By Jennifer M. Driscoll-Chippendale

On December 1, 2010, representatives from both the U.S. Department of Justice, Antitrust Division (the “Division”) and the Federal Trade Commission (“FTC”) testified about the issue of antitrust enforcement in the health care industry before the House Judiciary Subcommittee on Courts and Competition Policy. Sharis A. Pozen, Chief of Staff for the Division, and the FTC’s Bureau of Competition Director Richard Feinstein committed to assist doctors and hospitals forming Accountable Care Organizations (“ACOs”) pursuant to the Affordable Care Act. However, from the perspective of the House Judiciary Committee Chairman, John Conyers, Jr. (D-Mich.), the agencies must address broader issues.

Conyers’ Call to Action, and the Agencies’ Response

Asserting that there is a “disconnect between President Obama’s promise to increase antitrust enforcement” and the agencies’ track records, Conyers specifically asked the government witnesses to address three issues: (1) whether ACOs should receive the same antitrust immunity afforded to insurers; (2) whether current antitrust enforcement is conducted in a fair and efficient manner; and (3) how the agencies can deliver guidance to ACOs in a timely and cost-efficient manner.

1. Repeal the McCarran-Ferguson Act

Pozen reiterated the Division’s support for the proposed Health Insurance Industry Fair Competition Act (H.R. 4626), which would amend the McCarran-Ferguson Act so that nothing therein would “modify, impair, or supersede the operation of any of the antitrust laws with respect to the business of health insurance.” However, repealing the antitrust exemption may represent a political triumph rather than a market panacea. As codified, the Act does not provide health insurers a blanket exemption from antitrust enforcement. Rather, states are empowered to apply their own antitrust laws to insurers’ activities. In many cases, state enforcers are already targeting the same misconduct covered by the Sherman Act.

2. Current Enforcement Activities

Pozen and Feinstein touted the agencies’ efforts to curb abuses of power in the health care market. Feinstein assured Congress that eradicating “pay-for-delay agreements,” where pharmaceutical companies compensate rivals that agree not to bring competing drugs to market, remains the FTC’s highest priority. Feinstein also confirmed that the FTC’s close scrutiny of mergers and acquisitions in the health care market, reflected in In re Evanston Northwestern Healthcare Corporation (mandating that the acquiring and acquired hospitals establish separate and independent teams to negotiate rates with managed care organizations, but warning that divesture is usually the appropriate remedy) and In re Inova Health System Foundation (FTC challenge caused health care systems to abandon proposed combination), would continue.

Pozen similarly championed the Division’s oversight in the health care market, as evidenced by its recent action against Blue Cross Blue Shield of Michigan concerning most-favored-nation (“MFN”) clauses. Her remarks indicated that the Division would work closely with state attorneys general in examining whether contract provisions and exclusive arrangements enhance or thwart competition in the market. Pozen also spoke about what the Division considers when evaluating proposed transactions in the health care market, such as entry defenses, which would be viewed with “skepticism,” and whether the size of an already dominant player would further increase, discouraging new entrants and foreclosing competition in the process.

Providing Answers to ACOs in a Quick, Cost-Effective Manner

1. Principles for Forming ACOs

Feinstein and Pozen devoted substantial parts of their testimony to the thorny question of how ACOs can operate without violating antitrust laws. Both cited the Division and FTC’s Statements of Antitrust Enforcement Policy in Health Care, Statement 8 (1996) as proof that collaboration and enforcement can peacefully co-exist. Although more than a decade old and directed at physician network joint ventures, Statement 8 sets forth what the agencies will consider when evaluating the legitimacy of an ACO. As Pozen noted, if an ACO is used by a group of competing providers to charge uniformly high prices, it may run afoul of Section One of the Sherman Act, or at the very least invite close government scrutiny. Assuming that the conduct falls within an antitrust gray area and qualifies for rule of reason treatment, the relevant inquiry is:

• Is the ACO “reasonably necessary” to the effective functioning of a particular integration structure?
• Does the ACO create or facilitate the exercise of market power?
• Do the ACO participants share substantial financial risk?
• Does the ACO promote greater interdependence and cooperation, resulting in demonstrable cost savings through clinical integration, i.e., interdependence and joint responsibility among providers in a single network that result in lower costs without sacrificing quality of care?

2. Getting Clear Answers to ACOs Quickly

The Division and the FTC highlighted their streamlined procedures for review of health care arrangements. The Division provides guidance about the legality of proposed conduct through business review letters, while the FTC addresses these concerns by issuing advisory opinions. Both processes start with a request for advice from a party contemplating certain conduct and address substantial or novel questions of fact or law or subjects of significant interest.

The agencies recently approved collaborations among traditionally separate spheres of the health care market using these mechanisms. In In re TriState Health Partners, Inc., the FTC blessed a physician-hospital network that would clinically integrate its members’ provision of health care services through (1) a technology system designed to facilitate the exchange of patient treatment and medical information, as well as identify utilization trends; (2) clinical practice guidelines; and (3) physician performance targets and appraisals. Similarly, the DOJ indicated that a data sharing program proposed by three California health care providers posed little risk of facilitating anticompetitive conduct. Rather, the program, which employed a third-party consultant and other safeguards to reduce the likelihood of collusion, promised to increase transparency about the relative costs and utilization rates of hospitals that participated in the survey.

Conclusion

The testimony of the Division and the FTC acknowledged that all providers in the health care market will grapple with new ways of doing business, and a degree of uncertainty will accompany this change. Proactive constituents will follow the forward-looking guidelines issued by the agencies and avail themselves of expedited channels for review, to avoid antitrust liability.

Additionally, health care companies should be mindful of Chairman Conyers’ call for increased enforcement. Whether or not the characterization is accurate, the health care market is viewed as rife with manipulation and unfairness, rendering it an easy target for government enforcement. Before adopting a new course of dealing—particularly one that involves joining forces with competitors or demanding an exclusive relationship—an ounce of prevention, i.e., consulting antitrust counsel and taking appropriate precautions, may prevent the government from later extracting a pound of cure.

For more information, please contact Jennifer M. Driscoll-Chippendale at jdriscoll-chippendale@sheppardmullin.com or (202) 469-4921.