Contributor: Sean McConnell
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The federal government has been keenly focused on promoting competition, lowering healthcare costs, and improving the quality and availability of healthcare through increased enforcement of the federal antitrust laws since President Joe Biden’s 2021 Executive Order on promoting competition in the American economy. In the administration’s view, the quality of patient care suffers from lack of competition, and consolidation is leading to higher healthcare pricing and depressed wages for healthcare workers. Enforcers are taking regulatory and legal actions to scrutinize transactions and conduct in the healthcare space in the hopes of improving overall patient welfare.
Federal Antitrust Enforcement
The Federal Trade Commission (“FTC”) and U.S. Department of Justice Antitrust Division (“DOJ”) enforce the federal antitrust laws. Those laws include the Sherman Act, the Clayton Act, and the FTC Act. The federal antitrust laws have traditionally been viewed as promoting competition and consumer welfare by proscribing unlawful mergers and anti-competitive business practices. Generally, FTC and DOJ investigations into potential violations of the federal antitrust laws are non-public, and only the DOJ can obtain criminal sanctions. While the agencies often complement each other by focusing on different industries or markets, both agencies have been active in enforcing the healthcare industry, which represents almost 20 percent of GDP.
How Is The Changing Antitrust Enforcement Landscape Impacting Providers?
Healthcare providers should be aware of several new aspects of antitrust enforcement, including the following key changes:
- The agencies issued new merger guidelines last year that impact how the Agencies will evaluate healthcare provider transactions.
- Proposed changes to the information required to be submitted to the agencies as part of the pre-merger notification process under the Hart-Scott-Rodino (HSR) Act will increase the compliance burden on merging parties.
- The agencies have ramped up scrutiny of private equity ownership of healthcare providers and the concentration and anti-competitive use and sharing of competitively sensitive healthcare data.
New Merger Guidelines and Filing Requirements
While the merger guidelines are not law, they suggest various ways in which the agencies are intentionally becoming more aggressive in challenging mergers. Consistent with recent removals of safety zones from longstanding agency enforcement policies, the new guidelines remove references in prior merger guidelines to the level and increase in concentration that typically do not raise concerns. The guidelines also substantially lower the threshold for a structural presumption of a violation of the Clayton Act based on level and increase of concentration in a market. These changes mean increased scrutiny of collaborations and combinations between competitors.
Vertical transactions, like a hospital system acquiring a physician practice, are also likely to receive more scrutiny. The new guidelines articulate several aspects of how the agencies may seek to establish, through presumption or otherwise, adverse effects on competition, while omitting any thoughtful discussion of well-recognized potential procompetitive effects of vertical mergers. This new view likely signals more challenges of vertical transactions that previously may have been considered procompetitive.
Healthcare providers must also consider the impact that a collaboration may have on staff. The new guidelines reinforce a clear focus by the agencies on protecting the wages and mobility of workers of merging firms, regardless of any reductions in labor costs that would lead to lower prices to consumers.
Anticipated new HSR filing requirements means more compliance issues for HSR reportable transactions in 2024 and beyond. Based on the draft released last year, the proposed changes would mark a major overhaul of the information collected in the pre-merger process. Merging parties would need to provide key information about the terms of and rationale for the transaction, horizontal product or service overlaps, vertical relationships, company investors, and employees. The parties will also need to submit additional transaction and strategic documents and ordinary course business documents that discuss competition in affected markets.
Private Equity Ownership in the Crosshairs
As private equity ownership of healthcare provider practices has increased, so has federal antitrust enforcement. FTC and DOJ are scrutinizing private equity ownership of actual and potential competitors as well as serial acquisitions or “roll-ups” of provider practices. The FTC sued the private equity owners of anesthesia practices last year alleging they engaged in an anti-competitive scheme to consolidate anesthesia practices in Texas and to force other independent anesthesia groups into price-setting arrangements that violated the federal antitrust laws. The complaint marked the first time the FTC challenged serial acquisitions or “roll-ups” by a private equity firm and is consistent with newly issued merger guidelines.
The new guidelines also highlight concerns by the agencies with both cross-ownership (holding non-controlling interest in a competitor) and common ownership (individual investors hold non-controlling interests in firms with a competitive relationship) that could impact private equity ownership in the healthcare provider space. The agencies are policing interlocking directorates — individuals serving on boards of competing corporations — under Section 8 of the Clayton Act. Assistant Attorney General Jonathan Kanter has called Section 8 an “important but underenforced” antitrust law, and DOJ has issued numerous statements identifying unwound or prevented interlocks.
The agencies are also focused on data ownership in the healthcare industry where much of the innovation is driven by uses of patient data. Healthcare providers should be particularly careful in how they share competitively sensitive information in light of DOJ’s withdrawal of policy statements that had permitted certain “safety zones” of information sharing between competitors in the healthcare industry. Healthcare providers must consider the antitrust implications of participating in certain information-sharing arrangements, in particular in conjunction with the use of predictive technology or third-party pricing algorithms that could facilitate coordination between competitors.
It is clear the current administration and various federal agencies have healthcare competition in their crosshairs. The efforts announced by the DOJ and FTC highlight efforts to achieve the mandates of the administration’s 2021 Executive Order. Healthcare companies must have antitrust compliance top of mind as they navigate this rapidly changing enforcement landscape.
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Disclaimer: This article has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice.