, patients who are sheltered by insurance from all or most of the costs seek out particular providers for particular services based on quality and convenience (and, usually, someone’s personal or professional recommendation). In cases that seem worrisome to the agencies, such as hospital mergers in smaller communities, the agencies feed historical data into these models to estimate the potential harm to insurer-provider negotiations of changes in market concentration at either level.
However, broad networks of providers discounting the prices that insurers must pay for randomly aggregated individual services represent one historical moment in the recent evolution of private “managed care,” nothing more, and have not delivered true value to patients according to most health policy experts. Such products, particularly preferred provider organizations, were normalized following the political backlash against tightly managed care in the late 1990s, which re-empowered Blue Cross plans and large hospitals as economic actors and rendered unavailable most HMO products with low consumer cost-sharing. By contrast, early “managed competition” theory, from which both the ACA’s insurance framework (p. 634) and the ACO movement are derived, contemplated competition on price and quality by fully integrated organizations such as closed-panel HMOs (e.g., Kaiser) and prepaid group practices. Today’s return to narrow-network models, albeit with higher cost-sharing than traditional HMOs, calls “two-stage” competition into serious question. Broad networks will be even less necessary if primary care becomes available from a variety of community-based providers, if specialty care can be delivered through telemedicine, and if complex surgery and chronic disease management are offered by dedicated providers at a bundled price with a guarantee of quality and effectiveness.
Looking ahead, it therefore will be important for antitrust law to be more precise about the roles played by professional and corporate entities in particular transactions, and more open to market configurations that differ from historical norms. Today’s insurers may end up in direct competition with today’s providers, or in direct collaboration with them—and both, either, or none may bear true insurance risk. Finding real “buyers” in this environment also may be challenging. Furthermore, a sustained move to bundled payment should reveal a new dimension of competition, success of treatment (also called “performance” or “warranty” risk). Bundling will also channel many of today’s individually purchased care components into provider (business–to-business) rather than patient (business-to-consumer) transactions.
d. Dislodging the Status Quo
In most industries, antitrust enforcement acts only at the margin, deterring collusion and forestalling monopoly. In healthcare, however, modal competition is weak—particularly with respect to reducing costs of production and charging commensurately low prices. Antitrust alone cannot solve this problem, but as coverage expands under the ACA there are compelling reasons for it to play a more central role in dislodging the status quo.
How might this be done? One promising strategy is to focus on barriers to competitive entry, both those that result from outdated regulations such as certificate of need laws and overly restrictive licensing standards and those that are caused by private bottlenecks such as MFNs. A staple principle of “Chicago School” antitrust theory is that innovation will overcome most market power if government gets out of the way. One lesson for healthcare is that facilitating innovation through both regulatory reform and targeted antitrust enforcement can go a long way toward opening dimensions of competition that have up to now been suppressed, including making care delivery much more responsive to normal consumer preferences.93
Addressing power in already consolidated geographic markets is more difficult. Many areas of the country have high concentration ratios for hospitals and some specialist physicians, either because of persistent provider shortages in rural areas or because mergers and acquisitions over the course of three decades have reduced the number of independent competitors. As the result of widespread insurance coverage with generous payment, however, few consolidated markets behave economically as “natural” monopolies (i.e., with increasing scale economies over the expected range of production), and coordinated behavior (p. 635) facilitated by compliance with complex regulation is common. Rationalizing capacity and “rightsizing” inventory is therefore a challenging task. One possible approach in these markets is to involve state and local government in oversight of specific markets.94 In some communities, this strategy might promote competition among politically budgeted provider organizations to serve the aggregate needs of an assigned population-more resembling a European model-instead of competition to provide specific services to individuals.
Another possibility is to leverage government administered pricing systems with associated transparency to discourage managerial slack and force the development of more efficient production processes. Especially in consolidated markets, Medicare and Medicaid provide essential funding streams for hospitals, and Medicare remains influential for most physicians, including specialists, who are unwilling to turn away aging patients. With respect to private payers, targeted regulatory changes might facilitate value-based contracting with dominant providers, and potentially open up alternative sources of supply such as telemedicine. These more market-directive strategies are disfavored by traditional competition theory, but are probably necessary given the overhang of decades of regulation and subsidy.
An additional transitional problem to address is the very high price charged for patented medical technologies, particularly prescription drugs with high development costs but low production costs. In a regulatory environment that requires insurance coverage of “medically necessary” products and services within a provider system that is still highly deferential to individual physician preference, even markets with more than one manufacturer can be uncompetitive. Breakthrough hepatitis C medications, for example, remain extremely expensive because manufacturers can tacitly coordinate their pricing strategies.95 In the case of drugs such as these that really do have the power to cure, payers may be able to negotiate a money-back guarantee of effectiveness that offsets the high price. For patented technologies that have only incremental benefit, however, government may need to expand the very limited authority that the ACA currently confers on comparative effectiveness research to encompass cost-effectiveness and to use the results to guide coverage and payment decisions.96 It has also been suggested that sharp price increases for existing drugs may warrant antitrust investigation.97
Finally, competition policy-makers must manage the post-ACA transition from fragmented, fee-for-input medical care to organized systems that are accountable for outcomes and value. Healthcare is a capital-intensive industry, and it will not be possible to build (p. 636) hundreds of Kaiser-like health systems in a short period of time. Nor would hundreds of thousands of physicians, many at advanced stages of their careers, be willing to abandon their independent practices for employment, even if all states permitted it. “Virtual” integration through contract and shared information and management systems is therefore a practical necessity. As is already taking place with respect to ACOs, antitrust authorities will have to judge the relative merits of exclusive and nonexclusive contractual relationships in many markets, as well as the risk that partial integration will facilitate cartelization for services still provided under conventional fee-for-service payment.98
Consolidation in American industry as a whole is attracting renewed attention. In a 2015 lecture, economists Jason Furman and Peter Orszag suggested that oligopoly power resulting from mergers in a range of economic sectors over the last few decades may have not only significantly harmed consumers but also may have exacerbated the effects of income inequality.99 These concerns are relevant to the U.S. healthcare system, which according to expert consensus wastes approximately $1 trillion annually of public and private money. Dramatically improving healthcare competition in the United States could restore our healthcare system to a sustainable path in terms of affordability, accessibility, and quality.
The author gratefully acknowledges Robert F. Leibenluft, Esq., of Hogan Lovells for his indispensable contributions to this chapter. University of Texas law student Preston Moore provided research assistance.
(2) Sherman Act of 1890, 15 U.S.C. § 1 (2012).
(3) United States v. Grinnell Corp., 384 U.S. 563, 570–571 (1966).
(4) Clayton Antirust Act of 1915, 15 U.S.C. § 18 (2012).
(5) 15 U.S.C. § 18a (2012).
(6) See Fed. Trade Comm’n, Statement of Enforcement Principles Regarding “Unfair Methods of Competition” Under Section 5 of the FTC Act, 80 Fed. Reg. 57055–59 (Aug. 13, 2015).
(7) 15 U.S.C. § 13 (2012).
(8) Brown Shoe Co. v. United States, 370 U.S. 284, 320 (1962).
(9) See, e.g., United States v. Topco Assocs., 405 U.S. 596 (1972).
(10) See Am. Med. Ass’n v. United States, 317 U.S. 519 (1943). See also Arizona v. Maricopa Cty. Med. Soc’y, 457 U.S. 332 (1982).
(11) See, e.g., U.S. Dep’t of Justice & Fed. Trade Comm’n, Statements of Antitrust Enforcement Policy in Health Care (1996), http://www.justice.gov/atr/statements-antitrust-enforcement-policyin-health-care.
(12) See, e.g., U.S. Dep’t of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines (2010), https://www.ftc.gov/system/files/documents/public_statements/804291/100819hmg.pdf.
(13) See, e.g., U.S. Dep’t of Justice & Fed. Trade Comm’n, Antitrust Guidelines for Collaborations Among Competitors (2000), https://www.ftc.gov/system/files/documents/public_statements/300481/000407ftcdojguidelines.pdf.
(14) See, e.g., U.S. Dep’t of Justice & Fed. Trade Comm’n, Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition (2007), https://www.ftc.gov/news-events/press-releases/2007/04/federal-trade-commission-and-department-justice-issue-report.
(15) See Department of Justice press release, Apr. 14, 2016. https://www.justice.gov/opa/pr/justice-department-sues-two-hospital-systems-agreeing-allocate-marketing-territories.
(16) See FTC v. Ind. Fed’n of Dentists, 476 U.S. 447 (1986).
(17) U.S. Dep’t of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines (2010), http://www.justice.gov/sites/default/files/atr/legacy/2010/08/19/hmg-2010.pdf.
(18) Cal. Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97 (1980).
(19) N.C. State Bd. of Dental Exam’rs v. FTC, 135 S. Ct. 1101 (2015).
(20) City of Columbia v. Omni Outdoor Adver., 499 U.S. 365, 390 (1991).
(21) 15. U.S.C. §§ 1011–1015 (2012).
(22) See U.S. Dep’t of Justice & Fed. Trade Comm’n, Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program, 76 Fed. Reg. 67,026–32 (Oct. 28, 2011).
(23) See Tenet Healthcare Corp. v. FTC., 186 F.3d 1045 (8th Cir. 1999) (Poplar Bluff, MO); California v. Sutter Health Sys., 84 F. Supp. 2d 1057 (N.D. Cal. 2000), aff’d, 217 F.3d 846 (9th Cir. 2000) (Oakland, CA); United States v. Long Island Jewish Med. Ctr., 983 F. Supp. 121 (E.D.N.Y. 1997) (Nassau County, NY); FTC. v. Butterworth Health Corp., 946 F. Supp. 1285 (W.D. Mich. 1996) (Grand Rapids, MI); United States v. Mercy Health Servs., 902 F. Supp. 968 (N.D. Iowa 1995), vacated as moot, 107 F.3D 632 (8th Cir. 1997) (Dubuque, IA); FTC. v. Freeman Hosp., 911 F. Supp. 1213 (W.D. Mo. 1995), aff’d, 69 F.3d 260 (8th Cir. 1995) (Joplin, MO); FTC v. Hosp. Bd. of Dirs. of Lee County, No. 94–137–CIV–FTM–25D, 1994 U.S. Dist. LEXIS 19770 (M.D. Fla. May 16, 1994), aff’d, 38 F.3d 1184 (11th Cir. 1994) (Lee County, FL).
(24) See Martin Gaynor & Robert Town, Robert Wood Johnson Found., The Impact of Hospital Consolidation—Update 2 (2012); William B. Vogt & Robert Town, Robert Wood Johnson Found., How Has Hospital Consolidation Affected the Price and Quality of Hospital Care? (2006).
(25) See David Dranove & Richard Ludwick, Competition and Pricing by Nonprofit Hospitals: A Reassessment of Lynk’s Analysis, 18 J. Health Econ. 87, 97 (1999).
(26) See In re Evanston Northwestern Healthcare Corp. & ENH Med. Group, Inc., No. 9315, 144 F.T.C. 1, 521–523 (Aug. 2, 2007) (Evanston, IL); In re Evanston Northwestern Healthcare Corp., 2005 WL 2845790 20, 343 (F.T.C.) (Oct. 20, 2005). On review, the full Commission agreed the merger was anticompetitive but declined to order divestiture. In re Evanston Northwestern Healthcare Corp., 2007 WL 2286195 375, 521–523 (F.T.C.) (Aug. 6, 2007).
(27) See FTC v. OSF Healthcare Sys., 852 F. Supp. 2d 1069, 1095 (N.D. Ill. 2012) (Rockford, IL); FTC v. ProMedica Health Sys., No. 3:11 CV 47, 2011 U.S. Dist. LEXIS 33434, at *50 (N.D. Ohio Mar. 29, 2011) (Toledo, OH); In re ProMedica Health System Inc., F.T.C. No. 9346 (Dec. 12, 2011).
(28) FTC v. ProMedica Health Sys., No 3:11–CV–47, 2011 WL 1219281 (N. D. Ohio Mar. 29, 2011).
(29) ProMedica Health Sys., Inc. v. FTC, 749 F. 3d 559 (6th Cir. 2014).
(30) Federal Trade Commission et al. v. Penn State Hershey Medical Center et al., Case No. 1:15-cv-02362-JEJ, May 9, 2016, Memorandum Opinion & Order
(31) See Fed. Trade Comm’n & U.S. Dep’t of Justice, Hart-Scott-Rodino Annual Report: Fiscal Year 2013 (2014), http://www.ftc.gov/system/files/documents/reports/36th-report-fy2013/140521hsrreport.pdf.
(32) See Federal Trade Commission, FTC Order Will Restore Competition for Adult Cardiology Services in Reno, Nevada (Aug. 6, 2012), http://www.ftc.gov/news-events/press-releases/2012/08/ftc-order-will-restore-competition-adult-cardiology-services-reno.
(33) See Hannah T. Neprash, Michael E. Chernew, Andrew L. Hicks, Teresa Gibson, & J. Michael McWilliams, Association of Financial Integration Between Physicians and Hospitals with Commercial Health Care Prices, 175 J. Am. Med. Ass’n Internal Med. 1932 (2015).
(34) See Medicare Access and CHIP Reauthorization Act of 2015, Pub. L. No. 114-10, 128 Stat. 87 (introducing the new Merit-Based Incentive Payment System).
(35) See Findings of Fact & Conclusions of Law, FTC v. St. Luke’s Health System, Ltd., 2014 WL 407446 (D. Idaho Jan. 24, 2014) (No. 1:13–CV–00116–BLW), aff’d sub nom. Saint Alphonsus Med. Ctr.–Nampa, Inc. v. St. Luke’s Health Sys., Ltd., 778 F.3d 775 (9th Cir. 2015).
(36) See Memorandum Decision & Order at 3–4, FTC v. St. Luke’s Health System, Ltd., No. 1:13–CV–00116–BLW (D. Idaho Jan. 24, 2014).
(37) See Findings of Fact & Conclusions of Law ¶¶ 124–125.
(38) Federal Trade Commission and State of Idaho, et al. v. St. Luke’s Health System, Ltd, and Saltzer Medical Group, P.A., No. 14-35173, slip op. (9th Cir. February 10, 2015).
(39) Id. ¶¶ 76–77.
(40) See, e.g., Daniel McCarthy, Note, The Virtual Economy: Telemedicine and the Supply of Primary Care Physicians in Rural America, 21 Am. J. L. & Med. 111, 112–113 (1995) (examining “telemedicine” as a method of providing basic medical care to rural communities).
(41) See John K. Iglehart, The Expansion of Retail Clinics—Corporate Titans vs. Organized Medicine, 373 New Eng. J. Med. 301 (2015); William M. Sage, Out of the Box: The Future of Retail Medical Clinics, 3 Harv. L. & Pol’y Rev. 1 (2009).
(42) See Medicare Program: Hospital Outpatient Prospective Payment and Quality Reporting Programs, 80 Fed. Reg. 39,200 (July 8, 2015) (to be codified at 42 C.F.R. pt. 410) (discussing a change to Medicare payment for non-hospital outpatient services).
(43) Am. Med. Ass’n, Competition in Health Insurance: A Comprehensive Study of U.S. Markets, 2014 Update (2015).
(44) See Robert Laszewski, Health Insurer Merger Mania—Muscle Bound Competitors and a New Cold War in Health Care, Forbes, July 27, 2015, 2:55 PM, http://www.forbes.com/sites/robertlaszewski2/2015/07/27/health-insurer-merger-mania-muscle-bound-competitors-and-a-new-cold-war-in-health-care/ (discussing possible motives and effects of insurer consolidation).
(45) See AMA Releases Analyses on Potential Anthem–Cigna and Aetna–Humana Mergers, AMA News Room, Am. Med. Ass’n (Sept. 8, 2015), http://www.ama-assn.org/ama/pub/news/news/2015/2015-09-08-analysis-anthem-cigna-aetna-humana-mergers.page.
(46) See, e.g., Lawrence J. Korb, Merger Mania: Should the Government Pay for Defense Industry Restructuring?, Brookings Inst. (1996), http://www.brookings.edu/research/articles/1996/06/summer-defenseindustry-korb.
(47) See Leemore Dafny, Mark Duggan, & Subramaniam Ramanarayanan, Paying a Premium on Your Premium? Consolidation in the U.S. Health Insurance Industry, 102 Am. Econ. Rev. 1161 (2012).
(48) See Karen Van Nuys, Ronald Brookmeyer, Jacquelyn W. Chou, David Dreyfus, Douglas Dieterich, & Dana P. Goldman, Broad Hepatitis C Treatment Scenarios Return Substantial Health Gains, But Capacity Is a Concern, 34 Health Aff. 1666 (2015).
(49) See Brian Biles, Giselle Casillas, & Stuart Guterman, Competition Among Medicare’s Private Health Plans: Does It Really Exist?, The Commonwealth Fund, Aug. 25, 2015, http://www.commonwealthfund.org/publications/issue-briefs/2015/aug/competition-medicare-private-plans-does-it-exist.
(51) See Inst. of Med, Crossing the Quality Chasm: A New Health System for the 21st Century (2001).
(52) See Paul Starr, The Social Transformation of American Medicine: The Rise of a Sovereign Profession and the Making of a Vast Industry (1984). See William Sage’s chapter on health law and health policy in this volume.
(53) See Arizona v. Maricopa Cnty. Med. Soc’y, 457 U.S. 332 (1982).
(54) See Fred J. Hellinger & Gary J. Young, An Analysis of Physician Antitrust Exemption Legislation: Adjusting the Balance of Power, 281(1) J. Am. Med. Ass’n 83 (2001).
(55) See U.S. Dep’t of Justice & Fed. Trade Comm’n, Statements of Antitrust Enforcement Policy in Health Care 90–91 (1996), http://www.justice.gov/atr/public/guidelines/0000.htm [hereinafter Statements of Antitrust Enforcement Policy 1996]; Letter from Fed. Trade Comm’n to John J. Miles, Esquire, Counsel for MedSouth Inc. 1–2 (June 18, 2007), http://www.ftc.gov/sites/default/files/documents/advisory-opinions/medsouth-inc./070618medsouth.pdf.
(56) See Broad. Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1, 23 (1979) (holding the issuance of blanket licenses does not constitute price fixing per se unlawful under the antitrust laws because, in part, blanket licenses are a new product).
(58) Blue Cross Blue Shield United v. Marshfield Clinic, 65 F.3d 1406, 1415 (7th Cir. 1995) (finding no evidence connecting MFN clauses to anticompetitive conduct).
(59) Fiona Scott Morton, Contracts that Reference Rivals, 27 Antirust 72 (2013).
(60) See United States v. Delta Dental, 943 F. Supp. 172 (D.R.I. 1996) (“The net effect is an alleged detrimental impact on the dental market without any discernible competitive benefits.”).
(61) See United States v. Blue Cross Blue Shield, 809 F. Supp. 2d 665 (W.D. Mich. 2011). See also Aetna Inc. v. Blue Cross Blue Shield, No. 11–CV–15346, 2013 WL 1831320 (E.D. Mich. June 14, 2012); Shane Grp., Inc. v. Blue Cross Blue Shield, No. 10-14360, 2012 WL 5990219 (E.D. Mich. Nov. 30, 2012).
(62) See Palmyra Park Hosp., Inc. v. Phoebe Putney Mem’l Hosp., 604 F.3d 1291, 1303 (11th Cir. 2010).
(63) United States v. United Reg’l Health Care Sys. of Wichita Falls, Tex., No. 7:11CV00030, 2011 WL 846762 (N.D. Tex. Feb. 25, 2011).
(64) Sidibe v. Sutter Health, N.D. Cal., Nov. 7, 2013 (No. C 12-04854) (order granting motion to dismiss).
(65) Scott Allen & Marcella Bombardieri, A Handshake that Made Healthcare History, Boston Sunday Globe, Dec. 28, 2008, at A1, A14.
(66) W. Penn. Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85, 91–92 (3d Cir. 2010).
(67) See In re Blue Cross Blue Shield Antitrust Litigation, 26 F. Supp. 3d 1172 (2014).
(68) Kamakahi v. Am. Soc’y for Reproductive Med., No. C 11-01781 SBA (N.D. Cal. Mar. 29, 2013).
(69) See, e.g., Tamar Lewin, Egg Donors Challenge Pay Rates, Saying They Shortchange Women, N.Y. Times, Oct. 16, 2015, http://www.nytimes.com/2015/10/17/us/egg-donors-challenge-pay-rates-saying-they-shortchange-women.html?_r=0.
(70) See Am. Med. Ass’n v. United States, 317 U.S. 519 (1943).
(71) See Edward Hirshfeld, Assuring the Solvency of Provider-Sponsored Organizations, 15 Health Aff. 28, 29–30 (1996) (discussing solvency risks).
(72) See Stephen M. Shortell & Lawrence P. Casalino, Health Care Reform Requires Accountable Care Systems, 300 J. Am. Med. Ass’n 95 (2008).
(73) See U.S. Dep’t of Justice & Fed. Trade Comm’n, Proposed Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program, 76 Fed. Reg. 21894-98 (Apr. 19, 2011).
(74) See Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program, 76 Fed. Reg.67,026–32. (Oct. 28, 2011).
(75) See Thomas L. Greaney, The Tangled Web: Integration, Exclusivity and Market Power in Provider Contracting, 14 Hous. J. Health L. & Pol’y 59, 88–90 (2014).
(76) Milton Friedman, Capitalism and Freedom 149–159 (1962).
(77) 135 S. Ct. 1101 (2015).
(78) See Teladoc, Inc. v. Tex. Med. Bd., 122 F. Supp. 3d 529 (W.D. Tex. 2015).
(79) FTC Staff Guidance on Active Supervision of State Regulatory Boards Controlled by Market Participants (Oct. 2015), https://www.ftc.gov/system/files/attachments/competition-policy-guidance/active_supervision_of_state_boards.pdf.
(80) See Patrick v. Burget, 486 U.S. 94, 105 (1988); Health Care Quality Improvement Act of 1986, 42 U.S.C. §§ 11101–11152 (2012).
(81) Drug Price Competition and Patent Term Restoration Act of 1984, Pub. L. No. 98-417, 98 Stat. 1585.
(82) See In re K-Dur Antitrust Litigation, 686 F.3d 197 (3d Cir. 2012).
(83) See In re Cipro Cases I and II, 348 P.3d 845 (Cal. 2015).
(84) See In re Loestrin 24 Fe Antitrust Litigation, No. 14–2071, 2016 WL 698077 (1st Cir. Feb. 22, 2016). See also King Drug Co. of Florence, Inc. v. Smithkline Beecham Corp., 791 F.3d 388 (3d Cir. 2015).
(85) See New York ex rel. Schneiderman v. Actavis PLC, 787 F.3d 638 (2d Cir. 2015).
(86) See, e.g., Inst. of Med., Best Care at Lower Cost: The Path to Continuously Learning Health Care in America 101–102 (Mark Smith et al. eds., 2012).
(87) See also Gobeille v. Liberty Mutual Insurance Company, 136 S. Ct. 936 (2016) (holding that ERISA preempts state laws imposing claims reporting requirements on self-insured employers and their third-party administrators).
(88) See Ronald Gilson, The Devolution of the Legal Profession: A Demand Side Perspective, 49 Md. L. Rev. 869 (1990).
(89) See Kenneth J. Arrow, Uncertainty and the Welfare Economics of Medical Care, 53 Am. Econ. Rev. 941, 941–943 (1963).
(90) See, e.g., United States v. Von’s Grocery Co., 384 U.S. 270 (1966).
(91) See Goldfarb v. Virginia State B., 421 U.S. 773, 788 n.17 (1978) (“The fact that a restraint operates upon a profession, as distinguished from a business, is, of course, relevant in determining whether that particular restraint violates the Sherman Act”).
(92) See Gregory Vistnes, Hospitals, Mergers, and Two-Stage Competition, 67 Antitrust L.J. 671(2000).
(93) See William M. Sage & Kelly McIlhattan, Upstream Health Law, 42 J. L. Med. & Ethics 535 (2014).
(94) Erin C. Fuse Brown & Jaime S. King, The Double-Edged Sword of Health Care Integration: Consolidation and Cost Control (Fed. 2016) (prepublication draft), http://ssrn.com/abstract=2736310 (discussing Certificates of Public Advantage (COPAs) and other oversight methods).
(95) See Troyen Brennan & William Shrank, New Expensive Treatments for Hepatitis C Infection, 312 J. Am. Med. Ass’n 593 (2014).
(96) See 42 U.S.C. § 1320e (2012).
(97) Daraprim (pyrimethamine) was recently sold to Turing Pharmaceuticals, which promptly raised its price from $13.50 to $750, prompting a public outcry and even a congressional hearing. In connection with the sale, the manufacturer switched the drug from conventional distribution channels to a tightly controlled distribution system usually associated with an FDA-mandated Risk Evaluation and Mitigation Strategy (REMS). However, no particular safety issues exist, raising the possibility that the goal of restricted distribution is to make it more difficult for generic competitors to obtain samples. Michael Carrier & Aaron Kesselheim, The Daraprim Price Hike and Role for Antitrust, Health Aff. Blog (Oct. 21, 2015), http://healthaffairs.org/blog/2015/10/21/the-daraprim-price-hike-and-a-role-for-antitrust/.
(98) See Thomas Greaney, Examining Implication of Health Insurance Mergers, Health Aff. Blog (July 2015), http://healthaffairs.org/blog/2015/07/16/examining-implications-of-health-insurance-mergers.
(99) See Jason Furman & Peter Orszag, A Firm-Level Perspective on the Role of Rents in the Rise in Inequality, Presentation at “A Just Society” Centennial Event in Honor of Joseph Stiglitz Columbia University (Oct. 16, 2015), https://www.whitehouse.gov/sites/default/files/page/files/20151016_firm_level_perspective_on_role_of_rents_in_inequality.pdf.