United States: A General Counsel’s Guide to Avoiding the Healthcare Antitrust Minefield

In July 2004, following several months of hearings, the Federal Trade Commission (FTC) and the Antitrust Division of the U.S. Department of Justice jointly issued a report—entitled "Improving Health Care: A Dose of Competition" (the Report)—that addressed two basic questions. First, what is the current role of competition in health care, and how can it be enhanced to increase consumer welfare. And second, how should antitrust enforcement work to protect existing and potential competition in health care. The federal antitrust enforcement agencies acknowledged the economic significance of the health care industry, reaffirmed their long-standing view that the antitrust laws apply to all health care competitors, and advocated increased competition and less government regulation as the best way to achieve lower costs and improve quality and access for health care consumers.

The report, read in conjunction with recent enforcement actions, signals the federal antitrust agencies’ enforcement priorities. They are: the formation and operation of provider networks; mergers of health care providers or payors; and hospital contracting practices. The FTC and the Antitrust Division also intend to seek increasingly stringent remedies, such as dissolution of provider networks or other organizations that are found to "facilitate anticompetitive conduct by multiple parties," disgorgement of improperly obtained revenues and, potentially, criminal sanctions against those who violate the antitrust laws repeatedly or flagrantly.

However, the FTC and the Antitrust Division are not the only government enforcers of the antitrust laws. Since health care is delivered on a local basis, several states’ Attorney Generals have experience in health care antitrust enforcement. The Attorney Generals in Connecticut, Florida, Massachusetts, Minnesota, Missouri, New Hampshire, Ohio, Tennessee and Washington, for example, have been particularly aggressive in their investigation and enforcement initiatives, with and without the assistance of the federal enforcers.

The number of private actions being filed—particularly those alleging that dominant providers in non-urban areas have engaged in conduct intended to exclude competitors—seems to be increasing. Plaintiffs in several cases have survived defense motions for summary judgment, exposing the defendants to significant potential liability for treble damages and litigation costs.

Health care providers can both reduce the likelihood that they will be the target of a federal or state antitrust investigation or enforcement action or a defendant in private action seeking money damages and enhance their probability of successfully defending if they are. It helps to have an antitrust compliance policy in place and to reinforce it with periodic antitrust "sensitivity training." It is also important for all employees to assume that every document they create—including e-mails and "personal" materials—and conversations they have, will be discoverable if there is a government investigation or private litigation.

Provider network joint ventures, which were the subject of two of the nine Statements of Antitrust Enforcement Policy in Health Care jointly issued by the FTC and the Antitrust Division almost 10 years ago, remain a favorite enforcement target of the agencies. The federal enforcement agencies have filed 19 cases since April 2002 alleging anticompetitive conduct by provider networks, all except one of which entered into settlement agreements resolving the complaint without admitting liability. The lone exception, North Texas Specialty Physicians, contested the FTC’s allegations, but an Administrative Law Judge recently ruled that the physician network had engaged in price fixing in violation of the FTC Act. (The case is on appeal to the FTC.)

Most providers—hospitals and physicians—participate in provider network joint ventures so that they can contract on a collective basis with payors. In the absence of substantial financial or clinical integration, competing providers cannot agree on the fees they will charge payors for their services, even where there is a perceived need to "level the playing field" against a dominant or abusive insurance company. The federal agencies’ enforcement record demonstrates their commitment to monitoring provider network contracting activities to ensure their compliance with the antitrust laws. Increasingly, payors are affirmatively soliciting—and obtaining—intervention by the FTC or the Antitrust Division when a particular provider network appears to be blocking efforts to implement a new payment methodology or is seeking to substantially increase fees above what the payor perceives to be reasonable or competitive levels.

The FTC and the Antitrust Division remain committed to challenging or unwinding mergers, including those involving competing hospitals in concentrated markets, that have the potential to diminish, or actually harm, competition. For example, the FTC issued an administrative complaint alleging that Evanston Northwestern Healthcare’s (ENH) acquisition of Highland Park Hospital allowed ENH to increase rates to supracompetitive levels in a geographic area north of Chicago, Illinois. The FTC’s complaint against ENH is the first hospital merger case filed by either the FTC or the Antitrust Division in the last five years and the result of the trial, which began in February 2005, and is expected to continue into the spring, is likely to determine how aggressively the federal agencies pursue combinations of competing hospitals in the future. Similarly, while the federal agencies have not challenged any of the recent transactions involving health care insurance companies, the Antitrust Division carefully reviewed the Anthem-Wellpoint and United-Oxford deals before approving them. In view of the consent decree entered when Aetna acquired Prudential in 1999, we anticipate that further consolidation of health care insurers will be subject to Antitrust Division scrutiny.

Similarly, the states’Attorney Generals have reviewed and challenged mergers or consolidations of physician practice groups—transactions that, to date, have not attracted much attention from the FTC or the Antitrust Division . The Minnesota Attorney General’s recent complaint preemptively challenging a health care system’s alleged acquisition of two cardiology groups is just one example where a state enforcer has exercised its enforcement authority in connection with a "local" transaction.

Hospital contracting practices also are likely to attract more attention from the FTC and the Antitrust Division. As hospital systems expand geographically, they sometimes try to require payors to contract with all, not just some, of the system’s hospitals. This contracting practice—known as full-system contracting, "forcing," or "all-or-nothing" contracting—can raise antitrust issues when the hospital system has market power in a particular geographic area. Like the other issues where we expect to see increased antitrust enforcement, payors are generally the source of the complaints that result in enforcement.

The FTC and the Antitrust Division have been criticized for failing to pursue stronger remedies when they have found health care providers’ conduct to violate the antitrust laws. The range of remedies available to the federal enforcement agencies include: cease and desist orders; dissolution of provider networks, including consummated mergers; disgorgement or restitution of ill-gotten gains; and, in extreme circumstances, criminal penalties. Both the FTC and the Antitrust Division have publicly stated their intent to seek more stringent penalties from health care providers in the future.

Private enforcement actions are on the rise, particularly in geographic areas where there are fewer competitors and the market is dominated or controlled by a large competitor. The "typical" plaintiff in these cases is an ambulatory surgery center, specialty hospital or physician provider group that claims to have been foreclosed from competing because its larger, dominant competitor has engaged in restrictive credentialing practices or negotiated exclusive provider contracts with payors.

Private actions have been filed (and litigated) in places like: Rome, New York; Springfield, Missouri; Jackson, Tennessee; Idaho Falls, Idaho; Defiance, Ohio; Arecibo, Puerto Rico and Eugene, Oregon. Although it can be difficult for plaintiffs to prevail in cases challenging exclusive contracting practices (since exclusive contracts typically have procompetitive benefits that offset any potential anticompetitive impact), the cost (both direct and indirect) of defending an antitrust case (even in state court), even successfully, is high. And a defense that is unsuccessful can result in an award of treble damages and an obligation to pay the plaintiff’s "reasonable" attorney’s fees.

The promise of increased enforcement by the FTC, the Antitrust Division and states’Attorney Generals, coupled with the risk of private actions challenging allegedly anticompetitive conduct, suggests that health care providers should proactively take steps to reduce their potential exposure to investigation or litigation.

Adopt an antitrust compliance policy. It does not have to be complicated—it can be as simple as a list of "Do’s and Don’ts." But it should clearly describe the type of conduct that is per se unlawful—horizontal price fixing, market allocation agreements and certain concerted refusals to deal—and identify behavior that raises antitrust issues, even if it does not rise to the level of a per se violation.

Conduct antitrust sensitivity training sessions periodically. To develop a "culture of antitrust compliance," it is important for board members and employees at all levels of the organization to attend and participate in these programs. If the provider’s directors (or trustees) and executives do not demonstrate that they take antitrust compliance seriously, lower level employees are not likely to either.

Because the antitrust laws are, in effect, consumer protection laws, a health care provider’s employees should always be mindful of the effect of their conduct on their consumers (or patients). A health care provider’s business approach should be to act in the best interests of its consumers (patients), not to harm or disadvantage its competitors. A health care provider’s communications to any of its constituencies should be drafted with an eye to how its consumers will understand and react to its message.

Assume that all records of any type are discoverable and will be discovered. That includes e-mails and voicemail messages (that might be transcribed by the recipient), as well as documents that are marked as "Confidential" or "Private." Similarly, all conversations with customers or competitors, including informal conversations or "cocktail party" chats at trade association meetings, will be subject to discovery. Everyone should expect to read whatever they write or say on the front page of the local newspaper and consider what its impact will be when that happens. It is one thing for a competitor to describe itself as the "leading" provider of care, and another to say that it is the "only" or "largest" or "dominant" provider in the area.

Finally, a health care provider’s employees should always be encouraged to "phone first" before engaging in conduct or activities that they think might have competitive implications—including, for example, participation in information exchanges among competitors, negotiations concerning a proposed joint venture or merger, changes to prices following a merger or collaboration with a competitor, modification of medical staff bylaws or entry into an exclusive contract. The goal of an antitrust compliance policy and sensitivity training is to help employees identify and avoid those situations that could unnecessarily become litigation risks.

It may not be possible to eliminate entirely the risk of antitrust litigation. A health care provider can, however, minimize or reduce its potential antitrust liability in the event of an investigation or a lawsuit.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.