Editor’s Note: On February 24 and 25 in Washington, DC, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) held a joint Antitrust Division Workshop, “Examining Healthcare Competition.” In the article below, Manatt Partner Lisl Dunlop, who participated in the workshop, summarizes key insights shared during the day-and-a-half session.

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In a day and a half of panels covering the gamut of the U.S. healthcare landscape, commentators at the “Examining Healthcare Competition” workshop rejected the notion that consolidation was necessary to achieve the benefits of healthcare reform. Dr. Ezekiel Emmanuel framed the main issue, examining competition policy against the backdrop of megatrends that are transforming healthcare, including:

  • Changes in payment structures to focus on value and risk and move away from fee-for-service models.
  • The digitization of healthcare, providing real-time data sources to monitor performance and quality, as well as open new avenues for healthcare delivery.
  • The proliferation of new players in the healthcare space, with care delivered from more and varied points. For example, we see non-physician healthcare professionals, such as pharmacists, playing a greater role in healthcare delivery and decisions.

The workshop provided an update on developments across a full range of issues—including health insurance exchange operations, network design, accountable care organizations and other innovative health delivery models—but its major theme was consolidation. Panels discussed when consolidation is happening, when it is necessary or desirable, and when antitrust regulations should prevent it.

Emmanuel commented on the high volume of consolidation—both horizontally (hospitals acquiring hospitals) and vertically (hospitals acquiring physician groups or insurers acquiring hospitals). He posited that consolidation may be effective when associated with risk-based payment systems but raised concerns about consolidating in a fee-for-service environment. That same concern was echoed in subsequent panels.

FTC and DOJ Heads Provide Insights Into Agency Enforcement

The heads of both the FTC and the DOJ shared insights into agency enforcement, with a specific focus on healthcare markets. The FTC has consistently maintained that the aims of the Affordable Care Act (ACA) can be achieved without horizontal consolidation. The FTC has stood firm in saying that it will consider hospital mergers on the same basis as other transactions.

In her address, FTC Chairwoman Edith Ramirez extended the FTC’s concerns around consolidation to include mergers between entities at different levels of the healthcare supply chain—for example, urban hospitals buying suburban ones or hospitals buying different types of providers, such as laboratories or imaging providers. She cautioned that, as healthcare providers scramble to adapt to a changing market and regulatory environment, they should not put antitrust law in the background.

Assistant Attorney General Bill Baer used his remarks to focus on the possibilities for anticompetitive conduct by various healthcare stakeholders. For instance, he highlighted the potential for health insurers to skirt around procompetitive mechanisms (i.e., tiering and narrow networks), by implementing anticompetitive contracting practices, such as anti-tiering, anti-steering and most-favored-nations (MFN) clauses.

Separately, Baer focused on contracting practices dominant providers sometimes use to insulate themselves from competition. He cited United Regional Healthcare System’s contract provisions inhibiting insurers from contracting with competing providers as a prime example of that type of anticompetitive contracting. The DOJ has a history of enforcement in this area, foreshadowing its continued focus.

Panels Educated Regulators About the Evolving Industry

Several of the workshop panels appeared designed to educate the antitrust regulators on developments and experiences in different aspects of the healthcare landscape rather than home in on particular issues of potential antitrust concern. The common refrain was that the industry is still evolving, with panelists stressing that it is too soon to make confident predictions about how the markets established by the ACA will function in the mid to long term. Commentators focused their discussions on:

  • Developments and innovations in provider network design, contracting practices and health insurance exchanges.
  • Current trends toward narrow and tiered networks, participation in exchanges and premium movements.
  • State regulatory activity in the healthcare arena, such as Massachusetts’ establishment of cost increase limits.
  • Alternatives to fee-for-service payment, with a focus on risk-sharing models and integrated health systems.
  • The striking growth in the establishment of Medicare/Medicaid and commercial ACOs, as well as the efficiency, quality and cost benefits of ACO structures.

The penultimate panel at the workshop addressed provider consolidation issues. The panel was dominated by healthcare economists, including Dr. Martin Gaynor and Dr. Leemore Dafny, both of whom have served as FTC economists.

The panelists’ overwhelming response to consolidation was that it does not necessarily lead to achieving healthcare reform’s goals—improving quality through more integrated care, lower costs and better use of resources. They strongly expressed that healthcare reform goals cannot be used as a justification for consolidation. Notably, the panel’s evidence included a range of factors, including:

  • If providers consolidate and as a consequence have market power, they will have no incentive to move away from fee-for-service based payment models to adopt pay-for-performance or risk-sharing payment models.
  • Where insurance markets are concentrated, providers are moving into insurance. Devolving all risk down to the provider level, however, is not efficient. Payers provide a range of services that employers and patients need and that providers do not perform well.
  • Hospitals that acquire physician groups do not perform better on quality and cost measures than those that simply align with physician groups or maintain the status quo.

The panel spent surprisingly little time discussing the recent Ninth CircuitSt. Luke’s decision. Commentators did note that the courts in that case rejected the efficiency claims made by the merging parties, because they could be achieved by other means and did not overcome the likely price increase from the consolidation. (For more on the St. Luke’s case, click here to read the “Antitrust Update” in our February issue.)

Conclusion

As providers consolidate, whether horizontally or vertically, they need to ensure they consider and address potential antitrust issues. Regulators are clearly monitoring healthcare mergers and focused on enforcing antitrust laws for hospital mergers as rigorously as for any other transaction. The St. Luke’s decision is an important wake-up call that claiming a transaction will help achieve healthcare reform’s goals of better outcomes and lower costs does not outweigh antitrust concerns.