Health care antitrust litigation update

After a quiet decade, suddenly health care antitrust is hot:

1.  Provider contracting

MA DHCFP Hearings (June 2011) – several CEOs of Massachusetts hospitals and health plans call for some form of state pricing intervention to combat excessive market power by a dominant provider (Partners). They do this in an official hearing, with cameras recording. See the videos here and here.

DoJ v. United Regional Health Care System of Wichita Falls, Texas – on February 25, 2011, DoJ announced a settlement with the hospital:

… that prohibits it from entering into contracts that improperly inhibit commercial health insurers from contracting with United Regional’s competitors. The department said that United Regional unlawfully used these contracts to maintain its monopoly for hospital services in violation of Section 2 of the Sherman Act, causing consumers to pay higher prices for health care services…

“Unfettered competition among hospitals is vital to ensuring that patients receive high-quality, low-cost health care,” said Christine Varney, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. “Today’s settlement prevents a dominant hospital from using its market power to harm consumers by undermining its competitors’ ability to compete in the marketplace.”

DoJ v. BCBS Michigan (Oct. 2010) – prior TIE coverage here; a summary from Truth on the Market:

The case is about BCBS Michigan’s Most Favored Nation clauses in contracts with their customers, i.e. hospitals.  The Complaint alleges that BCBS enters into two types of these MFN clauses.  The first type, “MFN-Plus,” with 22 hospitals “require the hospital to charge some or all other commercial insurers more than the hospital charges Blue Cross, typically by a specified percentage differential.”  The second type of MFN clauses merely require the hospital to give BCBS prices that are equal to the lowest offered to rivals.   According to the Complaint, “Blue Cross currently has agreements containing MFNs or similar clauses with at least 70 of Michigan’s 131 general acute care hospitals. These 70 hospitals operate more than 40% of Michigan’s acute care hospital beds.”  The allegation is that BCBS has used MFN clauses to raise its own costs, but disproportionately raise the costs of its rival hospitals.

The case will is interesting because while there is a robust theoretical empirical literature on the possible competitive harms arising from of MFN’s, economists have also identified pro-competitive justifications for the contracts.  Indeed, one observes MFNs in all sorts of product markets which cannot plausibly be said to involve firms with market power.

2. State action doctrine

FTC v. Phoebe Putney Health System, Inc.  On June 27, 2011, a federal district court ruled that the state action doctrine protects the $195mm purchase of Palmyra Medical Center from HCA, Inc.  The purchaser is the Hospital Authority of Albany-Dougherty County, a governmental entity. The Hospital Authority also owns the Phoebe Putney Health System, a private non-profit corporation. After the acquisition, the Hospital Authority will lease Palmyra to Phoebe Putney for $1 per year. If the acquiring party had been Phoebe Putney or HCA, the state action doctrine would not have applied.

DoJ Letter to Tennessee Legislature encouraging Tennessee to abolish the state action doctrine – dated May 18, 2011:

The Antitrust Division believes that repealing the state action exemption for public hospitals in Tennessee will likely promote competition and benefit consumers. In the United Regionalcase, the Antitrust Division and Texas challenged United Regional’s contracting practices because we did not think that the antitrust exemption under Texas law (that allowed for United Regional’s formation) extended to United Regional’s contracting practices. By contrast, if a public hospital in Tennessee engaged in similar conduct, under current state law, that conduct would be exempt from an antitrust challenge under Jackson.

3. ACOs & horizontal integration

Joint FTC/DoJ Proposed Statement of Antitrust Enforcement Policy Regarding ACOs (April 2011) – prior TIE coverage here.  Brief summary:

Federal ACOs are deemed to meet clinical integration rules (not a surprise).  The statement breaks ACOs into 3 categories, depending on market share.  Those with less than 30% market share get a free pass; those with more than 50% get mandatory federal review; those in the middle can request review. Healthcare antitrust lawyers full employment act. (from TIE)

4.  Provider/health plan duopoly

West Penn Allegheny v. UPMC & Highmark (Nov. 2010)– this private antitrust suit finds the weaker hospital chain alleging an attempted duopoly by the dominant health plan (Highmark) and the largest health system (UPMC).  (2009 Pittsburgh Post-Gazette story here). The federal district court dismissed the complaint, but on Nov. 29, 2010, the 3rd Circuit reversed, a victory for West Penn.  The ABA Section of Antitrust blog asks whether this case should head to the Supreme Court.

2011 update: to make things more complicated, this week the WSJ reports that Highmark has agreed to purchase West Penn Allegheny, which will apparently render the suit moot. UPMC – which owns its own health plan – is retaliating by promising to refuse to renew its provider contracts with Highmark.

(h/t – I attended the American Health Lawyers Association annual meeting this week in Boston (1400 health lawyers in attendance!). The antitrust updates were useful in pulling this summary together)

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