April 21, 2016

Flurry of Activity Signals FTC’s Ongoing Interest in Healthcare Transactions

Client Alert
Ashleigh VanLandingham | Beth Evans Vessel

A number of events have occurred recently involving the Federal Trade Commission and healthcare entities. First, garnering the lead spotlight, the FTC began presenting its case in the U.S. District Court for Northern Illinois to enjoin a merger between Advocate Health and NorthShore University HealthSystem, two large Chicago-area health systems. If the transaction goes forward, it would result in a system with 15 acute care hospitals, a children’s hospital and more than 6,000 affiliated physicians. The parties also plan to introduce a health plan.

The FTC issued an administrative complaint in December alleging that the proposed merger would create the largest hospital system in the area north of Chicago, with the combined entity operating a majority of the hospitals and controlling more than 50 percent of the general acute care inpatient hospital services. The FTC also authorized staff to seek the temporary restraining order and preliminary injunction in federal court to prevent the parties from consummating the merger.

The FTC alleges that the merger is likely to significantly increase the combined system’s bargaining power with health plans, resulting in higher prices and lower quality of care. Advocate and NorthShore have challenged the FTC’s market definition and argued that the actual market should include large portions of the Chicago metropolitan area. Last week, the general counsel of Northwestern Memorial Healthcare Inc. testified that Advocate and NorthShore are key competitors to Northwestern’s sole hospital in the area north of Chicago. To counter the Northwestern testimony, NorthShore’s CEO Mark Neaman testified that Northwestern wants the FTC to block the merger because it would like NorthShore to join the Northwestern system.

Last week, a BlueCross BlueShield executive also testified that he fears that the proposed merger would result in increased leverage for the hospital system and drive up insurance costs in Chicago’s northern suburbs. BlueCross holds more than 50 percent of the insurance market in Illinois. Advocate and NorthShore assert that increased efficiencies from sharing a network of physicians would actually lead to a 10 percent price decrease.

In another healthcare antitrust development, the Department of Justice (DOJ) took the unique action of suing Charleston Area Medical Center (CAMC) and St. Mary’s Medical Center for unlawfully agreeing to allocate territories for the marketing of healthcare services. The DOJ filed the civil antitrust lawsuit in the U.S. District Court for the Southern District of West Virginia, while simultaneously filing a proposed settlement that, if approved by the court, would resolve the lawsuit. According to the complaint, CAMC and St. Mary’s restricted competition for years by agreeing to geographic limits on the marketing of competing healthcare services. CAMC agreed not to place print or outdoor advertisements in Cabell County, West Virginia, and St. Mary’s agreed not to place print or outdoor advertisements in Kanawha County, West Virginia. The agreement allegedly disrupted competition, deprived patients of information needed to make informed healthcare decisions and denied physicians working for the defendants the opportunity to advertise their services to potential patients.

The proposed settlement, along with the DOJ’s competitive impact statement, will be published in the Federal Register, as required by the Antitrust Procedures and Penalties Act. Any person may submit written comments concerning the proposed settlement within 60 days of its publication. At the conclusion of the 60-day comment period, the court may enter the final judgment upon a finding that it serves the public interest.

Amid all of the bigger health system transactions, a flurry of smaller transactions which are non-reportable under the HSR Act, including at least 940 healthcare service transactions in the last year, have been more quietly changing the competitive landscape. Because of such consolidation, patients are more likely to get care from providers with formal ties to one another. While the Chicago-area hospital combination comes under scrutiny, Illinois’ largest independent physician group, DuPage Medical Group, has doubled in size to 500 doctors over the last five years. Deborah L. Feinstein, the Director of the FTC’s Bureau of Competition, has stated that making the legal case against vertical combinations, such as where a hospital buys a physician group or expands into related areas, is not as straightforward. Some states, such as Massachusetts, have either created or are considering implementing reporting systems, requiring that any healthcare transactions be reported to a state agency. Implementation of such systems would assist in keeping up with the many smaller transactions which, in the aggregate, may have a significant effect on competition.

The Antitrust Division of the Department of Justice has also recently indicated that it will continue its active enforcement of the antitrust laws. The Antitrust Division’s new litigation director Eric Mahr told Law360 in February that neither a fear of marring its litigation record with a loss nor a heavy workload will deter the DOJ from going after mergers or conduct it believes will harm consumers. Mahr emphasized that decisions to take a matter to court are based on the substance of the particular case, not the division’s win-loss record. It’s worth noting that the Division recently asked Congress for enough funds to add nearly 100 new attorney positions.

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