Tip Sheets

Reporter’s guide to health care antitrust issues

By Mark Taylor

Who brings health care antitrust actions?

The issues

How to get antitrust stories

Source list

Important federal antitrust laws applied to health care

Recent significant health care antitrust cases

Antitrust issues are among the most underreported stories in health care.

And that’s a shame because, at their core, health care antitrust stories often include classic elements of conflict, greed, conspiracies, collusion and intense rivalry. Millions, even billions, of dollars are at stake. Antitrust enforcement is supposed to level the playing field and prevent unfair forms of competition that violate laws dating back a century.

They are sometimes the only obstacles preventing unfettered capitalism.

We don’t normally think about local hospitals as cutthroat competitors seeking to put rivals out of business or operating monopolies that can charge whatever they wish because they’ve bought, intimidated or frightened away competition. And anticompetitive behavior can exert real impact on health care pricing, access and quality of care. Organizations with market power often do charge higher prices. And when they raise prices, their competitors frequently do as well. Some researchers have suggested that it may also reduce the quality of care. Merger deals in which religious organizations emerge as the dominant parties can end access to certain reproductive services, compelling patients to travel far distances for services formerly available in their home towns.

In several studies health care economists have confirmed that hospital consolidation is one of the factors driving higher health care prices. The year 2011 was a banner year for hospital mergers, with nearly 90 reported. Much of this consolidation is driven by changing models of health care delivery and a move towards integration and collaboration.

But the federal agency charged with oversight of hospital mergers, the Federal Trade Commission, has been aggressively challenging mergers, even those claiming improvements in health care quality. Potentially at odds with this FTC approach, hospitals and health systems have been acquiring physician groups and moving towards the formation of integrated health systems.

The Affordable Care Act has incentivized hospitals to form accountable care organizations. In ACOs, different kinds of providers, hospitals, physicians, even nursing homes caring for populations of patients collaborate to improve care and reduce costs, waste and duplication, and share in the savings.

open quotePhysician-hospital deals are likely to create a lot of news in the years to come as hospitals and doctors move toward integration.close quote

Looking forward, health care antitrust attorneys foresee more antitrust enforcement and activity in the real intra-governmental department conflict between the Centers for Medicare and Medicaid Services, a branch of the U.S. Department of Health and Human Services and its implementation of the Affordable Care Act and the Federal Trade Commission. Some of the objectives of the ACA are intended to encourage sometimes-competing health care providers to collaborate to improve quality of care and reduce costs.

However, the merger enforcement philosophy at the FTC has challenged some mergers that claim quality improvement as one of the benefits, arguing that the mergers would reduce competition and raise costs. Health care providers, particularly hospitals, have said the FTC is discouraging consolidation and collaboration and the formation of some new health care delivery models, such as ACOs. Some cases are known because the FTC has challenged the mergers. Health care antitrust attorneys say this inconsistency of purpose between federal agencies is hurting innovation and stifling the kinds of collaborations the ACA envisioned. Some fear these new business arrangements aren’t getting accomplished because of fear of federal antitrust prosecutions.

The goal of this guide is to highlight current and future health care antitrust issues and provide source lists and story ideas for reporters interested in covering the topic. It also offers reporters on deadline reputable sources, studies and reports and stories written on similar topics to provide context and background.

Who brings health care antitrust actions?


Photo by afagen via Flickr

The Antitrust Division of the U.S. Justice Department and the Federal Trade Commission are the federal antitrust enforcement agencies (Contact information listed below) filing antitrust actions. Most antitrust actions are civil. But the U.S. Justice Department has both criminal and civil authority under the Sherman Act and civil actions to enforce the Clayton Act in federal district court. The FTC has no criminal authority but can seek injunctive relief for violations of the Clayton Act and FTC Act in federal court.

Every state attorney general office has the authority to bring antitrust actions under its own state laws, frequently patterned after similar federal laws. But some state attorneys general are more active than others. California, Massachusetts, Michigan, New York and Pennsylvania are among the most active in bringing actions against health plans and health providers. Providers also can file antitrust actions without government agency support and frequently do. Physicians have brought many hospital staff privilege actions, but hospitals and health plans also file private lawsuits, mostly in federal courts.

In health care, antitrust issues are always framed in terms of prices. Both merging parties claim the deal will result in lower prices to consumers. If they intervene, the FTC,  Justice Department (for payers) and state attorneys general claim that that more competition will lower prices by letting consumers price-shop and by reducing providers' bargaining clout with health plans. Providers say competition drives up prices by fueling the proliferation of excess health care capacity – more beds and more MRIs mean higher prices. They claim those costs then get factored into everyone's health care bills. Depending on the markets and the players, both arguments have merit.
State and federal antitrust regulators are actively monitoring physician acquisitions by hospitals. Physician hospital deals are likely to create a lot of news in the years to come as hospitals and doctors move towards integration.

THE ISSUES

Consolidation is the number one health care antitrust topic, whether it’s mergers between health insurance plans, hospitals or physician groups. Antitrust regulators are examining a variety of partnerships, mergers and acquisitions, such as health plans and hospitals buying physician groups. They also are exploring market niches of those sectors, such as large insurers that own Medicare Advantage (Medicare Part C) plans buying smaller Medicare Advantage plans: Six large health plans now control more than 65 percent of the 14 million Medicare beneficiaries enrolled in Part C plans.

The Federal Trade Commission which, in an agreement with the U.S. Justice Department’s Antitrust Division, was allocated authority to challenge hospital mergers, has been more active in the past three years in that arena than in the previous decade. In 2011 there were 86 reported hospital mergers worth nearly $8 billion, a 12 percent increase over 2010, according to Irving Levin Associates. Merger and acquisition deals for physician groups increased 60 percent in 2011: 107 groups compared to 67 the year before, with deals valued at $465 million. It looks like 2012 was another landmark year for hospital mergers. The FTC studies the impact of the proposed merger (and has also challenged mergers retroactively) on issues of quality, price and access, usually ordering a preliminary injunction to halt the deal from moving forward. They typically examine merging hospitals’ reasons for the merger and the improvements in quality or efficiencies promised and the likelihood that they will occur. The FTC also explores the likely impact of the merger on the market for hospital and other services and its effect on competition and whether the merged hospitals would be likely to raise prices or inhibit competitors. These kinds of mergers are occurring across the country, usually in small- to mid-sized markets in which a consolidation could dramatically change the playing field and restrict other competitors’ ability to compete. (See FTC challenges of hospital merger links.)

Price fixing

Agreements between competitors offering the same products or services to share pricing information and even set pricing. The FTC settled price fixing allegations with dozens of large independent physician practice associations (IPAs) in the past decade. Those independent, otherwise competing physicians shared the prices they charged with the IPA, which then negotiated contracts. In 2009 the FTC settled price-fixing allegations with a San Francisco Bay-area independent practice association (IPA), the 600-doctor Alta Bates Medical Group. The FTC alleged that Alta Bates fixed prices charged to health insurers. The IPA did this by refusing to deal with with certain insurers and by setting fees without consulting individual physician members. The FTC alleged Alta Bates restrained prices and competition for physician services in the Oakland and Berkeley area and harmed consumers by increasing prices paid for physician services.

In a 2010 case, the U.S. Justice Department and the Idaho Attorney General alleged orthopedists in that state illegally participated in two conspiracies to fix prices. In one alleged conspiracy, the surgeons agreed not to accept workmen’s compensation insurance or treat patients covered by workmen’s comp. The doctors agreed to a group boycott to force rate increases, which resulted in a shortage of orthopedists serving the program and higher prices. In the other conspiracy, the competing doctors collectively agreed to terminate their contracts with the state Blues plan. The settlement prohibits them from agreeing on fees and contract terms and from refusing to deal with payers.

Exclusionary conduct

Smaller providers, such as ambulatory (outpatient) surgery centers, are suing hospitals for making it impossible to enter local markets because of exclusive contracts the hospitals have signed with health plans or competing physician groups.

As hospitals gear up to meet the demands of new health care models under the ACA, they are forming tighter relationships with local physicians, often purchasing physician practices to employ doctors who would work more closely to improve care and cut costs. The pace of those purchases has accelerated.

In some cases, those deals have triggered antitrust scrutiny. As part of this integration process, hospitals are buying specialty physician groups. In certain markets, antitrust regulators allege those acquisitions have resulted in excessive market power. In August 2012 the FTC challenged the purchase of Reno, Nev.-based Renown Health, northern Nevada’s largest hospital system, of the region’s two largest cardiology groups. In 2010 and 2011 Renown Health bought the groups, employing approximately 97 percent of the cardiologists serving private patients in the Reno area. In its complaint, the FTC alleged that the purchases gave Renown Health the power to “exercise unilateral market power in the Reno area, which will result in higher prices and a reduction in non-price competition for the provision of cardiology services.”

It charged that “such costs are ultimately borne by patients in the Reno area through higher premiums, co-payments, and other out-of-pocket expenditures.”

The Renown deal was the first time the FTC brought a legal action to block a physician group acquisition. Renown Health and the FTC settled the allegations in a consent decree (PDF) that requires the health system to release cardiologists from non-compete agreements and allow some of the cardiologists to work for competing hospital systems. The resulting settlement governing non-compete agreements is considered a potential way for doctors to avoid antitrust problems.

Both the FTC and the Idaho attorney general are investigating the proposed purchase of the state’s largest primary care physician group by Idaho’s biggest hospital system. St. Luke’s Health System announced plans to close the purchase of the Saltzer Medical Group by year’s end, despite warnings from antitrust regulators, who alleged that the deal would dominate the primary care services market and cut off patient referrals to other hospitals and surgery centers. A competing hospital system, St. Alphonsus Health System, joined by a small for-profit surgery hospital, Treasure Valley Hospital, filed a private antitrust lawsuit saying that the purchase would “threaten to monopolize a broad series of markets in Idaho, further increase health care costs and reduce health care quality.”

open quoteLooking forward, reporters should explore the effects of Medicare Advantage plan consolidation in their own markets. close quote

St. Alphonsus said the purchase would allow St. Luke’s to gain a near monopoly share of primary care services in some markets and “possess an irreplaceable network of hospitals and physicians” and allow it to raise prices beyond competitive levels.

The U.S. Justice Department’s Antitrust Division simultaneously announced the filing and settlement of antitrust charges against Wichita Falls, Texas-based United Regional Health System in 2011, alleging the system strong-armed health insurers into charging more for hospital services to competing hospitals to obtain insurance contracts. In doing so, the Justice Department alleged, United Regional solidified its existing monopoly power – a 90 percent market share for inpatient hospital services – by strategically charging prices to keep out competition. Because United Regional is a dominant, “must-have provider,” commercial insurers almost had to contract with it and accept their terms, which included charging 15 percent to 27 percent higher prices to health plans that contracted with competing hospitals. The Justice Department got involved because it has jurisdiction over health plans.

Certificate-of-need (CON) challenges

More than 30 states continue to operate certificate-of-need programs, which require health care providers to prove a need exists for a facility or piece of equipment of a certain dollar value. What was originally intended to be a health care planning tool to insure access and maintain quality while monitoring costs in an era of medical arms races has turned into a tool for providers to bar market entry to competitors. As a result, dominant hospitals and health systems can often delay rivals’ hospital construction projects, ambulatory surgery centers or other facilities by years, costing them time and money to protect market power. In Illinois, a corrupt state CON board official solicited bribes from hospital executives to obtain permission to build new facilities, leading to the eventual conviction of Gov. Rod Blagojevich.

Here is a study of six state CON programs by the Center for Studying Health System Change for the National Institute for Health Care Reform.

Private litigation

It isn’t just the state and federal antitrust agencies filing legal actions charging unfair competitive practice. Health care providers frequently sue rivals in state and federal courts accusing them of shutting them out of markets or using their size to obtain unfair price discounts. In November 2012 a group of four physician-owned ambulatory surgery centers (ASCs) – outpatient, same-day clinics specializing in surgery – sued Colorado’s biggest hospital chains in U.S. District Court in Denver. The ASCs – Kissing Camels, Cherry Creek, Arapahoe and Hamden – allege that hospital systems Centura Health and HCA/HealthONE conspired with health plans Kaiser, UnitedHealthCare and Anthem to exclude the ASCs from provider networks, meaning patients insured by those plans would have to pay significantly more out of pocket to be treated at the ASCs. The ASCs complained the hospitals, which also own same-day surgery centers, prohibited their own physicians from referring patients to the doctor-owned ASCs, costing them revenue. In turn, the hospitals and health plans accused the doctor-owned ASCs of illegally waiving co-pays and deductibles for patients.

In other private lawsuit actions, an ambulatory surgery center in Southern Illinois filed suit against Illinois’ largest health plan, Blue Cross and Blue Shield of Illinois, and three-hospital Southern Illinois Health care in Carbondale, alleging that the two conspired to exclude Marion Health care – the Blues plan’s network – to eliminate competition and preserve Southern Illinois Health care’s monopoly. The federal lawsuit filed in August 2012 claims the hospital system already controls more than 85 percent of the market for outpatient services in two Southern Illinois counties.

But that’s not to say that the feds aren’t interested in ancillary care centers. In 2010 the FTC forced the Carilion Clinic in Roanoke, Va., to divest two outpatient diagnostic imaging centersit bought in 2008 for $20 million. The Commission said the sale would reduce competition, raise costs and harm health care quality.


Photo by lissame via Flickr

Contract disputes

While they don’t necessarily involve antitrust enforcement, contract disputes between large health plans and hospital systems are boiling throughout the country. In the past few years, Anthem Blue Cross and Blue Shield of Indiana has terminated contracts with Franciscan Alliance, the state’s largest hospital system, and Walgreens drug stores, compelling Blues plan members to change, however briefly, to other hospital systems and drug stores until contracts were signed.

In Florida, Tampa Bay's biggest hospital system, BayCare Health System and UnitedHealthCare’s Medicare Advantage plan were locked in a contract dispute that put local Medicare beneficiaries on notice to change providers. BayCare claimed that United HealthCare owed it $11 million in unpaid claims and sought bigger reimbursements in the next contract year, which could compel thousands of UnitedHealthCare members to seek other providers. As both health plans and hospital systems grow in size they seek to use their clout to negotiate better contracts, which often ends up costing consumers higher prices.

Staff privilege cases

Health care antitrust attorneys also advised reporters to look at litigation between providers like physicians filing staff privilege lawsuits against hospitals that have allegedly punished them for competing against the hospitals. As physician reimbursements from state and federal insurers have declined over the past decade, physicians have grown more entrepreneurial, starting their own ambulatory surgery centers, diagnostic imaging centers and even their own specialty hospitals. Hospitals where those doctors practice have often used staff privilege rules to punish the physicians and restrict access to hospital services. The staff privilege actions have sometimes occurred after hospitals seek to kill competition from their own doctors.

Health plans

The Department of Justice’s Antitrust Division has sued the Blue Cross Blue Shield of Michigan for anticompetitive behavior, alleging that for several years the state’s largest health plan has included most favored nation (MFN) clauses in its contracts with more than 70 of Michigan 131 hospitals, representing 40 percent of the state’s hospital beds. MFNs, usually called best discount or most favored pricing, insures that the Blues plan always receives the biggest discount on hospital pricing. Those contracts required the MFN hospitals to offer prices to the Blues plan’s competitors at rates higher than the hospital offers to the Blues plan or at prices no less than the Blues plan pays, stifling competition and offering the Blues plan an unfair advantage.

The Justice Department has challenged parts of other health plan mergers, alleging that the merged entities would have too much market power

Looking forward, reporters should explore the effects of Medicare Advantage plan consolidation in their own markets. The largest plans continue to swallow up smaller competitors, which eventually could mean higher prices and fewer choices for Medicare beneficiaries.

How to get antitrust stories

  • Every deal has an antitrust implication.

  • Know your local health care providers, particularly hospitals and health systems, health plans and large physician groups. Know their leaders and learn their market strategies. Who is forming an accountable care organization or Medicare Advantage plan?  How do they intend to get bigger? Who are the dominant players and how are they using their market share?

  • Find out which local or regional attorneys specialize in health care antitrust law and introduce yourself.

  • Get to know a local or regionally based health care economist or university professor who studies local markets.

  • Learn which health insurers contract with local providers. Health plans ALWAYS know what’s going on in their markets, but they don’t always tell reporters that.

  • Get to know the presidents of local and state hospital and medical associations. Sometimes they can talk about patterns of suspicious behavior that local leaders won’t discuss.

  • Check the websites and get on the email notification lists of your state and federal antitrust agencies to learn what actions they are taking and if any affect your region.

  • Get a complimentary subscription to Modern Health care magazine. Contact Joe Carlson at (312) 649-5314.

  • Attend a health care antitrust webinar or conference by the American Health Lawyers Association or the Antitrust Health Care Section of the American Bar Association and follow enforcement and litigation trends on their websites.

  • Call Mitchell Katz at the FTC’s Office of Public Affairs at

    202-326-2180 to get on the FTC’s Early Terminations List, a daily listing of deals that include pharma, life sciences and hospitals. There’s a lot of chafe, but if you read it regularly, you’ll never miss a hospital merger.

SOURCE LIST

Antitrust attorneys specializing in health care cases

If you’re writing a health care antitrust story, these are some of the best known antitrust attorneys specializing in health care cases. Many work for or were formerly employed by state or federal antitrust regulatory agencies.

Health care antitrust academics and economists

These economists and academics have written extensively about health care antitrust issues, publishing studies and reports examining the impact of hospital consolidation on price increases, for example.

  • David A. Argue, Ph.D., corporate vice president, Economists Inc.
    argue.d@ei.com | 202-223-4700

  • Brian Biles, M.D., M.P.H., professor of health policy, George Washington University
    bbiles@gwu.edu     | 202-994-4252

  • Cory Capps, Ph.D., Bates White
    cory.capps@bateswhite.com     | 202-216-1151

  • David Dranove, professor of health industry management, Northwestern University
    d-dranove@kellogg.northwestern.edu     | 847-491-8682

  • Martin Gaynor, Carnegie Mellon University
    mgaynor@cmu.edu     | 412-268-7933

  • Thomas “Tim” Greaney, Center for Health Law Studies, St. Louis University School of Law
    greanetl@slu.edu     | 314-977-3995

  • Thomas McCarthy, Senior Vice President, Health Care Practice; Chair, National Economic Research Associates (NERA)
    thomas.mccarthy@nera.com     | 213-346-3005

  • Patrick Romano, M.D., M.P.H., professor of general medicine and pediatrics, University of California, Davis
    psromano@ucdavis.edu | 916-734-7237

  • William Sage, M.D., J.D., vice provost for health affairs, University of Texas School of Law
    bsage@law.utexas.edu     | 512-232-7806

  • Robert Town, Ph.D., associate professor, Division of Health Policy and Management , University of Minnesota
    rjtown@umn.edu | 612-626-4683

  • Gregory Vistnes, vice president, CRA Associates
    gvistnes@crai.com     | 202-662-3859

  • William Vogt,  associate professor, Department of Economics, University of Georgia
    wbvogt@terry.uga.edu     or william.b.vogt@gmail.com | 706-542-3970

Health care law associations and resources

To find local sources, such as health care antitrust attorneys or local academics or economists who have studied the issues, explore these resources.

  • American Bar Association: Antitrust Health Care Law Section: ABA sponsors an annual antitrust conference. Its “Antitrust Health Care Handbook” is a great resource.
    Seth Silber (silber@wsgr.com) or Christi Braun (cjbraun@ober.com).

  • Center for Studying Health System Change: Nonpartisan health care analysis and think tank.
    Alwyn Cassil, 202-264-3484 | acassil@hschange.org

  • American Health Lawyers Association: Offers complimentary press passes for conferences and webinars and access to past webinars and materials, including its Health care Antitrust Bootcamp webinar. AHLA also has a Health care Antitrust Section.
    Allison Beard, senior manager for communications, 202-833-1100| abeard@healthlawyers.org

  • Modern Healthcare Magazine: The industry bible for health care business, MH covers health care antitrust issues regularly (and offers complimentary subscriptions for journalists). One of the best tip sheets in the business and widely read by industry leaders.

  • “Hospital Market Consolidation: Trends and Consequences,” Essay by former RAND Corp. Senior Economist William Vogt:

  • Federal Trade Commission: Case filings, enforcement actions

  • U.S. Justice Department Antitrust Division: Find Antitrust Division news releases, case filings and public documents.

  • “Improving Health Care: A Dose of Competition,” a joint 2004 FTC/DOJ report on antitrust and competition issues in health care, many of which remain issues of concern to antitrust regulators.

IMPORTANT FEDERAL ANTITRUST LAWS APPLIED TO HEALTH CARE:

  • 1890 – Sherman Antitrust: Sherman deals with anticompetitive behavior and restraints of trade, as well as monopolistic behavior.

  • 1914 – Clayton Act prohibits tying arrangements, exclusive dealings and mergers and acquisitions that substantially reduce market competition.

  • 1936 – Robinson-Patman Act prohibits price discrimination.

  • Section 5 of the Federal Trade Commission Act (1914) prohibits unfair methods of competition in commerce, including unfair or deceptive acts or practices in commerce, such as false or deceptive advertising.

  • States have enacted laws patterned after federal antitrust laws and some state attorneys general have pursued cases with or without federal agency support

RECENT SIGNIFICANT HEALTH CARE ANTITRUST CASES

Mark Taylor is an independent health care journalist based outside Chicago. Taylor was legal affairs reporter for Modern Healthcare magazine and writes for newspapers that include The Philadelphia Inquirer, Chicago Sun Times and Gary (Ind.) Post-Tribune, as well as Medicare NewsGroup and Hospitals & Health Networks. He is a former Kaiser Media Fellow and a co-founder of the Association of Health Care Journalists.