Antitrust Risk Rising: Challenges Faced By Health Plans in the Post-Reform Environment

1. Antitrust Risk Rising: Challenges Faced By Health Plans in the Post-Reform Environment William E. Berlin September 15, 2011

2. Post-Reform? • Still evolving: final ACO regs; GOP rollback; reimbursement changes • Many (most?) changes driven by market not health reform • Diminished profitability of traditional core insurance products • Provider consolidation • Competition from providers -- e.g., captive insurers • Increased FTC/DOJ enforcement?

3. Health Plan Responses to Reform & Market Changes • Buying providers/forming ACOs • Selling back-room services to providers (e.g., practice management) • Merging with other health plans?

4. What Antitrust Issues Do Health Plan Responses Raise? • Mergers: Horizontal v. Vertical; Plans and Providers • ACO Rules • Provider Contracting/Exclusionary Conduct By Dominant Firms • Information Sharing/Gun Jumping

5. Enforcers • Antitrust Division, United States Department of Justice • Civil injunctive relief • Criminal prosecution: penalties include fines and prison • U.S. Federal Trade Commission • Civil injunctive relief only (but can refer criminal violations to DOJ) • Disgorgement

6. Enforcers (Cont’d.) • State attorneys general • Enforce state antitrust laws and bring damage actions under federal antitrust laws • Typically follow and defer to FTC/DOJ • Private parties injured by the conduct • Triple the actual damages • Attorneys fees • Often tag-along on government cases

7. Health Plan, Hospital 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 • Horizontal = Increased market power/coordination • Vertical = Foreclosure of competitors

8. Mergers (and Joint Ventures) • Threshold consideration: Ensure the merger results in a single entity for antitrust purposes – American Needle v. NFL (2010) • Integration of firms must be near-total • If not, the firms continue to constitute separate competing firms for antitrust purposes • If so, their agreeing on prices, etc. constitutes unlawful price fixing (unless integrated and ancillary) or other Section 1 violation • Sherman Act Section 1: Prohibits agreements between competitors that unreasonably restrain competition

9. Mergers:2010 Horizontal Merger Guidelines • First revision since 1997 (minor), 1992 • More aggressive approach • More flexible, less mechanistic • Better conform to existing agency practice • To achieve better results in court? • But is the bar raised?

10. Revised Horizontal Merger Guidelines • Significant changes relevant to healthcare mergers: • Emphasize anticompetitive effects analysis/deemphasize market definition • Increased importance of other evidence of likely or actual adverse effects • Implications for healthcare transactions

11. Horizontal Mergers -- Warning Signs: • Merging firms, together, have a 35 to 40% or larger market share • Four largest firms have a 50% or larger market share • Customers complain because merged firm would be able to increase prices significantly (or decrease payments to providers) • Few efficiencies • New firms would not enter the market • (New) Merging firms can raise (or have raised) prices or harm competition • Other new requirements?

12. Health Plan Mergers (Horizontal) • Past DOJ Antitrust Division enforcement criticized by providers • Three prior 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 • DOJ investigation of Blue Care Network of Michigan - Physicians Health Plan of Mid-Michigan (2010): monopsony concern

13. Provider Mergers (Horizontal) • Bottom lines: • Hospital and hospital-physician mergers on the upswing in 2010-11 • More aggressive enforcement under revised Guidelines • Increasing emphasis on: • Pricing analysis and direct effects (retrospective review) • Effect on employers, health plans (key role) • Increased provider concentration/bargaining power?

14. Provider Mergers:Agency Enforcement Activities • FTC v. Evanston (2005, aff'd 2007): retrospective; pricing evidence • FTC v. Inova (2008): effect on small employers; skeptical of efficiencies/quality claims; fast track procedure • Pro Medica – St. Luke’s Hospital (2011) • Phoebe Putney – Palmyra Park Hospital (2011)

15. Health Plan Acquisition/Integration of Providers (Vertical) • Concern is foreclosure/exclusion of competitors • Can also be horizontal issue if health plan acquires large percentage of provider specialty/type • Highmark-West Penn Allegheny Health System

16. The FTC/DOJ ACO Policy Statement • To which entities does the Policy Statement apply? • Steps in analysis • How to mitigate antitrust risk • Agency review process • Health plan perspective • one form of vertical acquisition/integration • increased concentration of horizontal providers

17. To Which ACOs Does The Statement Apply? • Competing providers (even if with health plan) • Criteria for Shared Savings Program • Contracting with commercial insurers • Clinical integration

18. Streamlined Analysis Based on ACO’s Share • How to calculate the PSA shares necessary to make threshhold determinations • Safety zone – 30% • Rural exception – can exceed 30% • Dominant provider limitation – single provider can exceed 50% • Mandatory review for ACO’s exceeding 50%

19. ACOs: How to reduce risk of investigation or mitigate antitrust concern • Same factors used for ACOs with shares between 30-50% and over 50%. Don’t: • Prevent payor steering • Tie ACO services to services of providers outside of ACO (including participants) • Make ACO providers exclusive to the ACO (except PCPs) • Restrict payors ability to provide info to enrollees to select NW providers • Share price info among ACO participants

20. ACOs: Agency Review Process • Documents and information required • 90 day review period • Agency approval required for ACOs exceeding 50%

21. ACO Bottom Line • Little provider interest now; health plan interest? • New regulations, models? • Provider ACOs able to exercise market power in bargaining with health plans?

22. 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

23. 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

24. Dominant-Firm Exclusionary Conduct • U.S. v. BCBS of Michigan – latest DOJ challenge of MFN clauses • Focus on monopsony (buyer-side) effects • U.S. v. United Regional HealthCare • Defining and identifying predatory conduct: difficult, fact-specific • Unreasonable agreement can also be predatory conduct (e.g., DOJ alleged only Section 1 claim v. BCBS Michigan) • Typically enforced by DOJ (protracted, complex investigation/litigation)

25. Guidelines for M&A Due Diligence and Providing Management Services • Information sharing • Gun-jumping • Omnicare v. UnitedHealth and Pacificare • FTC/DOJ Healthcare Policy Statement 6 • Safety Zone: third party; information 3 months old; aggregated • Public information OK; future prices not

26. Resources: Federal Policy Framework • U.S. Dep’t of Justice & FTC, Merger Guidelines (1992, as amended 2010)(http://www.ftc.gov/os/2010/08/100819hmg.pdf ) • 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/DOJ Proposed Statement of Antitrust Enforcement Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program (April 2011)(http://gpo.gov/fdsys/pkg/FR-2011-04-19/pdf/2011-9466.pdf) • FTC and U.S. Dep’t of Justice, Antitrust Guidelines for Collaborations Among Competitors (2000)

27. 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

28. 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)

29. Questions?