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Presented by
Michael R. Greer| 317.977.1493 | [email protected]
John F. Bowen| 317.429.3607 | [email protected]
Antitrust Law:Practical Takeaways From Recent FTC and DOJ Health
Care Enforcement and Guidance
AGENDA
1. Health Insurance Mega
Mergers
2. Hospital Mergers
3. COPAs and State Action
Doctrine
4. Physician Practice
Acquisitions
5. DOJ Conduct Cases
6. Antitrust Policy
Developments
3
• Goal: Inform you on the latest developments in Antitrust law
enforcement and guidance
Health Insurance Mega
Mergers
4
5
UNITED STATES OF AMERICA, ET AL. V. AETNA, INC., ET AL.
January 23, 2017 – U.S. District Court for the District of Columbia ruled in favor
of the DOJ, blocking the $37 billion merger between Aetna and Humana.
Analysis
• Medicare Advantage – The Court found that the merger would create “364
(very) highly concentrated markets, including 70 county-level monopolies” and
was, therefore, presumptively anticompetitive.
• Public Exchanges – The Court concluded that the merger would
substantially lessen competition in the public exchange markets in the three
counties in Florida and lead to presumptively anticompetitive levels of market
concentration.
• Efficiencies – Court rejected arguments that efficiencies generated through
(1) service line consolidations; (2); pharmacy cost reductions; (3)medical cost
savings; (4) clinical cost savings would produce over $2 billion in annual
efficiencies
Outcome
6
UNITED STATES OF AMERICA, ET AL. V. ANTHEM, INC., ET AL.
February 8, 2017 - U.S. District Court for the District of Columbia blocked the proposed
$54 billion merger between Anthem, Inc. and Cigna Corp.
April 28, 2017 – D.C. Circuit Court affirms District Court decision blocking merger.
Analysis
The DOJ’s case against Anthem/Cigna focused on three distinct areas:
• National Accounts - Proposed merger would harm national accounts (over 5,000 employees) in: (1)
the 14 states where Anthem sells under a BCBS License; and (2) the United States, generally.
• Large Group Employers - Proposed merger would harm competition in 35 metropolitan areas
across the United States where Anthem and Cigna are either the only or two of the very few large
group employer insurance options
• Monopsony Claim – Proposed merger would result in a “monopsony” whereby Anthem would be
able to dictate market terms, resulting in lower reimbursement rates, reduced access to medical care,
reduced quality and fewer value-based provider collaborations
Outcome
• Aetna/Humana – Abandoned proposed merger following District Court ruling.
• Anthem/Cigna – Not as simple.
– 2/10/2017 Anthem appeals case to D.C. Circuit.
– 2/14/2017 Cigna terminates merger agreement and files suit in Delaware state
court seeking $1.85 billion break-up fee, plus ~$13 billion in damages.
– 3/24/2017 – D.C. Circuit hears expedited arguments. Anthem focuses on $2
billion of efficiencies.
– 4/28/2017 – D.C. Circuit in a split decision affirms District Court.
– 5/5/2017 – Anthem appeals to the Supreme Court.
– 5/12/2017 – Anthem abandons merger. Parties still fighting state court battle
over break-up fee.
POSTSCRIPT
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Hospital Mergers
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FTC WINNING STREAK (TEMPORARILY) COMES TO AN END
• November – December 2015 – FTC challenges three hospital mergers:
– Harrisburg, Pennsylvania - Penn State Hershey Medical Center and
PinnacleHealth System
– Chicago, Illinois - Advocate Health Care Network and NorthShore
University Health System
– Huntington, West Virginia - St. Mary’s Medical Center and Cabell
Huntington Hospital
• May – June 2016 - Judge denies FTC’s motions for Preliminary Injunction(s)
in Advocate/NorthShore and Penn State Hershey/Pinnacle
Big Wins for Providers!!!
But then…
Facts
10
CIRCUIT COURT APPEALS
• September 2016 – 3rd Circuit reverses District Court decision in Penn State
Hershey/PinnacleHealth
• Court says the lower court ignored the impact of the proposed merger on
insurers and commercial realities in the healthcare market
• Parties abandoned the merger
• November 2016– 7th Circuit reverses District Court finding in
Advocate/NorthShore and remands for reconsideration by District Court
• Parties disagreement centered on geographic market definition which
NorthShore claimed the FTC “gerrymandered” to get Market Shares over
50 percent
• March 2017 – On remand, District Court rules for FTC and halts merger
• Parties abandon the transaction.
Facts
• Significance of Payer views - the FTC routinely interviews commercial payers to
assess the competitive impact of a proposed hospital merger, seeking to understand
whether the merged entity would gain bargaining leverage in contract negotiations.
• Rejection of Efficiencies Arguments - claimed efficiencies have always been viewed
skeptically by the FTC, however these complaints show that the bar for claiming
efficiencies continues to climb and might even be unattainable.
• Reliance on the Parties’ Ordinary Course Documents - During an investigation,
the FTC requests tens, if not hundreds, of thousands of ordinary course documents
from the parties.
• Narrow Geographic Markets - determination of the relevant geographic market is
often more art than science and critically dependent on the facts and circumstances in
each case.
• For a moment providers had helpful District Court opinions, but those were replaced
by Circuit Court opinions accepting the FTC’s view of the hospital merger world.
TAKEAWAYS
11
COPAs and the
State Action Doctrine
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THE STATE ACTION DOCTRINE
• Under the state-action doctrine, state and municipal authorities are immune
from federal antitrust lawsuits for actions taken pursuant to a clearly expressed
state policy that had foreseeable anticompetitive effects.
• This doctrine can apply to provide immunity to non-state actors as well if a
two-pronged requirement is met:
(1) there must be a clearly articulated policy to displace competition; and
(2) there must be active supervision by the state of the policy or activity.
What is State Action Immunity?
14
CERTIFICATE OF PUBLIC ADVANTAGE (COPA)
• A Certificate of Public Advantage (COPA) is the written approval by a State
that grants State Action Immunity on a Cooperative Agreement, often between
two or more hospitals.
What is a COPA?
How do COPAs work?
• The State agency in charge of the COPA often consults with the State
Attorney General to review and enforce the COPA.
• COPAs often place extensive requirements on the parties to the Cooperative
Agreement, including:
• Data reporting
• Achievement of quality metrics
• Cost/Pricing freezes and restrictions
• States are tasked with enforcing and actively supervising the parties adherence
to the terms of the COPA.
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CABELL/HUNTINGTON: COPA TRANSACTION PROCESS
• November 6, 2015 – the FTC challenged the proposed acquisition of St.
Mary’s Medical Center by Cabell Huntington Hospital in Huntington, West
Virginia, despite the hospitals having entered into a consent decree with the
West Virginia Attorney General.
• March 2016 – In response to the FTC challenge, the West Virginia legislature
passed a COPA law.
– Under the COPA law, certain hospital mergers are deemed exempt from
the federal antitrust laws under the “state action doctrine” if the West
Virginia Health Care Authority approves the hospital merger.
• June 22, 2016 - the West Virginia Health Care Authority approved the merger.
• July 6, 2016 - the FTC announced via press release that it had voted
unanimously to abandon the challenge and dismiss their complaint without
prejudice.
Timeline
16
CABELL/HUNTINGTON - CONTINUED
• Although West Virginia’s COPA law was the impetus for the
FTC abandoning their challenge of the Cabell/Huntington
transaction, the FTC expressed continued skepticism over the
use of cooperative agreements and their ability to mitigate the
anticompetitive effects of potential mergers.
• The FTC went so far as to say that the “decision to dismiss the
complaint without prejudice does not necessarily mean that we
will do the same in other cases in which a cooperative
agreement is sought or approved.”
Takeaways
17
WELLMONT HEALTH SYSTEM AND MOUNTAIN STATES HEALTH ALLIANCE
September 19, 2017 – the Tennessee Department of Health granted the request
for a COPA from Wellmont Health System and Mountain States Health Alliance.
Facts
• Monetary Obligations and Commitments
• $140,000,000 Commitment to expanded access to Healthcare Services
• $85,000,000 commitment to Health Research and Graduate Medical Education
• $8,000,000 commitment to region-wide HIE
• Facility maintenance, capital expenditures, employee benefits
• Non-Monetary Obligations and Commitments – Quality of Care requirements, access
to healthcare services, board governance
• Managed Care Contracts and Pricing Limitations – limitations/restrictions on
negotiations and pricing
• Active Supervision – annual reporting, access to meetings, audits, etc.
Terms of the COPA
The passing of a COPA Law does not automatically ensure State Action
Immunity – the legislative scheme and Cooperative Agreement must still
meet the two requirements of the doctrine:
1) Clear Articulation
2) Active Supervision
Trade-off: Federal Antitrust Enforcement State Regulatory
Supervision
– Can be (VERY) burdensome!
TAKEAWAYS
18
Physician Practice
Acquisitions
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STATE OF WASHINGTON V. FRANCISCAN HEALTH SYSTEM
• July 2016 - CHI Franciscan acquired the assets of WestSound, a seven-
physician orthopedic practice in Silverdale, WA.
• September 2016 - CHI Franciscan acquired assets from and entered into a
Professional Services Agreement (PSA) with The Doctors Clinic (TDC), a 45-
physician multispecialty group in Silverdale.
• August 31, 2017 - the Attorney General in the State of Washington filed a
complaint to unwind the two physician practice affiliations of CHI Franciscan.
Facts
Analysis• The AG argues that the CHI Franciscan/TDC PSA is little more than a price-
fixing conspiracy among competitors.
• The AG's claims related to WestSound follow a more traditional merger claim
analyzing product and geographic markets.
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STATE OF WASHINGTON V. FRANCISCAN HEALTH SYSTEM
• In addition to an injunction, the AG is seeking disgorgement and civil
penalties.
• Complaint alleges a per se violation of the antitrust laws - that one
physician practice transaction is so blatantly anticompetitive that the
AG need not prove relevant product or geographic markets or any
actual competitive harm.
• Shows that certain State AGs are active in enforcing antitrust laws.
• Enforcement can retroactive (even years post-closing).
Takeaways
22
IN RE SANFORD HEALTH AND MID DAKOTA CLINIC, P.C.
June 22, 2017 – FTC and North Dakota Attorney General challenge the
acquisition of Mid Dakota Clinic, P.C., a 61-physician multispecialty practice, by
Sanford Health.
Analysis
Facts
• FTC alleged substantial harm to competition in four relevant service
markets—(1) adult primary care physician (PCP) services, (2) pediatric
services, (3) OB/GYN services, and (4) general surgery physician services.
• Defined the geographic market as a four-county market centered on Bismarck,
ND with a population of more than 125,000.
• Approximately 95% of patients in the Bismark-Mandan market stay within the
market for the relevant services.
• The government's analysis indicated that the proposed transaction would result
in market shares ranging from 77% to 100% of physicians offering the
relevant services in the market, allowing the resulting entity to impose a SSNIP.
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IN RE SANFORD HEALTH AND MID DAKOTA CLINIC, P.C.
• Most physician practice acquisitions do not meet the HSR
threshold, so are not reportable pre-closing to the FTC. But
through complaints, industry press, or other means, the FTC
can become aware of these transactions and is willing to
investigate and challenge lower dollar transactions that result in
large market shares.
• Like with hospital mergers, in physician acquisition cases, the
FTC will employ it’s customary tools (HHI, Diversion, etc.) to
determine competition and market competition.
Takeaways
24
IN THE MATTER OF CENTRACARE HEALTH SYSTEM
February 29, 2016 - CentraCare Health and St. Cloud Medical Group P.A., the
two largest providers of various physician services in St. Cloud, Minnesota,
entered into an acquisition agreement, under which CentraCare would acquire all
outstanding shares of SCMG and directly employ all of SCMG’s physicians and
advanced practice providers.
Analysis
• FTC alleged that the acquisition would substantially increase CentraCare’s
market share to over 80% in three specific physician service markets: adult
primary care, pediatric primary care, and OB/GYN care.
• FTC gave credence to the parties’ Failing Firm Defense arguments:
• Unlikely to be able to improve its financial condition;
• Physicians were leaving SCMG and more would depart both the group
and the geographic area if the acquisition was not consummated;
• SCMG made a good-faith, multiyear effort to find an alternative buyer.
Facts
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IN THE MATTER OF CENTRACARE HEALTH SYSTEM
The “Failing Firm Defense” provides a viable
argument for Providers to consider if they satisfy both
elements of the two-prong test:
1. “Grave probability of business failure”
2. No other reasonable alternatives that are less
detrimental to competition.
Takeaways
• In physician practice acquisitions, the FTC is more willing to negotiate
consent decrees. In this case, CentraCare agreed to suspend physician
non-competes, allow a certain number of physicians to leave, and even
offer physicians a $100,000 departure bonus under certain
circumstances.
• If a physician practice is struggling financially, it should document the
details of the financial hardship—inability to find a line of credit,
physicians leaving the group and community, etc.
• The physician practice should make a good faith attempt to find an
alternative buyer and document the efforts.
TAKEAWAYS
26
DOJ Conduct Case
Enforcement
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U.S. AND THE STATE OF NORTH CAROLINA V.
CAROLINAS HEALTHCARE SYSTEM
June 9, 2016 - DOJ filed suit against Carolinas Healthcare System in Charlotte,
NC alleging Carolinas used its market power to prevent payers from steering
patients to low cost hospitals.
Analysis
• DOJ alleged Carolinas leveraged its 50% market share and “must have” status
to coerce payers into including various anti-steering provisions in payer
contracts.
• DOJ claimed these provisions prevented payers from offering narrow
networks or steering patients to low cost providers.
• The DOJ apparently provided little weight to the discounts offered for the
anti-steering provisions (although “discount for volume” contracting is
common).
• It is unclear whether the relatively low market share (50%) and the mere act of
negotiating steering restrictions will be sufficient to persuade a court that this
is an antitrust violation, especially if adequate alternatives exist to meet
network coverage requirements.
Facts
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ADVERTISING CASES
• June 25, 2015 – DOJ brought a case against four Michigan hospitals
alleging the hospitals agreed to limit marketing and advertising,
depriving patients and physicians of information and education
needed to make informed healthcare decisions.
• April 14, 2016 – DOJ brought a case against two West Virginia
hospitals alleging the same thing. According to the DOJ, one way
hospitals compete to attract patients is by marketing their services
through newspaper advertisement and billboards. When hospitals
agree to geographic limits on marketing it curtails competition.
• According to the DOJ, any type of agreement among competing
hospitals to limit advertising is an unlawful market allocation that is a
per se violation of the federal antitrust laws.
FTC/DOJ JOINT ANTITRUST GUIDANCE FOR HR PROFESSIONALS
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• Purpose: To alert human resource (HR) professionals and others
involved in hiring and compensation decisions to potential violations of
the antitrust laws.
• An individual likely is breaking the antitrust laws if he or she:
– agrees with individual(s) at another company about employee salary
or other terms of compensation, either at a specific level or within a
range (so-called wage-fixing agreements), or
– agrees with individual(s) at another company to refuse to solicit or
hire that other company’s employees (so-called “no poaching”
agreements).
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FTC/DOJ JOINT ANTITRUST GUIDANCE FOR HR PROFESSIONALS
• Per Andrew Finch, Acting Assistant Attorney General in the DOJ’s
Antitrust Division, the DOJ intends to investigate and criminally prosecute
companies and individuals for naked wage-fixing and no-poaching
agreements.
• These arrangements can be formal or informal, written or unwritten
or spoken or unspoken.
• Keep in mind that the cost to defend a FTC or DOJ investigation is
incredibly high in terms of both money and time. Plus, if a private party
subsequently files suit, on top of those additional defense costs, damages
could be trebled.
Takeaways
Antitrust Policy
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HEALTH CARE ANTITRUST UNDER THE TRUMP ADMINISTRATION
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• Currently, only 2 of the 5 FTC Commissioner positions have been filled (and one
position expired at the end of September, but the Commissioner has agreed to stay on
until a replacement is made).
– One Democrat and one Republican.
– Creates veto authority among the current Commissioners.
• Some have theorized a Republican administration will mean a relaxed focus on antitrust
laws. But . . .
“Sometimes a concentrated industry is noncompetitive. Consider hospitals, where the
Federal Trade Commission has successfully challenged proposed mergers with convincing
economic evidence that greater concentration would lead to increases in price and reduced
quality of service.”
– Joshua Wright, Lead of Trump Antitrust Transition Team
• Prediction: DOJ and FTC will continue to bring challenges in the health care industry
based on empirical evidence tending to show provider consolidation increases prices.
DEMOCRAT’S “A BETTER DEAL”
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• Sen. Amy Klobuchar (D-MN) introduced two bills that would
strengthen antitrust enforcement:
– The Consolidation Prevention and Competition Promotion Act
– The Merger Enforcement Improvement Act
• Unlikely that these measures will advance in this Congress.
• Proposals reveal Democrat’s broad agenda to enlarge the scope of
antitrust enforcement
– less focus on consumer welfare
– increased focus on combatting market concentration
THE CONSOLIDATION PREVENTION AND COMPETITION PROMOTION ACT
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• New legal standards for approval of larger corporate mergers—those
greater than $5 billion in value or involving a party with assets greater
than $10 billion.
• Replace the well-established standard against mergers that would
“substantially lessen” competition with a lower “materially likely”
standard for monopsony and monopoly claims.
• Require post-settlement data to be submitted annually for five years after
approval of a merger
THE MERGER ENFORCEMENT IMPROVEMENT ACT
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1. Adjust the current Hart-Scott-Rodino filing fee structure, increasing the fees at the top
end nearly tenfold.
2. Formally require acquiring parties that enter into settlements with the FTC/DOJ as a
precondition to allowing the deal to proceed to supply significant information to the
government each year for five years
3. Direct the FTC to conduct a study to examine the competitive impacts of institutional
investor ownership in competitors in moderately concentrated or concentrated markets
4. Direct the Government Accountability office (GAO) to:
– Examine merger settlements approved from the time of enactment back to 2006
– Conduct a study of the impact that mergers have on wages, innovation, and new
business formation.
Michael R. Greer
317.977.1493
Anchorage | Annapolis | Dallas | Denver | Detroit | Indianapolis | Louisville | Milwaukee | Philadelphia | Raleigh | Seattle | Washington, D.C.
This presentation is solely for educational purposes and the matters presented herein do not constitute legal advice with respect to your particular situation.
John F. Bowen
317.429.3629
