Caretaking competition in health care markets

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It is a time of unprecedented change in the way health care services are provided and paid for in this country. As with other sectors of our economy that have experienced dramatic change, industry participants are reacting by developing new models, learning from their experiences, and adopting best practices.

Sometimes we are told that antitrust has no role in rapidly evolving industries, but we disagree. Effective antitrust enforcement is as important in a time of dynamic change as in periods of stability, if not more so. Yesterday, I spoke to a group of health care professionals at the Fifth National Accountable Care Summit in Washington making the case that antitrust enforcement is not a barrier to bona fide efforts to coordinate care in an effort to lower costs and improve patient outcomes as long as those efforts do not result in the accumulation of market power.

The speech focuses on several issues relating to our enforcement efforts with respect to provider collaborations:

  • Effective antitrust enforcement prevents collaborations that create or enhance market power. In light of concerns about the potential anticompetitive consequences of provider consolidation, the FTC has acted to stop mergers where the evidence shows that they are likely to lead to higher prices or reduced quality, such as in our recent victories in St. Luke’s and ProMedica. Although litigated cases grab headlines, in fact, the Commission challenges very few provider collaborations, less than one percent of hospital deals in the past decade. In the vast majority of cases, we determine that the facts do not warrant a challenge, for instance because there is only limited competition between the two merging providers. The speech sets forth examples of situations in which we have determined that anticompetitive consequences are unlikely.
  • What counts as an efficiency claim? As part of our analysis of likely competitive effects, we carefully scrutinize claims that the particular hospital combination will produce significant efficiencies, such as improved quality of care, avoidance of capital expenditures, consolidation of management and operational support jobs, consolidation of specific services to one location (e.g., all cardiac care at Hospital A and all cancer treatment at Hospital B), and reduction of operational costs, such as purchasing and accounting costs. If merger-specific cognizable efficiencies are of a character and magnitude such that the merger is not likely to be anticompetitive, the Commission is unlikely to challenge the transaction. The speech discusses the kind of evidence we look for and the questions we ask to assess the likelihood and magnitude of merger-specific efficiencies.
  • What counts as a failing firm/financial health claim? Parties often raise failing or “flailing” company arguments, claiming that the acquired hospital is experiencing financial difficulties and its acquisition by a financially stronger hospital is necessary to keep it open. The legal standards for making out such claims are strict, but in a few instances, the Commission has closed without comment investigations that presented concerns about the financial health of the acquired hospital that suggested the hospital had limited competitive significance, even when the facts would not support a strict “failing firm” defense as set forth in the Guidelines. For instance, although a struggling hospital may have sufficient cash reserves to fund operations and its revenues cover expenses in the short term, the evidence may show that the hospital lacks sufficient reserves to make identified capital improvements, resulting in declines in its competitive significance.
  • Remedies should restore competition. Once we have determined that a proposed combination is problematic, our preferred remedy is that the combination be abandoned or, if it has already been consummated, that one of the competitors to the combination be divested. The goal is to restore, to the extent possible, the competitive state prior to the acquisition. Conduct remedies do not restore the competitive status quo and are an inferior substitute for allowing competition among separately owned providers to determine market behavior. Moreover, proposed conduct remedies nearly always focus on price, ignoring the impact of a transaction on quality improvements or innovation.

We continue to hear claims that antitrust principles are at odds with the mandates of the Affordable Care Act. I believe these arguments misunderstand the focus and intent of federal antitrust enforcement. The antitrust laws have stood the test of time precisely because they do not mandate any particular behavior or way of doing business. Stated simply, there is no “approved way” to compete. The antitrust laws do not prescribe certain behavior or business models; rather, the antitrust laws proscribe behavior that, on the whole, reduces consumer welfare. FTC enforcement in health care markets is intended to promote competition as a primary driver to hold down costs, improve quality, and encourage innovation while allowing procompetitive ventures that do not harm consumers to proceed.

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