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DOJ and FTC Announce Proactive Approach to Monitoring Post-Affordable Care Act Antitrust Compliance at Joint Workshop

On February 24 and 25, the DOJ and FTC held their second joint workshop to examine the state of health care competition in the United States.  The workshop explored five main themes: (1) early observations regarding accountable care organizations; (2) alternatives to traditional fee-for-service payment models; (3) trends in provider consolidation; (4) trends in provider network and benefit design strategies; and (5) early observations regarding health insurance exchanges.

In his opening remarks on February 25, Bill Baer, the Assistant Attorney General in charge of the Antitrust Division, discussed DOJ’s role in monitoring the activities of both insurance companies and health care providers in light of changes in the industry prompted by the passage of the Affordable Care Act (ACA) in 2010.  While AAG Baer noted that the ACA has fostered competition among insurance companies by encouraging them to create new plan designs that drive competition and benefit consumers, he also suggested that there is still ample room for insurance companies to abuse their market power.  AAG Baer announced that the DOJ planned to pay particular attention to the contracting practices of insurance companies that threaten competitive harm, including anti-tiering, anti-steering, and most favored nation clauses.  Baer implied that the recent ruling in United States v. American Express, where the District Court for the Eastern District of New York found that American Express restricted competition by imposing anti-steering rules on merchants, could be equally applicable to companies in the health care market.

Turning to health care providers, AAG Baer observed that the ACA had also increased innovation among providers that offered consumers better quality and reduced costs.  But he then explained that the DOJ’s preference when challenging horizontal mergers in health care would be to seek “structural remedies” rather than “behavioral remedies,” such as price caps and stipulations to limits on future growth.  AAG Baer also expressed concern over a recent “wave of vertical integration” as hospitals have acquired physician practices.

In a panel held later that day, experts echoed AAG Baer’s concerns regarding vertical integration between hospitals and physician practices because the data from several studies does not support hospitals’ claims that the mergers are increasing savings and providing better service for patients.  Professor Martin Gaynor of Carnegie Mellon University announced that the data actually shows that the cost of treating patients often increases after hospitals and physician practices merge.  The panel also discussed the FTC’s recent victory in the Ninth Circuit where the appeals court upheld the district court’s order dissolving the merger between an Idaho hospital and the largest physician practice group in Idaho because the merger violated the Clayton Act.

Panelist Joe Miller, General Counsel for America’s Health Insurance Plans, offered an explanation for what is driving this wave of vertical integration.  Miller pointed out that Medicare offers incentives for these mergers because hospitals receive more compensation than independent doctors for many identical services.  In reality, Miller continued, hospitals and physician practices are merging to maximize revenue rather than to create efficiencies.  Miller concluded that anticompetitive transactions are still illegal, with or without the ACA.