Last month, we reported on the Federal Trade Commission’s (FTC) steady filing of injunctions to block what are effectively local mergers of small health care providers. In 2007, the FTC filed suit in Saint Alphonsus Medical Center v. St. Luke’s Health System, its first successful challenge to a hospital merger in recent history. Since then, the Obama administration-appointed FTC has appeared bolder in its approach to health care mergers, which have been on the uptick since the passage of the still-existing Affordable Care Act has encouraged providers to coordinate health care services and provide better service at a lower cost.
The Saint Adolphus case was followed by two notable FTC filings to enjoin health care mergers in the Chicago, Illinois and Harrisburg, Pennsylvania areas. In both cases, the district courts denied the FTC’s request for preliminary injunction, which the U.S. Court of Appeals for the Third Circuit in Federal Trade Commission v. Penn State Hershey Medical Center, 838 F.3d 327 (3d Cir. 2016), and the U.S. Court of Appeals for the Seventh Circuit in Federal Trade Commission v. Advocate Health Care Network, 841 F.3d 460 (7th Cir. 2016), reversed. Since those decisions were handed down, Advocate Health Care and NorthShore University Health System—the entities involved in the proposed Seventh Circuit merger—are continuing to pursue the merger on remand to the district court. In contrast, Penn State Hershey Medical Center and Pinnacle Health System—the entities involved in the proposed Third Circuit merger—have apparently decided not to pursue the merger any further, citing the time and cost required to continue litigating the matter.
More recently, the FTC has reached a settlement with two health care providers in In re CentraCare Health. In that case, the FTC challenged a merger between CentraCare and St. Cloud Medical Group, the two largest providers of primary care, pediatric care, and OB/GYN services in St. Cloud, Minnesota.
Perhaps the most intriguing aspect of the CentraCare Health case, and the reason it warrants attention by the health care industry, is the comparatively small dollar value of the transaction. Under federal law, specifically the Hart Scott Rodino Act, entities considering a merger must report their proposal to the Federal Trade Commission and the Department of Justice when the value of the deal exceeds $78.2 million, a threshold most recently adjusted in February. The merger in CentraCare Health was small enough to avoid the reporting requirements of the Hart Scott Rodino Act. In fact, according to the FTC’s complaint in the case, St. Cloud Medical Group operated only four clinics in the St. Cloud area and employed a total of only 40 physicians.
The proposed merger in CentraCare Health came to the FTC’s attention by way of an anonymous tip to the Minnesota Office of the Attorney General after the companies had been pursuing the deal for several months. The Minnesota attorney general, in turn, notified the FTC, and invited the agency to join in reviewing the transaction. After an extensive investigation into the transaction, the FTC filed an administrative complaint, seeking to block the merger under the Federal Trade Commission Act, which empowers the agency to challenge “unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce.” Despite the small size of the merger, the FTC’s complaint noted that CentraCare Health and St. Cloud Medical Group were the “two largest providers of primary care, pediatric care, and obstetrics/gynecology (OB/GYN)” services in St. Cloud, Minnesota and that the combined entity would control “over 80 percent” of the physician service markets in the greater St. Cloud area, defined by the FTC as “a radius of 20 miles around downtown St. Cloud.”
In October, the FTC settled CentraCare. The settlement agreement allows the two entities to merge in light of St. Cloud Medical Group’s impending financial demise. The health care provider apparently lost its last line of credit, has experienced departures by several physicians, and, according to the FTC, is unlikely to improve its financial situation. The settlement requires CentraCare to suspend its physician noncompete agreements and provide $100,000 in “departure payments” to the first five physicians who elect to leave CentraCare to start their own practice or join another provider. These provisions were designed to minimize the anticompetitive effects of the merger by incentivizing physicians to open competing practices in the St. Cloud area.
CentraCare represents the FTC’s most recent success in challenging local health care mergers that impact inherently local markets. Yet, just as the Federal Trade Commission has hit its stride, the future of the agency’s role in the health care sector is open to question. While the Obama administration’s FTC has prioritized enforcement of health care mergers in the wake of the Affordable Care Act, the emerging Trump administration is hard to yet predict, given that it lacks a track record on antitrust issues. Moreover, one of the driving forces behind recent health care mergers—the Affordable Care Act—itself faces an uncertain future as President-elect Trump has vacillated over the extent to which he will alter the health care landscape. His recent appointment of Congressman Tom Price to the position of Secretary of Health and Human Services suggests an extensive overhaul of the act is on the horizon.
President-elect Trump has been largely silent regarding his own antitrust philosophy. During his presidential campaign, he did express concern over deals that he said “put too much concentration of power in the hands of too few.” Further explanation was not provided during the campaign nor elaborated on since. Although Trump has not commented to date on consolidation in the health care provider market, he appears to take a market-based approach. The president-elect’s website lists “free market reforms to the health care industry” as a top priority and proposes initiatives to increase “price transparency from all healthcare providers.” Moreover, he has generally proposed modifying laws that inhibit the sale of health insurance across state lines that, Trump says, will result in increased competition in the insurance market nationwide.
Trump’s executive appointments to date similarly fail to shed any meaningful light on his position on antitrust issues in the health care market. In November, he chose Alabama Sen. Jeffrey Sessions as U.S. Attorney General, a position that shares enforcement jurisdiction over antitrust matters with the Federal Trade Commission. Before being elected to the Senate, Sessions was the U.S. Attorney for the Southern District of Alabama during the Ronald Reagan and George H.W. Bush administrations and later Alabama attorney general. Much of his work during that period was criminal and did not involve antitrust matters. As senator, Sessions supported legislation to reduce the price of pharmaceutical drugs, including an amendment to the Hatch-Waxman Act, explaining that “loopholes” in the act “have tilted the scales too much in favor of the name-brand producers.” Specifically, Sessions has spoken out against pay-for-delay agreements, also known as reverse-payment settlements, in which brand-name pharmaceutical manufacturers pay generics to delay producing a generic version of their drug in order to support higher prices. He has also expressed his belief that there should be “more free-market competition” in the health care sector, although he has not elaborated on that statement.
President-elect Trump’s antitrust agenda and his administration’s view of health care mergers will become clearer in the coming months as Trump makes his much anticipated Federal Trade Commission appointments with three vacancies, including the chairperson, and the head of the Department of Justice’s Antitrust Division is finally chosen. Stay tuned.
Reprinted with permission from the December 2, 2016 edition of the “The Legal Intelligencer”© 2016 ALM Media Properties, LLC. All rights reserved.