The Federal Trade Commission (FTC) and the Department of Justice (DOJ) are charged with the enforcement of the antitrust laws. According to the FTC’s website, “[c]ompetition in health care markets benefits consumers because it helps contain costs, improve quality, and encourage innovation. The Federal Trade Commission's job as a law enforcer is to stop firms from engaging in anticompetitive conduct that harms consumers.”1 FTC and/or DOJ prosecutions in anticompetitive situations are effective and upheld by district and appellate courts. They also enable the agencies to protect the public.2
Unfortunately, that is only part of the picture. Healthcare consolidation is a complex multifactorial issue; despite these enforcement actions, healthcare entities are combining, and competition is decreasing. Hospitals are vertically integrating by acquiring physician practices and horizontally integrating by merging. Insurance companies have merged to the point that there now are only a handful of major ones. Vertical integrations among insurance companies, pharmacy benefit managers and other entities are ongoing. Cost-effective smaller independent physician and other provider practices are disappearing, mostly by acquisition. The result is a less competitive marketplace.
The disappearance of the independent physician is due to a number of factors, including increasingly complex regulatory compliance burdens, cumbersome and time-consuming value-based reporting requirements, and the huge educational debt incurred by recent medical school graduates, which make it more difficult for a physician to be or remain independent. An additional factor is physicians’ inability to form collaborative joint ventures within the antitrust laws that would enable them to bargain collectively while still maintaining their independence. A review of recent enforcement actions against independent physicians’ joint ventures reveals several different models that have failed to pass antitrust scrutiny. The structure of the collaboration determines the applicable standard the FTC uses to analyze the case. Those that attempt to engage in price fixing are classified as “violations per se” and are appropriately prosecuted. However, physician joint ventures that attempt to do more than just raise prices are analyzed under either “inherently suspect analysis” or “rule of reason analysis” which uses a three-part test. Rule of reason analysis is an evolving process, and ultimately is about comparing the pros and cons of what would have otherwise been an anticompetitive joint venture.
Because of the decline of independent physicians, healthcare consolidation and reduced competition, it is time for the rule of reason analysis to be revised when evaluating independent physician joint ventures. This change will aid in achieving the FTC’s goal of preserving competition.
This article will review the categories of antitrust actions against independent physicians joining together for bargaining and other purposes, and offer suggestions as to how the rule of reason analysis should be modified and adapted to physician joint venture models to help preserve competition.
The Independent Practice Paradox
The percentage of independent physicians in the United States has decreased from 57 percent in 2000 to 33 percent in 2016.3 This changing practice demographic is relevant because the preservation of this group is essential to the goals of the antitrust laws to preserve competition as a means of controlling costs. According to a 2010 study conducted by the attorney general of the state of Massachusetts, there is a 300 percent difference in healthcare costs between the lowest and highest paid providers not because of a difference in quality but due to bargaining power.4 The study also found that it was bargaining power and not the payment system used that affected the cost of healthcare.5 A Commonwealth Fund report found that both horizontal mergers between hospitals and vertical integration between hospitals and physician groups raise costs without improving quality.6 Another study found an 8-26 percent higher price for 12 common procedures in markets with the highest concentrations of physician groups.7 Consolidation not only raises prices without improving quality, but in some instances can result in increased costs associated with unnecessary hospitalization.8 According to a more recent study, “practices with one to two physicians had 33 percent fewer preventable hospital admissions than practices with 10 to 19 physicians and practices with three to nine physicians had 27 percent fewer admissions.”9
In traditional goods-driven markets, large sellers such as supermarkets, big box hardware stores and online retailers use their huge market clout to pay less for goods and then sell them to consumers at a lower price. In contrast, typically in healthcare the transaction is between the payor, usually an insurance company or the government, and the seller of care, an integrated healthcare system, medical group or small providers on behalf of the consumer of that care. The larger healthcare sellers have more bargaining power and can sell their services at a higher price.
Another advantage of the large sellers is that they can add ancillary healthcare services to their income stream. For example, when St. Luke’s Health System acquired Saltzer Medical Group, the largest independent specialty physician practice group in the Nampa, Idaho area, it not only enabled St. Luke’s to dominate the primary care physician market, it also enabled St. Luke’s to shift the Medical Group’s laboratory business from the Group to itself at a higher cost to payors.10 When in addition to the higher procedure costs and higher associated costs (i.e., lab costs and facility fees that would not be available to small practices) the cost differential between the independent practitioners and the integrated entities widens. This additional downstream revenue incentivizes hospitals to acquire physician practices, reducing competition further.11
The above suggests that independent practices are cost-effective competitors of larger integrated entities, and from an antitrust perspective preserve competition and help control costs. For the above reasons the antitrust regulatory process should function in a manner to halt and hopefully reverse the shifting of physicians from independent practice to larger entities like vertically integrated hospital systems and large group practices.
Relevant Antitrust Laws
There are three antitrust laws that govern the actions of the FTC and the DOJ with regard to healthcare. The agencies share jurisdiction in this area. The FTC has focused on hospital and practice mergers and physician joint ventures, while the DOJ has focused on insurance company mergers. In cases where the FTC finds criminal activity the two agencies collaborate.
Sherman Antitrust Act, 15 U.S.C. §§ 1-2. The nature of the violation of this multipronged statute is usually applied in FTC cases relating to conspiring or engaging in price fixing and/or joint boycotts.12
Section 7 of the Clayton Act, 15 U.S.C. § 18.13 The Clayton Act prohibits acquisitions that have the effect of substantially lessening competition or tend to create a monopoly.14
Section 5 of the FTC Act, 15 U.S.C. § 45.15 This provision empowers the FTC to investigate and prosecute entities engaged in unfair methods of competition.
State Jurisdiction in Antitrust Regulation: The State Action Doctrine. The jurisdiction of the FTC over an alleged antitrust violation has limitations. Under the State Action Doctrine, state economic regulation can immunize private parties from federal antitrust liability if a state substitutes its control of the market instead of allowing federal control.16 For this doctrine to apply to private parties, the state “must demonstrate that the challenged conduct was both (1) undertaken pursuant to a clearly articulated state policy to displace competition with regulation and (2) actively supervised by state officials.”17
Methodology of Review
The FTC views independent physician joint ventures based on their structure. Independent physicians forming joint ventures purely to collectively negotiate higher fees are analyzed using the price fixing clause of the Sherman Antitrust Act and/or Section 5 of the FTC Act, which protects against unfair methods of competition.
When the FTC analyzes a case, the intensity of the process is dependent on the nature of the alleged violation. Cases which are classified as ”violations per se” are not subject to any additional analysis. Joint ventures that involve something more than just price fixing but similar to previous successful prosecutions are subject to “inherently suspect analysis,” which is an abbreviated review process.
As noted above, when the joint venture involves other aspects, including potentially procompetitive offsets, it is subject to the rule of reason analysis. Rule of reason analysis is a three-part test, which involves determining the relevant market, the anticompetitive effect, and a procompetitive efficiency defense.18 The burden of proof for the first two parts falls on the government, and the burden of proof for the third part shifts to the defendant.
According to the FTC, two examples of procompetitive efficiency enhancing actions under the rule of reason are (1) risk sharing contracts19 and (2) clinical integration designed to increase efficiency and that creates “interdependence and cooperation among physicians to control costs and ensure quality.”20
Representative Enforcement Actions
Cases run the gamut of naked price fixing, where competitors meet and agree to raise prices, to messenger model IPAs attempting to collectively negotiate, to more but not sufficiently integrated joint ventures, or pseudo joint ventures engaged in collective negotiation.
Violations Per Se
In US v. Alston there was nothing more than competitors with no organizational structure attempting as a group to raise prices. Dentists who were providers in a prepaid dental plan in Tucson, Arizona were paid by capitation and copayment fees.21 Some of the dentists had individually approached a health plan requesting higher fees without success.22 Some fees, such as for porcelain crowns, were so low that the dentists were not even breaking even on the service.23 Three dentists, Drs. Alston, Meyer and Walker, organized a meeting of approximately 50 dentists in Dr. Alston’s office to discuss the problem, resulting in many of the dentists sending a form letter to the insurance company requesting higher fees.24 This resulted in an increase of some of the fees.25 The DOJ obtained a criminal indictment against Alston, Meyer and Walker for “conspiring to fix prices in violation of section 1 of the Sherman Act.”26
There are also a large number of violation per se cases involving messenger model independent practice associations (IPAs) where the IPA engaged in collective negotiations. These include Southwest Health Alliance,27 Roaring Fork Valley Physicians IPA, Inc.,28 Boulder Valley Individual Practice Association,29 and Independent Physician Associates Medical Group, Inc.30 In all of these cases, the IPA negotiated collectively for the independent physicians, would not permit them to negotiate individually with the insurance companies, and set the price that all of its members would accept. There was no clinical integration nor any efficiency defenses that would warrant rule of reason analysis. These were all prosecuted under 15 U.S.C. § 45 for price fixing or joint boycotting. They could have also been prosecuted under the Sherman Act, which the courts have deemed equivalent to 15 U.S.C.§ 45.31
For example, in Roaring Fork Valley Physicians IPA, Inc. a messenger model IPA of approximately 85 independent, competing physicians and physician groups in the Garfield County, Colorado area (1) refused to deal with payors except on collectively agreed upon terms; (2) coordinated agreements of its members on price related terms; and (3) as a condition of joining the IPA required its member physicians to sign an agreement that they would refuse to enter into contracts except on Roaring Fork’s collectively agreed upon terms.32
Inherently Suspect Analysis
Cases that fit this category of review are ones where the case so closely resembles previous ones that the FTC uses an abbreviated review process. In this process, the cases are expedited, and decisions are made in accordance with those of the previous cases rather than subjected to a full rule of reason analysis.33
For example, in In the Matter of North Texas Specialty Physicians (NTSP) the IPA served a dual purpose: it negotiated capitation contracts, which was not part of the antitrust action, and it functioned as a messenger model IPA.34 The organization, formed in 1995, was originally designed to negotiate capitated contracts with payors.35 It expanded into fee-for-service contracts as a messenger model IPA. It would annually survey its members, conduct a statistical analysis of the results, and improperly share the results with the members.36 Using that information, the IPA would negotiate contracts with payors as a messenger where each practice would individually accept or reject the contract. Despite the IPA’s obligation to forward all offers to its members, it would only forward the offer if the fee was high enough that 50 percent of the members would accept the contract.37
The FTC charged NTSP of horizontal price fixing in violation of Section 5 of the FTC Act.38 The price fixing involved negotiating fee-for-service contracts not as a messenger model but instead actually negotiating collectively, in clear violation of the FTC Act. The FTC determined that there was no procompetitive component that justified the collective bargaining.39
Since the conduct was obviously in violation, the FTC used the abbreviated inherently suspect analysis.40 Because NTSP was closer to meeting FTC collaborative joint venture requirements than Alston, it was subject to a more extensive review process than a per se violation.
In making its determination that NTSP was in violation, the FTC analyzed the procompetitive arguments made by NTSP and compared the fact pattern with that of numerous prior similar cases.41 Its decision was upheld by the appellate court.42
Rule of Reason Analysis
The rule of reason analysis is used where antitrust issues are balanced against procompetitive benefits of the joint venture.
The first part of the analysis involves determining what the relevant market is. The second part determines if the joint venture, based on its market share in the relevant market, has the ability to raise prices above competitive levels. The third part is to determine if the procompetitive advantages of the joint venture outweigh the antitrust concerns. How one balances these factors determines the outcome.
Since any case of collaborative joint venturing has the potential to raise prices and reduce competition, it is usually the procompetitive advantages of the particular joint venture that determines whether it is deemed to be permitted under the antitrust laws. The standard that is used to determine what is procompetitive is outcome determinative in most cases. What that standard is and how it is in alignment with the market realities has a major impact on the effect of FTC enforcement actions regarding competition in marketplace.
The current standard articulated by the FTC to be procompetitive using rule of reason analysis is “[p]rice agreements among competing sellers, as a general rule, are price fixing and summarily condemned by antitrust laws as per se illegal. But joint price setting by provider networks is not per se illegal if: (1) the participants have integrated their activities through the network (whether financially, clinically or otherwise) in a way that is likely to produce significant efficiencies that benefit consumers: and (2) the price agreements are reasonably necessary to realize those efficiencies.”43
For example, in Minnesota Rural Health Cooperative (MRHC) the entity was a collaborative joint venture consisting of 22 hospital members, 114 physician members practicing in 47 clinics and about 70 pharmacy members.44 Provider members of MRHC “agree that MRHC will negotiate and contract with health plans on their behalf and agree to participate in all MRHC contracts.”45 When payors contacted individual MRHC hospitals and physicians, they were referred back to MHRC.46
In 2003 MRHC notified payor HealthPartners that it would not renew its payor contract unless there was a higher reimbursement rate.47 This resulted in a 27 percent higher reimbursement rate for MRHC physicians than comparable non-MRHC physicians.48
MRHC was charged with violating Section 5 of the FTC Act “by among other things, orchestrating and implementing agreements among competing MRHC members to fix the price at which they contract with health plans and to refuse to deal except on collectively-determined price terms.”49 The FTC found that MRHC existed primarily for the purpose of bargaining and thus was in violation of Section 5 of the FTC Act. 50
Although there were procompetitive activities, including risk contracts with 10 percent withholding, a quality improvement project with reporting of compliance with clinical practice guidelines limited to a few medical conditions, such as diabetes, credentialing, monitoring of patient complaints, organizational meetings, and patient satisfaction surveys, the FTC did not believe that these activities, which were limited to the physicians, met the integration requirements under the procompetitive third part of the rule of reason analysis to justify collective negotiations.51
The FTC noted that had MRHC actively integrated clinically or financially in a way that would have benefited consumers through cost saving procompetitive activity, it might have met the standards articulated by the FTC to bargain collectively for its members.52
Problematic Outcome: Payor Monopsony Still Results in Physician Antitrust Violation
A recent example of how the rule of reason analysis may need updating in today’s healthcare environment involved physicians in Puerto Rico. Cooperativa de Medicos Oftalmologicos de Puerto Rico, a nonprofit organization representing over 50 percent of the ophthalmologists in Puerto Rico, refused to accept a Medicare Advantage plan contract from payor MCS Advantage that would reduce the physicians’ fees by 10 percent.53 The board of the Cooperativa met and notified its members not to accept the contract; the doctors, using the vehicle of the Cooperativa, jointly boycotted the plan and refused to take the lower fees.54 The doctors also refused to bargain individually with the payor.55 MCS Advantage filed an antitrust complaint against the Cooperativa.
According to the FTC’s 2017 consent order, the conduct of the Cooperativa was in violation of Section 5 of the FTC Act, which prohibits unfair methods of competition.56 The actions also violated the Sherman Act’s prohibition against joint boycotts.
However, the case points to one of the problems associated with enforcement without looking at the broader effects of the action on the marketplace.
Almost all antitrust cases involve issues in which an entity with unfair bargaining power attempts to raise prices above competitive levels. In contrast, Cooperativa involved an improperly structured joint venture resisting a monopsony attempting to lower prices.
A recent Commonwealth Fund study on the effects of consolidation evaluated the pros and cons of consolidation.57 The study found that one of the problems with consolidation is that it creates monopsonies in which a large buyer, i.e. an insurance company, drives the price down, which can result in low prices that reduce the “quantity or quality of services below the level that is socially optimal.”58 Moreover, price reductions are not necessarily passed onto to the consumer in lower costs.59
The situation in Puerto Rico exemplifies the problem with the current enforcement regulations. The current market penetration in Puerto Rico of Medicare Advantage plans is more than 70 percent of the Medicare market.60 Reimbursement rates under these plans in Puerto Rico are 43 percent lower than the average reimbursement rate for such plans in United States overall and 26 percent lower than in the U.S. Virgin Islands.61 Many of the Medicare Advantage enrollees are insured by government assisted healthcare plans and are directed into these plans.62 Because of the current structure of the Puerto Rican healthcare system, between 2012 and 2017 reimbursement rates have dropped five to six percent per year.63
According to Roberto Pando Cintron, the president of MCS Advantage, there has been a “mass exodus” of healthcare professionals from Puerto Rico.64 In addition, the combination of low reimbursement, scaring off of specialists and underpayment of the hospitals and healthcare systems has resulted in an underfunding of the healthcare infrastructure.65 This is all contributing to a decline in both the quantity and quality of healthcare services in Puerto Rico.
Moreover, physician shortages due at least in part to low reimbursement is not unique to Puerto Rico. For example, Nevada ranks number 48 out of 50 with regard to physicians per capita in part due to low reimbursement.66 These physician shortages are creating a crisis in healthcare delivery. Healthcare markets do not behave as traditional markets, and in areas of physician shortages reimbursement does not go up in order to attract physicians to underserved areas. Apparently in these markets, as in Puerto Rico, it is the payors that are keeping prices below competitive levels. To restore competitive balance in these markets, rule of reason analysis of physician joint ventures should factor in the societal procompetitive advantage that a collective bargaining entity plays in preventing or resolving a healthcare shortage.
Current Rule of Reason Analysis Outdated
In this new world where driving prices down lowers quality, decreases access and reduces the ability of underpaid providers to upgrade and invest in new technology,67 the analysis of the behavior of a physician joint venture is more complex than in the past. The rule of reason analysis process should be updated to reflect the new realities.
Physicians have tried various strategies to achieve their goal of collective negotiation. Unfortunately, the models as applied have achieved limited success and have failed to halt the trend towards increased healthcare consolidation.
An example of a successful clinically integrated IPA that was designed to be compliant with the current antitrust regulations is Mount Sinai Health Partners (MSHP), located in New York. This is a recently formed and still evolving clinically integrated IPA consisting of several thousand employed and independent physicians and the Mount Sinai Healthcare System.68 This entity began with the Continuum Healthcare System prior to its acquisition by Mount Sinai and then was continued by Mount Sinai. It has taken many years and huge costs to reach the point where it became operational.69 However, forming a similar collaborative joint venture in compliance with the current regulations is beyond the ability of independent physicians without the help of an institutional partner. This is unfortunate, because the FTC’s goal of preserving competition with respect to the physician provider sector is not succeeding.
One solution may lie in regulatory reform. The standards under the third part of the rule of reason analysis should be adjusted to take into account the diminishing role that independent practices play in the healthcare marketplace and their need to collaborate with each other and with non-physician providers to form pro-competitive joint ventures.
Independent practices are cost-effective competitors, and from an antitrust perspective preserve competition and help control costs. The antitrust regulatory process should function in a manner to halt and hopefully reverse the consolidation that is shifting physicians from independent practice. For this to occur, the FTC should consider modifying its standard for evaluating the procompetitive advantages of collaborative joint ventures by independent physicians in the rule of reason analysis.
In the current model, the FTC looks at a particular joint venture of independent physicians and determines if there is price fixing by competitors, and then based on the integration and the procompetitive advantages under the rule of reason analysis determines if the joint venture is in compliance or in violation of the antitrust laws. The rule of reason analysis applies to the specific entity.
A potential way to preserve competition and control costs is to modify the third part of the rule of reason analysis to analyze the procompetitive advantages of the joint venture not as it specifically applies to the joint venture but instead as to how it affects the broader market. For example, if a physician joint venture fell short of meeting the current procompetitive requirements under the rule of reason analysis, there should be a second component to the third step of the analysis that would assess the procompetitive role of the joint venture in preserving competition in the broader market. If the entity had a net positive effect of preserving competition and controlling costs in the overall market, even if it raised prices for the joint venture, and the prices were still below those of the consolidated entities that dominate the market, then the venture should be permitted. This analysis should be flexible enough to preserve competition in troubled markets, such as Puerto Rico. This modification of the rule of reason analysis could be accomplished by administrative adjudicative rulemaking based on case law or rule revision subject to notice and comment.
Another potential revision to the rule of reason analysis is to provide for greater flexibility in the second part of the rule of reason analysis, which analyzes the joint venture’s ability to raise prices above competitive levels using the HHI index.70 The lower this index, the less likely a joint venture will have the ability to raise prices in the market. This can then be applied to the analysis of whether the joint venture has pro or anticompetitive effects. Greater flexibility under the rule of reason analysis should be given to entities with low HHI indexes because of their lower impact on the overall market.
In addition, the rule of reason analysis should be adaptable and permit innovative new models of collaborative joint ventures to enter the market, such as physician guilds affiliated with medical societies, physician cooperatives, and other innovative forms of physician joint venturing, provided that these entities achieve procompetitive goals. Messenger model IPAs in very consolidated markets might on a case by case basis be granted waivers to collectively bargain.
Healthcare is a complicated industry with many players. A competitive cost-effective industry is beneficial to the economy and society. In an era of legislative gridlock, the antitrust regulators are in a strong position to positively impact the healthcare system. Enforcement actions when used properly to stimulate and preserve competition can lower costs and improve quality. When used improperly, the result can be the opposite.
In order to meet the FTC goal of preserving competition, antitrust regulations need to adapt to the changes of the healthcare marketplace. This can be most easily accomplished by modification of the procompetitive standards that need to be met under the rule of reason analysis. By adapting the rule of reason analysis to take into consideration the specific nature of the broader market, including troubled markets, physician shortages and the shifting demographics of provider markets, this can become a powerful tool in advancing the goals of the FTC to contain costs, improve quality, and encourage innovation. Hopefully this article will stimulate interest and dialog into the powerful role that policy-driven antitrust enforcement can play in healthcare reform.
- Available at https://www.ftc.gov/tips-advice/competition-guidance/industry-guidance/health-care.
- See St. Alphonsus Med. Ctr. v. St. Luke's Health Sys., No. 14-35173 (9th Cir. 2015) and FTC v. Advocate Health Care Network, No. 16-2492 (7th Cir. 2016). In St. Alphonsus St. Luke’s hospital acquired the Saltzer Medical Group in Nampa, Idaho and acquired over 80% of the primary care market, raising prices above competitive prices with insurance companies. The federal district court ordered St. Luke’s to fully divest itself of Saltzer’s physicians and assets. The Ninth Circuit affirmed the district court ruling. FTC v. Advocate involved a proposed merger of the two largest hospital systems in the North Shore suburb of Chicago. The merger would have created a system with a 55% market share; the next largest competitor would have had a 15% market share. The FTC action blocked the merger and prevented its anticompetitive effects.
- Clinical Care: The (Independent) Doctor Will Not See You Now, Accenture Report 2015, available at https://www.accenture.com/t20150608T044420__w__/us-en/_acnmedia/.
- Examination of Health Care Cost Trends and Cost Drivers, Report for Annual Public Hearing, Office of Attorney General Martha Coakley, March 16, 2010.
- Schneider, E., Provider Mergers: Will Patients Get Higher Quality or Higher Costs?, Commonwealth Fund Nov. 2015.
- Austin, D.R. & Baker, L.C., Less physician Practice Competition is Associated with Higher Prices Paid for Common Procedures, Health Affairs, 34(10):1753-60 Oct. 2015.
- Casalino, L.P., Pesko, M.F., Ryan, A.M. et al., Small Primary Care Physician Practices Have Low Rates of Preventable Hospital Admissions, Health Affairs Web First, published online August 13, 2014, available at https://www.healthaffairs.org/doi/10.1377/hlthaff.2014.0434.
- Cases 1:12-CV-00560-BLW (lead case) and 1:13-CV-00116-BLW (St. Luke’s FDC). https://www.ftc.gov/enforcement/cases-proceedings/121-0069/st-lukes-health-system-ltd-saltzer-medical-group-pa. The federal district court held that the acquisition violated Section 7 of the Clayton Act and the Idaho Competition Act. See also supra, n. 2.
- Vatorella, L, Physicians generate 2.4 million annually for their hospitals study finds, Becker’ Hospital CFO report, February 25, 2019, available at https://www.beckershospitalreview.com/finance/physicians-generate-2-4m-annually-for-their-hospitals-study-finds.html.
- Section 1. Trusts, etc., in restraint of trade illegal; penalty. 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. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,00,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court. Section 2. Monopolizing trade a felony; penalty. Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,00,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.
- §7 Clayton Act, 15 U.S.C. § 18, Acquisition by one corporation of stock of another
No person engaged in commerce or in any activity affecting commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no person subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another person engaged also in commerce or in any activity affecting commerce, where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.
No person shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no person subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or a part of the assets of one or more persons engaged in commerce or in any activity affecting commerce, where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition, of stocks or assets, or of the use of such stock by the voting or granting of proxies or otherwise, may be substantially to lessen competition, or to tend to create a monopoly.
- Sec. 45. Unfair methods of competition unlawful; prevention by Commission (a) Declaration of unlawfulness; power to prohibit unfair practices; inapplicability to foreign trade: (1) Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful. (2) The Commission is hereby empowered and directed to prevent persons, partnerships, or corporations, except banks, savings and loan institutions described in section 57a(f)(3) of this title, Federal credit unions described in section 57a(f)(4) of this title, common carriers subject to the Acts to regulate commerce, air carriers and foreign air carriers subject to part A of subtitle VII of title 49, and persons, partnerships, or corporations insofar as they are subject to the Packers and Stockyards Act, 1921, as amended (7 U.S.C. 181 et seq.), except as provided in section 406(b) of said Act (7 U.S.C. 227(b)), from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce.
- Minnesota Rural Health Cooperative C-4111, FTC File No.0510199 (final order issued December 28, 2010).
- Ohio et. al. v. American Express. Co. et al., 585 U.S. ___ (June 25, 2018) 9, 10.
- U..S v. Alston, 974 F.2d 1206 (9th Cir.1992).
- Southwest Health Alliance Inc, d/b/a BSA Provider Network, C-4327, FTC File No. 0910013 (final order July 8, 2011).
- Roaring Fork Valley Physicians IPA, Inc., C-4288, FTC File No. 0610172 (final order issued April 5, 2010).
- Boulder Valley Individual Practice Association, C-4285, FTC File No. 0510250 (final order issued April 2, 2010).
- Independent Physician Associates Medical Group, Inc. dba AllCare IPA, C-4245, FTC File No. 0610258 (final order issued February 2, 2009).
- The court in North Texas Specialty Physicians held that a violation of the FTC Act is equivalent to a violation of the Sherman Act. North Texas Specialty Physicians v. FTC, 528 F.3d346 (5th Cir. 2008). This is important because all legal precedents in antitrust cases that apply to Sherman Act Violations also apply to Section 5 FTC Act violations.
- See supra n. 28.
- Abbreviated or "quick-look" analysis is appropriate when an observer with even a rudimentary understanding of economics could conclude that the arrangements in question have an anticompetitive effect on customers and markets. See, e. g., National Collegiate Athletic Assn. v. Board of Regents of Univ. of Okla., 468 U S. 85 (1984); Cal. Dental Assn. v. FTC, 226 U.S.756,770 (1999).
- North Texas Specialty Physicians v. FTC, 528 F.3d346 (5th Cir. 2008), https://www.ftc.gov/enforcement/cases-proceedings/0210075/north-texas-specialty-physicians-matter.
- Id. at 353.
- 15 U.S.C. § 45(a).
- North Texas Specialty Physicians, FTC Docket 9312 Opinion of the Commission at 28-30 (November 25, 2005).
- North Texas Specialty Physicians v. FTC, 528 F.3d346, 364 (5th Cir. 2008).
- See, e.g., In the Matter of San Juan IPA, Inc., Docket No. C-4142 (consent order issued June 30, 2005), http://www.ftc.gov/opa/2005/07/fyi0548.htm; In the Matter of New Millennium Orthopaedics, LLC, Docket No. C-4140 (consent order issued June 13, 2005), http://www.ftc.gov/opa/2005/06/fyi0543.htm; In the Matter of White Sands Health Care System, L.L.C, Docket No. C-4130 (consent order issued Jan. 11, 2005), http://www.ftc.gov/opa/2005/01/fyi0504.htm; In the Matter of Piedmont Health Alliance, Inc., Docket No. 9314 (consent order issued Oct. 1, 2004), http://www.ftc.gov/opa/2004/10/fyi0457.htm; In the Matter of Southeastern New Mexico Physicians IPA, Inc., Docket No. C-4113 (consent order issued Aug. 5, 2004), http://www.ftc.gov/opa/2004/08/fyi0445.htm; In the Matter of California Pacific Medical Group, Inc., Docket No. 9306 (consent order issued May 10, 2004), http://www.ftc.gov/opa/2004/05/fyi0431.htm; North Texas Specialty Physicians, FTC Docket 9312 Opinion of the Commission at 28-30 (November 25, 2005) at footnote 1.
- The court also held that a violation of Section 5 of the FTC Act is the same as a violation of the Sherman Act.
- See supra, n. 40.
- Minnesota Rural Health Cooperative C-4111, FTC File No.0510199 (final order issued December 28, 2010).
- Analysis of Agreement Containing Consent Order to Aid Public Comment, C-4111, FTC File No.0510199.
- Section 5 of the FTC Act, which makes unfair methods of competition unlawful.
- See supra n. 49 at 6-7.
- In an example of state action doctrine, subsequent to this ruling the state of Minnesota changed the Minnesota Healthcare Cooperative Act, (Minn. Statutes 2018 62R.01-09) and took over antitrust supervision of healthcare cooperatives in Minnesota. Unlike the federal statute, the state Cooperative Act has a conditional approval option and appears to work with the organizations to help them restructure to comply with the statute. MRHC is active and it is unclear whether it is because the Minnesota law is less restrictive, the business model of MHRC has changed or a combination of both.
- Cooperativa de Medicos Oftalmologicos de P.R. C4603, FTC file no 1410194 (final order issued February 27, 2017). In this case MCS Advantage, the Medicare Advantage Plan, contracted with a second entity, Eye Management, at a capitated rate to provide ophthalmologic care in Puerto Rico.
- 15 U.S.C. § 45.
- Dafny, L.S., Evaluating the Impact of Health Insurance Industry Consolidation: Learning from Experience, The Commonwealth Fund, November 2015.
- Richman, E., Medicare Advantage Enrollment Soared in Puerto Rico, Now it is Starving the Island’s Healthcare System, August 2018, available at https://www.fiercehealthcare.com/payer/puerto-rico-s-medicare.
- Id. Note that a joint boycott is a violation per se and therefore not subject to any further analysis. This is problematic, because the specific circumstances that precipitated the Cooperativa’s joint boycott may have necessitated the action under the circumstances. This could be remedied by taking a broader or different look at the consequences of monopsony action by the payor regarding the hardships being endured by the physicians on the Island and its effect on healthcare delivery in Puerto Rico.
- See supra n. 57.
- Available at https://mshp.mountsinai.org/.
- For four years the author has served on the Board of Managers of this IPA and prior to that on the Network and Contracting Committee of the Continuum IPA that preceded MSHP. He has seen and has experienced firsthand the complexity, cost and length of the process before this IPA became operational.
- The term “HHI” means the Herfindahl–Hirschman Index, a commonly accepted measure of market concentration. The HHI is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. For example, for a market consisting of four firms with shares of 30, 30, 20, and 20 percent, the HHI is 2,600 (302 + 302 + 202 + 202 = 2,600). See https://www.justice.gov/atr/herfindahl-hirschman-index.
About the Author
Michael T. Goldstein, M.D., J.D. leads a dual career of attorney and physician. He is a Past President and Trustee of the New York County Medical Society. He is Chairman of the Committee of Collective Negotiations of the Medical Society of the State of New York, and the current President of the Alumni Association of SUNY Downstate College of Medicine. Dr. Goldstein has been active in the area of improving healthcare structure. He serves on the Alumni Board of the Pace University School of law. He is currently in solo practice and has been formerly associated with two New York health law firms. The opinions expressed in this article are his own and not associated with any organization that he is associated with. He may be reached at [email protected].