Given the recent economic research finding that cross-market transactions appear to lead to higher prices and the intense policy focus on health care costs, we would not be surprised if federal or state antitrust enforcers began examining health care transactions for potential cross-market effects. We offer two core recommendations for any such initiative. First, antitrust investigations of cross-market impacts should remain rooted in basic antitrust principles and focused on preserving competition rather than dictating preferred market outcomes. Second, as in other contexts in which relatively novel economic theories are applied to specific real-world settings, antitrust enforcers should strive to provide transparency on the theories under investigation and, to the greatest extent possible, issue guidance on the circumstances under which cross-market transactions will be investigated or challenged. In turn, antitrust practitioners should be aware that a broader range of health care transactions may receive antitrust scrutiny and be prepared to address potential cross-market theories of harm.
I. Foundational Antitrust Enforcement Principles
Before turning to the specific context of cross-market health care mergers, we begin by outlining two foundational principles that should guide antitrust merger enforcement policy in any industry setting. These basic principles, embodied both in the agencies’ own merger guidelines and modern merger case law, provide the lens through which we evaluate the potential application of antitrust law and economics to cross-market health care mergers.
First, and most fundamentally, antitrust merger enforcement should focus on harm to competition rather than protecting individual competitors, preserving particular forms of corporate structure, or aiming to achieve particular market outcomes. By its language, Section 7 of the Clayton Act prohibits mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly.” Accordingly, the “unifying theme” of the federal antitrust agencies’ merger enforcement program is that “mergers should not be permitted to create, enhance, or entrench market power or to facilitate its exercise.” Although this language is drawn from the Horizontal Merger Guidelines, in practice it does, and should, apply equally to non-horizontal mergers. Indeed, the defining feature of the U.S. antitrust laws is a focus on preserving competition. As one leading antitrust treatise explains, the antitrust laws are designed “to maximize consumer welfare by encouraging firms to behave competitively.”
A corollary to this principle is that the antitrust laws do not reach all transactions or conduct that might result in higher prices or other harm to consumers. Rather, the antitrust laws, as properly interpreted, are focused on competitive harm—i.e., harm arrived at via adverse impacts on the competitive process. As Bruce Hoffman, then Acting Director of the FTC Bureau of Competition, explained, the antitrust laws “have in common a core command that the harmful effect we must police is harm to competition—which we analyze in the context of reductions to consumer welfare. In the merger context, anticompetitive effects are those that threaten to directly reduce, or that flow from a reduction in, competition.” Consistent with this focus on preventing competitive harm and promoting consumer welfare, the Horizontal Merger Guidelines explain that the agencies “seek to identify and challenge competitively harmful mergers while avoiding unnecessary interference with mergers that are either competitively beneficial or neutral.” Even in consummated merger challenges, where there may be evidence of “post-merger price increases or other changes adverse to customers” from a consummated merger, the antitrust agencies will still “evaluate whether such changes are anticompetitive effects resulting from the merger.” In applying this framework in the health care context, the agencies have generally alleged relatively narrow geographic markets, focusing on patients’ demand for access to local health care providers for most services, thus viewing geographically proximate providers as the only acceptable substitutes for insurers assembling network of insurers attractive to employers.
Continue reading the full text of this article and citations in PDF format.
