The federal antitrust enforcement agencies brought three hospital merger challenges and three criminal antitrust enforcement actions in health care in the past year. Combined with the incoming Democratic administration, healthcare antitrust enforcement is likely to remain strong in 2021.
Hospitals & Health Systems. The Federal Trade Commission (FTC) challenged three hospital and health system transactions in 2020. While the outcome of the most recent challenged transaction is pending, in one of the other two transactions, the merging parties abandoned the deal after the complaint was filed, and in the other transaction the district court refused to grant a preliminary injunction to cease consummation of the transaction pending an administrative trial. Other than various strategic, cost, timing, and business reasons for why parties choose to defend a transaction or not, and the difference in case development, what lessons can be drawn from these recent enforcement actions? First, payor views—and the substantiation thereof—remain key. Parties to proposed in-market transactions should carefully analyze their historical contracting practices and network configuration. Second, geographic market definition has always been and remains critical to the antitrust analysis of these transactions, particularly in urban areas. Relevant geographic markets are analyzed first by the impact a merger may have on insurers, and second by the merger’s potential impact on patients. Detailed economic analysis is part of antitrust due diligence in preparation for proposed transactions.
Payors. If finally approved by the court, the proposed Blues plans’ subscriber settlement may change the competitive dynamic in the healthcare services insurance markets. Employers would be able to request bids from and providers may negotiate rates with multiple insurance providers even under the same umbrella. Insurance licensees may be able to make inroads into new markets and offer new products.
Criminal Enforcement. The Department of Justice (DOJ) has brought several criminal charges against healthcare companies in the past couple of months, including for wage-fixing, nonsolicitation/nopoach agreements and market allocation. General counsels (GCs) and human resources (HR) professionals should emphasize company-wide training and familiarity on how the sharing of nonpublic wage and employment term information with competitors can lead to antitrust violations for individuals as well as the company. Enforcement agencies, as well as private plaintiffs, can challenge agreements as anticompetitive irrespective of whether they challenge any underlying transaction. The federal government and state AGs are ramping up criminal enforcement in healthcare markets. Healthcare organizations should consider their internal corporate compliance programs and education.
Vertical Mergers. In analyzing the potential harm of a vertical transaction, the antitrust enforcement agencies will ask whether the parties, after they have merged, will have the ability or incentive to foreclose rivals. For example, if a hospital system acquires an ambulatory care provider in the same geographic area, a key inquiry would be whether the merged entity will have the ability to force payors into an exclusive arrangement that limits the payors’ ability to contract with other hospitals or ambulatory care providers. Another relevant question is whether the merged entity would have the ability to cherry-pick profitable cases and refer less profitable cases to other entities. In a vertical merger between an insurer and a pharmacy, a key concern would be whether insurer enrollees could use only the payor’s pharmacy, or have to pay higher fees to use a different pharmacy. Parties to vertical transactions should engage in antitrust planning to assess potential competitive effects.
Federal and State Policy & Enforcement. With Xavier Becerra nominated to Secretary of the Department of Health and Human Services (HHS), states pursuing antitrust enforcement in the provider marketplace will be likely to receive support (e.g., briefs, public statements, parallel federal enforcement actions) from the federal government. Moreover, the injunctive relief included in the settlement terms of a lawsuit Becerra joined as California Attorney General could very well lead states to pass tighter transparency regulations and price controls. Providers should examine their ordinary course and post-closing managed care contracting practices.