The Department of Justice (DOJ) announced last week that it and the State of North Carolina have reached a settlement with Carolinas Healthcare System / Atrium Health relating to provisions in contracts between the health system and commercial insurers that allegedly restrict payors from “steering” their enrollees to lower-cost hospitals. The settlement comes after two years of civil litigation, and serves as an important reminder to hospital systems and health insurers of DOJ’s continued interest in and enforcement against anti-steering practices.

WHAT HAPPENED:

  • On June 9, 2016, the DOJ and the State of North Carolina filed a complaint in the Western District of North Carolina against the Charlotte-Mecklenburg Hospital Authority, d/b/a Carolinas Healthcare System, now Atrium Health (Atrium).
  • In its complaint, DOJ accused Atrium of “using unlawful contract restrictions that prohibit commercial health insurers in the Charlotte area from offering patients financial benefits to use less-expensive health care services offered by [Atrium’s] competitors.”
  • DOJ alleged that Atrium held approximately a 50 percent share of the relevant market and was the dominant hospital system in the Charlotte area. DOJ defined the relevant product market as the sale of general acute care inpatient hospital services to insurers in the Charlotte area.
  • DOJ alleged that Atrium used market power to negotiate high rates and impose steering restrictions in contracts with insurers that restrict insurers from providing financial incentives to encourage patients to use comparable lower-cost or higher-quality providers. Such financial incentives include health plan designs that charge consumers lower out-of-pocket costs (such as copays and premiums) for using top-tier providers that offer better value, or for subscribing to a narrow network of providers.
  • Atrium also allegedly prevented insurers from offering tiered networks with hospitals that competed with Atrium in the top tiers, and imposed restrictions on insurers’ sharing of value information with consumers about the cost and quality of Atrium’s health care services compared to its competitors. These “steering restrictions” allegedly reduced competition and resulted in harm to consumers, employers, and insurers in the Charlotte area.
  • Atrium allegedly included these steering restrictions in its contracts with the four largest insurers who in turn provide coverage to more than 85 percent of commercially insured residents in the Charlotte area.
  • On March 30, 2017, the court denied Atrium’s motion for judgment on the pleadings, finding that the government met its initial pleading burden. Atrium had argued that the complaint failed to properly allege that the contract provisions actually lessened competition or lacked procompetitive effects.
  • More than a year later, on November 15, 2018, DOJ announced that the State of North Carolina and DOJ had reached a settlement with Atrium, which prohibits Atrium from continuing its practices of using alleged steering restrictions in contracts with commercial health insurers. The proposed settlement also prevents Atrium from “taking actions that would prohibit, prevent, or penalize steering by insurers in the future.” The agreement lists certain prohibitions and permissions for Atrium; for example, that Atrium may not enforce existing alleged anti-steering provisions, and must allow payors to be transparent with consumers about price, cost and quality information. However, Atrium is permitted to enforce other contract provisions that protect against carve outs (where an insurer unilaterally removes a health care service from coverage in a health plan), and may restrict payor steering for any co-branded plan or narrow network in which Atrium is the most prominently-featured provider.

WHAT THIS MEANS:

  • Going forward, both DOJ and the Federal Trade Commission (FTC) are likely to investigate similar contract provisions by health systems susceptible to allegations of market power. The resolution of the Atrium matter comes just one month after Senator Chuck Grassley sent a letter to FTC Chairman Joseph Simons, asking FTC to investigate certain allegedly anticompetitive hospital system managed care contracting practices and to assess how prevalent they are in the marketplace. Senator Grassley’s October 10 letter cited to a recent Wall Street Journal article detailing various provisions said to increase health care costs and restrict patient choice, including anti-steering provisions. The letter cited to the then-pending Atrium case specifically. In the wake of the Grassley letter and the Atrium settlement, hospital systems that have entered into alleged anti-steering provisions with payors may need to expect inquiry from the FTC or DOJ.
  • The Atrium settlement follows the resolution of another DOJ challenge to anti-steering provisions. Earlier this year, in American Express, the Supreme Court rejected DOJ’s challenge to the anti-steering rules that the credit card company imposed on merchants. The cases are distinguishable in part due to the difference in market share of defendants. American Express held 26.4 percent of the credit card market, whereas Atrium allegedly holds 50 percent of the relevant market asserted by DOJ.
  • Many watched the Atrium case as an opportunity for further guidance from the courts on the competitive implications of anti-steering practices, but the settlement means practitioners and industry members must continue to wait for judicial consideration of these types of provisions in the health care industry.
  • The Atrium matter serves as a reminder of the agencies’ interest in alleged anti-steering and other restrictive contracting practices. Now is an opportune time for hospital systems to review their managed care contracting practices for potential antitrust risk under the rule of reason, particularly hospital systems with relatively high shares within concentrated service areas or that have contracting provisions with payors representing a majority of the local patient population that could be characterized as allegedly restrictive.

United States: July – September 2018 Update

Both US antitrust agencies marked the third quarter of 2018 with significant policy announcements regarding the merger review process. The announced reforms seek to expedite the review process through cooperation between the agencies and the merging parties. Moving first, the Federal Trade Commission (FTC) revealed a Model Timing Agreement that provides the FTC Staff with earlier notice of the parties’ intent to substantially comply with a Second Request. Earlier notice allows the FTC Staff to create a more effective timeline for meetings with division management, front office staff and the Commissioners. Less than two months after the FTC revealed its Model Timing Agreement, the Antitrust Division of the US Department of Justice (DOJ) announced procedural reforms aimed at resolving merger investigations within six months of filing. The DOJ will commit to fewer custodians and depositions in exchange for the merging parties providing key information earlier in the investigation. Overall, these reforms appear to be a positive step forward for parties considering future transactions, but their effectiveness remains uncertain as the agencies start a difficult implementation period. While the FTC timing agreement may provide more certainty around the process, it does not reduce the review timing and actually extends it.

EU: July – September 2018 Update

The European Commission (EC) remained quite active clearing mergers in the third quarter of 2018. Most notably, the EC cleared Apple’s acquisition of Shazam without imposing conditions despite the EC’s stated concerns about access to data as a competitive concern. The EC opened a Phase II investigation into the transaction to investigate the potential for Apple to obtain a competitive advantage over competing music streaming services by accessing Shazam’s consumer data obtained through its music recognition services. In this case, the EC did not find evidence that the access to Shazam’s data would provide Apple a competitive advantage. In addition, the EC found that there were no concerns about Apple potentially restricting Shazam as referral source for Apple’s competitors. Going forward, it is clear that access to data is an issue that the EC will continue to investigate, but it is also clear that the EC is taking a careful approach in assessing when that access will truly lead to a competitive harm.  Continue Reading Antitrust M&A Snapshot

United States: April – June 2018 Update

The second quarter of 2018 ushered in a trial defeat for the US Department of Justice (DOJ) and the beginning of a new era at the Federal Trade Commission (FTC). In June, Judge Richard J. Leon of the US District Court for the District of Columbia denied the DOJ’s requested injunction of the AT&T/Time Warner acquisition. The case marked the first litigated vertical challenge by the Antitrust Division in nearly 40 years. DOJ filed a notice of appeal of the district court’s decision. At the FTC, four new commissioners were sworn in in May, with a fifth to join upon the approval of current commissioner Maureen Ohlhausen to the US Court of Federal Claims. With the transition nearly complete, new FTC Chairman Joseph Simons announced plans to re-examine and modernize the FTC’s approach to competition and consumer protection laws, possibly charting a new course for FTC antitrust enforcement.

EU: April – June 2018 Update

In this quarter, we saw two significant developments concerning the issue of gun-jumping. First, the Court of Justice of the European Union (CJEU) clarified the scope of the gun-jumping prohibition, ruling that a gun-jumping act can only be regarded as the implementation of a merger if it contributes to a change in control over the target. Second, the European Commission (EC) imposed a €124.5 million fine on Altice for having breached the notification and the standstill obligations enshrined in the EUMR by gun-jumping. The EC also issued two clearance decisions following Phase II investigations in the area of information service activities and the manufacture of basic metals. Continue Reading Antitrust M&A Snapshot

WHAT HAPPENED

The Department of Justice Antitrust Division (DOJ) implemented new provisions in merger consent decrees that:

  • Make it easier for DOJ to prove violations of a consent decree and hold parties in contempt;
  • Allow DOJ to apply for an extension of the decree’s term if the court finds a violation; and
  • Shift DOJ’s attorneys’ fees and costs for successful enforcement onto the parties.

DOJ has implemented these provisions in four decrees to date1, and has communicated that it will require the same in future decrees.

WHAT THIS MEANS

For merger decrees, by reducing its burden of proof for decree violations, DOJ is shifting additional risk to parties for divestitures that do not go as planned. Willfulness is not a required element of civil contempt2, so the change to the burden of proof is significant. Parties will need to be sure to commit to realistic divestiture timelines and asset packages that will not present undue implementation challenges.

For non-merger decrees, settling parties will need to remain vigilant against decree violations or even the appearance of them, as the DOJ has ratcheted up its ability to obtain large settlements and civil penalties for violations.

THE CHANGES

The DOJ states that its changes are driven by the principle that antitrust enforcement is law enforcement, not regulation3. Nonetheless, the main impact of the changes is to increase the risk and potential cost on merging parties.

Preponderance Is Now Enough: Reversing the “clear and convincing evidence” standard that has been in place for civil contempt cases since at least the 1960s4, DOJ is now requiring settling parties to agree that a preponderance of the evidence will be enough for a showing of civil contempt and for an appropriate remedy. DOJ states that under the old standard, the DOJ frequently had to engage in extensive discovery when faced with a violation, giving the parties an incentive to hold out from a resolution and “exacerbate the situation.”5 Under a preponderance of the evidence standard, it will be easier for the DOJ to bring an enforcement action without conducting a full CID investigation.

Fee-Shifting Now the Norm: The DOJ now requires the shifting of fees and costs to the parties in the event a violation is proven. DOJ states that fee-shifting provisions are standard fare in many private contracts. Their use by DOJ is designed to discourage violations of consent decrees and speed resolution of disputes.

DOJ Can Request Extension of Decrees: Settling parties must now agree that in the event a court finds a violation, DOJ can request a one-time extension of the decree’s term. The extension that DOJ can request is not time-limited, and the new language does not set forth a standard for when the court should grant DOJ’s request. For decrees that involve costly monitoring and affirmative compliance, this open-ended provision may greatly raise the cost of disputing an alleged violation.

CONCLUSION

The DOJ’s new provisions shift risk and cost to settling parties in the event of a dispute over alleged violations of a decree. Merging parties may disagree about whether these changes further the administration’s deregulatory agenda. Nonetheless, the changes are here to stay, and parties are advised to proceed with appropriate caution in (1) agreeing to realistic divestiture timelines and asset packages and (2) implementing comprehensive decree compliance programs to avoid investigation for an actual or perceived violation.


  1. See Competitive Impact Statement, U.S. v Vulcan Materials Company (Dec. 22, 2017); Competitive Impact Statement, U.S. v TransDigm Group Incorporated (Dec. 21, 2017); Competitive Impact Statement, U.S. v Parker-Hannifin Corporation (Dec. 18, 2017); Plaintiff United States’ and Defendant ABI’s Joint Motion and Memorandum for Entry of Modified Proposed Final Judgment, U.S. v. Anheuser-Busch InBev SA/NV, 1:16-cv-01483 (Mar. 15, 2018).
  2. See McComb v. Jacksonville Paper Co., 336 U.S. 187 (1949).
  3. Principal Deputy Assistant Attorney General Andrew C. Finch, Remarks to New York State Bar Association Antitrust Section, Jan. 25, 2018, available at https://www.justice.gov/opa/speech/file/1028896/download
  4. See, e.g., Schauffler ex rel. NLRB v. Local 1291, International Longshoremen’s Assoc., 292 F.2d 182 (3rd Cir. 1961).
  5. Supra note ii.

At the one year anniversary of the Trump administration, antitrust merger enforcement remains similar to the Obama administration, but it is still early to judge given the delays in antitrust appointments and given the DOJ’s lawsuit against the vertical AT&T/Time Warner transaction, the first vertical merger litigation in decades.  Below are some of the recent developments that have impacted merger enforcement by the Federal Trade Commission (FTC) and Antitrust Division of the US Department of Justice (DOJ), as well as European regulators.

Continue Reading.

A grand jury has indicted three foreign currency exchange spot market dealers for alleged violations of the Sherman Act, 15 U.S.C. § 1, in a case brought jointly by the DOJ’s Antitrust Division and the US Attorney’s Office for the Southern District of New York (SDNY). The allegations in the case, United States v. Usher, et al., are that the three named defendants conspired to suppress and eliminate competition for the purchase and sale of Euro/US dollar (EUR/USD) currency pairs via price fixing and bid rigging.

The foreign currency exchange spot market (the “FX Spot Market”) enables participants to buy and sell currencies at set exchange rates. The FX Spot Market is an “over-the-counter” market conducted via direct customer-to-dealer trades, i.e., without an exchange.  In the market, currencies are traded and priced in pairs, whereby one currency is exchanged for the other.  When filling customer orders, dealers in the FX Spot Market do not serve in a broker capacity, but rather fulfill the orders via their own trading and speculation in the requested currency markets.  Dealers employ traders to quote prices and engage in trades to fill customer orders.  The dealers and their traders are able to access a separate virtual market, known as the interdealer virtual market, which enables currency trades amongst dealers.  According to the Indictment, currency pair prices are set by a continuous auction in the interdealer virtual market, where “individual actions taken by competing traders—to bid or not bid, to offer or not offer, to trade or not to trade, at certain times, and using certain tactics—can cause or contribute to a change in the exchange rate shown in the [virtual trading] interface, and thus may benefit, harm, or be neutral to a competing trader.” The Indictment asserts that this is because the benchmarks used by the virtual market were calculated at particular times each day and were based on “real-time bidding, offering, and trading activity” on the virtual trading market.

The Indictment asserts that the defendants violated the Sherman Act by:

  • engaging in chat room communications whereby they discussed customer orders, trades, names and risk positions;
  • refraining from trading against each other’s interests;
  • coordinating bids for the purpose of fixing the price of the EUR/USD pair.

Defendants are alleged to have engaged in profitable EUR/USD transactions while acting to fix prices and rig bids for the EUR/USD product in the FX Spot Market.  The Indictment further alleges that others were co-conspirators, suggesting that there may be cooperating witnesses and possibly further indictments to follow. Of note, however, recent Trump Administration changes to US Attorneys and DOJ Division Deputies and Chiefs may conceivably alter the course of this and any follow-on litigation. Regardless, over-the-counter markets have been a focus of antitrust lawsuits in recent years, most notably in the widely-covered Libor suits, and that trend is expected to continue.

Transactions that meet the Hart-Scott-Rodino thresholds for notification must be reported to the Federal Trade Commission (“FTC”) and Department of Justice. Where a notified transaction raises competition concerns, the reviewing agency may decide to launch an in-depth investigation and request additional information from the merging parties, known as a “Second Request,” which can take several months and cost companies millions of dollars to fully respond. Under FTC Acting Chairwoman Maureen Ohlhausen’s leadership, however, the burden of a Second Request may decrease, as she intends to narrow their scope.

WHAT HAPPENED:

  • Acting Chairwoman Ohlhausen has signaled that Second Requests will be more limited under her leadership, based on comments made on February 15, 2017 at a Washington conference.
  • The standard for initiating a Second Request will not change. However, once initiated, Second Requests will be narrower in scope, in terms of markets assessed and data requested from companies.

WHAT THIS MEANS:

  • The standard used by the FTC to initiate such investigations will not change; thus, complex transactions raising competition concerns will likely still face a Second Request.
  • However, the time and cost associated with complying with a Second Request may be reduced, which will be good news for companies who may face a shorter review at a lower cost.
  • This business-friendly approach is consistent with Commissioner Ohlhausen’s guiding principles of “regulatory humility, […] the power of competitive markets, and a devotion to empiricism” and her objective to “minimiz[e] the burdens on legitimate businesses”. As such, it may be one of further changes to come in FTC enforcement.

The FTC’s Path Ahead.

Statement of Acting FTC Chairman Ohlhausen on Appointment by President Trump.

On Friday, January 13, 2017, the Department of Justice (DOJ) and Federal Trade Commission (FTC) released the new Antitrust Guidelines for International Enforcement and Cooperation. These guidelines were jointly developed by the agencies and serve to update the Antitrust Enforcement Guidelines for International Operations that have been in place since April 1995. The new guidelines include a revised discussion on conduct involving foreign commerce, a new chapter on international cooperation, and updated language, case law, and illustrative examples throughout.

Read the full article here.

In the last two years, the Federal Trade Commission (FTC) and the Antitrust Division of the US Department of Justice (DOJ) brought, and won, several litigated merger cases by establishing narrow markets comprised of a subset of customers for a product. This narrow market theory, known as price discrimination market definition, allowed the agencies to allege markets in which the merging parties faced few rivals and, therefore, estimate high post-merger market shares. By their nature, price discrimination markets can lead to a challenge of a high-value deal where only a small number of the merging parties’ customers are allegedly harmed. Given the increased usage by the agencies and now judicial acceptance of the theory, counsel for merging parties must consider the potential for price discrimination market definition in assessing the antitrust risks for transactions.

Read the full article here.

On July 25, 2016, the Federal Trade Commission (FTC) submitted comments to the Department of Veterans’ Affairs (VA) supporting a proposed rule only affecting VA facilities that would authorize Advanced Practice Registered Nurses (APRNs) to provide primary health care services without the mandatory supervision of physicians, regardless of state or local laws, with limited exceptions. Currently, APRNs in the employ of the VA are subject to VA requirements as well as various regulations on a state-by-state basis, with physician supervision required in over half of the states. Under Proposed Rule RIN 2900-AP44, APRNs that meet VA standards would have the authority to provide a described list of services without such physician supervision.

While the FTC acknowledged the important role of federal and state legislators in determining the “best balance of policy priorities,” the FTC has expressed skepticism of state laws requiring physician supervision. They have noted that such requirements “may raise competition concerns because they effectively give one group of health care professionals the ability to restrict access to the market by another competing group of health care professionals, thereby denying health care consumers the benefits of greater competition.” In fact, the FTC argued that physician supervision requirements may increase the cost of services that APRNs could provide, and by relaxing such requirements, consumers “may gain access to services that would otherwise be unavailable.” This increased access could also address shortages in access to primary and specialty care. As the FTC noted, the US has current and projected health care workforce shortages, particularly in primary care physicians, and the VA has emphasized the need to provide care to veterans in rural areas who have limited access to specialty services, some of which APRNs could provide.

Additionally, the FTC commented that the proposed rule could yield information about models of health care delivery. Under the current system, the VA’s use of APRNs is limited by state regulation. By preempting the state requirements, the FTC argued that the VA would be free to “innovate and experiment with models of team-based care.”

Interestingly, the proposed rule only applies within the scope of VA employment, which falls outside of “competition in the private sector” for which the FTC acknowledged it is typically concerned. But in this instance, the FTC concluded that the VA’s actions could positively impact competition in the health care service provider markets by encouraging entry that could “broaden the availability of health care services” outside of the VA’s system.

This is another example of antitrust regulators’ interest in occupational licensing and competition concerns generally. Just as this letter encourages competition between physicians and nurses for certain health care services, last month, US Department of Justice (DOJ) and FTC jointly submitted a letter encouraging competition between lawyers and non-lawyers in the provision of legal services in North Carolina. We previously analyzed that letter, and other important developments in occupational licensing that have occurred since February 2015, when the Supreme Court affirmed an FTC decision not to apply state action antitrust immunity for occupational licensing boards which are composed of market participants and not actively supervised by the state in North Carolina State Board of Dental Examiners v. Federal Trade Commission, 574 U.S.___ (Feb. 25, 2015). Here, the regulators have continued to encourage a review of occupational licensing schemes, focusing on the substance of the licensing scheme. In this letter and other actions, the regulators have shown a commitment to challenging and eschewing state occupation licensing schemes to increase competition.