Highlights From the ABA/AHLA Antitrust in Healthcare Conference

Health Update

On May 17–18, 2018, the American Bar Association (ABA) and American Health Lawyers Association (AHLA) hosted their biannual Antitrust in Healthcare Conference in Arlington, Virginia. The conference featured programs on a range of topics, including horizontal collaborations, hospital mergers, vertical arrangements, certificates of public advantage and pharmaceutical “pay-for-delay” agreements. Several representatives from the antitrust enforcement agencies—including the Antitrust Division of the Department of Justice (DOJ), the Federal Trade Commission (FTC) and the National Association of Attorneys General—provided their views on healthcare antitrust enforcement in keynote speeches and on panels. Below is a summary of the highlights from enforcer presentations.

DOJ: Criminal Enforcement Takes Top Billing

Keynote Speech From Deputy Assistant Attorney General for Antitrust

The conference opened with a speech by Barry Nigro, Deputy Assistant Attorney General for the DOJ. Nigro stressed that “few, if any, segments of our economy merit higher enforcement priority when it comes to antitrust enforcement” than the healthcare sector, due to its size and importance to the economy, as well as the fact that increased costs can mean lost lives.

The DOJ is particularly focused on criminal enforcement. Its efforts in this area include investigations into price-fixing, bid-rigging and market-allocation agreements in the generic pharmaceuticals industry. The first charges were filed in 2016 over an antibiotic and a diabetes medication, and both led to guilty pleas. In addition, Nigro mentioned that the DOJ is involved in ongoing criminal investigations involving employee “no-poach” agreements. These investigations also have been highlighted on other occasions by Assistant Attorney General for Antitrust Makan Delrahim.

In his keynote, Nigro stressed that the Antitrust Division has also been active on the civil side. For example, he discussed the DOJ’s victories in the two health insurance merger litigations last year, noting that Anthem’s proposed $54 billion acquisition of Cigna would have been the largest proposed healthcare transaction in history. (For a more detailed discussion of the health insurance mergers, please see our February 2017 and March 2017 “Health Update” articles.) In the wake of those failed mergers, Nigro also mentioned the DOJ’s investigation of the Cigna-Express Scripts deal and the CVS-Aetna transactions but did not comment on these ongoing investigations.

The DOJ also continues to challenge anticompetitive conduct. For example, the DOJ is currently in litigation against Atrium Health (formerly known as Carolinas HealthCare System) over its anti-steering restrictions to prevent insurers from directing consumers to lower-cost providers. According to the DOJ, Atrium used the anti-steering restrictions to protect itself from price competition. The case is currently in expert discovery and scheduled for trial in May 2019. (For a more detailed discussion of the case, please see our April 2017 article.)

In addition, Nigro discussed the DOJ’s advocacy efforts. The DOJ and FTC often jointly advocate against certificate of need laws because they primarily benefit incumbent market participants who can take advantage of these laws to delay or block competition. (Certificates of need (CONs) are legal documents required in many states and federal jurisdictions before proposed expansions, acquisitions or creation of facilities are allowed. CONs are required by 35 states for the construction of medical facilities.) Meanwhile, consumers may be harmed by having to travel further for care and not reaping the benefits of lower prices and increased quality that accompany competition.

The DOJ’s advocacy efforts also focus on licensing and certification for healthcare providers, whether on behalf of a state or a private self-regulatory body. While licensing requirements can serve an important public safety function, they also can be used by rivals as a means of imposing unnecessary entry barriers and limiting competition. Together with the FTC, the DOJ has urged state legislatures to balance the need for licensing with harm to competition. As an example, Nigro mentioned the agencies’ advocacy regarding telehealth laws in Michigan and restrictions on what services optometrists can provide in Massachusetts and Puerto Rico. In order to be beneficial, these state laws need to set safety standards by objective means related to health and ensure that any restrictions are narrowly tailored.

Comments From Chief of Healthcare and Consumer Products Section

The conference featured an enforcer panel, including Peter Mucchetti, Chief, Healthcare & Consumer Products Section for the DOJ. Mucchetti provided additional insights into the DOJ’s civil enforcement cases, as well as into the insurance company mergers.

Mucchetti discussed the DOJ’s case against Henry Ford Allegiance Health (Allegiance) and three rival hospitals in a neighboring county in South Central Michigan over allegations that they conspired to restrict marketing. The DOJ pursued these agreements as per se illegal (not requiring proof of anticompetitive impact). According to Mucchetti, the agreement between the four hospitals not to advertise in each other’s territories is likely to have an adverse effect on hospital competition and quality: The beneficiary of the agreement knows that it does not need to compete and therefore has less incentive to improve its operations, and the nonadvertising party will not make investments in an area if it cannot advertise the improvements. Consumers therefore lose, because the parties are competing less intensely, and they do not get the information that they need to make the best healthcare decisions.

The DOJ believed it could win the case at trial principally because of the hospitals’ internal documents, which specifically referenced the marketing agreement. The DOJ settled with Allegiance in February 2018 after already settling with the other three hospitals. (For more information, please see our “Health Update” article from June 2017.)

Mucchetti also addressed the insurer mergers as a major and historic DOJ accomplishment. The DOJ had never seen two such big deals tried at the same time. The cases have provided the DOJ with a basis for health insurer cases going forward. The DOJ now has three court opinions—including one appellate—all agreeing with the DOJ’s positions on market definition and competitive effects. For example, the courts accepted the DOJ’s market definitions for individual market, Medicare Advantage, and large accounts for employers across the country. The opinions were also favorable to the DOJ regarding the difficulty of entry for new entrants seeking to compete due to barriers from reputation, brand and geographic coverage: Large employers need national products, which can be hard for a new entrant to develop.

FTC: 14 Active Healthcare Matters

The enforcer panel also featured remarks from Ian Conner, Deputy Director, Bureau of Competition, FTC. Conner stated that the FTC is very active in antitrust and healthcare matters, and currently has 14 very active healthcare matters. Two out of the five trials that the FTC has scheduled for this year are in the healthcare industry. These figures do not include the appeal in the North Dakota Sanford merger case and the FTC’s recent settlement with Impax Laboratories over a pay-for-delay agreement concerning generic drugs. (For more information on the Sanford Health case, please see our article “The FTC Continues to Challenge Healthcare Mergers.”)

Conner noted that parties should not be shocked when the FTC challenges a deal to buy their main competitor. Ever since its 2007 victory against Evanston Northwestern Healthcare, the FTC has been on a winning streak. The FTC has focused on identifying how the transactions harm consumers, and the courts have agreed on the right test to define markets. In particular, courts have accepted that payers are the entities trying to assemble networks and determine which hospitals they need.

Conner recommended that merging parties look closely at industry dynamics. There is now fairly well-developed case law in the Third, Seventh and Ninth Circuits regarding how to approach merger analysis. In particular, Conner discussed the Third Circuit’s helpful holding that long- term contracts between insurers and hospitals will not solve anticompetitive problems. If parties sign a five-year contract not to raise rates, the courts and agencies will ask what happens at the end of the five-year term.

Conner also reminded the audience that the FTC has a history of challenging consummated mergers, particularly in healthcare. Both the DOJ and the FTC believe that regulation is not a substitute for competition—and competition is superior to regulation. Despite the heavy case burdens imposed on the agencies recently, neither has cleared a transaction due to lack of resources.

State Attorneys General: Focusing on Healthcare as a Local Issue

The final panelist on the enforcer program was Victor Domen, Senior Antitrust Counsel, Office of the Attorney General, Nashville, Tennessee, who is also Chair of the National Association of Attorneys General (NAAG) Antitrust Task Force. He noted that state Attorneys General (AGs) are active in healthcare antitrust and, while they value working with the federal agencies, they are not afraid to proceed on their own. AGs recently have filed antitrust cases on healthcare issues without the FTC or DOJ in both California and Washington.

While there was some disagreement between Domen and the federal regulators on state action issues, the FTC and DOJ generally work very closely with AGs, have good relationships with them and freely share information. For healthcare matters generally, cooperation between the state and federal enforcers is necessary, because healthcare’s impact is very local. Coordination between AGs and federal regulators provides additional attorneys and resources that can be used to tackle more complex cases that generate a significant number of documents. Additionally, the AGs have good relationships with relevant state agencies, such as Departments of Insurance, which also can be important resources.

Domen highlighted that the AGs keep tabs on physician practice acquisitions, using their knowledge of local deals to step in on nonreportable transactions. States are ready to intervene whenever a transaction, such as the Sanford Health deal, results in a market share that is greater than about 80%. As Domen explained, if the numbers look bad on paper, the deal is probably going to look bad to the AGs. Domen urged parties considering transactions to look at the data and talk to their antitrust counsel before pursuing the deal. The cases that the AGs pursue are not close calls. Other market participants are going to complain to the AGs if an acquisition pushes market share beyond 80%.

Domen also addressed certificates of public advantage (COPAs), using the Wellmont-Mountain States transaction as an example. COPAs do not involve a pure competition analysis. Rather, they can address broader concerns—and have a large public health component. Domen stressed that the two nonprofit systems in the Wellmont-Mountain States case underwent a complicated certification process and will be monitored closely by the AG.