Antitrust laws exist to protect consumers, not providers

“I’m not sure I entirely agree that mergers are often formed in response to market uncertainty.”

Markus Meier is the assistant director for healthcare enforcement in the Federal Trade Commission’s Bureau of Competition.

Meier, an attorney and former U.S. Army officer who joined the FTC in 1990, leads a division of about 35 attorneys conducting investigations and enforcement directed at pharmaceutical companies, health systems and physicians. Modern Healthcare reporter Joe Carlson spoke with Meier recently about his agency’s view of accountable care organizations, hospital mergers and acquisitions activity, and drugmakers’ pay-for-delay agreements. This is an edited excerpt.

Modern Healthcare: What do you think of the criticism from hospital leaders that the FTC is discouraging them from entering mergers and partnerships, which conflicts with reform’s goal to create networks that coordinate care?

Markus Meier: That contention is wrong. It reflects misunderstandings about the Affordable Care Act, accountable care organizations and the antitrust laws. The goals of the ACA and the antitrust laws are actually very wellaligned in promoting the development of procompetitive accountable care organizations. ACOs are intended to promote greater efficiency for patients by coordinating care to achieve higher quality at lower cost. Antitrust has the same goal, protecting competition that benefits consumers and promotes efficiencies. Sometimes people like to suggest that federal agencies are not sufficiently coordinating with each other on these policies. But that’s very wrong. There was actually a very high level of coordination in putting together the regulations that implemented the ACO portions of the ACA and the antitrust laws. We worked very closely with the CMS, the White House, the Department of Justice, HHS, the Internal Revenue Service and the Office of Management and Budget. We made sure that we coordinated the guidance that we put out with the CMS. Antitrust is not a barrier to the formation of procompetitive ACOs. We offer voluntary review for any ACO that seeks additional guidance. But just because you label your consolidation or collaboration as an ACO, it’s not a free pass from the antitrust laws.

MH: How can someone tell the difference between a pro-competitive ACO and an anti-competitive ACO?

Meier: Anyone looking to form an ACO for the Medicare Shared Savings Program should look at the 2011 joint FTC-Justice Department policy statement on ACOs. If an ACO meets the CMS’ eligibility criteria, and it participates in the Shared Savings Program, and it uses the same governance structure and the same clinical and administrative processes in the Medicare area and the commercial markets, the FTC and the Justice Department will give what’s known as a “rule of reason” treatment to the ACO’s operations in the commercial market. In other words, we’re not going to find the ACO guilty of becoming an illegal price-fixing cartel.

There are a lot of ACOs looking to participate solely in the commercial market. Both the FTC and Justice have tried to provide the industry with useful guidance that it can follow in forming these organizations in a way that is pro-competitive. We’re worried about organizations that are not much more than a price-fixing cartel, or organizations that are fairly integrated but are so large that they dominate their marketplace and have the ability to exercise significant market power. Both of those types of behavior have a very high likelihood of harming consumers, raising prices and not improving quality at all.

MH: Hospital CEOs are asking whether it’s fair for the FTC to step up enforcement of M&A activity when the federal government is injecting more financial uncertainty into the system. What do you think?

Meier: I’m not sure I entirely agree that mergers are often formed in response to market uncertainty. Just because providers face some uncertainty about the future, that’s not a justification to form what would otherwise be an illegal price-fixing cartel or creating what might otherwise be an illegal monopoly.

On the fairness question, part of my response is, fair to whom? The antitrust laws aim to prevent business

practices that unreasonably restrain competition, which can lead to higher prices and lower quality. I sometimes have to remind physicians and hospitals that the antitrust laws aren’t there to protect their interests as producers of healthcare services, they’re intended to protect consumers, including patients, health plans and self-insured employers. By promoting competition, we hope that leads to lower prices, better quality, more choice and innovation.

MH: The FTC recently won a federal court case in Idaho when a judge ordered St. Luke’s Health System to sell a large physician practice it recently had acquired. The judge said that while the acquisition likely would have improved patient outcomes, the tie-up was illegal because it likely would lead to higher prices. Why would the FTC discourage a deal that was likely to improve patient care?

Meier: I have to be somewhat careful because this case is still in active litigation. But I would encourage people to take a look at what the judge actually said. You’re right that the judge said he believed the acquisition was likely to improve the delivery of healthcare over the long run. But in the very next sentence, he said there are other ways to achieve the same effect that do not run afoul of antitrust laws and do not run such a risk of increased costs. He was applying well-established antitrust law principles, weighing the possible benefits against the possible harms, saying that while this transaction may have the ability to improve patient outcomes in the long run, that end could be accomplished without the harm of higher prices and market power.

MH: The FTC has taken a hard line against “pay-for-delay” agreements between branded drugmakers and generic drugmakers, in which generic drugmakers agree not to release competing generics against branded drugs. Why is this such a big issue now, especially in light of the Supreme Court case on this subject last year?

Meier: Our concern is that branded companies are paying off their generic competitors not to enter the marketplace with a generic, and in return, they are receiving a payoff that makes it worth their while to do that. The branded company gets to maintain a monopoly on the high-priced brand product, and it shares some of those profits with the generic competitor. Had the generic come into the market, consumers would get the benefit of a lower price. The FTC found that this practice costs consumers about $3.5 billion a year. The Supreme Court’s decision in FTC v. Actavis last June makes clear that pay-for-delay can have genuine adverse effects on competition. The court rejected a legal standard that was very permissive of these agreements. But there’s uncertainty as to what district courts will do with this decision. At the FTC, we think the Supreme Court’s guidance is quite clear. But the justices left a lot to the district courts’ discretion to decide how to structure future cases. So we really don’t know what impact this decision is going to have on companies going forward, when they settle their cases and engage in this behavior. So we’re still very intent on making sure that the law continues to move in the right direction.