[AP: my impression is that your headings and subheadings are too
dense to be helpful roadsigns. I too a quick stab at simplifying.]
Antitrust SCRUTINY OF HEALTHCARE MERGERS: CONSISTENT WITH
THE PATIENT PROTECTION AND AFFORDABLE CARE ACT?
BY CORY H. HOWARD
TABLE OF CONTENTS
INTRODUCTION……………………………………………..………3
I. ROLE OF ANTITRUST LAW IN THE CONTEXT OF HEALTHCARE
PROVIDER MERGERS…………………………………4
A. HISTORICAL TRENDS IN ENFORCEMENT LEAD AND
COMMON MISPERCEPTIONS………………………………….4
B. POST-PPACA FTC MERGER SCRUTINY………………….8
II. CONSISTENCY OF PPACA AND RECENT TRENDS IN FTC
ENFORCEMENT ..........................................................16
A. GOALS OF THE PPACA………………..16
B. FTC SCRUTINY OF MERGERS IN THE HEALTHCARE
INDUSTRY……………………………………………………19
III. RETHINKING THE APPLICATION OF ANTITRUST LAW TO
HEALTHCARE MERGERS ……………………………………………24
A. REDUCING THE ROLE OF ANTITRUST LAW AS MEANS TO
CORRECT A MARKET FAILURE……….…24
B. FLEXIBLE ANTITRUST STANDARDS FOR A POST-PPACA
WORLD….25
CONCLUSION……………………………………………………...29
ABSTRACT
The Patient Protection and Affordable Care Act has
fundamentally transformed the healthcare industry – specifically by
changing Medicare payment processing systems and incentivizing
intra-industry collaboration and cooperation. In an attempt to
capture some of the benefits afforded to firms that engage in this type
of activity, healthcare providers, especially hospitals, have engaged in
widespread consolidation, namely through mergers. However, in an
effort to protect competition, the Federal Trade Commission and
federal courts in injunction actions have strictly interpreted and
1
applied antitrust law to block some of these mergers. This has created
tension between the legislative intent of the Affordable Care Act and
antitrust law, a tension which has proved problematic for healthcare
providers seeking through mergers to capture revenue, cost, and
infrastructure efficiencies anticipated by the Affordable Care Act. This
article details this tension and proposes as framework through which
the FTC and courts should view and balance the competing concerns
and goals of federal antitrust law and the Affordable Care Act.
2
Introduction
Mergers in the healthcare industry have always been a pressing
issue for scholars and policymakers and the potential for
monopolization and anticompetitive behavior has been a sticking point
long before the Patient Protection and Affordable Care Act1
(“PPACA” or the “Affordable Care Act”) dominated national
headlines.2 Although enacted in a comprehensive effort to solve a
litany of issues plaguing the United States healthcare industry, the
sweeping legislation’s general goals were to improve both the quality
and efficiency of healthcare services.3 To create more efficient
healthcare delivery mechanisms, the Affordable Care Act sought to
incentivize synergistic consolidation in the healthcare energy to
increase efficiency. However, efforts to consolidate have been
hampered by challenges brought by the Federal Trade Commission
(“FTC”) and inflexible interpretations adopted by the courts in
analyzing the FTC’s requests to enjoin potential mergers. Although
the FTC’s new 2010 Merger Guidelines have stressed that the agency
will use flexible guidelines in analyzing potential mergers, this has
proved to not be the case.4 This rigid interpretation of antitrust law, as
1
Pub. L. No. 111-148, 124 Stat. 119 (2010)(codified as amended in
scattered sections of 24 U.S.C.).
2
See Allison Evans Cuellar and Paul J. Gertler, Trends in Hospital
Consolidation: The Formation of Local Systems, 22 HEALTH AFFAIRS
77, 85 (2003)(questioning what effects consolidation of healthcare
organizations would have on efficiency, patient costs, the well-being
of consumers, and individual firm market power – all concerns are
traditionally associated with antitrust considerations in non-healthcare
firms). [AP: typically prentheticals don’t have multiple sentences]
3
Amy E. Zilis, Note, The Doctor Will Skype You Now: How Changing
Physican Licensure Requirements Would Clear the Way for TeleMedicine to Achieve the Goals of the Affordable Care Act, 2012 U.
ILL. J.L. TECH. & POL’Y 193, 195 (2012)(noting that efficiency and
quality were two of the general, paramount concerns promoting the
passage of the Affordable Care Act).
4
Bradley C. Weber, DOJ and FTC Issue New Horizontal Merger
Guidelines, ABA HEALTH ESOURCE (AMERICAN BAR ASS’N HEALTH
LAW SECTION, WASHINGTON, D.C.), Sept. 2010, available at
http://www.americanbar.org/content/newsletter/publications/aba_heal
3
applied to post-PPACA healthcare organization mergers, is contrary to
the goals of theAffordable Care Act.
Part I of this article offers an overview of the role antitrust law
plays in mergers in the healthcare industry, with particular attention to
how antitrust law applies to healthcare nonprofits. Part II examines
the role of the FTC and the federal courts in the healthcare merger
process and whether FTC antitrust enforcement is stymieing the goald
of the Affordable Care Act. Part III examines whether, in the face of
the clear legislative objectives of the PPACA, the FTC or the Supreme
Court should rethink the strict application of antitrust laws to
healthcare organizations.
[AP: excellent introduction. Notice how I believe you can usefully
cut most of your sentences by 25-50%. Until you’re paid by the word,
enjoy being succinct.]
II. The Role of Antitrust Law in the Context of Healthcare
Provider Mergers
A. Historical Trends in Enforcement Lead to Common Misperceptions
The relationship between the application of antitrust law,
especially the Sherman and Clayton Acts, has long been a source of
contention between hospitals and government regulators, especially as
it applies to non-profit healthcare providers.5 Although healthcare
providers, including those that are non-profits, operate in a manner
that is fundamentally different from tradition corporations, the same
antitrust framework is employed by the DOJ and FTC to evaluate
potential mergers between healthcare providers as it would utilize in
evaluating transactions in any other industry.6 Therefore, before
discussing the tension between antitrust law and the Affordable Care
th_esource_home/weber.html (noting that the 2010 Merger Guidelines
expressly emphasized that “the merger analysis flexible and does not
use a single methodology”)
5
John B. Saville & James Vincequerra , Note, Antitrust Issues of NonProfit Hospital Mergers, 13 ST. JOHN’S J. LEGAL COMMENT.. 427, 434
(1998)(noting that despite the long-held judicial principle that antitrust
law is applicable to non-profit entities, there is confusion among the
courts as to how to apply it effectively, especially as to the healthcare
industry).
6
Deborah A. Daccord and Rachel Irving, Pitfalls in Healthcare
Mergers and Acquisitions-Emerging Issues, 25 No. 1 HEALTH LAW 42,
42 (OCT. 2012).
4
Act, this Article begins with an overview of the historical trends in
antitrust enforcement and the traditional conceptions of antitrust law.
[AP: good opening explanation. Maybe a bit more on ]
1. The General Application of Antitrust Law to Nonprofits
Examining how courts have historically applied antitrust law to
nonprofit entities is important in the context of this article, as a
significant number of healthcare organizations, including hospitals, are
nonprofit entities.7 The Supreme Court has consistently reiterated the
doctrine that antitrust law applies to nonprofits, including hospitals. In
NCAA v. Board of Regents of the University of Oklahoma8, the Court
was quick to dismiss the argument that nonprofit status exempts an
entity from antitrust compliance, relying on a long line of case law that
has held the opposite. Building on Goldfarb v. Virginia State Bar9 and
American Society of Mechanical Engineers, Inc. v. Hydrolevel
Corp.10, the Court went beyond merely asserting that antitrust law
applied to nonprofits; it also questioned whether the label “nonprofit”
meant anything at all when organizations were designed for profit
maximization. Nonprofit healthcare organizations have also been
found to fall well within the sweeping grasp of antitrust law, as courts
around the country have applied traditional antitrust analysis to
healthcare organizations charged with such violations.11
Although the Supreme Court has found time and time again
that nonprofits are not exempt from antitrust scrutiny, the law does
provide nonprofits with limited explicit exclusions. For example, the
7
See AMERICAN HOSPITAL ASSOCIATION, FAST FACTS ON US
HOSPITALS (last visited on Mar. 14, 2014),
http://www.aha.org/research/rc/stat-studies/fast-facts.shtml (noting
that almost 3/5 of all community hospitals in the U.S. are
nongovernment not-for-profit entities).
8
468 U.S. 85, 100 n.22 (1984)(unequivocally stating that “there is no
doubt that the sweeping language of § 1 applies to nonprofit
entities”.).
9
421 U.S. 773, 786-787 (finding that professional services were still
bound by antitrust regulations).
10
456 U.S. 556, 576 (1982)(find that it is “beyond doubt” that
nonprofit organizations can be held liable under antitrust law).
11
See California Dental Ass’n v. F.T.C., 526 U.S. 756, 793
(1999)(Justice stating approving the usual outcome that resulted from
the Court of Appeals applying ordinary antitrust principles to a
nonprofit healthcare organization).
5
Nonprofit Institutions Act provides immunity for purchasers and
sellers of goods from liability under the Robinson-Patman Act as long
as: (1) the purchaser is a nonprofit and (2) the goods purchased are to
be used by the nonprofit.12 Nonprofits can also be protected from
antitrust scrutiny under the State Action Antitrust Exemption, which
allows nonprofits to engage in anticompetitive activity if they can
show those actions were done pursuant to a clear state government
mandate and the nonprofit was actively monitored by the state.13 Even
though federal courts recognize these and other explicit exceptions,
they also recognize that they are to be applied strictly and it is antitrust
law that should be applied broadly.14
One non-statutory exception to the antitrust laws that is
particularly important to this article’s analysis of health care law is the
judicially-created Implied Repeal Doctrine, which protects entities
from antitrust scrutiny when they undertakes activities to implement a
federal regulatory scheme that is inconsistent with antitrust law.15
This doctrine first appeared in the seminal case Keogh v. Chicago &
N.W. Ry.16 and was later held to preempt antitrust scrutiny where: (1)
provisions of two acts are in irreconsibile conflict, in which case the
later act to the extent of the conflict constitutes an implied repeal of
the earlier one and (2) where the later act covers the whole subject of
the earlier one and is clearly intended as a substitute, it will operate
similarly as a repeal of the earlier act.17 However, courts are even
more skeptical of shielding nonprofits from antitrust scrutiny under the
Implied Repeal Doctrine then they are through other more narrow
exceptions, as the federal courts have interpreted Golden State Transit
12
See 15 U.S.C. § 13c.
Bazil Facchina et al., Privileges & Exemptions Enjoyed by Nonprofit
Organizations, 28 U.S.F. L. REV. 85, 107-108 (1993)(relying on the
reasoning of the Court in Patrick v. Burget, 486 U.S. 94, 100 (1988)
and California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc.,
445 U.S. 97, 105 (1980) to explain the state action exception).
14
See Hawkeye Foodservice Distribution Inc. v. Martin Bros.
Distributing Co., Inc., 854 F.Supp.2d 646, 650 (D.S.D.IA. 2012).
15
See John J. Miles & Mary Susan Philip, Hospitals Caught in the
Antitrust Net: An Overview, 24 DUQ. L. REV. 489, 602
(1985)(explaining the implied repeal doctrine).
16
260 U.S. 156 (1922).
17
Posadas v. National City Bank of New York, 296 U.S. 497, 503
(1936)(stating the two conditions under which the implied repeal
doctrine operates).
13
6
Corp. v. Los Angeles18 and its progeny as disfavoring judicial use of
the implied repeal doctrine.19
Despite these holdings, there is a significant amount of
commentary arguing that nonprofits should be exempt from antitrust
law, whether because antitrust law does not take into account any
potential benefits from cooperation among nonprofits20, or because
nonprofits inherently fall outside the scope of traditional antitrust
concerns.21 Some scholars have questioned whether Congress even
intended smaller nonprofits to be subject to the same laws that
governed corporate giants.22 Others have more specifically questioned
whether federal healthcare laws, albeit pre-PPACA laws, and antitrust
laws are so incompatible, that healthcare providers should be
exempted from specific conduct that is done to implement a federal
regulatory scheme mandated by legislation.23
18
493 U.S. 103, 106, 110 S.Ct. 444, 448 (1989). Golden State Transit
was quickly followed by two other cases that created a judicial
disfavor of using the implied repeal doctrine. See Suter v. Artists M,
503 U.S. 347, 112 S.Ct. 1360 (1992) and Livadas v. Bradshaw, 512
U.S. 107, 114 S.Ct. 2068 (1994).
19
See Mummelthie v. City of Mason City, Ia., 873 F.Supp. 1293, 1314
(N.D.IA. 1995)(stating that implied repeals are disfavored and that
courts will only find they occur where there is “clear repugnancy”).
20
See generally Srikanth Srinivasan, Note, College Financial Aid and
Antitrust; Applying the Sherman Act to Collaborative Nonprofit
Activity, 46 STAN. L. REV. 919, (1994)(explaining that cooperation
among nonprofits is a benefit that traditional antitrust inquiries fail to
account for when determining potential market impact).
21
Richard Elhauge, The Scope of Antitrust Process, 104 HARV. L.
REV. 667, 739-743 (1991)(arguing that since the Sherman Act is
traditionally concerned with “financially interested restraints on
competition”, courts should find that nonprofits’ “financially
disinterested restraints” fall outside the scope of antitrust inquiries).
22
See Steven N.J. Wlodychak, Note, Antitrust-Nonprofit Health
Maintenance Organization Pricing Policies and the Scope of the
Robinson-Patman Price Discrimination Act-De Modena v. Kaiser
Foundation Health Plan, 743 F.2d 1388 (9th Cir. 1984), cert. denied,
105 S.Ct. 1230 (1985), 16 SETON HALL L. REV. 220, 241 (1986)
(questioning whether there was ever a congressional intent to subject
nonprofits to antitrust regulations and if an exception should be carved
out for nonprofits).
23
John J. Miles & Mary Susan Philip, supra note 14, at
602(questioning whether the doctrine of implied repeal could be used
to protect healthcare organizations from antitrust scrutiny).
7
2. Antitrust Law and the Merger of Healthcare Organizations:
An Uneasy Fit
The application of antitrust law to the evaluation of mergers in
the healthcare industry has always been an awkward fit that has, over
the years, challenged the way regulators and policy makers view
healthcare. Some scholars have argued that the mere application of
antitrust laws to healthcare mergers fundamentally transforms how we
conceive of the delivery of healthcare services.24 For example, some
policy makers view the provision of health care services under the
health planning umbrella, wherein healthcare is considered a “system”,
with debate predicated on the delivery of high-quality, cost-efficient
services to patients.25 However, the application of antitrust law to the
merger of healthcare firms inherently and categorically changes our
conception of healthcare, from the social services “system” vision, to a
view of healthcare as an industry, where economic principles such as
supply and demand dictate how we view the issues affecting trade and
commerce within the industry.26 This has not gone unnoticed by
healthcare scholars, such as James Blumstein, who has noted that “the
application of the antitrust laws to the health care industry reflects a
challenge-a Kulturkampf- to a traditional culture that often has resisted
the incorporation of economic considerations into its process of
making decisions”.27 This means that any discussion of the role of
antitrust law in non-profits, and nonprofit healthcare organizations in
particular, is going to be colored by the terms employed by this article.
Therefore, this article must be aware of this already inherent uneasy fit
that colors the healthcare law/antitrust law debate.
24
James F. Blumstein, Health Care Reform and Competing Visions of
Medical Care: Antitrust and State Provider Cooperative Legislation,
79 CORNELL L. REV. 1459, 1482 (1994) [hereinafter referred to as
Blumstein 1].
25
James F. Blumstein, The Application of Antitrust Doctrine to the
Healthcare Industry: The Interweaving of Empirical and Normative
Issues, 31 IND. L. REV. 91, 94 (1998) [hereinafter referred to as
Blumstein 2].
26
Id. at 94-95 (noting that antitrust law brings with it a conception of
healthcare as an industry dominated by the analysis of economic
principles).
27
James F. Blumstein, Antitrust Enforcement in the Healthcare
Industry: A Battleground of Competing Paradigms, 156 U. PA. L. REV.
PENNUMBRA 421, 421 (2008).
8
B. Post-PPACA FTC Merger Scrutiny
1. Healthcare Mergers in the Post-PPACA World
The Affordable Care Act provides tremendous incentives for
small healthcare providers to merge into larger units, namely by
providing access to new delivery system models such as the affordable
care organization.28 Although the ACA appears to encourage mergers
in the healthcare industry, these transactions are being subjected to
increased scrutiny by officials in the Obama Administration.29
Increased regulatory scrutiny has not only led to increased transaction
costs for any proposed healthcare merger of significant size, but has
also resulted in unfavorable judicial decisions enjoining potential
mergers30. This section looks at three recent, important cases in which
federal courts, at the request of the FTC, enjoined proposed healthcare
mergers. These cases seem to misapply pre-ACA logic and reasoning
to mergers happening in a post-ACA world.
a. Federal Trade Commission v. OSF Healthcare System31
The first case involved two nonprofit healthcare providers in
Illinois. OSF, a nonprofit operates acute care hospitals in the state,
such as St. Anthony Medical Center; Rockford Health System
(“RHS”), a nonprofit healthcare system operates Rockford Memorial
Hospital (“RFM”).32 After engaging in extensive due diligence, the
two entities entered into an “affiliation agreement”, which would have
given OSF all of the operating assets and sole corporate authority over
RHS.33 However, after the FTC investigated the merger it determined
that the merger would have led to a violation of Section 7 of the
28
Alicia Gallegos, Physician Groups Eye Mergers but Blindsided by
Legal Fights, AMERICAN MEDICAL NEWS (Dec. 10, 2013)
http://www.amednews.com/article/20121210/profession/312109971/2/
.
29
Daccord and Irving, supra note 4.
30
Tom Campbell, Defending Hospital Mergers After the FTC’s
Unorthodox Challenge to the Evanston Northwestern-Highland Park
Transaction, 16 ANNALS HEALTH L. 213, 213-214 (2007)(noting that
before the ACA, the FTC has at one point in the early 2000s lost 7
straight merger challenges).
31
852 F.Supp.2d 1069 (N.D.Ill. 2012).
32
Id. at 1071-72.
33
Id. at 1072.
9
Clayton Act and began judicial proceedings to challenge the
acquisition of RHS by OSF.34
What is especially notable about the court’s detailed analysis
of the affected market is that it goes to great lengths to differentiate
OSF Healthcare from earlier, pre-ACA merger cases in which district
courts denied the FTC’s request for preliminary injunction. Arguing
against the injunction, the defendants referenced cases such as United
States v. Long Island Jewish Medical Center35 and FTC v. Butterworth
Health Corp.36, in which federal courts had denied injunctions despite
allegations that the proposed mergers would have led to control over
100% of the market in the former and when the latter proposed merger
would have resulted in sky-high HHI levels.37 While the Long Island
court disputed the accuracy of the government’s definition of the
affected market (stating that in defining the market the government
limited the scope of its investigation to anchor hospitals and excluded
other area hospitals that provided general acute care inpatient
services), the OSF court refused to consider that a similar argument
could have been made in case.
Following the trend of differentiation, the district court
distinguished OSF from Butterworth, a case in which the federal
district court explicitly denied granting a preliminary injunction to
stop a merger despite a high post-transaction HHI number. In
distinguishing OSF from Butterworth, the Illinois court noted that in
Butterworth, the court only denied the preliminary injunction because
of evidence that 1) “non-profit hospitals operate different in highlyconcentrated markets than do profit-maximizing firms” and 2) that the
two hospitals entered into an agreement to freeze prices after the
merger and limit price increases for the four subsequent years.38
b. F.T.C. v. ProMedica Health System, Inc.39
ProMedica is another example of the Federal Trade
Commission attempting to black a merger between nonprofit hospitals,
alleging that such a joinder would violate Section 7 of the Clayton
Act.40 This case involved a potential merger that took place in
September 2010 between ProMedica Health System, Inc., which
34
Id.
983 F.Supp. 121 (E.D.N.Y. 1997)
36
946 F.Supp. 1285, 1294 (W.D.Mich. 1996).
37
Id. at 1081.
38
Id. at 1081-1082.
39
2011 WL 1219281, No. 3:11 CV 47 (N.D.Oh. Mar. 29, 2011).
40
Id. at *1, ¶ 4.
35
10
operated a number of hospitals including three in Lucas County, Ohio
and St. Luke’s Hospital, which operated a strategically desirable
hospital in southwest Lucas County.41 Although labeled a “joinder
agreement” the transaction that the FTC challenged was a prototypical
merger, leaving ProMedica as the corporate parent and economic
decision-maker of St. Luke’s Hospital.42 This merger concerned the
FTC because of the resulting increase in market share that ProMedica
would have gained in the General Acute Care (“GAC”) and Inpatient
Obstetrical (“OB”) service markets in Lucas County. 43
What is interesting about the court’s decision in ProMedica is
the limited definition of a geographical market that it chose. Relying
on testimony from health plan experts, the court agreed that Lucas
County was a suitable geographic market, as patients would be
unlikely to travel outside of their county to receive inpatient general
acute care and obstetrics services. Therefore, a merger that gave one
hospital a large market share in Lucas County could allow ProMedica
Health System to charge minor, but still significant price increases.44
The FTC argued, and the district court ultimately concluded that, the
potential for abuse of a monopoly, combined with the limited
geographical reach for these services would culminate in antitrust
violations. However, in determining that ProMedica would have
abused its power, the federal court focused on the aggregate size and
increased bargaining power that ProMedica would have had with
insurers, employers, and patients.45 Although it began to engage in
what should be considered a modern antitrust analysis of a healthcare
merger, the court quickly dismisses the idea that ProMedica could
have improved patient services, as ProMedica was the provider of
inferior services and St. Luke’s actually provided superior patient
care.46 There was no discussion given as to whether the merger would
have resulted in synergies or culture changes that would have
improved ProMedica’s patient care both within Lucas County and
outside the state of Ohio.
The district court also engaged in a discussion as to the
possible efficiencies that the ProMedica-St. Luke’s merger would have
41
Id. at *2-3, ¶¶ 9-23.
Id. at *3, ¶ 30-31.
43
Id. at *12, ¶ 95.(noting that the GAC market share would have shot
up to 58.3% and the OB market share of ProMedica would have
increased to 80.5%).
44
Id. at *10, ¶ 76-77 (noting that residents in Lucas County would
rarely cross county lines in search of similar services).
45
Id. at *16, ¶ 123.
46
Id. at *30-31, ¶¶ 217-220.
42
11
yielded. However, it quickly, and without must analysis, concluded
that any efficiencies, including revenue enhancements and capital cost
avoidances were general, not foreseeable, and could have been
accomplished by other non-anticompetitive means.47 Recognizing that
the Affordable Care Act is conducive to mergers, and goes so far as to
encourage them, the court briefly considers whether the ACA justifies
allowing a merger with anticompetitive effects.48 Although the court
mentions non-economic, patient care efficiencies that the merger
sought to take advantage of, such as the creation of a more efficient
electronic medical record system (“EMR”), it quickly decided that St.
Luke’s could have done so alone.49 While that may have been true,
the court’s rigid adherence to a narrow market definition colored its
analysis, as it failed to see that an “EMR” controlled by ProMedica
would not just have, for example, benefited residents of Southwest
Lucas County, but many more beyond the FTC’s artificial border.
c. F.T.C. v. Phoebe Putney Health System, Inc.50
In what has become a seminal case in the fields of healthcare
and antitrust law, the Eleventh Circuit Court of Appeals (and later the
Supreme Court) considered the FTC’s challenge a merger proposed by
the Phoebe Putney Health System, Inc. and Palmyra Park Hospital
(”Palmyra”) in Albany, Georgia. Unlike traditional hospital mergers
that either involve for-profit or nonprofit entities, Phoebe Putney
Health System, Inc., and the Phoebe Putney Memorial Hospital, Inc.
was actually acquired and held by the Hospital Authority of AlbanyDougherty County.51 If Phoebe Putney Memorial had acquired
Palmyra, that would have given the new entity an 86% market share of
the provision of hospital services for Albany and the surrounding five
counties.52 When the FTC initiated its challenge to the proposed
merger, Phoebe Putney Memorial raised the doctrine of state-action
immunity to shield the transaction from antitrust scrutiny.53 Under the
Doctrine of State-Action Immunity, states are immune from Sherman
Act liability for anticompetitive conduct that occurs within their
47
Id. at *35-40, ¶¶ 235-260 (noting that the proposed efficiencies were
speculative, not related to the specific merger at hand, and were
outweighed by anticompetitive concerns).
48
Id. at *41, ¶ 274-75.
49
Id. at *41, ¶ 275.
50
663 F.3d 1369 (11th Cir. 2011).
51
Id. at 1373.
52
Id. at 1374.
53
Id.
12
jurisdiction54, although this does not always protect political subdivisions of the state, such as municipalities or their agencies (like the
Phoebe Putney Health System)55. Therefore, Phoebe Putney
Memorial, in order to be eligible for protection under the Doctrine of
State-Action Immunity, would have to show that “the state generally
authorizes it to perform the challenged actions and that through
statutes; the state has clearly articulated a state policy authorizing
anticompetitive conduct”56. Finding that the Georgia State Legislature
had given municipalities the power to act under § 31-7-75 of the
O.C.G.A. and that those statutes were intended to displace
competition; the Eleventh Circuit sanctioned the merger and dismissed
the FTC’s complaint57.
However, the Supreme Court was not as willing to find a valid
defense to antitrust scrutiny as was the Eleventh Circuit. Instead, the
Court found that “because Georgia had not clearly articulated and
affirmatively expressed a policy allowing hospital authorities to make
acquisitions that substantially lessen competition, state-action
immunity does not apply”58 in the case of Phoebe Putney Memorial’s
question of Palmyra. The Court continued on to reason that the statute
relied upon by the defendant, O.C.G.A. § 31-7-75, was a standard
statute conferring broad general powers and that there was no specific
statute that explicitly contemplated and dismissed anticompetitive
effects of actions taken under the powers granted.59 To qualify for
protection under the doctrine of state-action immunity something more
was required; the Authority must have been able to show that it had
been delegated authority to act, but to do so anti-competitively.60
Antitrust law, according to the Court, could not be displaced by a
54
For a recitation of this doctrine see Parker v. Brown, 317 U.S. 341,
63 S.Ct. 307 (1943).
55
Phoebe Putney, 663 F.3d at 1375.
56
Id. (citing FTC v. Hosp. Bd. Of Dirs. Of Lee Cnty., 38 F.3d 1184,
1187-88 (11th Cir. 1994); Town of Hallie v. City of Eau Claire, 471
U.S. 34, 105 S.Ct. 1713 (1985)).
57
Phoebe Putney, 663 F.2d at 1376-1378 (detailing why the court
believed the statutes passed by the state legislature gave the Hospital
Authority the power to act and concluding that the legislature intended
to displace competition by passing those statutes).
58
F.T.C. v. Phoebe Putney Health System, Inc., 133 S.Ct. 1003, 1005,
185 L.Ed.2d. 43 (2013).
59
Id.
60
Id.
13
logical or ordinary extension of a statute granting a municipal
authority the power to act.61
d. Common Trends in Judicial Analysis of Post-PPACA
Mergers
These three cases have been part of a judicial trend ….
Healthcare mergers escalated in the mid-2000s, before the most recent
economic collapse, and have steadily continued since then at a pace
equal to or above early 2000 numbers and well above those of even
the late 1990’s, despite the poor economic climate of the post-PPACA
world.62 Given these numbers, there is likely some justification for the
increase in mergers, namely the efficiencies afforded to healthcare
organizations of which mergers are an essential to obtaining.
However, in most circumstances, federal courts are adopting prePPACA analyses to evaluate mergers in a post-PPACA world, which
brought about radical regulatory, economic, and cultural changes to
the healthcare industry. Although ProMedica offers the best example
of how a federal court should proceed in the case of an FTC challenge
to a hospital or healthcare merger, there are still systemic problems in
the courts’ reasoning.
First, in post-PPACA FTC challenges to healthcare
organization mergers, the FTC and courts have brought challenges to
mergers in less concentrated mergers or have narrowly defined the
subject market area to produce clear antitrust violations. While these
mixed messages are not new,63 the FTC’s 2010 Merger Guidelines
seem to codify this agenda in the face of contradictory federal
legislation, as the new guidelines are just as susceptible to market
narrowing as were the old guidelines they were intended to replace.64
61
Id. at 1006.
A Wave of Hospital Mergers, NEW YORK TIMES (Aug. 12, 2013),
http://www.nytimes.com/interactive/2013/08/13/business/A-Wave-ofHospital-Mergers.html?ref=business.
63
See Jonathan Choslovsky, Comment, Agency Review of Health
Care Industry Mergers: Proper Procedure or Unnecessary Burden?, 10
ADMIN. L.J. AM. U. 291, 310-11 (1996)(noting that agencies have
challenged hospital mergers in less concentrated markets, while letting
mergers in highly concentrated markets proceed unchallenged).
64
See Michael Doane et al., Warning: Improper Use of the New
Horizontal Merger Guidelines Can Result in Overly Narrow Markets,
Mistaken Inferences of Market Power, and Wrong-Headed Analysis, 2
CPI Antitrust Journal 1, 7 (2010), available at
http://www.competitioneconomics.com/wp62
14
This marks a shift from the 1990s where hospital market shares were
analyzed much more broadly then they are analyzed in the postPPACA regime,65 which has played an instrumental role in the
decision to grant injunctions in FTC challenges. Until OSF, even
market share concentration was not an absolute determination, or even
a significant factor, in every courts consideration of an FTC challenge
to a proposed merger.66 This is exactly the tension that appears in
OSF Healthcare, where the court explicitly rejects using previous
decisions that have challenged narrower market definition and the idea
that a high HHI (market share percentage) automatically means the
proposed merger is anticompetitive.
Second, a number of courts are concerned about the potential
for hospitals to abuse an ensuing monopoly by increasing prices67, but
this argument has not historically carried the day when courts analyze
hospital mergers.68 In fact, several courts when evaluating hospital
mergers have come to the exact opposite conclusion: the fewer
content/uploads/2010/10/New-Horizonal-Merger-GuidelinesArticle1.pdf (noting that the new merger guidelines are still as
susceptible to market narrowing as were the 1992 guidelines).
65
David A. Ettinger, CONSOLIDATION IN A RAPIDLY CHANGING
INDUSTRY: NAVIGATING OPTIONS, ANTITRUST AND OTHER OBSTACLES,
AMERICAN HEALTH LAWYERS ASS’N 2-3 (2013), available at
http://www.healthlawyers.org/Events/Programs/Materials/Documents/
HHS13/G_ettinger.pdf (noting that although markets for potential
hospital mergers were categorized broadly by the courts in the 1990s,
the definition of a market has narrowed in the 2000s); Compare
United States v. Mercy Health Services, 902 F.Supp. 968, 973-74
(N.D.IA. 1995)(defining the market as including areas within 70-100
miles of the hospital’s city) with F.T.C. v. ProMedica Health System,
Inc., No. 3:11 CV 47, 2011 WL 1219281, at * (N.D.Oh. Mar. 29,
2011)(defining the geographic market as Lucas County).
66
See F.T.C. v. University Health, Inc., 938 F.2d 1206, 1222 (11th
Cir. 1991)(noting that market share statistics are not determinative of
anticompetitive effects, but rather a tool used to illustrate potential
effects a merger would have on a market).
67
See F.T.C. v. OSF Healthcare System, 852 F.Supp.2d 1069, 1082
(D.C.N.D. Ill. 2012) (noting that Butterworth’s holding can be
distinguished from OSF because the Butterworth case involved
safeguards to prevent price increases, which the OSF merger did not
have).
68
Tom Campbell, Defending Hospital Mergers after the FTCs
Unorthodox Challenge to the Evanston Northwestern-Highland Park
Transaction, 16 ANNALS HEALTH L. 213, 213 (2007)
15
hospitals in an area, the lower the prices of healthcare services.69
While assertions such of these have been categorized as a simple
misunderstanding of expert testimony, they do stand for the
proposition that courts have been willing to approve mergers despite
any anticompetitive effects on pricing.70 Additionally, in ProMedica
the district court was quick to find the potential for post-merger price
raises, but failed to clearly articulate any argument to a basic tenant of
mergers: that mergers are designed to promote synergies, namely
through lowering costs, which allow firms to subsequently reduce
consumer prices.71
In addition to a narrowing of the FTC’s and courts’ definition
of the relevant market and a renewed focus on potential for price
increases, courts have also heavily scrutinized defenses raised by
hospitals that are a party to an FTC challenged merger. Even before
the Supreme Court granted certiorari to Phoebe Putney, the Eleventh
Circuit was quick to find hospitals protected by the Doctrine of StateAction Immunity, as it had adopted a lax reading of the statutory
requirements required by the doctrine.72 Other federal district courts
have denied preliminary injunctions to merger challenges based on the
“Failing Company” Defense to § 7 Clayton Act challenges73 and the
“Efficiency Defense” where the court readily acknowledge that the
defense was difficult to prove and there were serious questions about
69
United States v. Carilion Health System, 707 F.Supp. 840, 846
(W.D.Va. 1989).
70
Peter J. Hammer, Questioning Traditional Antitrust Presumptions:
Price and Non-Price Competition in Hospital Markets, 32 U. MICH.
J.L. REF. 727, 768-69 (1999).
71
Thomas A. Piraino, Jr., A New Approach to the Antitrust Analysis of
Mergers, 83 B.U. L. REV. 785, 824 (2003)(discussing how mergers can
produce economic efficiencies that have historically resulted in firms
charging consumers lower prices).
72
See Crosby v. Hospital Authority of Valdosta and Lowndes County,
93 F.2d 1515, 1525-26 (11th Cir. 1996)(relying on policy
considerations to determine that hospitals were political subdivisions
and protected by the Doctrine of State-Action Immunity without
inquiring as to whether there was direct authorization by the
legislature to engage in anticompetitive conduct).
73
California v. Sutter Health System, 130 F.Supp.2d 1109, 1133-1137
(D.C.N.D. Ca. 2001)(applying the failing company defense to dismiss
the government’s request for a preliminary injunction enjoining a
hospital merger).
16
the validity of the defense.74 All of these cases, in contrast with the
Supreme Court’s recent decision in Phoebe Putney, point towards a
judicial tightening of the defenses that were once readily available to
hospitals whose mergers were challenged by the FTC or DOJ. In
combination with the district court’s rigid scrutiny of claims of
efficiency in ProMedica, even once long-shot Efficiency Defenses,
once generally accepted defenses are being heavily scrutinized by
courts in an attempt to more broadly apply antitrust law.
III. Do Recent Trends in FTC Enforcement Undermine the Goals
of the Patient Protection and Affordable Care Act?
[AP: You should start with an introductory roadmap for this new
major section]
A. Goals of the Affordable Care Act
Paramount in President Obama and Congress’ effort to pass
comprehensive healthcare legislation in 2010 was the concern over
skyrocketing health care costs.75 While the controversial “individual
mandate” was the centerpiece of the legislative reform, there were a
number of other provisions that were aimed at reducing costs of health
care financing.76 It is no surprise then that the number of hospital
mergers has more than doubled from 50 in 2009 to 105 in 2012.77
Beyond specific merger synergies, the ACA has both explicitly and
74
See U.S. v. Long Island Jewish Medical Center, 983 F.Supp. 121,
147-49 (E.D.N.Y. 1997)(although the court admitted the efficiency
defense would be difficult to prove and there were questions as to
whether the efficiencies were merger-specific and there were other
readily available, less anticompetitive options to achieve such
efficiencies, the court ultimately found that the defense precluded the
government’s antitrust challenge).
75
Dustin D. Berger, The Management of Health Care Costs:
Independent Medical Review after “Obamacare”, 42 U. MEM. L. REV.
255, 256-57 (2010)(noting that in 2006, health care costs in America
amounted to 15% of the country’s GDP, while other developed nations
allocated about 8% of their GDP to health care expenditures and these
escalating costs prompted congressional and presidential reform of the
health care industry).
76
Id. at 257.
77
See A Wave of Hospital Mergers, NEW YORK TIMES (Aug. 12,
2013), http://www.nytimes.com/interactive/2013/08/13/business/AWave-of-Hospital-Mergers.html?_r=1&.
17
implicitly altered the health care industry and provided specific
incentives that can only be achieved through the merger of healthcare
organizations.
1. Lowering Prices through the Creation of Accountable Care
Organizations
One of the primary stated motivators for mergers and
acquisitions in an industry is to reduce costs by combining two firms
that were indepdendtly operating at lower than optimal efficiency
levels.78 In fact, scholars have explicitly stated that the Affordable
Care Act incentivizes mergers through the creation of more efficient
health care delivery systems that are entitled to significant monetary
benefits over smaller, independent entities.79 This has also served as
one of the primary motivators in the healthcare industry since the
pivotal 2010 healthcare law reduced Medicare payments to hospitals
by $155 billion through 2019.80 § 3022 of the Affordable Care Act
incentivizes the creation of “Accountable Care Organizations”
(ACOs), which will allow the ACOs to participate in the new
“Medicare Shared Savings Program”.81 ACOs are “a network of
physicians and hospitals responsible for providing health care services
for a minimum of 5,000 Medicare patients”82 and are a foundational
78
ROBERT B. THOMPSON, MERGERS AND ACQUISITIONS: LAW AND
FINANCE 11 (2010)(noting that one of the primary financial incentives
that shape mergers is synergy: the belief that the combination of two
companies will produce greater economic efficiency then the operation
of two independent firms).
79
See Health Care Act and Competition in Health Care Before the
Subcomm. On Regulatory Reform, Commercial and Antitrust Law of
the H. Comm. On the Judiciary, 112 Cong. __ (2013)(statement of
Thomas L. Greaney, Chester A. Myers Professor of Law, Saint Louis
University School of Law).
80
Jeffrey Young, Hospital Mergers Draw Antitrust Scrutiny, FTC
Warns of High Costs, THE HUFFINGTON POST (Mar. 19, 2010),
http://www.huffingtonpost.com/2012/03/19/hospital-mergers-drawscr_n_1362691.html.
81
See Patient Protection and Affordable Care Act, Pub. L. No. 111148, 124 Stat. 119, § 3022 (2010); Patricia M. Bruns, An Antirust
Analysis of Accountable Care Organizations: Potential Abuses from
Allowing Reduced Scrutiny Under the Affordable Care Act, 28 J.
CONTEMP. HEALTH L. & POL’Y 268, 268 (2012).
82
Brian J. Carroll, Note, Getting Your Docs in a Row: Will the Patient
Protection and Affordable Care Act Allow Physicians in Private
18
part of the United States’ new healthcare system. By creating these
networks of primary care doctors, specialists, and hospitals, the
Affordable Care Act will allow ACO’s to efficiently manage a large
number of enrolled patients, while doing so in an economically
efficient manner.83 That is because ACO’s benefit from several
income enhancing provisions in the Affordable Care Act, from fee-forservices Medicare reimbursements and additional bonuses for meeting
§ 3022 cost-cutting and quality-care criteria that are unavailable to
physicians and hospitals outside of the ACO network.84 Even if these
benefits do not immediately lead to mergers, the changing operational
dynamics brought about the creation of ACOs is at least encouraging
physicians and hospitals to enter into joint ventures and partnerships
that may later develop into more formal acquisitions.85
2. Mergers as a Logical Byproduct of the Affordable Care Act
Consolidation in the healthcare industry after the passage of
the ACA was a major concern to members of the House of
Representatives.86 This was, in part, just a general outgrowth of the
Affordable Care Act’s desire to increase cooperation within the
healthcare system, as it is easier to coordinate within one firm as
Practice to Organize and Collectively Bargain?, 9 J. HEALTH &
BIOMEDICAL L. 117, 119 (2013).
83
Id. See also Elizabeth L. Rowe, Accountable Car Organizations:
How Antitrust Law Impacts the Evolving Landscape of Health Care,
2012 U. ILL. L. REV. 1855, 1856 (2012)(noting that ACOs will be able
to manage large numbers of patients while both improving the quality
of care and simultaneously keeping costs under control).
84
Stephen E. Ronai, The Patient Protection and Affordable Care Act’s
Accountable Care Organization program: New Healthcare Disputes
and the Increased Need for ADR Services, 66 DISP. RESOL. J. 60, 62
(2011).
85
See John Andrews, Healthcare Mergers Take on New Shapes,
HEALTHCARE FINANCE NEWS (Oct. 28, 2013), available at
http://www.healthcarefinancenews.com/news/healthcare-mergerstake-new-shapes.
86
Healthcare Consolidation and Competition after the PPACA:
Hearing Before the Subcomm. On Intellectual Property, Competition,
and the Internet of the H. Comm. On the Judiciary, 112 Cong. 1
(2012)(May 18, 2012)(statement of Rep. Goodlatte)(stating that
“consolidation in the healthcare industry is of utmost concern to me
and my constituents, both in the provider and insurance markets).
19
opposed to across multiple firms.87 Just a plain-text reading of the bill,
along with an understanding of the various provisions included,
reveals a list of incentives that promote consolidation in the healthcare
industry.88 Scholars have also recognized that the Affordable Care
Act encourage healthcare consolidations through a number of
provisions, including the efforts to increase clinical integration.89
While the ACA was generally designed to increase coordination and
cooperation in the healthcare industry, the bill included a number of
specific provisions that rewarded cost cutting and quality increase.90
However, not all of the ACA’s impetuses for mergers are benign or
designed to achieve greater efficiencies in cost and patient care. There
are concerns that because the ACA’s coverage expansions will be
funded by reducing the rate of Medicare payment updates, that
hospitals will turn to consolidation to achieve greater market power in
a quest to raise prices.91
B. FTC Scrutiny of Mergers in the Healthcare Industry
87
Eduardo Porter, Health Law Goals Face Antitrust Hurdles, NEW
YORK TIMES (Feb. 4, 2014),
http://www.nytimes.com/2014/02/05/business/economy/health-lawgoals-face-antitrust-hurdles.html.
88
R. Dale Grimes, Collaboration vs. Consolidation Under the
Affordable Care Act, HOSPITALS & HEALTH NETWORKS (Aug. 8,
2013), http://www.hhnmag.com/display/HHNnewsarticle.dhtml?dcrPath=/templatedata/HF_Common/NewsArticle/
data/HHN/Daily/2013/Aug/grimes080813-8010005186 (noting that
incentives included in the ACA encourage mergers, while FTC
enforcement discourages them).
89
David A. Balto & james Kovacs, CONSOLIDATION IN HEALTH CARE
MARKETS: A REVIEW OF THE LITERATURE, ROBERT WOOD JOHNSON
FOUNDATION 1 (Jan. 2013), available at
http://www.dcantitrustlaw.com/assets/content/documents/2013/baltokovacs_healthcareconsolidation_jan13.pdf.
90
Roy Strom, Hospital Mergers Get Caught between Reform,
Competition, CHICAGO LAWYER (Dec. 2012),
http://chicagolawyermagazine.com/Archives/2012/12/HospitalMergers.aspx.
91
See James C. Robinson, New Evidence of the Association between
Hospital Market Concentration and Higher Prices and Profits,
NATIONAL INSTITUTE FOR HEALTH CARE MANAGEMENT (Nov. 2011),
available at http://www.nihcm.org/images/stories/NIHCM-EVRobinson-Final.pdf.
20
In a proposed merger between two healthcare providers, the
Department of Justice and the FTC have the authority to review the
proposed transaction for any potential anticompetitive effects.92 The
FTC has consistently used this power in an attempt to lower healthcare
costs by challenging what it deems as anticompetitive mergers, not
just challenging potentially egregious violations, but in imposing a
systemic plan to bring more challenges against proposed hospital
mergers.93 By bringing suit against consolidating healthcare
providers, the FTC is not just attempting to quell contained instances
of anticompetitive behavior, but trying to strengthen a regulatory
regime which had suffered a series of setbacks and crucial losses just a
decade ago.94 Revamping and strengthening is Health Care Division,
however, seems to be directly at odds with what the Affordable Care
Act seeks to accomplish, namely increasing consolidation and creating
efficiency is a once dysfunctional healthcare system.
a. The ACA Fundamentally Changes the Operating Models for
Hospitals and Healthcare Providers
In OSF, a district court in Illinois granted an injunction to halt
a merger, in part by distinguishing the current case from previous
decisions denying injunctions, in part because it rejected the
contention that non-profit hospitals would not abuse concentrated
market power.95 However, it is difficult for hospitals, even those with
a large market concentration, to utilize any advantages that a
92
Nicole Harrell Duke, Comment, Healthcare Mergers Versus
Consumers: An Antitrust Analysis, 30 U. BALT. L. REV. 75, 77 (2000).
93
See Brent Kendall, Regulators Seek to Cool Hospital-Deal Fever,
WALL STREET JOURNAL (Mar. 18, 2012),
http://online.wsj.com/news/articles/SB1000142405270230386340457
7286071837740832.
94
See Brent Kendall, FTC Gets More Muscle in Policing Hospital
Mergers, WALL STREET JOURNAL (Feb. 19, 2013),
http://online.wsj.com/news/articles/SB1000142412788732349510457
8314041654081664 (noting that the FTC challenge to the Phoebe
Putney merger was part of a new batch of lawsuits that were brought
in an “attempt to revive its hospital enforcement program”).
95
F.T.C. v. OSF Healthcare System, 852 F.Supp. 1069, 1081 (N.D.Ill.
2012)(noting that the current case was distinguishable from
Butterworth in part because the Butterworth court’s reasoning that
“non-profit hopsitals operate differently in high-concentrated markets
than do profit-maximizing firms” was fundamentally flawed and
subsequently rejected by the 7th Circuit Court of Appeals).
21
traditional monopoly would provide. One of the primary ways this
could occur would is through the increased efforts at price
transparency for the costs of medical services. The OSF court was
fundamentally wrong when it disregarded the Butterworth court’s
reasoning that non-profit hospitals operated at a different model then
other profit seeking firms. Healthcare industries, unlike most
traditional industries, have long been plagued by claims of disparate
price transparency as compared to other firms, preventing consumers
from learning the real cost of a medical procedure.96
Additionally, it is not likely that FTC challenges to new
healthcare mergers would even be effective in promoting competition.
After the passage of the Affordable Care Act, “80% of hospital
markets and 70% of health care-health insurance markets were
considered highlight concentrated by the standards used by the
Department of Justice and the FTC”97. Some estimates even have
90% of Americans living in large metropolitan areas facing highlight
concentrated healthcare markets.98 Most of this market concentration
is the result of two previous waves of healthcare mergers, from 19952003 and 2006-2008, before the Affordable Care Act’s benefits for
mergers and consolidations could be felt.99 Although the FTC
challenged some of these mergers during the proposal stage, the
agency was ultimately unsuccessful in its attempt to slow either wave,
96
Martha Hostetter and Sarah Klein, Health Care Price Transparency:
Can it Promote High-Value Care?, QUALITY MATTERS (The
Commonwealth Fund), Apr./May 2012, available at
http://www.commonwealthfund.org/Newsletters/QualityMatters/2012/April-May/In-Focus.aspx (noting that the healthcare
industry is unlike other industries in that a lack of price transparency
left consumer with little to no idea as to what they would ultimately
pay for a medical procedure).
97
Hearing on PPACA and Impact on Competition on Health Care
Before the S. Comm. On Regulatory Reform, Commercial and
Antitrust Law of the House Comm. On the Judiciary, 113 Cong. (Sept.
19, 2013)(statements of Rep. Spencer Bachus).
98
Barak D. Richman, CONCENTRATION IN HEALTH CARE MARKETS:
CHRONIC PROBLEMS AND BETTER SOLUTIONS 4, AMERICAN
ENTERPRISE INSTITUTE (June 2012), available at
http://www.aei.org/files/2012/06/12/-concentration-in-health-caremarkets-chronic-problems-and-better-solutions_171350288300.pdf
99
See id. (explaining the two previous waves of mergers in hospitals
that resulted in large market concentrations).
22
at one point losing nine challenges in a row.100 Given the spectacular
failures that the FTC has suffered in previous attempts to slow hospital
mergers, times when there were no federal benefits, legislative
efficiencies, or emphasis on improving quality of patient care, why is
now the time to slow the third wave, in which hospitals are making all
of these concerns priorities?
The Affordable Care Act fundamentally transforms the
economic climate in which hospitals and healthcare organizations
operate. Mergers and consolidations that create larger, more efficient
networks will actually allow healthcare providers to cut costs and
improve their service delivery model while lowering prices.101 Unlike
pre-PPACA mergers (and other traditional mergers driven by pure
price or service synergies), the Affordable Care Act encourages
hospital mergers in order to improve the coordination of patient care
and the provision of services.102 This is exactly the benefit that
consolidated hospitals claim will occur, that the combination of two
smaller organizations can achieve greater patient management
programs and IT systems that would allow for better patient
outcomes.103 These ancillary, non-healthcare related benefits, such as
See Ankur Kapoor & Constantine Cannon, Ascension of Obama’s
New FTC Chair, Edith Ramirez, Signals Greater Enforcement in Tech,
Health Care, BLOOMBERG NEWS (Mar. 4, 2013),
http://about.bloomberglaw.com/practitioner-contributions/new-ftcchair-edith-ramirez-signals-greater-enforcement/ (noting that from
1994 on, the FTC lost seven merger challenge cases in a row).
101
Be Well: Is Federal Health Reform to Blame for Hospital
Consolidation, IDEA STREAM (Jan. 21, 2014)(statement of Robinson
Memorial’s CEO, discussing how mergers create larger organizations
more capable of creating efficiencies and passing on savers to
consumers than are smaller community hospitals).
102
Peter Frost, Northwestern Memorial HealthCare, Cadence Health
Pursuing Merger, CHICAGO TRIBUNE (Mar. 14, 2014),
http://articles.chicagotribune.com/2014-03-14/business/ctnorthwestern-cadence-merger-0314-biz-20140314_1_cadence-healthmike-vivoda-possible-merger.
103
See Julie Creswell and Reed Abelson, New Laws and Rising Costs
Create a Surge of Supersizing Hospitals, NEW YORK TIMES (Aug. 12,
2013), http://www.nytimes.com/2013/08/13/business/bigger-hospitalsmay-lead-to-bigger-bills-forpatients.html?adxnnl=1&adxnnlx=1395029587xwo58t5SQx8o5absf1N1eg (noting that some hospitals are merging to
pool resources in an attempt to improve patient care);David Dranove,
Acquiring the Competition, KELLOGG INSIGHT (Dec. 9, 2013),
100
23
strengthening oversight boards or increasing IT capabilities are now
crucial to hospitals in order to received payments from Medicare.
Instead of the old model, which processed payments on volume, the
ACA emphasizes patient care and efficiency (such as by reducing readmissions after a procedure),104 which small hospitals might not be
able to accomplish without merging with a more capable healthcare
organization, even if it produces anticompetitive effects. Additionally,
the ACA drastically changes the way that payments are made to
healthcare providers, which requires hospitals to service more patients
through the formation of large networks of providers.105 Although this
article does not argue that hospitals, especially nonprofit hospitals, are
exempt from financial pressures that could lead to price increases after
a merger106, the changes in payment structure, incentives for reducing
costs, and treating more patients, should act to mitigate these concerns.
b. Contradicting Guidelines: Will Courts Adopt the FTC’s
Reasoning in the Norman PHO Advisory Opinion or the
Traditional Antitrust Analysis Exposed by the FTC’s 2010
Merger Guidelines?
Although the FTC and DOJ have issued some formal
guidelines in how the two agencies will treat accountable care
organizations, the guidelines do not address ACO’s that serve only
commercial health plans.107 More importantly, it was not until 2013
http://insight.kellogg.northwestern.edu/article/acquiring_the_competiti
on/.
104
Strom, supra note 90.
105
See id.
106
A study conducted by Wiliam J. Lynk attempted to challenge the
DOJ’s claim that the designation of a hospital, whether for-profit or
nonprofit, did not affect the propensity of a hospital to raise prices as it
increases its market share. See Nonprofit Hospital Mergers and the
Exercise of Market Power, 38 J. L. & ECON. 437 (1995). However,
after that study was published a number of subsequent empirical
studies have cast serious doubt on Lynk’s assertion. See Jennifer R.
Conners, Comment, A Critical Misdiagnosis: How Courts
Underestimate the Anticompetitive Implication of Hospital Mergers,
91 CAL. L. REV. 543, 572 (2003) (for a discussion of the studies that
challenge Lynk’s hypothesis).
107
Stephen Y. Wu, Recent Developments in Antitrust Law: Leading
Lawyers on Understanding the Impact of Revised Merger Guidelines,
Responding to Investigations, and Anticipating Future Changes in
24
that the FTC even issued an advisory opinion as to how it would
handle basic joint contracting agreement and even that opinion was
devoid of specific benchmarks for passing FTC scrutiny that any
hospital executive would need to be aware of before beginning to
think of creating consolidated healthcare networks.108 However, this
opinion is still significant in this article’s evaluation of the FTC’s
policies in challenging healthcare organizations attempts to merge,
consolidate, and work together to achieve the efficiencies longed for
the Affordable Care Act.
In February of 2013, the FTC issued an advisory opinion on a
clinical integration plan proposed by the Norman Physician Hospital
Organization (“Norman PHO”), which would have allowed horizontal
pricing agreements for the provision of physician services.109 This
clinical integration program would have been non-exclusive, allowing
physicians to provide services to those that did not want to contract
with Norman PHO, and called for the implementation of a number of
significant programs that would benefit patient care, including: (1)
developing clinical guidelines for treating 50 different conditions, (2) a
new electronic medical record database and IT platform and (3) the
creation of committees to oversee the quality of patient care.110 In
fact, Markus Meier, the Assistant Director of the Health Care Division
of the FTC’s Bureau of Competition, who authored the Norman PHO
Advisory Opinion, explicitly stated that this clinical integration
network “offers the potential to create a high degree of
interdependence and cooperation among its participating physicians
and to generate significant efficiencies in the provision of physician
services.”111
Antitrust Enforcement, Aspatore (June 2013), 2013 WL 3773854, at
*4.
108
John Green, FTC’s Opinion on Norman PHO-Significant but
Unclear, LAW360.COM (last visited on Mar. 16, 2014),
http://www.law360.com/articles/432294/ftc-s-opinion-on-normanpho-significant-but-unclear (noting that the Norman PHO advisory
opinion failed to detail any specific steps that a healthcare organization
would have to take to meet federal antitrust compliance requirements).
109
Molly Gamble, What the FTC’s Recent Advisory Opinion on
Clinical Integration Means for Hospitals, BECKER’S HOSPITAL
REVIEW (Feb. 19, 2013).
110
Id.
111
Norman PHO Advisory Opinion, Op. Off. Legal Counsel of the
FTC’s Bureau of Competition: Health Care Division (Feb. 13, 2013),
available at http://www.ftc.gov/sites/default/files/documents/advisoryopinions/norman-physician-hospital25
What is especially important about this advisory opinion is that
it explicitly allows the proposed merger despite the assistant director’s
acknowledgement that Norman’s size will allow it to negotiate higher
prices from insurers, employers, and customers.112 This is a complete
reversal of federal district courts’ analysis, especially the district
court’s decision in ProMedica, in which the court expressed sincere
concern about this phenomenon. What could be the possible
differences that would allow the FTC to reverse course in one year?
It’s possible that the FTC is trying to balance the demands of the
Affordable Care Act with healthcare organization consolidation and
was willing to allow prices to theoretically rise, as Norman’s clinical
integration proposal was non-exclusive and the organization promised
strict and voluminous antitrust compliance training.113 However, what
is more likely is that the FTC has weighed the benefits of this nonexclusive arrangement in areas like patient care, electronic record
infrastructure creation, and cost reduction.114 Unlike ProMedica,
which the court believed to have a reputation of cost-cutting and price
hiking, Norman is viewed by the FTC as being dedicated to the
success of the clinical integration program115. Even though Norman
PHO executives were not able to clearly articulate the exact expected
synergies that the merger would yield116, the FTC was readily able and
willing to read into the program’s description and find the significant
benefits to patient care and healthcare infrastructure that the “merger”
would yield, regardless of the potential anticompetitive effects.
organization/130213normanphoadvltr_0.pdf [hereinafter, Norman
PHO Opinion].
112
Joe Carlson, Beyond ACOs: FTC Approves Another Path to
Coordinated Care, MODERN HEALTHCARE (Mar. 9, 2013),
http://www.modernhealthcare.com/article/20130309/MAGAZINE/303
099969#.
113
Norman PHO Opinion, supra note 83, at pg. 20.
114
See id. at pgs. 15-16 (detailing the non-economic healthcare
benefits that the clinical integration network would implement).
115
Id. at 16 (noting that “together, the participating physician’s
contributions of human capital, time, and money appears to give them
a stake in the success of Norman PHO such that the potential loss or
recoupment of their investment is likely to motivate them to work to
make the program succeed”).
116
Id. at 11 (noting that “Norman PHO states that it cannot currently
quanity…the likely overall benefits of its proposed program, or
specify how overall cost or quality efficiency gains will be
measured”).
26
IV. RETHINKING THE APPLICATION OF ANTIRUST LAW
TO HEALTHCARE MERGERS TO ACHIEVE THE
OBJECTIVES OF THE AFFORDABLE CARE ACT
Given the monumental changes that the Affordable Care Act
has made to the U.S. healthcare industry, specifically the provisions
that it contains to incentive mergers and consolidations, the author
believes it is necessary to reconsider the application of antitrust law to
healthcare mergers. While this could come in the form of recognizing
healthcare as a market failure and thus immune from antitrust scrutiny,
that is likely to gross of an exaggeration of the healthcare industry,
especially in light of the ACA. Instead, the FTC and federal courts
should reinterpret antitrust law in a flexible manner that appreciates
both the concerns of hospitals abusing market power to increase
prices, while recognizing the inherent need for consolidation in a postPPACA healthcare industry.
A. Would Reducing the Role of Antitrust Law be Necessary to
Correcting a Market Failure?
Healthcare in the United States could, for some time now,
could be categorized as a market failure. As this article has previously
discussed, opaque pricing models and a lack of transparent alternatives
has skewed consumer’s traditional ability to correct a firm’s inefficient
pricing mechanisms by shopping elsewhere. This problem is
compounded when the consumer is not primarily responsible for
paying their medical bills, as is the case when health insurance covers
medical bills. When payments are made by a third party and a
consumer’s decision to purchase services is divorced from price
considerations, leaving providers and consumers with little reason to
reduce costs, there is a market failure.117 However, not all market
failures rise to the level of antitrust violations118, so the question
becomes whether antitrust law is necessary to correct potential
failures, whether antitrust law would increase price transparency,
117
Note, Antitrust and Nonprofit Entity, 94 HARV. L. REV. 802, 804
(1981)(noting that a “second type of market failure occurs when the
consumer’s decision to purchase is independent from the price of good
or service. The author continues on to explain that third-party
payment of medical fees creates a moral hazard that traditional market
forces are unable to correct).
118
Neil W. Averitt & Robert H. Lande, Consumer Choice: The
Practical Reason for Both Antitrust and Consumer Protection Law, 10
LOY. CONSUMER L. REV. 44, 45 n. 2 (1998).
27
lowers costs, and increase efficiencies. The healthcare industry,
particularly the post-PPACA industry is radically different and the act
itself is aimed at correct once prolific market failures. Given that the
Affordable Care Act attempts to provide benefits for firms that can
capture cost, revenue, and infrastructure efficiencies through
collaboration and cooperation, including mergers, it is the ACA, not
the Sherman Act that should be relied upon to cure a problematic
marketplace. Favoring antitrust regulations over ACA policy
considerations only weakens the healthcare industry by stifling
collaboration ventures for fear of regulatory scrutiny while doing
nothing but preserving the failed market status quo. While this does
not mean that hospitals and healthcare organizations should be
immune from antitrust scrutiny, as this article recognizes the problems
associated with too much power in a limited market, the FTC and
courts should instead try to reimage their approaches to the role of
antitrust law in healthcare provider mergers.
B. Flexible Standards for a Post-PPACA World
A number of scholars have advocated for courts to be more
flexible in their application of rule of reason antitrust analysis to
healthcare organization mergers.119 However, this is a fine line for
courts to walk, as too stringent application of antitrust law defeats the
benefits from nonprofit collaboration, while application that is too
deferential brings with it its own perils.120 When this article discusses
a “flexible” vs. “inflexible” standard, it does not merely refer to a
given court’s preference towards strict construction of the Sherman or
Clayton Act, but rather extends more broadly to the heart of a court’s
analysis.
a. Examples of Flexible Interpretation of Antitrust Principles
in the Realm of Nonprofit Law
Luckily for healthcare organizations, common law is not
devoid of courts using a “flexible” interpretation of antitrust laws to
119
For an example of such an approach see, Thomas L. Greaney,
Antitrust and Hospital Mergers: Does the Nonprofit Form Affect
Competitive Substance, 31 J. HEALTH POL. POL’Y & L. 511, 527
(2006).
120
See Peter James Kolovos, Note, Antitrust Law and Nonprofit
Organizations: The Law School Accreditation Case, 71 N.Y.U. L.
REV. 689, 725 (1996) (noting that benefits and drawbacks of a flexible
approach to the application of antitrust law to nonprofits).
28
exempt nonprofits from Sherman Act scrutiny, even though that might
appear in the form of strict adherence to the text of the statute. The
Ninth Circuit Court of Appeals took such a strict reading, flexible
approach in Dedication and Everlasting Love to Animals v. Humane
Society of the United States.121 In DELTA, the appellant claimed that
the Humane Society violated §§ 1&2 of the Sherman Act by
restraining competition and attempting to monopolize the charitable
contribution marketplace.122 It has been noted that the 9th Circuit, in
its Delta decision, purposefully labeled the fundraising activity as
failing outside of the scope of the Sherman Act in order to “smear a
charitable transaction with an anticompetitive label or burden a charity
with an undue legal responsibility”.123 This is similar to the approach
the courts employed during their evaluations of mergers in the 1990s,
where market share increases were not determinative of
anticompetitive conduct and economic efficiencies could be used to
thwart antitrust scrutiny. With the ACA’s changes to the way
Medicare payments are processed, namely the focus on quality of care
over quantity of patients served, these efficiencies are more important
than ever. Mergers between large and small healthcare providers in
the same market may be the only way for a small hospital to obtain the
necessary quality review personnel, IT infrastructure, or hospital
management expertise to increase the quality of the patient care it
provides. Courts ought to take into account these non-economic and
speculative synergies when weighing the benefits of a proposed
merger, the mandates of the Affordable Care Act, and the potential
anticompetitive effects of a transaction. Cases, such as Long Island
Jewish and ProMedica, although they reach opposite conclusions,
provide the necessary basis for the court’s widespread adoption of this
type of flexible review of antitrust regulation.
b. Non-Traditional Merger Structures
The Norman PHO Advisory Opinion issued by the FTC also
provides the groundwork a new type of transaction that would
inherently allow the FTC and courts to take a more flexible review of
antitrust law. Clinical integration agreements, already conditionally
approved by the FTC, allow healthcare providers and physicians to
achieve intra-industry coordination and cooperation desired by the
Affordable Care Act, without many of the potential anticompetitive
121
50 F.3d 710 (9th Cir. 1995)[hereinafter, DELTA].
DELTA, 50 F.3d at 711.
123
Tara Norgard, Note, How Charitable is the Sherman Act?, 83
MINN. L. REV. 1515, 1538 (1999).
122
29
byproducts of a large-scale merger. This places readily ascertainable
benchmarks on physician performance to ensure the efficient and cost
effective allocation of medical resources,124 while still maintaining
competition in the network’s geographic region.125 However, there are
serious limitations to the widespread use of clinical integration
agreements. First, they require extensive antitrust compliance in order
to mollify the FTC’s concerns over potential abuses of monopoly
power when negotiating with vendors, insurers, and employers.126 As
a result, the training required, staff knowledge, and legal expertise
required to implement a widespread compliance network is an
additional cost that needs to be passed onto the consumer or insurers
and is an ongoing cost not necessitated by a true merger. Additionally,
the FTC acknowledges that the same concerns it has over true mergers
would not necessarily be solved by a clinical integration agreement,
namely that the network’s size would give it anticompetitive
bargaining power. This has been a concern in judicial and FTC
scrutiny of mergers since the most recent merger wave started and
although Norman PHO agreed to install safeguards to ensure that it
does not occur, there is no reason that merging hospitals could not
agree to a similar provision and achieve the efficiencies afforded to
them as a result of a full-fledged merger. Although the FTC has
sanitized Norman PHO’s clinical integration network, this is a
resource heavy, factually specific agreement that does not lend itself to
widespread implementation as a merger or asset acquisition
replacement.
V. CONCLUSION
The Patient Protection and Affordable Care Act radically
transformed the healthcare industry and changed the operating
dynamic for healthcare providers, from physicians to hospitals. As a
result of these changes, there are new incentives for healthcare
124
Dennis Butts et al., The 7 Components of a Clinical Integration
Network, BECKER’S HOSPITAL REVIEW (Oct. 19, 2012),
http://www.beckershospitalreview.com/hospital-physicianrelationships/the-7-components-of-a-clinical-integration-network.html
(describing the goals for physicians on which payment as a member of
the clinical integration network is predicated).
125
Norman PHO Opinion, supra note 111, at pg. 18 (detailing the
ways in which Norman PHO’s clinical integration network would
preserve competition).
126
Id. at pg. 20 (noting that Norman PHO is responsible for antitrust
compliance of the networks’ actions).
30
providers to consolidate in order to increase revenue, optimize
healthcare infrastructure, and improve patient care. This has led to a
third wave of hospital mergers, following the waves of the mid-1990s
and early 2000s. Although the Affordable Care Act seems to
explicitly and implicitly encourage, or at least condone, widespread
consolidation, the FTC and courts have strictly imposed antitrust laws
to block potential mergers. This is part of a concerted effort of the
part of the FTC to better police hospital and healthcare mergers,
something the agency admits it failed to do during the first two waves
of hospital mergers.
However, strictly interpreting antitrust law to enjoin potential
mergers is fundamentally at odds with the mandate of the Affordable
Care Act. While this article does not believe that this tension rises to
the level of implied repeal, it does advocate for a change in thinking as
to how the FTC and courts should apply antitrust law, especially the
Sherman Act, to healthcare and hospital mergers. Only by relaxing
the standards and adopting a flexible approach that adequately
captures IT, management, and revenue efficiencies that healthcare
mergers in the post-PPACA world can achieve, can federal agencies
and courts properly determine whether potential anticompetitive
effects of healthcare provider mergers are outweighed by the benefits
to patient care and health care costs.
[AP: Cory – this is really excellent work. You’ve identified a
sophisticated issue and given it full, thoughtful treatment. My
impression is that there are times your organization did not flow as
well as it could. There were also times that you wrote as though being
paid by the word. But both of these issues are easily correctable.
My suggestion would be to first do an “organization” edit in
which you think about my attempts to streamline your headings and
subheadings. Then add roadmaps and thesis sentences throughout –
sometimes moving the thesis sentences you already have at the end of
sections to the front. You’ll also want to think about keeping similar
ideas together. Readers get confused when we repeat points – “Why
here? Didn’t he say this before? Is this different?”
My further suggestion would then be to do a “phrasing and
word” edit in which you work on shorter sentences and paragraphs.
See if you can cut by about 25%. Remember that you’ve added about
10% in your “organization” edit. In the end, you’ll have a paper that
walks your reader through your points more carefully, but that makes
the points more concisely.
31
Hope all of that helps. I’m honored that you put so much effort
and thought into a two-credit course.
AP
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