Tweaking merger guidelines
Feds get flexible under proposed changes
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.”