Antitrust Developments and Enforcement Activities of The Obama Administration Health Law National CLE Conference

1. Antitrust Developments and Enforcement Activities of The Obama Administration Health Law National CLE Conference William E. Berlin Ober|Kaler 1401 H Street, N.W., Ste. 500 Washington DC 20005 Ph: 202-326-5011 Fax: 202-408-0640 weberlin@ober.com www.ober.com

2. What Makes Antitrust Difficult…? • Theoretical (economics driven) • Extremely fact-specific • Prospective and thus speculative • Exceptions to every rule • Thus few bright lines

3. Enforcers • Antitrust Division, United States Department of Justice • Civil injunctive relief • Criminal prosecution • Up to 10 years in prison • Individual fines of up to $1 million • Corporate fines of up to $100 million • Alternative sentencing provisions allow for fines well over $100 million • U.S. Federal Trade Commission • Civil injunctive relief only (but can refer criminal violations to DOJ) • Disgorgement

4. Enforcers (Cont’d.) • State attorneys general • Enforce state antitrust laws and bring damage actions under federal antitrust laws • Private parties injured by the conduct • Triple the actual damages • Attorneys fees

5. A New Enforcement Era? “Regrettably, the current [Bush] administration has what may be the weakest record of antitrust enforcement of any administration in the last half century. … As president, I will direct my administration to reinvigorate antitrust enforcement.” — President Obama’s Statement to the American Antitrust Institute, February 20, 2008

6. A New Enforcement Era? “First, we must rebalance legal and economic theories in antitrust analysis and enforcement.” — Statement of Christine Varney, confirmation hearing, March 10, 2009

7. A New Enforcement Era? “Q: There has been a lot of talk in the past few months about the regulatory failure contributing to the economic crisis. Would you consider the lack of antitrust enforcement over the past several years to be part of that regulatory failure? “A: I think it’s all part of a whole. I think what we’ve seen, as I’ve talked about, is a belief in markets self-policing, self correcting, and even former Chairman Greenspan I think has said . . . that there was a misplaced reliance on the market.” —Question and answer session after speech with AAG Varney before the Center for American Progress, May 11, 2009 (http://www.usdoj.gov/atr/public/speeches/245711.htm)

8. A New Enforcement Era? “[I]nadequate antitrust oversight contributed to the current conditions. I believe that these extreme conditions require a recalibration of economic and legal analysis and theories, and a clearer plan for action. As antitrust enforcers, we cannot sit on the sidelines any longer—both in terms of enforcing the antitrust laws and contributing to sound competition policy as part of our nation's economic strategy.” —AAG Varney, US Chamber of Commerce Speech, May 12, 2009 (http://www.usdoj.gov/atr/public/speeches/249974.htm)

9. A New Enforcement Era? “Americans have seen firms given room to run with the idea that markets ‘self-police,’ and that enforcement authorities should wait for the markets to ‘self-correct.’ It is clear to anyone who picks up a newspaper or watches the evening news that the country has been waiting for this ‘self correction,’ spurred innovation, and enhanced consumer welfare. But these developments have not occurred.” —AAG Varney, US Chamber of Commerce Speech, May 12, 2009

10. New Leadership: DOJ Antitrust Division 1986 Graduate of Georgetown Law General Counsel - DNC (89-92) Chief Counsel - Clinton Gore Campaign (91) General Counsel - Presidential Inaugural Committee (92) Cabinet Secretary (93-94) FTC Commissioner (94-97) Hogan & Hartson Partner (97-2009) Headed the Internet Group with a focus on FTC/privacy issues Personnel Counsel - Obama-Biden Transition (11/08-1/09) Christine A. Varney Assistant Attorney General

11. New Leadership: DOJ Antitrust Division

12. Antitrust Division: New Leadership and Priorities • New Assistant Attorney General • Criticism of prior civil-enforcement program • Economic distress no defense • Emphasis on dominant firm predatory conduct • Participation in reform effort • More aggressive enforcement

13. Renewed DOJ Emphasis on Healthcare Enforcement • Health-plan exclusionary conduct • Health-plan mergers, particularly monopsony effects • Hospital mergers • Payor-provider exclusionary relationships • CON regulation

14. New Leadership: FTC Pamela Harbour Jones (I) (9/09) William Kovacic (R) (9/11) Jon Leibowitz (D) (9/10) Thomas Rosch (R) (9/12) Nominees: (Dec. '09) Julie Brill (D) Edith Ramirez (D)

15. FTC: New Leadership and Healthcare Priorities • Liberal chairman • Aggressive Republican commissioner • New, likely liberal, appointees • One conservative (but healthcare focus) • Healthcare expertise and interest (Feinstein Jan. 5, 2010 interview) • Emphasis on pharmaceutical issues • Hospital mergers • Provider-controlled contracting networks

16. Obama Administration – First Year • More liberal agency leadership • More aggressive enforcement • Health-plan mergers • Hospital mergers • Emphasis on dominant firm exclusionary conduct and exclusionary provider-payor agreements • Provider-controlled contracting networks • FTC emphasis on pharmaceutical issues (now w/ DOJ support) • More plaintiff-oriented antitrust interpretation by agencies (and Congress and courts)

17. Health Plan, Hospital, Pharmaceutical, and Physician Group Mergers -- Clayton Act, Section 7 • Prohibits all types of mergers, acquisitions, and joint ventures whose effect may be to substantially lessen competition

18. Mergers --Clayton Act, Section 7 • Steps in the analysis: • Define the product market • Define the geographic market • Identify competitors • Calculate all competitors’ market shares • Examine efficiencies from the merger • Examine entry barriers into the market

19. Mergers --Clayton Act, Section 7 • Warning signs: • Merging firms, together, have a 35 to 40% or larger market share • Four largest firms have a 50% or larger market share • Payers complain because merged firm would be able to increase prices significantly • Few efficiencies • New firms would not enter the market

20. Physician Group Practice Mergers • First consideration: Ensure the merger results in a single entity for antitrust purposes • Integration of practices must be total • If not, the physicians continue to constitute separate competing physicians for antitrust purposes • If so, their agreeing on fees constitutes unlawful price fixing • Examined same way as other types of mergers (Feinstein) • Countering insurer market power not a justification (Feinstein)

21. Health Plan Mergers • Past DOJ Antitrust Division enforcement criticized • No doubt about increased concentration, but resulting effects? • Three challenges: • Prudential/Aetna, 1999 • UnitedHealth/PacifiCare, 2006 • United Health/Sierra Health Services, 2008 • Partial divestitures in each • AHA lists 14 investigations since 1993 • Many with no geographic overlap

22. Hospital Mergers • Evanston (2005, aff'd 2007): retrospective; pricing evidence • Inova (2008): effect on small employers; skeptical of efficiencies/quality claims; fast track procedure • Bottom lines: • Hospital-merger "window of opportunity" closed • More aggressive enforcement • Increasing emphasis on: • Pricing analysis and direct effects • Smaller geographic markets; other, ancillary service markets • Retrospective review • Effect on employers, insurers (provider nw's)

23. MergersAgency Enforcement Activities • DOJ/FTC Review of U.S. Horizontal Merger Guidelines • AAG Varney comments at first workshop (Dec. 3, 2009) • FTC Retrospective Review and Settlement with Carilion Clinic to Divest Virginia Outpatient Clinics • FTC Settlement of the Pfizer-Wyeth, Merck-Schering Plough, Watson-Arrow (Dec. 2, 2009) Merger Investigations • Conflicting Reports on Payor Competition

24. Mergers Agency Enforcement Activities (cont.) • FTC Investigation of Consummated Hospital Merger Between Scott & White Healthcare and King's Daughters Hosp. (Dec. 23, 2009) • FTC Investigation of MaineHealth Proposed Acquisition of Goodall Hosp. (Dec. 19, 2009)

25. Dominant Firm Exclusionary Conduct-- Section 2 of the Sherman Act • Prohibits “monopolization,” “attempted monopolization,” and “conspiracies to monopolize” • Monopolization and attempted monopolization don’t require an agreement -- unilateral action sufficient • Typically result where a single firm has substantial market power and takes action to exclude its competitors from the market • A conspiracy to monopolize is basically the same as a Section 1 agreement unreasonably restraining competition

26. Dominant Firm Exclusionary Conduct-- Section 2 Monopolization • Requirements: • “Monopoly power”: Typically, a 70% or larger market share • “Predatory conduct”: Conduct that excludes competitors from the market, not based on the predator’s competitive merits • Defense: A “legitimate business justification” • That is, the conduct benefits consumers

27. Dominant-Firm Exclusionary Conduct • Withdrawal of DOJ exclusionary conduct (Section 2) report • Focus on vertical theories, including monopsony (buyer-side) • Defining and identifying predatory conduct: difficult, fact-specific • Predatory conduct in the healthcare sector • Unreasonable agreement can also be predatory conduct

28. Dominant Firm Exclusionary Conduct -- Exclusive/Selective Contracting • Although becoming less common, MCOs sometimes contract with one, or only some of many, providers to provide services, or particular types of services, to the MCO’s members • The problem: Foreclosure of competitors from, potentially, a large share of the market • Provider and/or MCO (or both) with the contract gains significant market power

29. Dominant Firm Exclusionary Conduct-- Exclusive/Selective Contracting • The antitrust analysis: • Typically little risk because selective contracting can result in lower prices as providers compete for the contract. • Can raise significant antitrust issues in limited circumstances: • The MCO and/or provider controls a very large percentage of all potential patients • The selective contracting forecloses a substantial percentage of competing providers • The contracts are of long duration • The selective contracting does not result in lower prices ("you scratch my back . . . ")

30. Competition Between Hospitals and Staff Physician-Owned Facilities • POFs: SSHs (heart, ortho), ASC’s, imaging centers – does ownership influence referrals (“cream-skimming”)? • Hospital responses: economic credentialing; exclusive contracting with payors; and/or others • Antitrust issues for hospitals: • Section 1 or 2 – agreement vs unilateral conduct is key • Are physician investors foreclosed? • Hospital justifications for policy • Issues for non-investing physicians (including staff): avoid agreements or arrangements with hospital with purpose or effect of excluding physician-investors

31. Physician and Other Provider Cartel Activity --Section 1 of the Sherman Act • Prohibits agreements that unreasonably restrain competition • Agreements: Horizontal (among competitors) and vertical (among firms at different levels in the chain of distribution) • Parts of single entities can’t “agree,” so Section 1 doesn’t apply to their internal activities

32. Physician and Other Provider Cartel Activity --Section 1 of the Sherman Act • “Unreasonably restrain competition”: • The “per se rule”: Agreement is automatically unlawful, no questions asked • The “rule of reason”: Typically a complicated analysis, requiring market definition and then proof of actual anticompetitive effects in that market

33. Physician and Other Provider Cartel Activity • Agency Enforcement Activities: • FTC Price-Fixing Claims Against Alta Bates Medical Group • North Texas Specialty Physicians (NTSP) v. FTC • FTC’s TriState Clinical Integration Advisory Opinion • DOJ Letter to Senate Judiciary Committee re review and possible modification of DOJ/FTC guidance documents on clinical integration (Dec. 10, 2009, Senate Response Dec. 23, 2009)

34. Physicians and Other Provider Cartel Activity --Clinical Integration ("CI") • Pros: • Aligns with healthcare reform rhetoric • Selling CI concept to members may be more likely to get buy in from providers • Focus is on quality rather than financial penalties • CI also may achieve “buy in” from payors • Demonstrable, higher quality might leaded to higher reimbursements

35. Physician and Other Provider Cartel Activity -- CI • Problems with clinical integration • Fad? • Expense • Time • Education • Legal uncertainty • Uncertain financial return • Lack of payer interest • Loss of members

36. FTC Appears To Be More Receptive To CI • TriState Health Partners, Inc., FTC Advisory Opinion, 2009 • Greater Rochester Independent Practice Association, Inc., FTC Advisory Opinion, 2007 • MedSouth II, FTC Advisory Opinion, 2007 • Advocate Health Partners Consent Order, 2007 • Brown & Toland (Revised Model), 2006 • Commissioner Harbour (AHA Annual Meeting, April 27, 2009): CI correctly done, “embodies the principles of health care reform of the Obama administration”

37. CI -- Typical Characteristics • Emulate single, multi-specialty practice • Physician developed and implemented • Significant infrastructure to support sharing of clinical information • Clinical guidelines/protocols • Efficiency, quality, and cost goals or benchmarks • Information sharing – HIT • In-network referrals • Treatment coordination • Performance monitoring and reporting • Corrective action • Sanctions • Exclusivity?

38. Physician and Other Provider Cartel Activity • To date, FTC attacks on provider price fixing have been resolved by a consent order • Dissolution of the network • FTC oversight of providers’ managed care contracting • Other legal exposure includes: • Treble civil damages • Imprisonment and criminal penalties • Disgorgement • State AG action • Payors will use an FTC investigation/settlement as leverage in managed care contracting negotiations • Community/patient perception

39. Pharmaceutical Issues • Agency and legislative activities: • DOJ Brief: In re Ciproflaxin Hydrochloride Antitrust Litigation • House Energy and Commerce Committee Exclusion Payment Bill • FTC Interim Report on "Authorized Generic" Drugs

40. Legislative Competition Advocacy • DOJ Antitrust Division Assistant AG Testimony on the Repeal of Antitrust Exemptions for Health Insurers • Not included in Senate healthcare reform bill

41. What Does This Mean? • FTC - never left • DOJ - coming back • Continued focus on providers, including physicians and hospitals • But renewed and increased focus on insurance companies and pharma

42. How Do Investigations of Providers Begin? • Complaints by insurance companies • Complaints by direct contract customers • Complaints by rental networks • Complaints by other providers

43. Agency Investigations • Can begin as informal (information request) or formal (subpoena) • Recent FTC court actions to enforce subpoenas • Every document in your files (including electronic) having to do with managed care contracting, competition and pricing of services • Depositions of physicians/employees • Duration is many months • Third party interviews/document requests/depositions • You have no access to this information

44. Investigations Are Expensive(not to mention litigation . . .) • Government antitrust investigations are extremely expensive and time consuming • Between $50,000 and $1+ million, depending on many factors • Not unusual for merger and criminal investigation costs to exceed $5 million • Private-party damage actions are extremely expensive and time consuming • Costs between $4 and $6 million not unusual in medium-size antitrust cases

45. Federal Policy Framework • U.S. Dep’t of Justice & FTC, Merger Guidelines (1992, as amended 1997) • Statements of Antitrust Enforcement Policy in Health Care (Aug 28, 1996) (www.ftc.gov/reports/hlth3.shtm) (Healthcare Guidelines) • FTC/DOJ Report, Improving Health Care: A Dose of Competition (2004) (www.ftc.gov/reports/healthcare/040723healthcarerpt.pdf) • FTC Clinical Integration Workshop held on May 29, 2008 (www.ftc.gov/bc/healthcare/checkup) • FTC and U.S. Dep’t of Justice, Antitrust Guidelines for Collaborations Among Competitors (2000)

46. Federal Policy Framework (cont.) • Business Review Letters/Advisory Opinions • FTC - www.ftc.gov/bc/healthcare/industryguide/opinionguidance.htm • DOJ - www.usdoj.gov/atr/public/busreview/letters.htm • Enforcement Actions • FTC - www.ftc.gov/bc/healthcare/antitrust/index.htm • DOJ - www.usdoj.gov/atr/cases.html

47. Other Helpful Resources • ABA Section of Antitrust Law, Antitrust Law Developments (6th ed. 2007) • ABA Section of Antitrust Law, Antitrust Health Care Handbook III (2004) (revised edition forthcoming 2009) • Paul J. Felstein, Health Care Economics (6th ed. 2005) • Herbert Hovenkamp, Federal Antitrust Policy (3d ed. 2005) • 1-5 John J. Miles, Health Care & Antitrust Law (Supp. 2008)

48. Questions