FTC Health Care Workshop: What Physicians, Hospitals and Pharmaceutical Companies Need to Know
October 2002
On September 9 and 10, 2002, the U.S. Federal Trade Commission (FTC) held a two-day workshop regarding the current and future trends in antitrust enforcement in health care. The speakers included the chairman of the FTC and other high-level officials from the FTC and the Antitrust Division of the U.S. Department of Justice (DOJ), physicians, economists and representatives from several associations and business groups. The workshop focused primarily on the FTC’s ongoing initiatives, and what the future will hold, in three FTC focus areas in health care: price-fixing among providers, hospital mergers and pharmaceuticals. The workshop also provided insight into the DOJ’s health care initiatives, focusing on health insurers and ancillary health care service providers.
As to price-fixing among providers, the FTC’s Bureau of Competition Director Joseph Simons stated that the FTC has adjusted its focus in response to past criticism that its enforcement has unfairly concentrated on rural physician practices involving only small numbers of physicians. Simons noted that the FTC’s most recent physician price-fixing cases have been against urban practices involving large numbers of physicians, citing examples of three groups in Denver, Colorado¾ each containing several dozen physicians. Simons also emphasized the importance of giving credence to quality and efficiency justifications propounded by new physician ventures and cited the cautious "go ahead" the FTC recently provided to MedSouth, the innovative physician venture in Denver, Colorado. Even so, Simons and the other FTC speakers made clear that the FTC would continue its aggressive enforcement against unlawful physician price-fixing, with a focus on urban areas and large physician groups.
As to hospital mergers, the FTC stated unequivocally that it remains unsatisfied with its losses in essentially all the hospital mergers it has challenged in the past 10 years. For this reason, the FTC has embarked on a "hospital merger retrospective," whereby the FTC will review the actual outcomes and effects on consumers in terms of price, quality and efficiency of the hospital mergers unsuccessfully challenged by the FTC and other government agencies. The FTC will conduct its review from two perspectives: for possible administrative challenges to previous mergers (Simons and other FTC speakers all echoed the idea of upcoming "administrative challenges") and for use as evidence in new hospital merger cases. In addition to the FTC speakers, Professor William Vogt of Carnegie Mellon University emphasized the need to determine if economies of scale can be realized in hospital mergers. He stated that the relevant economic literature largely agrees that there are probably not significant economies of scale when the merged hospital will be greater than 200 beds. He also stated that economic studies agree that merging hospitals generally increase prices when they are not faced with strong managed care buyers in their market.
From the hospital perspective, Stuart Fine, speaking for the American Hospital Association, stated that the main concern of hospitals was the concentration in the payor market, and that hospitals merely want a "level playing field" to negotiate with payors. The FTC moderators appeared interested in this request and asked the hospital representatives to elaborate on what solutions they might suggest to level the playing field. The hospital representatives asked for an unspecified "countervailing" advantage in negotiating with payors. The FTC moderators invited further elaboration on this concept in the future, but reiterated the FTC's commitment to the "hospital merger retrospective."
In addition to FTC speakers, Deborah P. Majoras, deputy assistant attorney general of the U.S. DOJ, Antitrust Division, spoke during the first day of the workshop about two of the DOJ’s focus areas in health care: health insurers and ancillary health care services. As an initial matter, she stated that the absorption of the DOJ Health Care Taskforce into the Civil Litigation I section did not signal a lessening of the DOJ’s involvement in health care. As to health insurers, she stated that the DOJ is focusing on unilateral conduct by, and mergers of, health insurers and is examining monopoly and monopsony issues associated with these businesses. As to ancillary health care service providers, she stated that the DOJ would continue its examination of exclusive dealing arrangements and horizontal collective activity among these providers. Lastly, she stated that the DOJ has recently strengthened its liaison with the FTC so criminal violations can quickly be reported to the DOJ, which will then act to bring criminal prosecutions when necessary.
The second day of the workshop focused, in part, on the pharmaceutical industry. FTC General Counsel William Kovacic stated that the commission is showing its commitment to the pharmaceutical area through FTC workshops that keep the commission staff attuned to the prevailing industry issues and by expanding its research agenda, as evidenced by the Generic Drug Entry Prior to Patent Expiration: An FTC Study (July 2002).
Assistant General Counsel for Policy Studies Michael Wroblewski summarized the findings from the FTC study by expressing concern on two issues. First, the U.S. Food and Drug Administration (FDA) does not review the propriety of patents in the Approved Drug Products for Therapeutic Evaluation publication (also known as the Orange Book). Second, courts have held that the Hatch-Waxman Act does not allow generic drug companies to sue for the validity of an Orange Book listing. He stated that these two issues have caused much of the FTC pharmaceutical litigation. The FTC study concluded with three recommendations: defining "commercial marketing" to include the marketing of the brand name, eliminating the bottleneck that occurs on the 180-day period for the first generic drug entry and deeming a declaratory judgment a "sufficient decision" to allow use of the remedies in the Hatch-Waxman Act.
In summary, the FTC workshop highlighted the FTC’s plans for enforcement actions against large physician groups in urban areas, against consummated and future hospital mergers (particularly those over two hundred beds) and against actions that unfairly prevent the entry of generic drugs into the market. All speakers agreed that in the future the bulk of antitrust enforcement in health care would be in instances of price-fixing among providers, hospital mergers and disputes and the pharmaceutical industry.
