In this month’s American Bar Association (ABA) Section of Antitrust Law Spring Meeting, the program “Antitrust & Health Care: Square Peg in a Round Hole?” featured debate and discussion about antitrust law treatment of health care transactions and how that treatment might (or should) evolve (via regulation, legislation, or some combination of approaches), or conversely, whether the intersection of antitrust law and health care is more akin to a square peg meeting a round hole.  Moderated by Jim Donahue (Office of the Pennsylvania Attorney General), the panel’s speakers included Robert Berenson, MD (The Urban Institute), Alexis Gilman (the Federal Trade Commission (FTC)), Melinda Hatton (American Hospital Association (AHA)) and Elinor Hoffmann (Office of the New York Attorney General (AG)).

Horizontal Mergers

The program first considered a hypothetical merger of specialty physician practices, where the acquiring practice has privileges at one of the market’s two hospitals and the merger would consolidate privileges at that hospital.

The FTC said it would likely look at the transaction on a specialty-by-specialty basis; the New York AG agreed, but thought it was worth considering: is multi-specialty a market itself? She referenced ProMedica’s cluster markets as a possible route for analyzing the transaction (e.g., a parent might take two children to a multi-specialty practice at the same time, one to see a pediatrician and the other to see a dermatologist).

The American Hospital Association (AHA) thought that with the Affordable Care Act’s (ACA’s) incentive to keep the population out of the hospital, hospitals are repurposing services toward population health goals, and referenced remote medicine and affiliations.

Remedies

The FTC stated that it continued to prefer structural remedies in the form of injunctions or divestitures for health care transactions, pointing to its rejection of Phoebe Putney’s proposed conduct remedy. The New York AG agreed that while structural remedies are typically best, the states (particularly Pennsylvania and New York) tend to be more willing to consider conduct remedies, often with the goal of marrying regulation with achievement (efficiencies).

Dr. Berenson posited that physician group acquisitions are the wave of the future, because the current regulatory environment makes solo practice difficult. So, he said, where physicians or specialties must be divested, those doctors are now likely to seek hospital employment.

From the hospital perspective, the AHA noted that health care transactions are a peculiar breed— health care cannot be divorced from regulation, acquisition costs are usually very high, and hospitals must pay fair market value under Stark and Anti-Kickback laws—and commented that the peculiarities of such transactions are not always adequately taken into consideration in merger challenges.

Vertical Mergers; Narrow vs. Broad Networks

The panel next considered a hypothetical merger where a health plan with 60 percent market share in a mid-size city purchases one of the two hospitals and changes its network from broad to narrow.

The FTC noted that although they have not challenged this sort of vertical health care transaction, it would do so under the right circumstances (e.g., if the hospital had no excess capacity, market entry was difficult and there was a Certificate of Need requirement), and its analysis would likely focus on foreclosure and changes in foreclosure.

The AHA stated that 60 percent market share for an insurance company in a mid-size city is not necessarily high, especially depending on the makeup of the other 40 percent and how well the state’s exchanges are functioning. The AHA also noted that as incentives continue to move the population out of hospitals, many hospitals are left with excess capacity, so a hospital excluded from a network must repurpose its space to better fit the community’s needs.

Dr. Berenson believed that change in health care delivery happens at the provider level, not the payor level. He opined that insurance companies with narrow networks may be short sighted, since, he said, narrow networks make little sense when exchanges offer a range of broad networks.

Integration vs. Quality

Finally, the panelists debated the relationship between integration and quality. Dr. Berenson stated that current quality metrics for employed physicians in an integrated setting often are not meaningful, which leads to lower quality.  The AHA responded that linking provider compensation to quality metrics acts as an incentive to find appropriate measures.

The New York AG stated that that the ACA and the Sustainable Growth Rate repeal make clear that quality is aspirational, and that regulation is evolving to support that goal.  She averred that a (probably unintentional) effect of the ACA is that, in light of the burdens imposed by value-based payment and reporting regulations, competitive actors are looking into consolidation.

The AHA argued that acquisition of physician practices is the ideal way to form a cohesive team at a hospital (since otherwise, Stark and Anti-Kickback laws require doctors and hospitals to remain at arm’s length), and that the agencies should issue guidelines on clinical integration if they prefer affiliations over acquisitions.

Dr. Berenson, on the other hand, argued that the data shows that large integrated systems produce lower quality, do not achieve efficiencies, and actually end up raising prices.  In his opinion, the theory of integration leading to efficiencies is there, but the data is not.  He said that reimbursements remain largely based on volume and therefore are not yet an incentive to achieve efficiencies.  Instead, he argued, the current system is just an overlay to fee-for-service payments, and hospitals will prove that the right incentives are in place when their aim shifts to emptying beds instead of filling them.