Like other players in the healthcare industry, physician groups are facing increased antitrust scrutiny from the Biden administration, with the Federal Trade Commission (the “FTC”) and Department of Justice, Antitrust Division (the “DOJ”) (together the “Agencies”) continuing to expand their enforcement focus to include all types of transactions involving physician groups, including both traditional combinations, as well as so-called vertical combinations with health systems, payors, and private equity investors.
Many states’ attorneys general have also become more active investigators of physician transactions, as California, New York, Texas, and others have scrutinized numerous physician combinations, while the State of Washington recently passed legislation that requires a 60 day notice of provider transactions that involve at least seven providers.
Based on our experience in the marketplace, we expect physician groups to encounter more antitrust scrutiny of their transactions and collaborations as the provider sector seeks to overcome the challenges posed by the COVID-19 pandemic and physicians look to innovative combinations and collaborations to find solid economic footing. Physician groups should keep in mind the following three key takeaways as they navigate an increasingly challenging antitrust enforcement landscape.
Takeaway 1: Physician Consolidation Remains Enforcement Priority
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Physician group mergers are often taking place in local markets that the Agencies may already view to be concentrated with respect to one or more specialties. One recent study estimates that in 2016, 40 percent of markets for primary care services and nearly two-thirds of specialty physician services markets were highly concentrated under the DOJ and FTC Horizontal Merger Guidelines, while other studies and analyses come to different conclusions.
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In spite of what some may consider to be a steady ongoing pace of physician consolidation, antitrust enforcers frequently argue that there is little support for concluding that consolidation enhances quality, lowers costs, or improves outcomes.
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The FTC, the most active federal antitrust enforcer in the provider sector, seeks to translate such views into enforcement action in the near term. In January, the FTC issued orders to six major health insurance companies to provide information that will enable the Agency to study the effects of physician group and healthcare facility consolidation over the past five years in several regions of the country. These orders follow on the FTC’s announcement last fall that it would expand and formalize its merger retrospective program, which the FTC has used with great success in the past to test and refine the economic models that it uses to make enforcement decisions and to challenge mergers.
Takeaway 2: Physician Collaborations Raising More Concerns
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For over a decade, health care reform has created powerful incentives for providers to improve quality and create efficiencies that lower the cost of care. These forces are especially strong for physician groups, which do not typically have the same scale as hospitals or health systems and so must pool resources with other providers to create meaningful efficiencies. At the same time, physician groups often wish to remain independent and avoid formal mergers with other practice groups, or hospitals, or health systems for a number of clinical, financial, or other strategic reasons.
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As a result, physician groups frequently explore other types of collaborations or joint ventures that do not consolidate economic or managerial control into a single entity, including creating clinically or financially integrated networks, partnering with payors or upstream providers to market benefits plan or coordinated care services, participating in accountable care organizations (“ACOs”), or forming independent practice associations (“IPAs”) or other types of joint ventures with other physicians or physician groups.
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Because the parties in such collaborations or joint ventures may still be independent actors outside the scope of the collaboration, and in some instances, may compete with each other outside of the joint venture, agreements between the parties on reimbursement rates, expansion or services, physician recruitment and compensation, among other things, could raise antitrust law concerns, particularly in concentrated markets.
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In particular, otherwise independent physicians who are seeking to jointly negotiate commercial fee-for-service rates, and those who are clinically integrating rather than financially integrating, may face heightened government scrutiny of their networks, with the Agencies’ probing the degree of interdependence of the network and examining whether joint contracting is necessary to achieve the network’s consumer benefits. Physician networks have not been subject to many recent federal antitrust enforcement actions or public investigations, so the available guidance does not consider more recent network configurations or developments in the industry, but the Agencies and the states continue to look into these arrangements.
Takeaway 3: Physician Groups can and Should Assess and Minimize Antitrust Risk
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Given the heightened scrutiny from the Agencies and the states, physician groups should work with antitrust counsel to identity and mitigate antitrust risks. For instance, where physicians are entering into collaborations that fall short of a merger or acquisition, robust antitrust compliance policies and firewalls may be necessary to preserve competition outside the joint venture, and to protect against inappropriate sharing of competitively sensitive information. The Agencies pay keen attention to the parties’ compliance activities, and an ounce of prevention can be well worth the investment.
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Physician groups should also take care to document the procompetitive rationales for their collaborations and transactions, such as improving quality of care through clinical integration. And they should avoid poorly drafted documents that may give the Agencies a misimpression about the objectives or effect of their collaboration.
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Finally, many physician mergers may not require pre-notification filings under the Hart-Scott-Rodino (“HSR”) Act, due to the relatively small value of the transactions and size of the parties. However, even non-reportable deals are subject to antitrust scrutiny, and both the FTC and DOJ have a track record of investigating and challenging “small” physician group mergers.
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