Antitrust Health Care Handbook Fourth Edition

123 Pages·2013·0.68 MB·English

Antitrust Health Care Handbook
Fourth Edition
ABA Section of Antitrust Law
CONTENTS

Foreword ................................................................................................ vii
Preface ..................................................................................................... ix
Introduction ............................................................................................. 1
Chapter I
Antitrust Overview ................................................................................. 5
A. Application of the Antitrust Laws to Health Care .............................. 5
B. Purpose of the Antitrust Laws ............................................................ 7
C. Competition in Health Care .............................................................. 10
D. Principal Federal Antitrust Statutes .................................................. 15
E. Antitrust Enforcement and Penalties ................................................ 18
F. State Antitrust Statutes ..................................................................... 21
G. Government Antitrust Enforcement in Health Care ......................... 22
Chapter II
Basic Antitrust Concepts and Principles ............................................ 25
A. Interstate Commerce......................................................................... 25
B. Relevant Markets Generally ............................................................. 27
C. Market Power ................................................................................... 33
D. Agreements Unreasonably Restraining Competition—
Section 1 of the Sherman Act ........................................................... 38
1. Concerted Action or Agreement ................................................ 38
a. Capacity to Conspire ........................................................... 39
b. Fact of Agreement ............................................................... 45
2. Unreasonable Effect on Competition ......................................... 48
a. Per Se Rule .......................................................................... 49
b. Rule of Reason .................................................................... 51
c. “Quick Look” Rule of Reason............................................. 54
d. The Role of Intent ............................................................... 56
3. Potentially Problematic Agreements.......................................... 58
a. Horizontal Price-Fixing Agreements ................................... 59
b. Horizontal Agreements to Exchange Price Information ..... 61
c. Horizontal Market-Allocation Agreements ......................... 63
d. Bid-Rigging Agreements ..................................................... 64
e. Group Boycotts and Concerted Refusals to Deal ................ 65
f. Joint Venture Agreements ................................................... 67
iii
g. Horizontal Mergers ............................................................. 69
h. Vertical Mergers .................................................................. 70
i. Tying Agreements ............................................................... 71
j. Exclusive Dealing Agreements. .......................................... 74
k. Vertical Price-Fixing Agreements and Vertical
Market-Allocation Agreements ........................................... 77
E. Monopolization, Attempted Monopolization, and Conspiracy
to Monopolize—Section 2 of the Sherman Act ............................... 78
1. Monopolization .......................................................................... 78
2. Attempted Monopolization ........................................................ 84
3. Conspiracy to Monopolize ......................................................... 86
4. Monopsonization ....................................................................... 88
F. Mergers—Section 7 of the Clayton Act ........................................... 89
G. Price Discrimination—The Robinson-Patman Act .......................... 95
H. Antitrust Coverage and Exemptions or Immunities ......................... 98
1. Nonprofit Entities and Noncommercial Conduct ...................... 99
2. State Action ............................................................................. 100
3. Soliciting Governmental Action .............................................. 104
4. Business of Insurance .............................................................. 106
5. Labor Unions ........................................................................... 109
6. Local Government Antitrust Act ............................................. 111
7. Health Care Quality Improvement Act .................................... 112
8. Nonprofit Institutions Act ........................................................ 114
9. Federal Governmental Immunity ............................................. 116
I. Private Actions—Elements for Relief ............................................ 117
1. Antitrust Standing .................................................................... 118
2. Antitrust Injury ........................................................................ 120
3. Statute of Limitations............................................................... 126
Chapter III
Relevant Markets for Health Care .................................................... 129
A. Relevant Markets for Hospitals ...................................................... 130
1. Relevant Product Markets for Hospital Services ..................... 130
2. Relevant Geographic Markets for Hospital Services ............... 134
B. Relevant Markets for Physician Services ....................................... 141
1. Relevant Product Markets for Physician Services ................... 141
2. Relevant Geographic Markets for Physician Services ............. 144
C. Relevant Markets for Health Plans ................................................. 146
1. Relevant Product Markets for Health Plans ............................. 146
2. Relevant Geographic Markets for Health Plans ....................... 149
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Chapter IV
Pricing Conduct in Health Care Industries ...................................... 151
A. Horizontal Price-Fixing Agreements Among Providers ................ 151
B. Competitor Exchanges of Pricing Information and Price
Surveys ........................................................................................... 171
C. Unilateral Pricing Conduct by Firms with Market Power .............. 177
1. Monopoly and Monopsony Pricing ......................................... 178
2. Predatory Pricing ..................................................................... 178
3. Price Discrimination ................................................................ 181
4. Selective, Loyalty, and Bundled Pricing Discounts ................. 184
D. Most Favored Nations Provisions .................................................. 190
E. Miscellaneous Issues ...................................................................... 193
1. Fee Peer Review Programs ...................................................... 193
2. Hospital Control of Hospital-Based Physician Pricing ............ 195
3. Payor Prohibitions on Balance Billing ..................................... 197
Chapter V
Nonprice Conduct in Health Care Industries .................................. 199
A. Hospital Medical Staff Privilege Decisions ................................... 199
1. Staff Privilege Restrictions Based on Peer Review Actions .... 200
2. Exclusive Contracts Between Hospitals and Hospital-
Based Physicians...................................................................... 209
B. Non-Price Joint Activities Among Competitors ............................. 216
1. Mergers ................................................................................... 216
2. Joint Ventures .......................................................................... 235
3. Agreements Allocating Services .............................................. 243
4. Joint Purchasing ....................................................................... 244
5. Professional Associations ........................................................ 250
C. Vertical Nonprice Exclusionary Conduct ....................................... 255
1. Selective and Exclusive Managed Care Contracting ............... 255
2. “All-Products” Provisions ........................................................ 260
3. Provider Diversification Through Vertical Integration ............ 262
4. Hospital and Hospital System Full Line Forcing ..................... 265
D. Certificate-of-Need Activities ........................................................ 267
E. Physician-Owned Facility Competition with General Acute
Care Hospitals ................................................................................ 269
Chapter VI
Preventing and Minimizing Antitrust Problems .............................. 279
A. Antitrust Enforcement Agency Advisory Opinions ....................... 279
B. Antitrust Compliance Programs ..................................................... 282
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1. Goals of a Compliance Program .............................................. 282
2. Essential Features of a Compliance Program .......................... 284
C. Managing Business Records .......................................................... 285
D. Responding to an Agency Investigation ......................................... 287
1. Early Stages of an Investigation .............................................. 289
2. Responding to an Agency Civil Investigative Demand or
Subpoena .................................................................................. 290
3. Dealing with the Agency ......................................................... 291

Table of Cases ...................................................................................... 295
Index ..................................................................................................... 325

vi
FOREWORD

The Section of Antitrust Law is pleased to publish the Antitrust
Health Care Handbook IV. The Handbook is primarily intended for use
by health care professionals and administrators, as well as their counsel,
as an introduction and general guide to the application of federal antitrust
law to issues that arise in health care. Obviously, the Handbook IV is not
a substitute for competent legal advice, but we hope those in the health
care industry will find it to be a useful overview of how federal antitrust
laws apply to the health care industry.
There is one notable area of antitrust law in the health care sector
that the Handbook IV does not cover: antitrust in the pharmaceutical
industry. Antitrust law in the pharmaceutical industry is now sufficiently
well-developed to warrant its own handbook, and the Section refers
interested readers to the Section’s Pharmaceutical Industry Antitrust
Handbook, published in July 2009. That Handbook provides a rich
summary of the antitrust issues facing the pharmaceutical industry.
The Handbook IV was nearly two years in the making. A
tremendous effort went into preparing and publishing this work. The
Section wishes to express its special thanks to Jeff Miles, who spent
endless hours and extreme care in completing the vast bulk of these
revisions and updates, and Charles Wright who led the project through
additional review and editing, and its ultimate publication. This
publication would not have been possible without their dedication to this
project.
In light of the changes the health care industry is undergoing, we will
no doubt begin contemplating the changes that will make up the
Handbook V in the near future. All of the Section’s high quality
publications, including the Health Care Handbook, depend upon
volunteers for their existence. If you are not already a member, I urge
you to consider joining and participating in the wide range of activities
supported by the Section in general and the Section’s Health Care
Committee in particular.
February 2010 Ilene Knable Gotts
Chair, Section of Antitrust Law
American Bar Association
2009-2010

vii
PREFACE

The Antitrust Health Care Handbook IV was prepared by the Health
Care and Pharmaceuticals Committee of the ABA Section of Antitrust
Law for use by health care lawyers and health care professionals alike.
This Handbook, like the three earlier editions, is aimed primarily at those
who do not specialize in antitrust law, yet who confront antitrust issues
in health care on a frequent basis, either as lawyers who counsel their
clients or as health care professionals in their business activities.
The Handbook III was published in 2004. Much law has developed
in the past five years. As a result, the Handbook IV is nearly twice as
long as the Handbook III. That additional bulk makes the Handbook IV
an even richer resource, treating topics in more detail and capturing the
many developments in antitrust law in the health care field in the last five
years. The Handbook IV builds on the framework of the Handbook III,
strengthening that framework where necessary and adding more detail
everywhere.
The Committee wishes to acknowledge the important contributions
of Lara Berwanger, Jordan Bowler, Aimee DeFilippo, Scott DuPree,
Jennifer Ellis, Gwen Fanger, Gabrielle Goldstein, Nick Grimmer,
Edward Holman, Stefanie Kim, Meytal McCoy, Mike McReynolds,
Helen Ovsepyan, Farrah Short, and Megan Vogel, for their valuable
editorial assistance; and Tom Burke for his word processing wizardry.
Most importantly, the Committee wishes to extend its special thanks
to the two individuals who made publication of the Handbook IV
possible. First, Jeff Miles, who once again pulled the laboring oar on
revising this edition. Jeff devoted a tremendous amount of time to the
project and without his efforts, the Antitrust Health Care Handbook IV
would not have become a reality. Second, Charles Wright, who through
tremendous diligence and hard work pulled together this handbook, and
ensured that it would be both a timely and high quality publication.
February 2010 Seth C. Silber
Chair, Health Care and Pharmaceuticals Committee
Section of Antitrust Law
American Bar Association
2009-2010

ix
CHAPTER I

ANTITRUST OVERVIEW

A. Application of the Antitrust Laws to Health Care

5
Antitrust Overview 7
B. Purpose of the Antitrust Laws
The antitrust laws promote and protect competition as this country’s
mechanism for allocating resources by prohibiting conduct that
unreasonably interferes with competition among sellers and among
buyers. As the Supreme Court has explained:
The Sherman Act was designed to be a comprehensive charter of
economic liberty aimed at preserving free and unfettered
competition as the rule of trade. It rests on the premise that the
unrestrained interaction of competitive forces will yield the best
allocation of our economic resources, the lowest prices, the
highest quality and the greatest material progress, while at the
same time providing an environment conducive to the
preservation of our democratic political and social institutions.
But even were that premise open to question, the policy
unequivocally laid down by the Act is competition.8

8. N. Pac. Ry. v. United States, 356 U.S. 1, 4 (1958).
Antitrust Overview 9
most important of all antitrust principles is that “[t]he antitrust laws . . .
were enacted for ‘the protection of competition, not competitors.’”14
Stated most succinctly, the antitrust laws protect consumers from the
effects of market power, whether exercised by a single firm or a plurality
of firms acting jointly, unless that power was obtained through
competition on the merits. Even where market power is achieved by
competition on the merits, the antitrust laws prohibit maintenance or
expansion of that power by conduct unreasonably excluding competitors
from the market. Thus, generally speaking, antitrust law condemns
conduct that results in, or significantly increases or maintains, a firm’s
(or group of firms’) market power unless that conduct has offsetting
consumer or competitive benefits.
Most basically, the antitrust laws focus on either collusive or
exclusionary conduct by sellers or buyers. Collusion occurs when firms,
usually but not necessarily competitors, reach agreements or
understandings that significantly reduce competition among themselves
(such as agreements about the prices they will charge) and thus adversely
affect consumers by increasing prices or reducing output, quality, choice,
or access to goods or services. The firms exercise market power by
aggregating the power of each. Exclusion results when a single firm (or
group of firms acting in concert) undertakes conduct that significantly
hinders or prevents competition from other firms already in the market
(incumbent firms) or firms that would enter the market (potential
entrants), resulting in the same types of consumer harm. Exclusion can
permit the firm (or firms) implementing exclusionary conduct to obtain

2005) (explaining that “[u]nfairness alone is not enough to classify even
disreputable business conduct as predatory”); Spanish Broad. Sys. of Fla.
v. Clear Channel Commc’ns, 376 F.3d 1065, 1072 (11th Cir. 2004)
(“[A]lthough [plaintiff] may have alleged ‘unfair’ competitive practices,
it did not adequately allege actual harm to competition.”); Mercatus
Group v. Lake Forest Hosp., 528 F. Supp. 2d 797, 810 (N.D. Ill. 2007)
(noting that the antitrust laws do not apply to conduct that is merely
unfair, impolite, or unethical).
14. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977)
(quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962));
see also Gregory v. Fort Bridger Rendezvous Ass’n, 448 F.3d 1195, 1205
(10th Cir. 2006) (“The purpose of the antitrust laws is to protect the
public. . . . We therefore consider [defendant’s] conduct ‘in light of its
effect on consumers, not on competitors.’”).