Antitrust Issues in the Current Healthcare Industry
Healthcare is an industry that is full of ever-changing regulations and legal areas that can potentially sneak up on providers during a healthcare M&A transaction. One of the main legal concerns in a transaction is the issue of antitrust.
Lisa D. Taylor, Partner, Inglesino, Webster, Wyciskala & Taylor, LLC explains that in general. antitrust is a set of Federal and State laws that govern the conduct and organization of various businesses to promote what is considered to be fair competition. It is not only competition but is also access to goods and services, and it is to prevent there being a limited market for certain goods and services.
Taylor says that two recent examples of antitrust cases were Aetna’s proposed acquisition of Humana, and Anthem’s proposed acquisition of Cigna. In both cases, the Federal Government sought to block those transactions because they said the insurance marketplace would be too limited because there would not be enough competition
Holden Brooks, Partner with Foley and Lardner, LLP says that she thinks that on the provider side, there are really three kinds of antitrust actions. The first one is an investigation or challenge of merger conduct. The antitrust laws prohibit the combination of providers that harm competition.
“Enforcers look at these mergers of providers by looking at the potential efficiencies, reducing the total cost of care, improving quality, expanding access etc. that might result in the transaction as well as any anti-competitive effects where on the other side, competition is diminished,” Brooks says.
“Usually, if they are going to challenge a merger it is because they percieve that the combination of the two competing providers is going to give the merged entity too much bargaining power in the context of negotiations with a commercial payor. So in the merger review context, it is really commercial payors that stand in the shoes of consumers and the harm that the enforcers are looking for is if the merger is going to disturb the bargaining leverage of the payors so that consumers are going to pay more for healthcare….they are really looking at how the patient is going to fare in that community from an economic standpoint and from a care/quality standpoint.”
Brooks says the other two categories of antitrust are agreements between competing providers that the enforcers would perceive as being anti-competitive.
“For instance, if two competitors entered into some type of arrangement where they were short of a merger, but the antitrust division still felt it was going to diminish the amount of competition, between the two of them, they would investigate it. A lot of physician practices now are part of Clinically Integrated Networks, and it is under this framework that the enforcers are looking at those arrangements between potentially competing providers,” Brooks says.
“The third is unilateral conduct which is conduct that a provider will take on its own; not in the context of a merger or agreement with another provider. This would be in an instance where a provider is perceived to have a good deal of maket power. The antitrust agencies may take a look at the kind of contracting practices that they have to see that they are wielding that market power in a way that may harm competition.”
Adam Falcone, Partner with Feldesman, Tucker, Leifer & Fidell explains that scrutiny under the antitrust laws varies quite a bit depending on how proposed conduct impacts competitors and payors. One thing that is helpful to know is that regulators read the newspapers too, he says.
“For example, if a merger in a particular region of the country attracts media attention because patients feel it is going to result in less choice or payers think it will lead to potentially higher prices, then media coverage about the proposed merger could trigger scrutiny by the State Attorney General’s Office or the Federal Antitrust Enforcement Agencies (FTC, DOJ),” Falcone says.
Avoiding Antitrust Issues
“First of all, in a non-merger context, it is important that competitors not exchange price or compensation information. You don’t want to have discussion of price for services, salary, wages, or benefits,” Taylor says.
In terms of an acquisition or merger, in many instances, there is a requirement under Hart Scott Rodino. There are pre-merger notifications that get filed under certain circumstances so there would have to be a filing before the businesses actually proceed with certain transactions. In terms of antitrust enforcement, understand that there are two agencies that enforce the antitrust law by the government. One is the Federal Trade Commission (FTC), and one is the Department of Justice (DOJ).”
Taylor explains that under Hart Scott Rodino, if the parties have a transaction that exceeds certain financial thresholds, they then have to make certain filings, then the government makes the decision to ask for more information, attempt to block or allow the parties to proceed with the deal.
“These are generally very large transactions, and the thresholds are set based on the size of the transaction and the size of the entity. However, there can be issues even with smaller transactions that do not require pre merger notification. There are also instances in which the government has sought to undo a transaction after the fact because of concerns about the lack of competition,” Taylor says.
Brooks adds that this is a great opportunity for providers contemplating a potential transaction to really plan ahead. It is a wide use of resources for them to gain antitrust counsel up-front, she says.
“It could really save you a ton of money, a lot of time and headache down the road if you are aware of antitrust issues if they become a part of your planning process. Also, if your business team has become aware of how their structuring of the deal can be misconstrued you will be able to avoid those types of delays and complications. What we usually advise is to get counseling and training up-front,” Brooks says.
According to Brooks, one simple step is to have counsel come in at the start of a transaction and give the clients a general orientation about what the antitrust laws are and how they should factor that into business planning and how they conduct due diligence.
Falcone also says that practices contemplating mergers or acquisitions would be well advised to hire antitrust counsel, so that they can structure the transaction in a way that is least likely to be scrutinized by both State and Federal enforcement agencies.
“This might result in the parties not going forward with the transaction if it is likely to be challenged by the government after the fact. Reversing a merger is like unscrambling an egg—it is difficult to do and very messy!” he says.
Taylor says that when discussing concerns of antitrust changes with a new administration in Washington, that first of all, it is early in the administration, and secondly, while the DOJ is part of the administration and appointees at the upper levels are appointed by the President, the FTC commissioners have seven year terms. Taylor says these representatives come from different political parties so it is not as if when there is an election, suddenly things change.
Jim Dietz, attorney with Frost, Brown, Todd says that as far as enforcement of the antitrust laws, enforcement is really as robust as it has ever been.
“That doesn’t really wane based on the administration. It is pretty much agreed across the board that antitrust violations are bad things. What is going on right now is there are a number of cases where hospitals and systems wanted to merge and the folks in Washington challenged them and was successful. The antitrust folks in Washington have had recent episodes of victory, but the antitrust enforcement people in Washington will get down to the nitty gritty, they are not just interested in the big picture issues,” Dietz says.
Antitrust Tips for New Providers
Taylor says the first thing that providers need to know is that they should certainly be careful. If a transaction is contemplated it is important to be very careful from a due diligence perspective.
“It is necessary to have appropriate professional advice early on and there are certain things that one must be careful about not saying. Certain information needs to be evaluated and shared pursuant to a non-disclosure/confidentiality agreement by the parties’ professionals. It would not be good for physicians to directly discuss ASC rates etc. in connection with a merger of ASCs, for example,” Taylor says.
“In terms of entering into a deal, antitrust really has to do with the size of the market and how much competition there is. It is looked at for a given service or good and there are certain economic studies to that are conducted to evaluate the market. Depending on how much competition there is in the market determines whether there is going to be an antitrust issue.”
If you would like to learn more about the concepts covered in this article, want to sell your business or discuss how Ambulatory Alliances, LLC might be able to help you out, contact Blayne Rush, (469)-385-7792, or Blayne@ambulatoryalliances.com.
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