The Antitrust Division of the Federal Trade Commission (FTC), the Department of Justice (DOJ), and state attorneys general have been aggressively enforcing antitrust laws in the healthcare market. The FTC views the challenges to certain healthcare transactions as an important element in controlling the cost of healthcare where the transactions have, in its view, an anticompetitive affect on the market. Navigating the antitrust laws is important for healthcare systems, hospitals and physician practices that are looking at consolidation, mergers or other forms of collaboration as a means to meet the current economic constraints and other challenges in the healthcare industry.
The discussions and activities associated with entering into a merger or other collaboration between and among providers must comply with the antitrust laws, which prohibit any concerted action that suppresses, or that facilitates the suppression of, competition. A number of federal antitrust laws exist and are generally enforced by the FTC and the DOJ. State antitrust laws are enforced by the state attorney general.
Transaction Discussion & Negotiation
The meetings, discussions and communications among providers in furtherance of a potential merger may constitute concerted action for antitrust purposes when they involve independently practicing physicians and physician groups or healthcare entities that may be viewed as competitors. Accordingly, any discussions or actions that could lead to anticompetitive conduct need to be avoided.
Areas that will create significant risk during the analysis and negotiation of a potential merger include:
- Any discussion or dissemination of the current fees charged by providers, desired reimbursement levels or possible changes in those fees or levels;
- Any agreement on a specific method of charging for services;
- Any discussion of limiting the geographic area served, the entities to be solicited, the services provided by a provider, or any discussion regarding market allocation;
- Any suggestion of boycott of, or retaliatory action against, a managed care organization, insurer, or other entity; and
- Sharing of payer contracts that the providers have in common.
At the beginning of any merger analysis and negotiation, transaction and antitrust counsel should provide or facilitate an evaluation of the potential antitrust implications and may prepare and circulate a checklist that clearly identifies permissible and impermissible discussion topics.
Falling within a safety zone allows a greater degree of comfort that the transaction will not be deemed to violate antitrust laws.Level of Integration
As providers face increasing challenges seeking reimbursement for services, many are looking for ways to collaborate to facilitate improved payer arrangements. Agreements on prices or price levels for patients are per se illegal under antitrust laws, but joint price negotiations by competing healthcare providers may be permissible if properly evaluated to determine (a) if there is sufficient financial and clinical integration and (b) if the agreement is reasonably necessary to accomplish the procompetitive benefits of the integration.
Financial integration involves parties sharing the financial performance risk of the merger or collaboration. Sharing the risks associated with clinical integration can involve documented procedures to oversee and control costs while also maintaining quality of care, contractually requiring physicians to implement clinical practice guidelines, and having in place monitoring mechanisms to evaluate compliance. The FTC and DOJ have issued guidelines and policy statements that define certain “safety zones” for provider collaborations that the agencies will not challenge under the antitrust laws other than in unusual circumstances. Falling within a safety zone allows a greater degree of comfort that the transaction will not be deemed to violate antitrust laws. However, do not assume you have sufficient integration. This should be evaluated with the advice of legal counsel.
Generally, the more integrated the parties will be from an operational and financial perspective, the lower the risk of an antitrust violation, although you still have to consider potential market concentration issues. Antitrust laws prohibit healthcare providers from having impermissibly high market share or creating a monopoly. You need to be aware of whether the potential transaction could result in a monopoly or other prohibited market concentration in a particular service and geographic market.
In many recent cases, healthcare mergers have been challenged by federal and state government agencies, as well as competitors of the merging entities. These cases provide insight into both the criteria under which transactions will be analyzed and challenged, as well as the consequences if the deal is found in violation of the state and federal antitrust laws.
Example: In 2012, the largest health system in Idaho, St. Luke’s Health
System, acquired Saltzer Medical Group, which was the largest independent physician group. The FTC, the state of Idaho, and two competitors of the health system challenged the acquisition on state and federal antitrust grounds. In February 2015, a U.S. Circuit Court of Appeals affirmed a district judge’s order for the unwinding of the acquisition. The appeals court found that St. Luke’s claim that the acquisition would improve patient care was not enough and that the health system failed to show that the acquisition would have a positive effect on competition. The appeals court ruling also emphasized that although St. Luke’s may have demonstrated certain efficiencies that would result from the merger, the health system did not show how those efficiencies would have a positive effect on competition.
Even acquisitions associated with financially distressed healthcare entities are at risk of violating antitrust laws. The acquisition of a hospital that had consistently experienced losses prior to the acquisition by ProMedica Health System was ordered to be unwound. In this case, the court found that the acquired hospital had somewhat improved financials prior to the acquisition and was, therefore, essentially not distressed enough.
The chair of the FTC has said that antitrust enforcement in the healthcare area is one of the agency’s top priorities. Analyzing potential antitrust issues early in the deal process can help minimize the risk that days, months, weeks or even years later a transaction will need to be unwound. Antitrust laws are very complex, and an analysis depends heavily on the facts and circumstances of a particular situation. Therefore, it is essential when contemplating, or entering into, a merger that an antitrust analysis be performed by qualified legal counsel.
Steven M. Harris, Esq., is a nationally recognized healthcare attorney and a member of the law firm McDonald Hopkins, LLC. Contact him via e-mail at sharris@mcdonaldhopkins.com.
Reprinted with permission from the American College of Rheumatology.