Recent years have seen significant vertical integration in the healthcare space, whether megamergers such as CVS-Aetna and Cigna-Express Scripts, or the numerous hospital and health system acquisitions of physician groups and other non-hospital healthcare providers. These vertical mergers—combining assets that are used at different levels of the supply chain—have largely escaped significant antitrust scrutiny since they do not reduce the number of competitors in the market and often have pro-competitive justifications that would result in lower prices and/or higher quality products and services for consumers.

Last week, the US Department of Justice (DOJ) and the Federal Trade Commission (FTC) published draft vertical merger guidelines (the Draft Guidelines), signaling that vertical merger enforcement is, and will continue to be, a priority for both agencies. The Draft Guidelines supersede the DOJ’s 1984 Non-Horizontal Merger Guidelines and are intended to be read “in conjunction with the Horizontal Merger Guidelines published by the DOJ and FTC in 2010.”

The Draft Guidelines focus on the following:

• Outlining the potential anticompetitive effects resulting from vertical mergers, which may include the ability to foreclose competitor access to a vital input or distribution channel, raising the costs of one or more competitors causing those competitors to lose sales or compete less aggressively, and harm caused by gaining access to competitors’ competitively sensitive information through sales of a vertically related product. Such effects could also include changes in market structure that enable or encourage competitors to behave in a coordinated manner that harms consumers.

• Providing an analytic framework (including economic models) to evaluate the potential effects of vertical mergers.

• Describing how the elimination of “double marginalization” may mitigate or completely eliminate the potential anticompetitive effects of vertical mergers.

The Guidelines also include a statement that “[t]he Agencies are unlikely to challenge a vertical merger where the parties to the merger have a share in the relevant market of less than 20 percent, and the related product is used in less than 20 percent of the relevant market.” While not dispositive of whether a vertical merger is anticompetitive, this language suggests that in most cases the Agencies will not investigate mergers falling below the 20 percent threshold.

The DOJ and FTC will review and consider public comments before issuing final Vertical Merger Guidelines. Public comments relating to the Draft Guidelines are due by February 11, 2020.