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FTC and DOJ Release Joint Report on Health Care Competition

August 2004

On July 23, 2004, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) issued its much-anticipated joint report that reviewed the role of competition in the health care market and offered recommendations on how to improve the balance between competition and regulation. The 361-page report, “Improving Health Care: A Dose of Competition,” is the culmination of twenty-seven days of joint hearings on health care and competition held from February through October 2003, an FTC-sponsored workshop in September 2002, and independent research. See for the full report.

The report does not announce any changes in antitrust enforcement policy but it does provide numerous insights into the government’s thinking about a number of topics.

Physician Network Joint Ventures
The report discusses how competing physician groups may lawfully network using: financial integration, clinical integration, or the messenger model. Examples of insights provided by the report include:

  • Sufficient financial risk-sharing may be present where pay-for-performance arrangements are based upon “group” or “shared” performance and a non-trivial withhold is involved.

  • Clinical integration is acknowledged to be a murky area of federal enforcement policy. The report suggests a number of fairly detailed questions that ought to be asked in this context.

  • The messenger model continues to be a viable mechanism for unintegrated providers to network, but the government continues to prosecute failed attempts to implement the messenger model.

The report discusses the difficulties in defining the proper markets in hospital merger cases. The report is critical of court decisions rejecting the agencies’ most recent attempts to challenge hospital mergers. Key elements of the criticism include the courts’ reliance on the Elzinga-Hogarty test and misapplication of the critical loss analysis, both of which have produced geographic market definitions that are too broad. The agencies also suggest that additional weight should be given to payor testimony and hospital strategic planning documents.

The report strongly suggests that merger analysis should not be affected by the institutional status of the merging hospitals and that community commitments should not be used to resolve otherwise anticompetitive mergers.
The report also discusses recent hospital responses to physician-owned specialty hospitals and ambulatory surgery centers. The report confirms that the antitrust laws will not limit a hospital’s ability to oppose certificate of need (CON) applications or revoke medical staff privileges to counter this new competition.  Notably, Wisconsin is one of several states that have repealed its CON laws.

The agencies strongly oppose regulation of pharmacy benefit managers as a means to compel transparency in pharmacy contracting practices. The agencies take the position that increased competition-as opposed to regulation-will result in the disclosure of contract terms.

The FTC has pursued several enforcement activities to remedy actions by companies attempting to circumvent the Hatch-Waxman Act, which was enacted in 1984 to encourage competition from lower-priced generic drugs. Congress has also adopted two major recommendations to preclude certain abuses of Hatch-Waxman. The recommendations were part of a 2002 study by the FTC that addressed strategies by pharmaceuticals to affect the timing of generic drug entry prior to patent expiration.

The agencies recommend that governments reexamine the effects of insurance mandates. Because such mandates tend to increase the cost of health insurance, such mandates tend to restrict choices, eliminate diversity in products, and reduce access to health care.

Likewise, the agencies recommend that governments reexamine the effects of any willing provider laws, which require managed care companies to include in their networks any provider that is willing to participate in the plan in accordance with plan terms. The report finds that any willing provider laws are likely to decrease payor bargaining power with providers, resulting in higher premiums and greater numbers of uninsureds.

The report breaks little new ground but does provide much additional detail on the federal government’s position on both policy issues and antitrust enforcement concerns in health care markets. It is important for health care providers of any type to be aware of these positions. 

The information provided is not intended as legal advice for particular situations and is provided for information purposes only.  The information is not intended to create and does not create an attorney client relationship.

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