Tweak­ing merger guide­lines

Feds get flex­i­ble un­der pro­posed changes

Modern Healthcare - - The Week In Healthcare - Gregg Blesch

As hos­pi­tals look to buy or merge with com­peti­tors, look­ing for strength in size in these dicey times, fed­eral an­titrust au­thor­i­ties have rewrit­ten their guide­book in­tended to de­scribe when they’ll at­tempt to block or un­wind a deal deemed bad for con­sumers.

The guide­lines pro­posed last week, which re­vamp ones is­sued 18 years ago, place a much

“It’s all about the prices,” said David Marx, an an­titrust lawyer with law firm McDer­mott Will & Emery. “These guide­lines will im­pose a much greater bur­den on par­ties to trans­ac­tions to pro­duce more in­for­ma­tion, more data, in­clud­ing all sorts of price and cost data, in a very dis­ag­gre­gated form—cer­tainly as de­tailed as on a prod­uct-line ba­sis—so the govern­ment can do the kind of anal­y­sis it says are rel­e­vant,” Marx said. FTC had the ben­e­fit of watch­ing prices rise.

Pre­vi­ously, the govern­ment had suf­fered a string of losses at­tempt­ing to per­suade fed­eral judges to block hos­pi­tal merg­ers, in part be­cause hos­pi­tals suc­cess­fully ar­gued they com­peted in broad geo­graphic and prod­uct mar­kets.

In the Evanston North­west­ern case—which was re­solved in the ad­min­is­tra­tive process and never reached the courts—the FTC’s lawyers ar­gued that the ob­served price in­creases them­selves de­fined the mar­kets as in­pa­tient hos­pi­tal ser­vices sold to man­aged-care plans in a tightly drawn area of Chicago’s north­ern sub­urbs. They fur­ther ar­gued that the ev­i­dence that the deal caused higher prices was so con­vinc­ing that defin­ing the mar­kets was un­nec­es­sary, a no­tion that was de­clared moot in the com­mis­sion’s opin­ion find­ing against the sys­tem.

The pro­posed guide­lines echo those con­cepts, as­sert­ing that “ev­i­dence of com­pet­i­tive ef­fects can in­form mar­ket def­i­ni­tion,” and that “some of the an­a­lyt­i­cal tools used by the agen­cies to as­sess com­pet­i­tive ef­fects do not rely on mar­ket def­i­ni­tion.”

More of­ten, though, the govern­ment at­tempts to pre­vent rather than break up merg­ers, in large part be­cause it can be un­work­able to wind back the clock. Evanston North­west­ern was al­lowed to keep High­land Park Hos­pi­tal, though the sys­tem was re­quired to al­low health plans to ne­go­ti­ate sep­a­rately for High­land Park’s ser­vices

In lieu of ob­served ef­fects, ac­cord­ing to the pro­posed guide­lines, the agen­cies will study what they call “nat­u­ral ex­per­i­ments” in or­der to pre­dict how things will shake out. For ex­am­ple, they’ll look at other merg­ers in sim­i­lar mar­kets or com­pare how prices vary if the merg­ing or­ga­ni­za­tions com­pete in some ar­eas but not oth­ers.

An­other type of ev­i­dence dis­cussed is whether a merger would elim­i­nate a “mav­er­ick” ri­val. The no­tion is rem­i­nis­cent of the FTC case against Car­il­ion Clinic, Roanoke, Va. (Aug. 3, 2009, p. 17). The govern­ment con­tended that the seven-hos­pi­tal sys­tem scooped up an imag­ing cen­ter that had shaken things up by of­fer­ing pa­tients and physi­cians faster turn­around, lower prices and more flex­i­ble hours, along with a nascent surgery cen­ter that al­legedly threat­ened to un­der­cut Car­il­ion for out­pa­tient pro­ce­dures. The sys­tem dis­puted the con­clu­sions but agreed to sell both cen­ters to re­solve the mat­ter.

James Rill, a for­mer as­sis­tant at­tor­ney gen­eral in the Jus­tice Depart­ment’s An­titrust Di­vi­sion who worked on the 1992 guide­lines, said the re­vi­sions don’t rep­re­sent a dra­matic de­par­ture.

The changes ac­knowl­edge the con­sid­er­able flex­i­bil­ity the agen­cies al­ready ex­er­cise with­out nec­es­sar­ily strength­en­ing the govern­ment’s hand, said Rill, now a part­ner in the law firm Howrey. “I don’t think it ma­te­ri­ally en­hances their like­li­hood of suc­cess.”

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