Antitrust Law in Healthcare

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Information about Antitrust Law in Healthcare

Published on September 28, 2015

Author: HollandHart


1. Antitrust Law in Healthcare Kim C. Stanger (BSU 3/15)

2. This presentation is similar to any other legal education materials designed to provide general information on pertinent legal topics. The statements made as part of the presentation are provided for educational purposes only. They do not constitute legal advice nor do they necessarily reflect the views of Holland & Hart LLP or any of its attorneys other than the speaker. This presentation is not intended to create an attorney-client relationship between you and Holland & Hart LLP. If you have specific questions as to the application of law to your activities, you should seek the advice of your legal counsel.

3. History • In late 1800’s, large corporate conglomerates (“trusts”) held monopolies, e.g., – Standard Oil – Steel – Railroads – Copper – Sugar – Others • Their power allowed them to: – Control prices. – Restrict competition

4. History • Federal antitrust laws – Sherman Act – Clayton Act – Federal Trade Comm’n Act – Robinson-Patman Act – Hart–Scott–Rodino Antitrust Improvements Act • State antitrust laws – IC 48-101 et seq.

5. Enforcement • Federal laws – Dept of Justice (“DOJ”) • Antitrust Division – Federal Trade Commission (“FTC”) • State laws – Attorney generals • Private lawsuits

6. Enforcement • Criminal penalties – Significant fines – Prison • Civil penalties – Action by state or federal government • Treble (3x) damages • Injunctive relief, e.g, divestiture, break up corporation, requirements for contracting, etc. • Attorneys fees – Private lawsuit • Treble damages • Injunctive relief • Attorneys fees

7. Sherman Act § 1 Competitor Competitor

8. Sherman Act § 1 • “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade … is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court.” (15 USC § 1)

9. Sherman Act § 1 • Violation requires all of the following: 1. Contract, combination or conspiracy involving at least two independent parties. • Corporate officers and employees = same entity. • Members of same group practice = same entity. 2. An effect on interstate commerce. • Easy to satisfy. 3. Unreasonable restraint of trade. • Per se • Rule of reason • Quick look analysis Standards for analyzing potential violations.

10. Sherman Act § 1 Pro- Competition Anti- Competition Pro- competitive effects of proposed action Anti- competitive effects of proposed action Rule of Reason = court balances pro-competitive effects against anti-competitive effects. Parties present evidence of pro- and anti- competitive effects.

11. Sherman Act § 1 Pro- competition Anti- competition Per se = certain conduct is presumed to result in unreasonable restraint of trade and is per se unlawful. Because conduct is deemed to unreasonably restrain trade, the plaintiff is not required to present evidence of effects.

12. Sherman Act § 1 • Price fixing = competitors conspire or collude on prices. – May determine your own prices. – May not collude with others to agree on prices. • Express agreement. • Implied agreement, e.g., – Sharing price info. – Using same person to negotiate prices. – Applies to agreements re minimum or maximum prices. • Price fixing is usually per se illegal. • DOJ/FTC Guidelines create safety zone under which some sharing of price info may be permitted or analyzed under rule of reason if: – Clinical integration – Financial integration Test: do efficiencies > anti-competitive effects?

13. Sherman Act § 1 • Boycotts = competitors agree not to deal with another entity. – May decide on your own not to do business with an entity. – May not agree with others that none of you will do business with the entity as a way to pressure other party. • Does not apply to labor strikes. • Boycotts are usually per se illegal. • DOJ/FTC Guidelines create safety zone under which some sharing of price info may be permitted or analyzed under rule of reason if sufficient integration.

14. Sherman Act § 1 • United States v. Idaho Orthpaedic Society (2010) – Complaint alleged that orthopedists: • Agreed not to treat most patients covered by comp insurance to force Idaho Industrial increase reimbursement to orthopedists. • Agreed to threatened to terminate contracts Cross unless Blue Cross offered more terms to orthopedists.

15. Sherman Act § 1 • United States v. Idaho Orthopaedic Society (2010) – Settlement agreement includes, e.g., • Prohibited from entering agreement concerning fees terms with payers or refusing to deal with payers. • Prohibited from communicating with competitors re acceptability of payer terms or response to same. • Certification of compliance for 10 years. • Subject to periodic audits. – Settlement agreement does not prohibit: • Noerr-Pennington actions. • Participating in clinically or financially integrated

16. Sherman Act § 1 • Market allocation = competitors agree to divide up market. – May decide on your own what items or services to offer, or where to do business. – May not agree with competitors to divide up markets or services. • Geographic territories • Products • Services • Market allocations are usually per se illegal.

17. Sherman Act § 2

18. Sherman Act § 2 • “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court.” (15 USC § 2)

19. Sherman Act § 2 • Having monopoly power alone is not a violation. • E.g., having better product or greater skill • E.g., CON, govt franchise, or patent. • Violation requires both: 1. Monopoly power in a relevant market; and 2. Willful acquisition or maintenance of that monopoly power through use of coercive or inappropriate acts. • E.g., predatory pricing.

20. Clayton Act § 7

21. Clayton Act § 7 • “No person … shall acquire the whole or any part of the assets of another person engaged also in commerce or in any activity affecting commerce, where … the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.” (15 USC § 18)

22. Clayton Act § 7 • To establish violation: 1. Determine relevant market. • Market = is the area of effective competition where buyers can turn for alternate sources of supply. • Test = whether monopolist in the proposed market could impose increase in prices. 2. Determine whether the merger will have anti-competitive effects in the relevant market. • Adverse effects on competition if there is merger. • Existing competition in the market. • Likelihood of other competitors entering market. • Efficiencies resulting from merger that could not be achieved through other means (“merger-specific”). • Whether one party would fail if there is no merger.

23. Clayton Act § 7 Horizontal Mergers • Mergers of competitors at same level of production or distribution (e.g., merger of competing sellers of same product) • DOJ/FTC Horizontal Merger Guidelines Vertical Mergers • Mergers of competitors at different levels of production or distribution (e.g., merger of manufacturer and retailer)

24. Clayton Act FTC v. St. Luke’s (Id. 2015) • St. Luke’s acquired Saltzer Medical Group, one of the largest independent groups in Idaho. • Competitors St. Alphonsus Treasure Valley Hospital claiming the acquisition St. Luke’s 80% of the care physicians (“PCPs”) in Nampa, Idaho market. • FTC and Idaho Attorney General joined in lawsuit. • In 2014, US District judge held that, while transaction was well-intentioned, it would result in anti- competitive effects and ordered Saltzer sale unwound. • In 2015, Ninth Circuit affirmed the decision.

25. Clayton Act § 7  Boise and Nampa are only 20 miles apart.  Prior to merger:  Saltzer had 16 PCPs.  St. Luke’s had 8 PCPs.  St. Als had 9 PCPs.  There were several solo PCPs. 27 PCPs

26. Clayton Act § 7 St. Luke’s court found that Nampa was the relevant market. • Nampa consumers strongly prefer local PCP. • Insurers must include Nampa PCPs in product to remain competitive. • Merger would allow St. Luke’s to demand prices to insurers who wished to do business in • Consumers would pay increased prices rather drive to Boise.

27. Clayton Act § 7 St. Luke’s court found merger  anti-competitive effects. • St. Luke’s + Saltzer = 80% of PCPs in Nampa market. • St. Luke’s would likely use power to negotiate higher rates for – Internal correspondence suggested that merger would allow to pressure insurers to pay increases. – Following St. Luke’s acquisition in Twin Falls, St. Luke’s its leverage to obtain higher prices from insurers. • St. Luke’s might use power to negotiate higher rates for – But 9th Circuit held this finding was not supported by the • Difficult for competitors to enter market. • St. Luke’s could achieve benefits by other means apart from they were not “merger specific”).

28. Clayton Act § 7 • “Antitrust enforcement of vertical integration [i.e., acquisitions] among health care providers is best judged on a case-by-case basis. Transactions that promise to improve the delivery of care and that pose no threat of increased prices or other competitive harm should be allowed. But we stand ready to take appropriate enforcement action against transactions that harm competition.” (Assistant Attorney General William J. Baer, Chief of the Justice Department's Antitrust Division)

29. Antitrust Defenses

30. State Action Immunity • Congress did not intend the antitrust laws to apply to state action. • States can regulate industries even though it may affect competition (e.g., certificate of need (“CON”) laws). • Private entities may be able to claim state action immunity if show: 1. state adopted clearly articulated policy to replace competition with regulation, and 2. private conduct must be actively supervised by the state government.

31. State Action Immunity • North Carolina Bd of Dental Examiners v. FTC (SCt 2014) Facts: – Board threatened nondentists performing teeth whitening with action for practicing dentistry license. – Most of the Board members were practicing who received significant fees from teeth – The dental practices act did not define the dentistry to include teeth whitening.

32. State Action Immunity • North Carolina Bd of Dental Examiners v. FTC (SCt 2014) Analysis: – Nonsovereign actor receives state action immunity only if: • Challenged restraint is clearly articulated in state • The policy is actively supervised by the state. – In this case, Supreme Court held that: • Board comprised of active market participants must be actively supervised by the state. • There as no active supervision by state: – State delegated authority to Board. – “Teeth whitening” not addressed in statue. – No evidence of state involvement.

33. Antitrust Defense • Local Govt Antitrust Act – Local govt units are immune from antitrust damages. – May still be subject to injunctive relief.

34. Antitrust Defense • Health Care Quality Improvement Act (“HCQIA”) – Enacted to encourage health care providers to engage in peer review activity and report adverse action against physicians. – Participants in peer review activity are immune from private lawsuits for damages if: • Physician is given minimal due process, e.g., notice and hearing; and • Hospital or other facility reports adverse peer review activity to the National Practitioners Data Bank (“NPDB”). – Participants may still be liable for: • Injunctive relief. • Civil rights claims.

35. Antitrust Defense • Noerr-Pennington Doctrine – Requesting action by government is protected by First Amendment and does not violate antitrust if the intent or result is to acquire or maintain a monopoly, e.g., • Objecting to CON of competitor. • Physicians petition legislature or agency to scope of license of other practitioners. – Does not apply if action was a sham.

36. DOJ/FTC Statements of Antitrust Enforcement Policy in Health Care • Outlines DOJ/FTC enforcement policy for specific situations, e.g. • Mergers • Joint ventures • Networks • Sharing price info • Includes “safety zones” in which DOJ/FTC will not challenge action absent extraordinary circumstances.

37. DOJ/FTC Statements of Antitrust Enforcement Policy Regarding Accountable Care Organizations

38. Assignment • Activity 9.1 at pp.214- 217.

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