Regulators are focused on high healthcare prices at a time when providers and payers are looking to innovate and expand the various ways that Americans receive their care. That conflict will produce several high-profile court fights—and possibly even some nationally watched decisions—in 2013.
Healthcare executives have recently been venting frustration over how their plans to provide the best deals for patients run into regulatory challenges, whether it's best-pricing contracts with insurers or hospitals looking to gain efficiencies by acquiring competitor hospitals and physician practices.
Some amount of cognitive dissonance on the part of healthcare executives is to be expected, as pro-competition laws push back against the market power that may be gained through efforts to improve the efficiency of healthcare.
Even though healthcare executives “believe in their hearts of hearts that they will do the opposite, the antitrust laws expect that parties will exercise their economically rational power at some point,” says Mark Botti, a partner with Akin Gump Strauss Hauer and Feld in Washington and a former chief of litigation for the U.S. Justice Department's Antitrust Division, which regulates healthcare companies.
“If markets are well-defined and you know that you are going to have substantial market share after the transaction, and that market concentration is going to increase after the transaction, you can readily predict that you are going to draw some level of antitrust scrutiny,” Botti says.
No less an authority than the U.S. Supreme Court is expected to rule this year on whether a public hospital in Albany, Ga., was granted legal immunity from antitrust scrutiny, enabling it to consolidate the city's only two hospitals under a single operator called Phoebe Putney Health System.
The hospitals say the $200 million transaction was legal, while the Federal Trade Commission accuses Phoebe officials of using public ownership to illegally shield a hospital monopoly from review. The high court heard oral arguments in November, but any decision is likely to deal with somewhat narrow questions that could affect publicly run hospitals and a legal principle known as “state-action immunity” from antitrust laws.
Wider in implications for hospitals across the U.S. will be the case of ProMedica Health System v. Federal Trade Commission, which is expected to have oral arguments before the 6th U.S. Circuit Court of Appeals in Cincinnati this spring. ProMedica, Toledo, Ohio, defends its decision to acquire a financially distressed hospital in nearby Maumee. The FTC said internal e-mails among executives discussing future price increases should doom the acquisition, but the system says increasing prices for that particular hospital was necessary to keep it afloat, and more efficient for the local healthcare market as a whole than building a second, competing hospital in town.
Meanwhile, a U.S. District Court in Detroit is scheduled to finally consider the legality of “most-favored nation” insurance contracts, which are used widely between insurers and hospitals across the country. Such agreements essentially stipulate that a dominant insurer will always receive the best price for any service, but the Justice Department says that Blue Cross and Blue Shield of Michigan uses them to drive up prices for other insurers' beneficiaries.