In an informative speech at the recent Accountable Care Organizations Summit, Federal Trade Commission (FTC) Director of the Bureau of Competition Deborah Feinstein articulated her current thinking on many important issues for healthcare providers, including: Accountable Care Organizations, merger enforcement, remedies, and certain merger defenses. As other FTC officials have done, Feinstein rejected arguments that the Affordable Care Act’s (ACA’s) goals of containing costs and improving quality are in tension with antitrust enforcement. Instead she enumerated a number of important policy points for the healthcare industry.
- Accountable Care Organizations (ACOs): Illustrating how the ACA’s goals are “fully compatible with core antitrust principles,” Feinstein noted that to date the FTC has not opposed the formation of, or taken any enforcement action against, an ACO. Of the several hundred Medicare Shared Savings Programs ACOs and commercial ACOs, only two have requested antitrust review of their operations. The FTC and the Department of Justice previously outlined their enforcement policy on ACOs, which includes safety zone guidelines, factors that would raise red flags, and a process for early review.
- Closed merger investigations: While the FTC rarely discusses closed investigations, Feinstein described two cases that exemplify how the agency continues to focus on whether there is head-to-head competition between the merging parties. The first was a merger of a large medical center and a community hospital located 40 miles away. The FTC decided to close the investigation after discovering that the parties did not closely compete because the medical center did not engage in price competition to attract new patients — as it was already at full capacity — and the hospitals had previously entered into a collaborative relationship in certain service lines to address those capacity constraints. The second closed investigation involved the combination of a healthcare system with a large teaching hospital that was less than 10 miles from the nearest system hospital. Although the merged hospitals were in close proximity, there were dozens of other hospitals nearby and patient flow data indicated that patients often traveled to a nearby city for care. This evidence combined with a lack of concern from major health plans resulted in decision to close the investigation.
- Possible new enforcement targets: Feinstein noted two types of provider collaborations that the agency has not yet challenged, but that could raise concerns. First, vertical mergers involving a hospital and a physician practice could raise a red flag if the transaction foreclosed other hospitals from access to a key group of physicians. Although the FTC decided against alleging this theory in the St. Luke’s case,1and Feinstein mentioned that such challenges by the federal agencies are rare, her statement suggests that the FTC might pursue such a case if there was persuasive evidence that the transaction harmed competition, and not just competitors. Second, management contracts between key hospital competitors could raise similar concerns to a horizontal merger if the hospitals engage in joint negotiations or are two of only a limited number of competitors in the market.
- Preference for structural over conduct remedies: Feinstein emphasized the FTC’s strong preference for structural remedies over conduct remedies, noting, among a number of reasons, that conduct remedies frequently only focus on price (by setting a certain price cap for a limited number of years) and often fail to take account of quality and incentives to innovate. While the FTC feels it has limited resources to regulate consent decrees, Feinstein did note that states may be in a better position to do so. Recently, a number of states, such as New York, Massachusetts, and Pennsylvania, have imposed conduct remedies on certain hospital transactions.2
Overall, Feinstein’s speech is the most comprehensive summary of the FTC’s active enforcement efforts in healthcare in recent years, and is worth a close read.