Editor’s Note: In an article first published in Forbes—reprinted below—Manatt discusses the changing lens through which the Federal Trade Commission (FTC) and Department of Justice (DOJ) Antitrust Division evaluate health care transactions and the implications for business leaders.
To learn more about the changing approach to health care antitrust—and the evolving criteria for assessing health care transactions—click here to register for our upcoming free webinar, co-led by Manatt, NYU Law and NYU Wagner. The CLE-eligible program will include a panel of industry leaders discussing the shifts in the health care transactions landscape, the government’s evolving approach to enforcement, the ways new criteria (such as equity, quality and care access) should factor into antitrust evaluations, the challenges surrounding vertical mergers, the role of private equity in health care transactions, the consequences of the DOJ’s and FTC’s scrutiny of “big tech” and much more.
The Federal Trade Commission has sued to block several proposed health care transactions this year and has claimed victory after these challenges resulted in abandonment of those deals. While each case is unique and based on its specific market facts, the core contention in each case is that consumers/patients would bear higher health care costs unless the transaction is stopped.
At the same time, both the FTC and DOJ Antitrust Division have made statements indicating that the lens through which they are evaluating antitrust cases is changing. For example, these agencies are looking for cases (including criminal) to bring against conduct that allegedly thwarts competition over the wages of health care workers, and the alleged influence of private equity in the space.
This is known in the antitrust community as a migration from the traditional “consumer welfare standard” to a “total welfare standard.” The former focuses on the impact of a practice on the final consumers of a product or service, i.e., patients and health plan enrollees, whereas the latter essentially contends that anyone who engages with a market, whether a specific type of consumer, producer/worker, or government entity, should be accounted for in an antitrust investigation or case.
This raises the question: Under the FTC’s current approach shouldn’t health equity, access, and initiatives designed to provide high quality care factor into an antitrust analysis? Indeed, the government has already implemented waiver programs to provide for enhanced access, which indicates a strong public policy interest in these impacts of the health care delivery system.
In cases where a health care transaction or initiative would allow for greater access and equity across a region, should these factors be accounted beyond a straight analysis of market shares and competitive dynamics? To date, the latter have been the primary determinants of antitrust outcomes, but under a “total welfare” approach being encouraged by this Administration, one should arguably account for all of the public policy goals of health care.
Consistent with this concept, President Biden previously required non-antitrust agencies (see prior article on this subject here), such as the FDA and HHS, to work with the FTC and DOJ, and that seems like an important dialogue to determine how to combat real or perceived inadequacies in our system. The FTC and DOJ are about to publish new Merger Guidelines (that give an overview of how they will analyze mergers), and perhaps these will indicate what types of information these other Federal Agencies are collecting to inform the competition enforcers.
Most recently, the FTC issued a policy statement on partisan lines (with the lone Republican appointed Commissioner dissenting) stating that it may challenge any practice that “negatively affects competitive conditions.” A common critique of this policy statement (including from the dissenting Commissioner) has been that it is open-ended and lacks specificity with respect to what the FTC may challenge. A potential implication of that lack of precision is that the FTC should also account for other policy goals that are not strictly related to price and output, particularly in health care.
Leadership strategy implications. In light of this shift, it would be wise for all business leaders with an interest in health care to be prepared to explain how each of its strategic initiatives is increasing access, lowering cost, improving quality or enhancing viability of health care delivery to consumers. For example, a private equity investor should be prepared to explain how its proposed investment will promote health care access, equity, quality or innovation in addition to addressing the traditional price and market concentration issues prevalent in antitrust reviews.
For hospital systems or other providers, when exploring or explaining a potential initiative or transaction, it may be appropriate to focus on the types of patients they aim to serve and how the proposal will allow the entity to achieve or expand upon its health care mission. Given that up to a third of hospitals are losing money, it may be the case that a potential transaction is the only way to continue serving a specific population. (To date, no health care merger has been approved based what has been referred to as “failing firm” defense.)
Insurers should be conscious to illustrate how a given strategy enhances broader access to benefits and potentially lowers the cost of care. While vertical transactions have been investigated by this FTC, traditionally such arrangements can enhance efficiency and achieve these objectives.
Given Biden’s focus on labor, it would also behoove health care leaders to determine what policies and practices for employees make it most likely that they will stay with their employer. Put another way, workers of all types in these organizations should be considered with the same degree of care and attention as the patients they serve.
Finally, while health care leaders have ample reason to seriously scrutinize any business collaboration in this environment, if there are unambiguously benefit enhancing initiatives that a system could pursue, doing so may be enough to assure the government that your system is part of the solution to the current perceived problems in health care.