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On September 27, 1994, the United States Department of Justice and the Federal Trade Commission (the “Agencies”) jointly issued “Statements of Enforcement Policy and Analytical Principles Relating to Health Care and Antitrust.” The statements supersede the September 15, 1993 “Statements of Antitrust Enforcement Policy in the Health Care Area”, and expand those six statements to cover the following nine areas of the health care market:

1. hospital mergers;
2. hospital joint ventures involving high-tech or expensive medical equipment;
3. hospital joint ventures involving specialized clinical or other expensive medical services;
4. the provision of non-fee-related information to purchasers by providers;
5. the provision of fee-related information to purchasers by providers;
6. exchanges of price and cost information by providers;
7. joint purchasing arrangements;
8. physician network joint ventures; and
9. multiprovider networks.

Seven of the nine statements describe “antitrust safety zones” which specify conduct that will not be challenged by either federal agency absent “extraordinary circumstances.” The term “extraordinary circumstances” remains undefined. However, as with the prior safety zones, the statements do not preclude antitrust actions instituted by state enforcement agencies or by private persons.

In addition, the statements outline the analyses the Agencies will undertake to review conduct which falls outside the antitrust safety zones. The analyses represent a significant step by the Agencies to disseminate their methods, but generally do not constitute a change in agency policy or procedure.

Perhaps most importantly, the Agencies have reaffirmed their intention to respond within 90 days to requests for guidance in areas covered by the statements, and within 120 days to requests in other health care areas. Although not a legally binding commitment, this intention does demonstrate an acknowledgement by the Agencies that antitrust uncertainty in be health care market remains a significant concern.

1. Hospital Mergers

Safety Zone: Any merger between two general acute care hospitals where one has (on average over the preceding 3 years) less than 100 licensed beds and a daily inpatient census of less than 40 patients, and is at least 5 years old.

This safety zone remains unchanged. As noted previously, it is of very limited value, because few hospitals fall within the 100 bed/40 patient maximum.

For mergers outside the safety, zone, the Agencies’ analysis will continue to follow the 1992 Horizontal Merger Guidelines. The statements acknowledge that market concentrations are not conclusive and that mergers between hospitals with market shares sufficient to raise questions of anticompetitive effects may be procompetitive if certain factors are present. Specifically, the statements recognize the post-merger existence of strong competitors or sufficient differentiation between the merging hospitals, the realization of significant cost savings, or the elimination of a failing hospital as procompetitive justifications.

2. Joint Ventures Involving High Technology or Other Expensive Health Care Equipment

Safety Zone: Joint ventures to purchase or otherwise share the cost of, operate and market high-technology or expensive medical equipment which include only hospitals necessary to support the equipment. Additional hospitals may not be included if they can support the equipment separately or through a competing venture.

The safety zone has been expanded to cover not only new equipment but also existing equipment in cases where the current use of the equipment does not enable the owner(s) and/or operator(s) to recover costs.

Although this safety zone provides an additional level of clarity to the analysis of some joint ventures, it covers only “high-technology” or “expensive” medical equipment. The major weaknesses in this safety zone are (i) joint ventures not related to capital equipment are not covered by a safety zone, and (ii) it is likely that there will be some uncertainty whether a participating hospital could alone support the equipment, or whether an additional participant is unnecessary to support it, either of which takes the venture out of the safety zone.

The statements indicate that a “rule of reason” analysis will be applied to equipment purchasing joint ventures which fall outside the safety zone to determine whether substantial anticompetitive effects may result and, if so, whether they are outweighed by procompetitive efficiencies. This analysis is the same as that undertaken for most joint ventures and signifies no change in current agency policy or procedure.

3. Joint Ventures Involving Specialized Clinical or Other Expensive Health Care Services

Safety Zone:None.

Joint ventures involving specialized or expensive health care services were not covered by the prior statements. The Agencies have not specified a safety zone, but have outlined the analysis that they will apply to such ventures.

This statement applies a “rule of reason” analysis to determine whether the joint venture may substantially reduce competition and, if so, whether the anticompetitive effects are outweighed by procompetitive efficiencies. As noted above with respect to expensive medical equipment, the joint venture analysis set forth by the Agencies does not depart from the longstanding approach taken by the Agencies.

4. Providers’ Provision of Non-Fee-Related Information to Purchasers

Safety Zone: Providers’ collective provision (through a medical society, for example) of suggested practice parameters or of outcome data concerning a particular procedure for use in coverage decisions.

The breadth of this safety zone has been expanded to cover all providers instead of only physicians. However, as with the 1993 statements, any coercion by providers to follow a recommendation is expressly excluded from the safety zone. This safety zone is essentially a restatement of current policy and procedure. While the collective provision of fee-related information is outside this safety zone, a new safety zone has been established to cover fee-related information.

5. Providers’ Provision of Fee-Related Information to Purchasers

Safety Zone: Providers’ collective provision of current or historical fees or reimbursement data to purchasers of health care services.

This safety zone applies to the provision of fee-related data to purchasers of services but not to the exchange of such information among competitors. Accordingly, when collecting data providers must be careful to comply with the Agencies “Statement on Provider Participation in Exchanges of Price and Cost Information,” which requires that:

• (i) data collection is managed by a third party;
• (ii) any fee-related information available to competing providers must be greater than three months old; and
• (iii) any information available to providers is aggregated such that an individual provider’s prices cannot be distinguished, each statistic represents data from at least five providers, and no individual provider’s data represents more than 25% on a weighted basis of a given statistic.

Fee-related information not collected in this manner falls outside the safety zone. Further, the Agencies specify a list of activities that are explicitly outside the safety zone and would likely or potentially constitute antitrust violations, including the provision of prospective fee information, threatened or actual group boycotts, coercion of purchasers to deal on collectively-determined terms, and collective negotiations among unintegrated providers relating to reimbursement. Conduct outside the safety zone will be analyzed on a case by case basis.

6. Provider Exchanges of Price and Cost Information

Safety Zone: Written surveys of prices for services or wages and benefits if:

• (i) the survey is managed by a third-party (eg., a trade association or consultant);
• (ii) the data is more than 3 months old; and
• (iii) each statistic disseminated is based on at least 5 providers, no provider represents more than 25% of a given statistic, and the information is aggregated such that data pertaining to a specific provider cannot be determined.

This safety zone has been broadened to include all providers rather than hospitals only, and provides a relatively clear statement of what the Agencies consider to be permissible conduct. However, in many markets the need to aggregate statistics to meet the safety zone will render the survey significantly less valuable; and some providers will need more specific information relating to other providers of similar size, specialty and patient demographics.

The Agencies will evaluate surveys outside the safety zone to determine whether any anticompetive effects outweigh the procompetitive justification. The statements indicate that exchanges of future price or wage information are “very likely” to be viewed as anticompetitive, and any agreement among competing providers regarding prices to be charged or wages to be paid will be considered by the Agencies to be per se unlawful.

7. Joint Purchasing Arrangements

Safety Zone: Arrangements where joint purchasers account for less than 35% of the sales of the purchased item in the relevant market and the purchased items account for less than 20% of the total revenues for each participating competitor.

This statement is substantially unchanged. However, the Agencies have added an additional example and described safeguards that providers may use to lessen antitrust concerns.

As noted a year ago, by limiting the joint arrangement to less than 35% of the market in the purchased items, the arrangement should not have sufficient market power to drive the price below competitive levels. However, it may sometimes be difficult for the health care participant in a joint purchasing arrangement to determine either the geographic extent of the market or the percentage of the market held by the joint arrangement. The 20% limitation on the impact of the jointly purchased item on revenues is designed to prevent arrangements that might facilitate pricefixing by jointly controlling the cost of major inputs.

8. Physician Network Joint Ventures

Safety Zone: Exclusive physician joint ventures comprising less than 20% and non-exclusive physician joint ventures comprising less than 30% of the physicians in each specialty within the geographic market if substantial financial risk is shared.

This safety zone has been revised to provide an increased cap on the level of physician participation for a non-exclusive network. However, even as revised, the safety zone is somewhat narrower than at least some prior indications of the Agencies’ policy, which tended to suggest that, even if exclusive, physician joint ventures comprising less than 30-35% of a type of practitioner within the relevant area were unlikely to be challenged.

The statements indicate that substantial financial risk exists where services are provided on a capitation basis or where a substantial amount of compensation is dependent on meeting certain cost-containment goals. In addition, ventures that contain more of the physicians in a relevant market than permitted by the safety zone will be analyzed under the rule of reason if substantial financial risk is shared or if a new efficient product is offered. This analysis is consistent with prior policy.

9. Analytical Principles Relating to Multiprovider Networks

Safety Zone: None.

Although no safety zone has been issued, the Agencies have delineated the analysis they will undertake to determine whether a multiprovider network (a term used to mean both networks of otherwise competing providers and a network of complementary or unrelated providers) raises antitrust concerns. The Agencies have done so principally by describing how the key issues of integration, joint pricing and marketing, market definition, exclusivity, competitive effect, efficiencies and provider exclusion will be considered.

Consistent with prior approaches, networks will first be examined to determine whether agreements among competitors that restrict competition are involved, and if so whether there is sufficient integration to analyze the network under the rule of reason. The Agencies reaffirm the rule that absent integration, an agreement among competitors that restricts competition will likely be considered per se unlawful.

While this statement consolidates prior agency policy into a concise statement concerning health care networks, providers should be cautioned that this statement does not evidence a broadening of the Agencies’ view as to the scope of permissible conduct.

CONCLUSION

The statements represent a significant step forward in the Agencies’ commitment to provide the health care industry with additional guidance in this time of transition. However, while the statements have been clarified and, in some cases, broadened, they remain generally a recitation of the Agencies’ existing policies and procedures. As such, the statements will not be of substantial assistance with respect to the majority of antitrust questions in the health care market. The agencies’ willingness to speed requests for advice remains the most significant element of the statements, enabling providers and payors to obtain agency guidance in a timeframe within the demands of most transactions.