On May 9, 2016, the US District Court for the Middle District of Pennsylvania denied the motion by the Federal Trade Commission and Pennsylvania Office of Attorney General for a preliminary injunction to enjoin the merger of Penn State Hershey Medical Center and PinnacleHealth System. The decision ends a string of victories by the FTC in recent health care merger litigation.
In this month’s American Bar Association (ABA) Section of Antitrust Law Spring Meeting, the program “Antitrust & Health Care: Square Peg in a Round Hole?” featured debate and discussion about antitrust law treatment of health care transactions and how that treatment might (or should) evolve (via regulation, legislation, or some combination of approaches), or conversely, whether the intersection of antitrust law and health care is more akin to a square peg meeting a round hole. Moderated by Jim Donahue (Office of the Pennsylvania Attorney General), the panel’s speakers included Robert Berenson, MD (The Urban Institute), Alexis Gilman (the Federal Trade Commission (FTC)), Melinda Hatton (American Hospital Association (AHA)) and Elinor Hoffmann (Office of the New York Attorney General (AG)).
The program first considered a hypothetical merger of specialty physician practices, where the acquiring practice has privileges at one of the market’s two hospitals and the merger would consolidate privileges at that hospital.
The FTC said it would likely look at the transaction on a specialty-by-specialty basis; the New York AG agreed, but thought it was worth considering: is multi-specialty a market itself? She referenced ProMedica’s cluster markets as a possible route for analyzing the transaction (e.g., a parent might take two children to a multi-specialty practice at the same time, one to see a pediatrician and the other to see a dermatologist).
The American Hospital Association (AHA) thought that with the Affordable Care Act’s (ACA’s) incentive to keep the population out of the hospital, hospitals are repurposing services toward population health goals, and referenced remote medicine and affiliations.
The FTC stated that it continued to prefer structural remedies in the form of injunctions or divestitures for health care transactions, pointing to its rejection of Phoebe Putney’s proposed conduct remedy. The New York AG agreed that while structural remedies are typically best, the states (particularly Pennsylvania and New York) tend to be more willing to consider conduct remedies, often with the goal of marrying regulation with achievement (efficiencies).
Dr. Berenson posited that physician group acquisitions are the wave of the future, because the current regulatory environment makes solo practice difficult. So, he said, where physicians or specialties must be divested, those doctors are now likely to seek hospital employment.
From the hospital perspective, the AHA noted that health care transactions are a peculiar breed— health care cannot be divorced from regulation, acquisition costs are usually very high, and hospitals must pay fair market value under Stark and Anti-Kickback laws—and commented that the peculiarities of such transactions are not always adequately taken into consideration in merger challenges.
Vertical Mergers; Narrow vs. Broad Networks
The panel next considered a hypothetical merger where a health plan with 60 percent market share in a mid-size city purchases one of the two hospitals and changes its network from broad to narrow.
The FTC noted that although they have not challenged this sort of vertical health care transaction, it would do so under the right circumstances (e.g., if the hospital had no excess capacity, [...]