This type of transaction has been referred to as a two-sided platform between the cardholder and the merchant, with Amex acting as the intermediary between them.5 This is the first major case regarding the antitrust issues involving two-sided platforms.
A two-sided platform is characterized by an indirect network effect, where value to one group depends on how many members of the other group participate.6 Specifically, the value to the merchant of the Amex card depends on the quantity and spending power of the cardholders, and the value to cardholders depends on how many merchants accept the card. This interdependence between the merchants and the cardholders led the Supreme Court to determine that from an antitrust perspective this type of transaction was a single transaction, rather than two transactions, one between the merchant and Amex and a second one between the cardholder and Amex.7 The Court also held that the relevant market included both sides of the transaction, and that any antitrust analysis must look at the effects on both sides of the platform for its anticompetitive effect.8 In this case, the Court held that the plaintiffs had not proven that there was an anticompetitive effect on the relevant market.9
Because the relationship between the purchasers of healthcare (usually patients or an employer on behalf of patients) and the providers of care rely on an insurance company payor to act as the intermediary, this relationship can also be seen as a two-sided platform.10 Ohio could thus affect healthcare interactions. The American Medical Association (AMA) argued in an Amicus Brief filed in Ohio that if the Supreme Court upheld the dismissal of the lawsuit, then contracts between providers and insurance companies, like the anti-steering clause in the Amex contract, could “impose rules or effectively erect barriers that prohibit physicians from referring patients to certain specialists, particularly our-of-network specialists, for innovative and even necessary medical tests.”11
This article analyzes the Ohio decision and its possible implications regarding healthcare antitrust actions.
ANTITRUST LAW
Section 1 of the Sherman Act states that “every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.”12 However, the Supreme Court has previously held that only unreasonable restraints of trade violate the Sherman Act.13 Restraints may be unreasonable in two ways -- unreasonable per se or unreasonable as judged under the “rule of reason.”14
Unreasonable per se applies to situations where “they always or almost always restrict competition and decrease output.”15 According to the Supreme Court, these always apply to horizontal restraints that are the result of agreements among competitors.16
The rule of reason analysis applies to cases involving vertical restraints. Ohio involved a vertical restraint between entities that are at different levels of the supply chain; therefore the rule of reason analysis, not a per se analysis, applied.
Under the rule of reason analysis, a court looks at the “actual effect” on competition to “distinguish between restraints with anticompetitive effects that are harmful to the consumer and restraints stimulating competition that are in the consumer’s best interest.”17
The rule of reason analysis is a three-part test.18 The test consists of (1) determining the relevant market, (2) the anticompetitive effect on the relevant market and (3) an efficiency analysis to determine if an otherwise anticompetitive merger should be permitted. The burden of proof is on the plaintiff for the first two parts of the test, and shifts to the defense for the third part. If the defendant proves that the merger is procompetitive, then the burden shifts back to the plaintiff to demonstrate that the “procompetitive efficiencies could be reasonably achieved through less anticompetitive means.”19
Supreme Court’s Analysis Of Ohio
The trial court in the lawsuit against Amex had held that the relevant market was the market between Amex and the merchants, and ruled in favor of the plaintiffs.20 The trial court did not look at the transaction from the perspective of a two-sided platform. The Second Circuit reversed; using a two-sided platform analysis, it held that the relevant market was a market that included the merchants and the cardholders and that for that market the plaintiffs had not met their burden of proof that the action of Amex was anticompetitive.21 The Supreme Court conducted its own analysis and affirmed the Second Circuit decision.22
The Dynamics of a Two-Sided Platform
According to the Supreme court, in Ohio the two-sided platform consisted of consumers on one side and merchants on the other, with the Amex credit card network connecting both sides.23 The Court found that in the case of credit card processing there is a simultaneous transaction on both sides of the platform.24 For a credit card network to sell its transaction, both the cardholder and the merchant must simultaneously agree to use the service.25 The cardholder has to present the card to the merchant for payment and the merchant has to simultaneously submit the card to the processor, in this case Amex, for payment. Because of the simultaneous nature of the transaction, the Court considered Amex to be supplying only one product, the transaction.26
Once the Court determined that the transaction was the product, it had to determine if the anti-steering provision of the Amex contract was anticompetitive. Because of this interdependence of the cardholder and the merchant, the Court analyzed the market as a whole to determine if the anti-steering provision in the contract has anticompetitive effects.
The court noted that Amex’s higher merchant fees alone do not prove that there were anticompetitive effects. The Court went on to state “[t]o demonstrate anticompetitive effects on the two-sided credit-card market as a whole, the plaintiffs must prove that Amex’s antisteering provisions increased the cost of credit-card transactions above a competitive level, reduced the number of credit-card transactions or otherwise stifled competition in the credit-card market.”27
The Court pointed out that the plaintiffs did not do so. The Court in its analysis of what constitutes a violation of the Sherman Act determined that in order to prove competitive injury under the Sherman Act, the plaintiffs must show that outputs were restricted or prices were raised above competitive levels.28 In this instance, the cardholders’ side of the transaction -- the price cardholders pay -- is unaffected by which card they use. Moreover, the higher Amex fee to merchants did not discourage enough merchants from accepting the card to be anticompetitive. Therefore, the Court held that the plaintiffs “failed to prove that Amex’s antisteering provisions have stifled competition among the credit-card companies.”29
Because the Court concluded that the plaintiffs had not satisfied the first step of the rule of reason analysis of proving an anticompetitive effect in the relevant market, it affirmed the judgment of the Second Circuit dismissing the complaint.30
POTENTIAL IMPLICATIONS OF THIS DECISION TO HEALTHCARE
Can Healthcare be Considered a Two-Sided Platform?
In healthcare, the main focus of antitrust regulators has been on situations involving hospital or insurance company acquisitions and mergers. In these cases, a merger or acquisition is considered anticompetitive if it has the potential to raise prices above competitive levels in the relevant market without procompetitive offsets. When the trial court analyzed the Amex case, it used a similar logic and looked at the relationship between the merchants and Amex. The Second Circuit and the Supreme Court instead used a different way of looking at the relationship, viewing it as a two-sided platform.
The AMA was concerned that there were sufficient similarities between the structure of the Amex transaction and healthcare transactions that future antitrust cases involving the healthcare industry would be analyzed by using a two-sided platform model. The model as applied to healthcare would consist of a purchaser of healthcare on one side of the platform and the provider of healthcare on the other side, with the insurance company in the middle of the platform. This approach could be problematic if the two-sided platform were applied to healthcare, according to the AMA. That would mean, for example, that the harm that an insurance company action, such as a limitation on care to the patient, would have to be balanced against the benefit to the insurance company to trigger an antitrust violation.31
Health insurance companies generally need employers and others to purchase health insurance policies, and policies can only be sold if the insurance company has an adequate network of providers. If the insurance company raises prices above competitive levels, the number of policies sold will decline and the insurance company will not be able to maintain the network, which will further weaken the ability of the insurance company to sell policies. If provider reimbursement is too low, then the number of providers in the network will decline, making the market less attractive to policy purchasers. This interdependence between both sides of the transaction can result in a feedback loop of declining demand that is characteristic of a two-sided platform.
One of the problems with some two-sided platforms is that both sides of the platform are not necessarily equal.32 The side which is less dependent on the platform is in a stronger bargaining position. This is described as elastic demand, because the use of the platform by the less dependent side depends on the concessions made by the platform operator or the weaker side of the platform.33 The AMA opined that because the harmful effects of any action on one side of the platform have to be balanced against beneficial effects on the other side, antitrust violations are difficult to prove.34 For example, if the purchaser of insurance is in a stronger position than the provider, then terms that are more favorable to the purchaser can be imposed on the provider (i.e. restrictive referrals) without triggering an antitrust violation.35
In Ohio, the Supreme Court held that the anti-steering provision must increase the cost of the transactions above competitive levels, reduce the number of transactions or otherwise stifle competition in the market.36 Because of the similarity between an anti-steering provision in Amex merchant contracts and a provision in provider/insurance company contracts banning referrals to out of network providers, the AMA expressed concern that such referral bans would be analyzed by the same methodology as a credit card transaction. The AMA concluded that if the two-sided platform analysis were applied to healthcare transactions, because the harm on one side of the platform must be weighed against the benefit on the other side of the platform, that “an antitrust plaintiff challenging these restraints would face the exceedingly difficult, if not impossible, burden of quantifying both the harm to patient care and harm to commercial insurance subscribers -- and then netting out the latter from the former.”37
Another concern that the AMA had was that in addition to a provider’s contractual obligations with the payors there was a professional and ethical obligation to the patient: “[p]hysicians are, indeed, ethically obligated to provide the best practicable medical care to their patients.”38
Patients expect physicians to practice their profession according to applicable ethical rules. If a physician is prevented from doing so because of a contractual obligation in a provider/payor agreement, then a physician behaving ethically is breaching the contract.
None of the AMA’s concerns were addressed in the Supreme Court’s decision.
Alternative Analysis of the Two-Sided Healthcare Platform
The AMA looked at the transaction as one between the payors and the providers. There is another way to look at the transaction: as one among the insurance company, the provider and the patient. This analysis more closely parallels the steps that take place between Amex, the customer and the merchant in a credit card transaction. Instead of the credit card the patient uses his/her insurance card and the provider (the merchant) is paid by the insurance company (the credit card processor). However, the relationship among payors, providers and patients is much more complicated, taking into account, among other things, medical necessity, preauthorizations, and secondary insurance, in addition to the concern about banning referrals to out of network providers, as noted above. This further distinguishes the healthcare transaction from the simpler credit card one.
Another Issue Concerning the Comparison Between Credit Card and Healthcare Transactions: Consumer Harm
The Supreme Court stated that a restraint violates the rule of reason when the “challenged restraint has a substantial anticompetitive effect that harms consumers in the relevant market.”39 In a situation where, for instance, referrals out of network providers are banned, consumers may be harmed in the worst way – harm to their health and well-being. Since no provider with any market power would agree to terms that require unprofessional behavior, it can be argued that these harmful clauses could only be inserted in a provider agreement by an insurance company acting in an anticompetitive manner.
CONCLUSION
Ohio is a groundbreaking decision by the Supreme Court regarding the credit card insurance platform. It will likely have implications regarding antitrust consideration in other situations.
However, healthcare is more complex than a credit card transaction, and there is a long precedent of antitrust cases and legal analysis in healthcare by both the Appellate Courts and the U.S. Supreme Court. Those decisions would have to be reconciled and addressed should the two-sided platform analysis used in Ohio be applied to healthcare.
The AMA is correct in expressing its concerns regarding the potential future implications of Ohio to healthcare. Stakeholders should keep a watchful eye on this burgeoning area of antitrust law.
| 1 |
Ohio et. al. v. American Express Co. et al, No.16 1454 (June 25, 2018).
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| 2 |
United States v. American Express Co., 88 F.Supp.3d 143 (2015); United States v. American Express Co., 838 F. 3d 179, 184 (2016). The plaintiffs were the Department of Justice and several state attorneys general, who argued that the provision harmed merchants.
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| 3 |
Ohio at 8.
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| 4 |
Id. at 7.
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| 5 |
Id. at 3.
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| 6 |
Id.
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| 7 |
Id. at 13.
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| 8 |
Id.
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| 9 |
Id. At 15.
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| 10 |
BRIEF OF AMICI CURIAE THE AMERICAN MEDICAL ASSOCIATION AND OHIO STATE MEDICAL ASSOCIATION IN SUPPORT OF PETITIONERS, (AMA Brief) at 2, 3, available at https://searchltf.ama-assn.org/undefined/documentDownload?uri=%2Funstructured%2Fbinary%2Fcasebriefs%2Fohio-v-american-express.pdf.
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| 11 |
AMA Brief at 5.
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| 12 |
15 U.S. Code § 1.
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| 13 |
Ohio at 8, 9; see also https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/antitrust-laws.
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| 14 |
Ohio at 8.
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| 15 |
Id.
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| 16 |
Id.
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| 17 |
Ohio at 9.
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| 18 |
Ohio at 9, 10.
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| 19 |
Ohio at 10.
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| 20 |
U.S. v. American Exp. Co., 88 F.Supp.3d 143 (2015).
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| 21 |
U.S. v. American Exp. Co., 838 F.3d179 (2016).
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| 22 |
Ohio et. al. v. American Express. Co. et al, No.16 1454 (June 25, 2018).
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| 23 |
Ohio at 2.
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| 24 |
Id.
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| 25 |
Id. at 13.
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| 26 |
Id.
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| 27 |
Id. at 15.
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| 28 |
Id. at 17.
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| 29 |
Id. at 18.
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| 30 |
FTC v. Advocate Health Care Network, 841 F.3d 460 (7th Cir. 2016).
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| 31 |
AMA Brief at 5.
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| 32 |
Ohio at 4.
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| 33 |
Id.
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| 34 |
AMA Brief at 5.
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| 35 |
Id.
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| 36 |
Ohio at 15.
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| 37 |
AMA Brief at 5.
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| 38 |
AMA Brief at 6.
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| 39 |
Ohio at 9.
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