Antitrust Advocate

Antitrust Advocate

News, Developments and Practical Advice from Antitrust Leaders

Nominations Open for ABA Journal’s Top 100 Legal Blogs

Posted in Uncategorized

The American Bar Association Journal announced that it is compiling its annual list of the 100 best legal blogs and invites readers to submit a nomination:

Use the form below to tell us about a blog—not your own—that you read regularly and think other lawyers should know about. If there is more than one blog you want to support, feel free to send us additional amici through the form. We may include some of the best comments in our Blawg 100 coverage. But keep your remarks pithy—you have a 500-character limit.

We invite our readers to recommend the Antitrust Advocate and other favorite legal blogs for selection by the ABA. Submissions are accepted through September 8, 2014.

Don’t Pop the Cork Just Yet—Growing Criticism of Massachusetts AG’s Settlement with Partners Healthcare Just Might Send the Parties Back to the Drawing Board

Posted in Healthcare

After touting a proposed settlement with Partners HealthCare (Partners) that supposedly would “fundamentally alter [Partners’] negotiating power for 10 years and control health costs across [Partners’] entire network,” Massachusetts Attorney General (AG) Martha Coakley is now playing defense trying to fend off criticism of the deal that just might send the parties back to the drawing board.  With the Massachusetts Health Policy Commission (HPC) the latest to cry foul over the deal—a number of Partners’ competitors already have lined up against the deal, including Atrius Health, Beth Israel Deaconess Medical Center, Cambridge Health Alliance, Lahey Health Systems, Tufts Medical Center, and other hospitals and physician groups—the AG’s spokesman recently noted that the AG’s “office always retained the option to seek to renegotiate portions of this agreement.”  So, what is it about the proposed deal that is generating such backlash?  First some background.

Back in 2009, the AG’s office began its investigation into Partners’ “ability to extract high prices in contract negotiations with payers” because of “its effective ability to demand ‘all or nothing’ contracting with the health insurers”—that is, “the payers are effectively required to take the entirety of the Partners network, or take none of it and have no Partners hospitals or providers within the insurer’s network of providers.”  The AG’s investigation also focused on Partners’ practice of “joint contracting with certain affiliated providers who are not owned by Partners”—that is, “health care providers who are not owned or employed by Partners but on whose behalf Partners negotiates reimbursement rates with payers.”  The AG expanded its investigation to include Partners’ proposed acquisitions of South Shore Health and Education Corporation in 2012 and Hallmark Health Corporation in 2013, each of which operates competing hospitals in portions of Massachusetts.

In the AG’s view, the proposed settlement “is the first action of its kind to directly address [the] market dysfunction” caused by “the ability of Partners to charge higher prices based on its negotiating power” and “goes well beyond” simply blocking Partners’ proposed acquisitions “by reducing the negotiating power of Partners, limiting its ability to acquire physicians, and controlling costs across its entire network.”  How you may ask?  By (1) allowing payers to split Partners into separate contracting entities for up to 10 years—that is, academic medical centers, community hospitals and physicians, South Shore Hospital, and Hallmark Health Systems; (2) preventing Partners from contracting with affiliate physician groups that are not part of its owned hospitals for 10 years; (3) capping health costs at the rate of inflation across the entire Partners network through 2020; (4) capping physician growth for five years; (5) blocking further hospital expansion in eastern Massachusetts, including Worcester County, for the next seven years; and (6) appointing an independent monitor to be chosen by the AG and paid for by Partners to ensure adherence to the terms of the settlement agreement.

What is it about the proposed deal that is generating all the fuss?  In HPC’s view, based on “review of the data and evidence,” there are several flaws:  (1) “[f]or the three major commercial payers, the combined transactions are anticipated to increase total medical spending by more than $38.5 million to $49 million per year as a result of unit price increases and shifts in care to higher-priced Partners facilities (provider mix)”; (2) the “resulting consolidated system is anticipated to have increased ability and incentives to leverage higher prices and other favorable contract terms in negotiations with payers (bargaining leverage), the costs of which are not included in the above projection”; and (3) “the parties to these transactions have not provided adequate evidence of how corporate ownership is instrumental to achieving the desired care delivery reforms, and their own experience and that of other providers offer compelling alternative approaches to effectively improving coordinated care delivery.”

According to HPC, under the proposed deal, “Partners appears to retain certain flexibility to allocate price increases across providers to maximize revenue and market position.”  HPC says that “without an individual price cap, Hallmark providers may experience unit price growth faster than the rate of general inflation,” and that “[s]uch price increases would set a permanently increased baseline upon which future price increases would be negotiated and permanently increase baseline total medical spending, and premiums, in an area of the state that has thus far not experienced the market impact of a local, high-priced Partners facility, including by impacting providers who refer their patients to Hallmark.”  “[W]ithout lasting change to the market structures and incentives that underlie the operation of bargaining leverage,” HPC says that “price caps on their own may not be effective in keeping costs down.”

HPC also thinks that the proposed deal does not fully account for the “material price impact of shifts in patient care to higher-priced Partners providers.”  “Specifically,” HPS sees the “increased spending due to shifts in patient flow to higher-priced providers is not included in the agreement’s unit price constraint, but rather would be measured as increases in total medical expenses (TME)” and, “[s]ince the agreement only monitors the TME for Partners’ commercial risk business, anticipated increases in TME as Partners grows its non-risk books of business, currently including Preferred Provider Organization (PPO) and non-risk Health Maintenance Organization (HMO)/Point of Service (POS) patients, are not monitored.”  HPC also says that the proposed “agreement also does not monitor the TME of patients associated with other provider systems who receive some of their care from Partners, [South Shore Hospital], and Hallmark facilities and specialists.”

And finally, while noting that the proposed agreement “aims to mitigate Partners’ bargaining leverage by allowing payers to negotiate for all or only certain components of the Partners network,” HPC noted that “the impact of this change will depend, among other considerations, on whether and to what extent payers vigorously pursue this option and on how the market responds.”

So, what’s up next for the AG’s proposed settlement with Partners?  The Suffolk County Superior Court overseeing the proceeding has extended a public comment period to September 15, 2014, and has given the AG until September 25 to respond to comments. A hearing on whether to approve the deal is now set for September 29.

Drawing on the experience of members of our healthcare team in complementary areas of health law, including transactions, tax, labor and employment, and healthcare regulation, our team of antitrust lawyers has the depth and experience to handle the most significant antitrust healthcare matters, including transactions and investigations.  If you have any questions regarding this matter, or would like to learn more about our healthcare antitrust capabilities, please contact Jonathan L. Lewis, jllewis@bakerlaw.com or 202.861.1557.

Editor’s Note:  This blog post is a joint submission with BakerHostetler’s Health Law Update blog.

Buckle Up—Unwinding Phoebe Putney’s Acquisition of Palmyra Down in Georgia May End Up Being Back on the Table

Posted in FTC Act, Government Investigations, Healthcare, Merger Review

bigstock-Medical-Center--2489809Almost one year ago, Federal Trade Commission (FTC) agreed to settle its antitrust challenge of Phoebe Putney Health System’s (Phoebe Putney) acquisition of Palmyra Medical Center (Palmyra) without requiring divesture or any other remedial relief. That settlement came after the FTC ran the table in the Supreme Court with a unanimous decision, and convinced a district court judge in Georgia to halt further consolidation. Since then, the deadline to finalize the settlement by filing the dismissal papers with the district court has been extended multiple times. Why the holdup then, you may ask? But first, some background.

Before the FTC’s favorable rulings, a district court had dismissed the FTC’s attempt to enjoin the acquisition, which the U.S. Court of Appeals for the Eleventh Circuit affirmed. Phoebe Putney then completed its acquisition of Palmyra, and the Georgia Department of Community Health (DCH) revoked the two existing separate licenses and granted Phoebe Putney a new, single license covering the combined hospitals. Issues with undoing the license granted to Phoebe Putney, or getting a new license, effectively prevent divestiture, according to the FTC. The FTC determined that DCH lacks the ability to revoke the combined hospital license granted to Phoebe Putney. The FTC also determined that DCH could not grant a new license necessary to establish a competing hospital in the area at issue because, among other reasons, an applicant could not prove “unmet need” as required by Georgia law. Due to these “legal and practical challenges,” the FTC concluded that it could not obtain divestiture and decided to forego it as a remedy.

Why the holdup then, you may ask? Back in March, Tennessee’s North Albany Medical Center LLC (NAMC) expressed an interest in purchasing or leasing Palmyra (k/n/a Phoebe North) in the event that divestiture is required or agreed upon to remedy the FTC’s concerns with Phoebe Putney’s acquisition of Palmyra. It acted on that interest by asking DCH whether a certificate of need (CON) would be required for NAMC to purchase or to lease Palmyra pursuant to a divestiture order. In response to that request, DCH said that “returning Phoebe North to its status as a separately licensed . . . hospital for divestiture would not require prior CON review and approval; provided the decoupling is within the scope and location of the hospital’s previously grandfathered and CON authorized beds and services and any capital costs are below the threshold.” DCH also concluded that the acquisition of Palmyra from the Hospital Authority would only be subject to review under the general considerations, not the service specific rules, and that “the lease of Phoebe North [f/k/a Palmyra] by the Authority to NAMC would not be subject to prior CON review and approval.”

Not surprisingly, none of this is sitting very well with Phoebe Putney, which has requested an administrative appeal to challenge DCH’s determination that divestiture is possible. All of this has resulted in the FTC asking the district court once again to extend the deadline to finalize the settlement, so that it can determine “whether to make final the proposed consent agreement that would settle the underlying administrative proceedings or take other action.” Given DHC’s response to NAMC’s request, one has to wonder how we got here in the first place.

Drawing on the experience of our healthcare team in complementary areas of health law, including transactions, tax, labor and employment, and healthcare regulation, our team of antitrust lawyers have the depth and experience to handle the most significant antitrust healthcare matters.  If you have any questions regarding this matter, or would like to learn more about our healthcare antitrust capabilities, please contact Jonathan L. Lewis, jllewis@bakerlaw.com or 202.861.1557.

Editor’s Note: This blog post is a joint submission with BakerHostetler’s Health Law Update blog.

Let The Rejoicing Begin, Or Not—Massachusetts AG’s Settlement With Partners Healthcare Is No Harbinger of Things to Come

Posted in Government Investigations, Healthcare, Merger, Merger Review

After almost half a dozen years of investigating Partners HealthCare’s (“Partners”) contracting practices and its proposed acquisitions of two competing hospital systems, Massachusetts Attorney General Martha Coakley announced a “final resolution” that she says “will fundamentally alter [Partners’] negotiating power for 10 years and control health costs across [Partners’] entire network.”  But before you run off thinking what’s happened in Massachusetts is some kind of a road map for you to follow to get your proposed transaction across the finish line, you better think twice.  But first, some background.

Back in 2009, the AG’s office began its investigation into Partners’ “ability to extract high prices in contract negotiations with payers,” because of “its effective ability to demand ‘all or nothing’ contracting with the health insurers”—that is, “the payers are effectively required to take the entirety of the Partners network, or take none of it and have no Partners hospitals or providers within the insurer’s network of providers.”  The AG’s investigation also focused on Partners’ practice of “joint contracting with certain affiliated providers who are not owned by Partners”—that is, “health care providers who are not owned or employed by Partners but on whose behalf Partners negotiates reimbursement rates with payers.”  The AG expanded its investigation to include Partners’ proposed acquisitions of South Shore Health and Education Corp. in 2012 and Hallmark Health Corporation in 2013, each of which operates competing hospitals in portions of Eastern Massachusetts.  The AG’s office didn’t go it alone either.  It “coordinated” its “investigation with that of the Antitrust Division of the Department of Justice,” and “reviewed hundreds of thousands of documents, compiled and reviewed economic projections, interviewed witnesses, and conducted depositions of relevant market participants.”

In the AG’s view, the proposed settlement “is the first action of its kind to directly address [the] market dysfunction” caused by “the ability of Partners to charge higher prices based on its negotiating power” and “goes well beyond” simply blocking Partners’ proposed acquisitions “by reducing the negotiating power of Partners, limiting its ability to acquire physicians, and controlling costs across its entire network.”  How you may ask?  By (1) allowing payers to split Partners into separate contracting entities for up to 10 years—that is, academic medical centers, community hospitals and physicians, South Shore Hospital, and Hallmark Health Systems, (2) preventing Partners from contracting with affiliate physician groups that are not part of its owned hospitals for 10 years, (3) capping health costs at the rate of inflation across the entire Partners network through 2020, (4) capping its physician growth for five years, (5) blocking further hospital expansion in eastern Massachusetts, including Worcester County, Massachusetts, for the next seven years, and (5) appointing an independent monitor to be chosen by the AG’s Office and paid for by Partners to ensure that Partners adheres to the terms of the settlement agreement.

Why isn’t the AG’s settlement with Partners some kind of a road map for you to follow to get your proposed transaction across the finished line?  First and foremost, most provider transactions are investigated by the Federal Trade Commission (“FTC”), which is in the middle of an impressive winning streak blocking provider transactions (both hospital and physician acquisitions).  (The FTC typically takes the lead in investigating provider contracting issues too.)  The FTC’s preferred remedy also is structural (divestiture) in transacts, not conduct oriented (like in the case of Partners).  And finally, the outcome in Massachusetts is unique, because the AG’s investigation into the two proposed acquisitions grew out of the existing investigation focused on Partners’ contracting practices.  Against this backdrop, it is not at all surprising that the AG took the lead in attempting to negotiate a comprehensive resolution covering the investigation into the acquisitions and contracting practices.  But don’t expect the FTC to horse trade conduct restrictions and price caps (like the AG did in the case of Partners) to allow an anticompetitive transaction to close.  At the FTC, that just won’t fly.

Drawing on the experience of members of our healthcare team in complementary areas of health law, including transactions, tax, labor and employment, and healthcare regulation, our team of antitrust lawyers have the depth and experience to handle the most significant antitrust healthcare matters, including transactions and investigations.  If you have any questions regarding this matter, or would like to learn more about our healthcare antitrust capabilities, please contact Jonathan L. Lewis, jllewis@bakerlaw.com or 202.861.1557.

Leave My Employees Alone! You Promised You Wouldn’t Hire/Solicit Them

Posted in Antitrust Litigation, Government Investigations

With the antitrust class action against Google, Apple, Intel and other Silicon Valley heavyweights nearly in the books ($300 million plus in settlements and millions more in defense fees later), it is time once again to ask what this settlement means for the continued use of clauses in merger and other types of agreements like nondisclosure agreements (NDAs) and confidentiality agreements that often restrict one party from soliciting or hiring the other’s employees?.  The answer:  Not much.

“No-hire/non-solicitation” provisions in transactional agreements, which are restrictions designed to make the asset being sold more attractive to buyers (e.g., as an ongoing business), can help ensure a successful sale.  In NDAs and confidentiality agreements, these provisions facilitate the exchange of information during due diligence.  Like any other restrictive covenant that is ancillary to a legitimate business purpose, as long as the restriction is reasonably limited in scope it should not raise concern under the antitrust laws.  What matters is whether the restriction is reasonable in scope in terms of duration, territory, and product space or line of business.

A blanket “no-hire/non-solicitation” agreement can (and likely will) get you in trouble.  Let’s not forget that ski makers Völkl and Tecnica recently settled charges brought by the Federal Trade Commission alleging that they agreed with each other not to solicit, recruit, or contract with any employee of the other to avoid bidding up the salaries paid to employees.  One wonders how long it will take before private antitrust class action complaints are filed on behalf of their employees.

So, if you come across an understanding between competitors not to hire, or solicit each other’s employees that is unmoored from some broader agreement (transactional, NDA, or confidentiality agreement, for example), your alarm bells should start to go off.

If you have any questions regarding this matter, or would like to learn more about our antitrust capabilities, please contact Jonathan L. Lewis, jllewis@bakerlaw.com or 202.861.1557.

What the WTP?

Posted in Government Investigations, Healthcare, Merger Review

If you are a health system or hospital thinking about a potential transaction and your lawyers have not spoken with you about hospital merger simulation, maybe you should be talking with someone else.

What is hospital merger simulation?

In recent years, the Federal Trade Commission (“FTC”) has come to rely more heavily on hospital merger simulation to predict the likely outcome of proposed hospital mergers.  At this year’s Antitrust in Health Care program co-sponsored by the American Health Lawyers Association, ABA Section of Antitrust Law, and ABA Health Law Section, attendees heard firsthand from the FTC economists (Brand and Garmon) who have applied merger simulation models used in other industries (e.g., airlines and retail products) to healthcare provider transactions.  In the paper accompanying their remarks, Brand and Garmon explain that “hospital merger simulation focuses on the extent to which a merger will change the bargaining positions of MCOs [managed care organizations] and hospitals.”  Unlike the traditional structural approach to merger analysis, “hospital merger simulations do not rely on the product and geographic market definitions.”  Instead, hospital merger simulation focuses on “willingness to pay,” or WTP for short.

Continue Reading

Are You Facing the Prospect of a Merger Investigation?

Posted in Discovery, Government Investigations, Merger Review

If your organization is facing the prospect of a merger investigation and your lawyers haven’t raised the prospect of technology-assisted document review (“TAR”), then maybe you should be talking with someone else.

What is TAR?

TAR, a relatively new entrant into the world of litigation and investigations, is an iterative process in which human subject matter experts (“SMEs”) interact with software and code small sets of documents.  The computer takes into account the decisions of the subject matter experts and generates new sets of documents from which it thinks it will learn from the human decision makers.  This process typically ends after a few thousand documents have been reviewed and the predictive coding tool concludes it can learn nothing more from the human reviewers.  The predictive coding tool then extrapolates those judgments to the entire set of collected documents, and codes the documents as likely relevant or likely irrelevant.

This is not a “black box” or “set-it-and-forget-it” solution.  Instead, the producing and requesting parties must first agree on protocols covering how the system will be trained, when training will end, and how the results will be audited.  The parties will likely also discuss how transparent the training process will be to the requesting party.  Will the requesting party participate in training?  Will the responding party share its relevance decisions during the training process?  How will privileged documents be handled?  This may sound a bit more complicated than the traditional linear review, but TAR can provide efficiencies and consistency in return for that complication.

Continue Reading

To Report, or Not to Report, Your Non-Reportable Transaction Is the Question

Posted in Government Investigations, Merger, Merger Review, Premerger Notification

Just because a proposed transaction does not have to be reported in advance to the Department of Justice (“DOJ”) or the Federal Trade Commission (“ FTC”) because it falls below the Hart-Scott-Rodino (“HSR”) Act size of transaction threshold (currently$75.9 million), you are not out of the woods.  The growing list of companies defending antitrust challenges to non-reportable transactions confirms this.  But before you end up in court defending a non-reportable transaction, there are number of strategic calls you can make to minimize the risk of an investigation and potential negative outcome.

First, some numbers.  According to a recent speech by Leslie Overton, the DOJ Antitrust Division’s Deputy Assistant Attorney General for Civil Enforcement, between 2009 and 2013 the Division launched 73 preliminary inquiries into transactions that were not reportable under the HSR Act.  These transactions included both consummated transactions and non-reportable ones that came to the Division’s attention before closing.  The resulting investigations represented nearly 20% of all merger investigations opened by the Division during that period, and more than one in four of the Division’s investigations into these non-reportable deals resulted in a challenge.

Continue Reading

Connecticut’s Attorney General Wants to Know in Advance if You Are Going to Join Forces with a Healthcare Provider

Posted in Government Investigations, Healthcare, Legislation, Merger Review, Premerger Notification

bigstock-Medical-Center--2489809Back in early 2013, Connecticut’s Attorney General (“AG”) formed a “Health Care Competition Working Group” within his office to examine the potential impact of horizontal mergers (e.g., hospital to hospital) and vertical provider acquisitions (i.e., hospitals buying up physician practices) “may have on the pricing, quality, and access to health care for Connecticut’s consumers and to propose recommendations for potential investigative or legislative initiatives to address them.”  The results are now in.

Connecticut’s AG found that (1) most hospitals in Connecticut charge facility fees in their outpatient departments, (2) many Connecticut hospitals fail to provide any notice of the charging of facility fees, (3) the timing of notice to patients concerning facility fees varies among hospitals, (4) there are significant differences in the content of facility fee notices, and (5) hospitals often use ineffective mechanisms for giving notice of facility fees.

Continue Reading

So, You Want to Share Your Technical Cyber Threat Information with Your Neighbors?

Posted in Data Privacy

156412_ImageEchoing guidance previously given to a nonprofit organization looking to exchange certain cybersecurity information, including exchanging actual real-time cyber threat and attack information, and others planning to exchange information concerning remediating the Y2K problems, the Department of Justice (“DOJ”) and Federal Trade Commission (“FTC”) recently released a joint “Antitrust Policy Statement on Sharing of Cybersecurity Information” (“Statement”).

In his prepared remarks announcing the release of the Statement, Assistant Attorney General Bill Baer rightly stated:  “This is an antitrust no-brainer: Companies who engage in properly designed cyber threat information sharing will not run afoul of the antitrust laws. This means that as long as companies don’t discuss competitive information such as pricing and output when sharing cybersecurity information, they’re okay.”

Continue Reading