The Antitrust Headache: What ACOs, AT&T and Blue Cross have in Common
So what exactly do a nation-wide health insurer and the second (potentially now first) largest U.S. wireless provider have in common? Upcoming battles over the antitrust implications of their actions and a not-so-beautiful friendship with the DOJ.
For AT&T, its headache began last weekend when it announced its plans to buy T-Mobile for $39 billion, giving it effectively a 40% share of the current wireless market share and raising questions from network coverage to increased quality of service, pricing and competition. AT&T and T-Mobile predict that the quality of calls would improve, coverage would be expanded, and more individuals would have access to faster wireless data connections as a result of the merger.
In a completely unrelated market and action, Blue Cross Blue Shield health insurance plans in the District of Columbia, Kansas, Missouri, North Carolina, Ohio, South Carolina and West Virginia recently found themselves on the receiving end of a U.S. Department of Justice (DOJ) subpoena. The subpoenas come as part of a lawsuit filed last year by the DOJ against Blue Cross Blue Shield of Michigan alleging the insurer entered into agreements to raise hospital prices.
Far from immune, health care providers and other stakeholders looking to form and operate Accountable Care Organizations (ACOs), the AT&T and Blue Cross cases serve as a reminder of the significant risk of antitrust scrutiny that such collaboratives can be subject to. The development of such ACOs through hospital and physician joint ventures and similar relationships has the potential to create substantial market power and may encourage monopoly and price-fixing activity, thus coming under the watchful eye of the DOJ. The DOJ and FTC are expected to address this matter soon in joint collaboration with the forthcoming proposed ACO regulations from CMS (see Statement of Sharis A. Pozen, Chief of Staff, Antitrust Division. before the Subcommittee on the Courts and Competition Policy, Concerning Antitrust Enforcement in the Health Care Industry (December 1, 2010)).
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Antitrust Law
Federal antitrust laws prohibit price-fixing, monopolies and other unlawful restraints on competition. The Sherman Antitrust Act, the Clayton Antitrust Act and the subsequent substantial case law that has developed, protect competition through strict regulation of price discrimination, monopolies, mergers and acquisitions, products bundling and “tying”, exclusive dealings and other anti-competitive practices.
For mergers and acquisitions, the DOJ and Federal Trade Commission (FTC) generally have the authority to regulate as well as approve (or disapprove) the terms of agreements. The Federal Communications Commission (FCC) also has limited authority to review certain mergers and acquisitions for telecommunications companies. Both the DOJ and the FTC regulate, monitor and investigate anticompetive practices in the health care and other markets.
Over time, certain “safe harbors” have been identified by the FTC and DOJ which, if strictly complied with, would give a market participant assurances that its practices would not be subject to antitrust scrutiny. Of particular importance are the safe harbors for health care which identify certain mergers, acquisitions, joint ventures and other arrangements which will not subject hospitals and providers to antitrust scrutiny. Although arrangements and agreements which do not fit into a safe harbor are not per se antitrust violations, they have a greater risk of being subject to antitrust scrutiny and as such, health care providers have fewer assurances that they will not be on the hook later on for antitrust violations.
The Impact on Market Participants
Antitrust law significantly affects how market participants may enter into and conduct certain arrangements and agreements. Although such arrangements are typically entered into after careful consideration of any antitrust implications, unless the arrangement qualifies under a safe harbor, potential for antitrust scrutiny remains.
For AT&T, despite the epic proportions of its upcoming battle with the DOJ and the FCC, it must only face antitrust challenges before action is taken, as the proposed merger is subject to approval by the DOJ and FCC before taking place. However, for Blue Cross and other health care insurers and providers, the antitrust challenges come after the arrangements and agreements have been negotiated and the alleged anticompetitive activities have taken place, putting them potentially on the hook for antitrust violations.
Although market participants in the health care sector can seek review of proposed arrangements for potential government challenges, review is not guaranteed and the process can be burdensome and time-consuming. In addition, the review only extends to present intentions and the DOJ or FTC is free to pursue investigation and action in the future.
The lawsuit against Blue Cross deals with what are termed “most favored nation clauses”, contractual provisions which require a hospital to give the insurer the “best rate” or “deepest discount.” These clauses in general will be viewed as permissible unless abused or used in other industries. However, the investigation in Michigan revealed that Blue Cross did not always demand just the lowest price but rather, it offered to pay hospitals more as long as competing insurers were charged more for health care services. According to the Michigan attorney general, these exclusionary practices resulted in placing other insurers at a competitive disadvantage and rising prices for consumers.
Expansion of the investigation into other states indicates that these practices may not have been confined to just Michigan, but rather, systematically occuring in other Blue Cross markets across the nation. A spokesman for the trade group Blue Cross Blue Shield Association stated that the agreements actually saved money for consumers.
“It’s our goal to secure the best health care at the best rates for our members while also ensuring fair compensation to providers.”
The DOJ’s Watchful Eye
Blue Cross is not the only entity that the DOJ has recently investigated in the health care sector, as is seen by the DOJ’s recent settlement with Texas-based United Regional Health Care System for an alleged monopoly over health care services which resulted in higher costs to consumers. According to the DOJ, United Regional required health insurers with which it contracted to pay significantly higher prices if it contracted with any competing facilities. In addition to its forthcoming review of the AT&T deal, the DOJ is also negotiating with Google over its acquisition of ITA Software, a travel information software company, to avoid instigation of a lawsuit to block the deal.
Additionally, there is much cause for concern that the formation and operation of Accountable Care Organizations (ACOs) will have significant antitrust implications. The development of such ACOs through hospital and physician joint ventures and similar relationships has the potential to create substantial market power and may encourage monopoly and price-fixing activity, thus coming under the watchful eye of the DOJ. The DOJ and FTC are expected to address this matter soon in joint collaboration with the forthcoming proposed ACO regulations from CMS.
