Another One Bites the Dust: DOJ Pulls 3 Policy Statements, Leaving Trade Associations Guessing
- The Antitrust Division of the U.S. Department of Justice (DOJ) on Feb. 2, 2023, announced its withdrawal of antitrust policy statements applicable to healthcare markets, expressing a preference for a "case-by-case" enforcement approach over advance guidance for industry participants.
- Withdrawal of the policy statements creates uncertainty for entities outside of the healthcare industry that had relied on an established antitrust "safety zone" when conducting industry benchmarking surveys.
- Going forward, trade associations and others conducting surveys or supervising information exchanges among industry participants cannot depend on rigid adherence to the safety zone factors to avoid antitrust scrutiny. Before proceeding, trade associations will instead need to consider how, if at all, the proposed survey could reduce competition.
During the course of the Biden Administration, the U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC) have demonstrated an invigorated and sustained policy interest in increasing competition across various industries. Many high-profile actions have had an explicit focus on cracking down on mergers: the announcement of an Executive Order Promoting Competition in America (July 2021), the repeal of the Vertical Merger Guidelines (September 2021) and review of the Horizontal Merger Guidelines (January 2022). Other actions, such as the FTC announcement expanding the scope of liability under Section 5 of the FTC Act, have sought to increase the agencies' antitrust enforcement powers. The healthcare industry, in particular, has been a focus of the administration's enforcement activity, public statements, guidance revisions as well as a listening forum to gather feedback from consumers and industry participants. Combined with these changes, the FTC and DOJ have pursued aggressive litigation strategies in the healthcare industry among others seeking to push the boundaries of decades of antitrust law: criminal liability under Section 2 of the Sherman Act, challenging vertical mergers, and seeking to enjoin mergers based on speculative potential future harm to competition.
Withdrawal of Policy Statements
Consistent with these recent developments, on Feb. 2, 2023, the DOJ announced its withdrawal of three antitrust policy statements concerning healthcare markets: Department of Justice and FTC Antitrust Enforcement Policy Statements in the Health Care Area (Sept. 15, 1993); Statements of Antitrust Enforcement Policy in Health Care (Aug. 1, 1996); and Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program (Oct. 20, 2011). Broadly speaking, these policy statements addressed a number of topics, including hospital mergers, hospital joint ventures involving high-technology or other expensive medical equipment, physicians' provision of information to purchasers of healthcare services, hospital participation in exchanges of price and cost information, healthcare providers' joint purchasing arrangements and physician network joint ventures.
In practice, these policy statements provided guidance to companies across the healthcare industry by outlining circumstances in which the government would or would not challenge transactions involving hospitals, physician group practices and other companies in the industry. Beyond the merger context, the policy statements also provided safe harbors and specific guidance as to conduct that did not run afoul of antitrust laws and that the DOJ would not seek to challenge in an enforcement action. Echoing earlier commentary on the need to modernize the federal antitrust enforcement regime, the DOJ's Assistant Attorney General Jonathan Kanter reiterated in comments concerning the withdrawal of the policy statements that "[t]he healthcare industry has changed a lot since 1993, and the withdrawal of that era's out of date guidance is long overdue." These policy statements, according to the DOJ, are "overly permissive on certain subjects, such as information sharing," and "a case-by-case enforcement approach" rather than broad guidance would allow it to better evaluate healthcare mergers and competition. The FTC is expected to make a similar announcement in coming weeks.
Information Exchanges: Prior Guidance and Potential Impact
The impact of the withdrawal of the DOJ's policy statements will be felt outside of the healthcare space because the safe harbors that they had laid out for the sharing of information among competitors had been adopted across industries. Since industry benchmarking surveys and other information exchanges "can in certain circumstances increase economic efficiency and render markets more, rather than less competitive," United States. v. United States Gypsum Co., 438 U.S. 422, 441 n.16 (1978), the DOJ's policy statements provided welcome guidance to trade associations and others that sought to engage in procompetitive information sharing without crossing the line and facing a potential antitrust investigation or enforcement action. The DOJ's policy statements established a safety zone under which an information exchange would be considered reasonable if: 1) the exchange was managed by a third party, such as a trade association; 2) the information was more than three months old; and 3) at least five participants provided the data underlying each statistic shared, no single participant's data contributed more than a quarter of the amount of any statistic shared, and the shared statistics were sufficiently aggregated in a manner where no participant could discern the data of any other participant. The FTC also endorsed the same safety zone, providing clear guidance as to the antitrust agencies' enforcement intentions surrounding these routine and often procompetitive interactions.
In withdrawing the policy statements, the DOJ has replaced clear guidance with uncertainty. Trade associations regularly conduct information exchanges as part of their benchmarking and lobbying efforts. They had relied upon the existence of clear rules concerning how and when information exchanges would be permissible and structured their efforts to be compliant with the stated guidelines. Navigating the "case-by-case" enforcement approach now advocated by the DOJ in the absence of clear guidance will likely be a challenge. To best insulate themselves from antitrust scrutiny, trade associations should consider revisiting and adjusting core principles detailed below.
Information Sharing Takeaways
1. Review and Rethink Existing Data Aggregation and Information Exchange Mechanisms
Trade associations and other entities involved in benchmarking surveys and other information exchanges should, based on the DOJ's action, reevaluate their current processes for aggregating data and exchanging information with their members. The DOJ's withdrawal of its policy statements does not alter the fundamental reality that many information exchanges, if conducted to meet the safety zone requirements, would not harm competition or subject those involved in the information exchange to a likely antitrust investigation. However, trade associations and others can no longer rely rigidly on whether their proposed survey or information-sharing activity would meet the specific requirements of the now-withdrawn safety zone. Each decision to proceed with the collection and exchange of competitor information should consider whether the proposed survey or information sharing could be used to (or be perceived to be used to) reduce competition. Based on the DOJ's explanation for the withdrawal, companies planning a survey or information exchange should consider at least the following:
- Is the data sufficiently historical? Based on the antitrust agencies' guidance, many trade associations have used a three-month look-back as the rule of thumb. Associations should consider whether, under present competitive conditions, data only three months old has lost its competitive significance or potential for misuse by industry participants. In the current enforcement environment, incorporating only older data would be prudent.
- Is the type of anonymized data more likely to raise price-fixing concerns? Broadly speaking, information exchanges on pricing, costs, volumes of sales, terms of sales, capacity and production levels, customer/supplier-specific information and information relating to strategic plans are more likely to create concerns. Even in light of the policy changes outlined here, information exchanges related to nonproprietary technology, quality control issues and environmental or safety matters are likely to be less of a concern. Regardless of the type of data, it remains a best practice to ensure that only aggregated information is shared with competitors, and not the underlying data collected from them.
- Is there an important reason for the information exchange? Using routine or informal meetings occurring multiple times per year as a venue for sharing aggregate data may no longer be considered appropriate. Trade associations should be thoughtful about how frequently information exchanges occur and consider whether such exchanges provide meaningful benefit.
2. Update Antitrust Policies
The results of these internal assessments related to the aggregation of data and information should be memorialized into an updated policy. A successful antitrust policy is one that is both accurate and achievable. Detailing an aspirational practice that is cost-prohibitive is not an effective policy. For example, if a trade association is unable to involve an independent third party in their data aggregation practices, then the policy should not reflect that such practice is followed. However, if a trade association decides to extend their look-back period, their membership criteria or the scenarios in which information exchanges will take place, such information should be stated clearly and then followed consistently. Understand that an antitrust policy, like all policies, is a living document and should continue to be revisited as business practices and laws change.
3. Training and Monitoring Member Compliance
A bullet-proof antitrust compliance policy is of questionable merit if trade group members are not educated on its provisions and their corresponding compliance. While it has always been a good practice for a trade group to ensure that members are familiar with the applicable antitrust policy, investing in educating members is an even more worthy exercise in this enforcement environment. In addition to educating members on existing antitrust policies, industry trade associations should also consider the following:
- starting meetings with an antitrust compliance reminder
- keeping accurate and concise minutes of meetings
- ensuring discussions do not deviate from approved agenda items into unplanned, informal discussion, and into any discussions in which participants disclose information about their prices, costs, margins, terms of sale, business strategies or wages
- carefully overseeing the sharing of any business information concerning members that might be seen as competitively sensitive (or avoid such exchanges altogether) including limiting off-the-record conversations among competitors
- creating a mechanism for reporting improper information sharing and ensuring any reports are addressed
What the future holds for trade associations and others engaged in what might have been routine and benign information exchanges is not entirely clear. Only time will tell whether this move is a precursor to stricter enforcement from the DOJ related to trade associations, but these organizations should tread lightly and approach information exchanges with eyes wide open regarding the potential risks. The past few years have been tumultuous for healthcare industry participants seeking to navigate antitrust risk exposure.
Holland & Knight's Antitrust Team, which includes former leaders in federal and state antitrust enforcement agencies, stands ready to assist clients as they navigate this new enforcement environment and consider steps that they can take to minimize potential risks this environment presents to their businesses. If you have any questions, please contact the authors of this alert.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.