AAOS Now

Published 12/1/2011
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Henry Allen, JD

How to put antitrust laws to work FOR you

Be aware of anticompetitive behavior in your community

Hospital and health insurance markets have undergone significant consolidation during the past 20 years. In many areas throughout the country, physicians now face a dominant hospital with the power to cripple physician-owned facilities. Physicians are also confronted with health insurers that possess “monopsony” or “buyer” power—the ability to reimburse physicians at rates that are so far below a truly competitive level that physicians may be driven from the market and patients may receive diminished service and quality of care.

Health insurer monopsony power
The Department of Justice (DOJ) has acknowledged the harmful effect of health insurer market power on physician service markets. It recently blocked a proposed merger between Blue Cross Blue Shield of Michigan and Physicians Health Plan of Mid-Michigan on grounds that the acquisition “would have given Blue Cross-Michigan the ability to control physician reimbursement rates in a manner that could harm the quality of health care delivered to consumers.”

Health insurer monopsony power also enables dominant insurers to insist on anticompetitive contractual provisions. One such provision is the so-called “most favored nation” clause, in which the dominant health insurer demands that a physician accept from it the lowest reimbursement rate that the physician accepts from any other health insurer. Another tactic of health insurer monopsonies is to offer reimbursement rates that prevent would-be competitors from entering the market. Therefore, appropriate enforcement of antitrust laws is critical to prevent anticompetitive health insurer mergers and to prohibit actions that inhibit the entry of new health insurers into a market.

Hospital consolidation
The consolidation of hospital markets has made it difficult, and sometimes impossible, for physicians to open and operate freestanding surgery centers. Dominant hospitals have shown a willingness to use their market position to hurt physician-owned surgery centers and the physicians who work at or invest in those centers.

For example, hospital tactics have included the following anticompetitive behaviors:

  • requiring exclusive contracts with insurers
  • barring physicians from taking an ownership interest in a competing facility
  • economic credentialing
  • employing referring physicians and limiting the ability of employed physicians to make referrals outside of the employer hospital
  • conditioning privileges on the physician’s participation in noncompetition agreements
  • pressuring health insurers to boycott physician-owned facilities
  • pressuring local bankers not to lend physician-owned facilities necessary start-up funding

In all of these situations, for physicians and physician-owned facilities, antitrust laws are an important tool that can help protect innovative alternatives to hospitals.

When you are the victim
The Federal Trade Commission and the DOJ have said that they have “a commitment to vigorous competition” and that “much remains to be accomplished to ensure that the market for healthcare goods and services operates to serve the interests of consumers.” It’s time to put that commitment to the test.

At the AAOS 2010 Fall Meeting, I participated on a speaker panel that included a DOJ official. He expressed a willingness to review cases forwarded by the American Medical Association (AMA) where physicians conclude they are the victims of anticompetitive conduct. Accordingly, the AMA intends to forward complaints to the DOJ that the AMA believes the DOJ might consider important.

If your area includes a dominant hospital or health insurer, and you believe that they are engaged in any anticompetitive practices, you may wish to contact me at the American Medical Association. Please understand however that the AMA is neither acting as an agent or representative of the AAOS or any individual physician; nor is the AMA evaluating the legal issues associated with any individual submission or providing any legal advice. Any individual physician who believes that he or she has been injured by an anticompetitive practice should strongly consider seeking appropriate legal advice.

Identifying anticompetitive practices by hospitals and health insurers is a critical first step in protecting physician practices and physician autonomy. The sidebar, “Anticompetitive behaviors,” on page 26, summarizes the types of conduct that could indicate an anticompetitive practice. If your area includes a dominant hospital or health insurer, and you believe that any of these activities are occurring, you may want to share that information with the AMA.

Henry Allen, JD, is the senior attorney for marketplace advocacy for the American Medical Association. He can be reached at Henry.Allen@ama-assn.org. Used with permission, Henry Allen, JD.

Anticompetitive Behaviors (PDF)

References

  1. Capps C, Dranove D. Market Concentration of Hospitals (June 2011), Massachusetts Health Care Cost Trends, 2010 Final Report, (showing that increased prices have been the result of hospital market leverage, and are not correlated to: 1) quality of care, 2) the sickness of the population, or 3) the extent to which a provider cares for Medicare/Medicare patients.
  2. See, “Competition in Health Insurance: A comprehensive study of U.S. markets”, American Medical Association (AMA) (2011 update); “How competitive are state insurance markets?” The Henry J Kaiser Family Foundation (October 2011) ; AMA letter to Christine Varney, Assistant Attorney General Antitrust Division, U.S. Department of Justice (July 8, 2009)
  3. http://www.justice.gov/atr/public/press_releases/2010/256259.htm
  4. See, Speech by Christine Varney, Assistant Attorney General Antitrust Division, U.S. Department of Justice at American Bar Association/American Health Lawyers Association Antitrust in Healthcare Conference, May 24, 2010.
  5. See, MedPAC March 2005 Report on Physician-Owned Specialty Hospitals, page 10; and the ABA Antitrust Health Care Handbook (4th Ed. 2010), pages 269–278. For real examples of this type of conduct see, Potters Medical Center v. City Hospital Association, 800 F.2d 568 (6th Cir. 1986); Williamson v. Sacred Heart Hospital, 1993 WL 543002 (N.D.Fl. 2003); and U.S. v. Healthcare Partners, Inc., 1996 WL 193753 (D.Conn.).
  6. The FTC and DOJ’s Improving Health Care: A Dose of Competition (p. 29 of Executive Summary)
  7. Little Rock Cardiology Clinic v. Baptist Health, 591 F.3d 591 (8th Cir. 2010).
  8. Heartland Surgical Specialty Hosp. v. Midwest Div. Inc., 527 F.Supp.2d 1257 (D.Kansas 2007)
  9. West Penn Allegheny Health System, Inc. v. UPMC, 627 F.3d 85 (3rd Cir. 2010)
  10. U.S. v. United Regional Health Care System, 7:11-cv-00030. The government plans to enter a consent decree with the defendant.
  11. The FTC and DOJ have recently obtained consent decrees in several enforcement actions to enjoin the use of “most favored nation” clauses (See Antitrust Health Care Handbook, p. 190, fn. 121) and have stated that their “agencies will continue to challenge the use of Most Favored Nation clauses when the evidence suggests that such terms violate antitrust laws.” The FTC and DOJ’s Improving Health Care: A Dose of Competition (p. 23 of ch. 6). See also, United States of America and the State of Michigan v. Blue Cross Blue Shield of Michigan 2:10-cv-14155-DPH-MKM (E.D. Michigan) (Pending case in which DOJ alleges health insurer’s use of Most Favored Nation clauses violates antitrust law.)
  12. Reazin v. Blue Cross & Blue Shield of Kansas, Inc. 899 F.2d 951 (10th Cir. 1990)
  13. The FTC and DOJ’s Improving Health Care: A Dose of Competition (p. 1 of ch. 6).
  14. See Antitrust Health Care Handbook at p. 74; McKenzie Willamette Hospital v. Peacehealth, 515 F.3d 883 (9th Cir. 2004).
  15. The federal agencies have shown a renewed interest in hospital merger enforcement in recent years. (See #1 and the FTC and DOJ’s Improving Health Care: A Dose of Competition (p. 1 of ch. 4). As a very recent example, See FTC v. Promedia Health System (2011).
  16. Lancaster Community Hospital v. Antelope Valley Hospital District, 940 F.2d 397 (9th Cir. 1991); Forsyth v. Humana, Inc., 114 F.3d 1467 (9th Cir. 1997)