The next government antitrust subpoena demanding information on a hospital merger could bear a postmark from a nearby ZIP code instead of from the nation's capital.
In light of recent developments at the federal level, the antitrust divisions of state attorneys general are likely to play a greater enforcement role in coming years and could become the first line of defense on antitrust matters, health lawyers said.
Last month, the U.S. Justice Department's Antitrust Division announced plans to disband its 17-attorney healthcare task force (Jan. 14, p. 14). The Justice Department also signaled its intention to cede healthcare merger clearance jurisdiction to the Federal Trade Commission, which previously has admitted its inability to successfully challenge hospital mergers in court. The FTC also has had to juggle multiple pharmaceutical industry competition cases, which are tapping its resources.
In hospital merger cases, the antitrust divisions of state attorneys general offices have demonstrated a better track record in recent years than their federal counterparts, successfully tackling several mergers and obtaining consent decrees designed to protect consumers and competition.
States take initiative
In the latest incidence of a state flexing its antitrust enforcement muscle, Massachusetts Attorney General Thomas Reilly is investigating possible anticompetitive behavior in the eastern Massachusetts hospital and physician markets. Last month, Reilly's office ordered multiple Boston-area hospitals to submit information on physician-hospital relationships and networks. The documents sought information on physician referrals and relationships with hospitals. Sarah Nathan, spokeswoman for the attorney general's office, said she could neither confirm nor deny an antitrust investigation.
Jennifer Watson, a spokeswoman for nine-hospital Partners HealthCare System, Boston, confirmed that the system received civil investigative demand letters from Reilly's office.
It's the second time in five months that Reilly's office has intervened in hospital and managed-care antitrust issues. In September 2001, Reilly refused to compel Springfield, Mass.-based Baystate Health System's 91,000-member HMO, Health New England, to offer a full-service contract to struggling 311-bed Mercy Medical Center, also in Springfield. But he warned the HMO to play fair or incur regulatory intervention (Oct. 8, 2001, p. 12). Mercy's sponsor, the Springfield-based Sisters of Providence Health System, said Baystate's HMO froze it out of managed-care contracts for most acute-care services, costing the hospital access to thousands of patients. Baystate is the parent of 552-bed not-for-profit Baystate Medical Center, Springfield, and owner of for-profit Health New England HMO. Health New England Chief Executive Officer Peter Straley confirmed that the HMO and Mercy are now in contract discussions.
Reilly is one of a handful of increasingly aggressive state attorneys general investigating competition in healthcare.
"I spend a lot of time counseling clients that state attorneys general are sleeping giants: Some are in deep hibernation, but some are not," said David Marx, a healthcare antitrust lawyer with the Chicago office of McDermott, Will & Emery.
Marx said the antitrust lawyers in state attorney general offices are increasingly educated, trained and experienced.
"They understand and identify antitrust issues and are more adept at knowing which complaints comprise genuine competitive issues," he said.
Marx said a handful of states have challenged healthcare mergers and anticompetitive behavior. He singled out California, Connecticut, Florida, Maryland, Massachusetts, Michigan, Missouri, New Hampshire, New York, Pennsylvania, Texas, Washington and Wisconsin as the most aggressive in pursuing alleged anticompetitive behavior in healthcare. In several states, antitrust divisions have challenged hospital mergers in court and most have resolved allegations with consent decrees aimed at protecting competition while allowing hospitals some collaborative relationships.
He said a multistate healthcare antitrust task force from the National Association of Attorneys General helped to prepare and educate state antitrust divisions.
All state attorneys general have antitrust sections. Thirty-nine states are part of the NAAG's antitrust task force, headed by Oregon Attorney General Hardy Myers. That task force assists in antitrust training and education for staffs of attorney general offices but does not bring cases.
Maryland Assistant Attorney General Ellen Cooper, chief of that state's antitrust division, said a 12-member healthcare group within the task force has assisted states in several national cases against pharmaceutical companies and healthcare chains, such as a 1998 lawsuit against Pittsburgh pharmaceutical manufacturer Mylan Laboratories. Mylan paid $147 million to settle monopolization allegations with the FTC and 33 states. Cooper said that though the task force itself doesn't file lawsuits, there is an overlap between antitrust staffs from its member states and those filing suits.
Kevin Arquit, a healthcare antitrust lawyer at the New York office of Clifford Chance Rogers & Wells, said today's state antitrust sections are increasingly sophisticated.
"The Supreme Court has made it clear that state attorneys general have a role to play," said Arquit, who was director of the FTC's bureau of competition during the first Bush administration.
Mark McCareins, an antitrust lawyer at the Chicago office of Winston & Strawn, said states have traditionally played a supportive or ancillary role in most healthcare antitrust cases.
"That's going to change," McCareins said. "The question becomes one of resources: Can the states bite off some or all of what the feds had been doing? Realistically, I don't think so. They'll be more aggressive, but will they be tough enough to take up the slack?"
Kevin O'Connor, Wisconsin's assistant attorney general for antitrust enforcement, said the federal restructuring signals reduced enforcement at the Justice Department.
"When you don't have the dedicated resources, that indicates a lessening of focus," O'Connor said, noting that the FTC still has a healthcare antitrust shop.
He said state antitrust enforcement is as varied as the states themselves, with some even challenging mergers that federal regulators approved, even as others are inactive.
"A lot of states don't have the resources to do hospital merger cases on their own, so I think we'll see a real fall-off there," he said. "Some states lacking resources will miss that federal presence acutely. And by disbanding the (Justice Department's) health shop, the states are going to lose some valuable expertise."
Michael Bissegger, a healthcare antitrust lawyer with the Washington office of Epstein Becker & Green, viewed the federal retrenchment with skepticism.
"I think there's relatively little enforcement now," Bissegger said, conceding that some state actions have borne fruit, such as the New York attorney general's successful challenge of the merger between two Poughkeepsie, N.Y., hospitals (July 3, 2000, p. 2).
"Most of the actions they have brought have been good ones, but there haven't been many of them," Bissegger said. "Generally state attorneys general take a cautious role and for the most part have piggybacked on federal agency actions. There are some signs that they'll be going on their own more."
Politics take their toll
Bissegger, a former FTC attorney, said politics enters into state enforcement far more frequently than at the federal level.
Patricia Conners, the veteran chief of the Florida attorney general's antitrust section, doesn't see the federal reorganization affecting her department.
"It's not like the Justice Department takes on work that we wouldn't do," said Conners, who's served with the Florida antitrust division for 14 years.
She said Florida's hospital market has matured and for-profit chains such as HCA, Nashville, and Tenet Healthcare Corp., Santa Barbara, Calif., are no longer aggressively pursuing mergers as frequently as in the 1980s and 1990s.
Conners said the FTC can pick up the slack if the Justice Department gets out of healthcare antitrust enforcement.
"I don't think it forebodes a downturn," she said. "But if it does, we're prepared to protect consumers and competition."
Conners cited her office's participation in a 1994 consent decree jointly achieved with the U.S. Justice Department.
That agreement barred the Morton Plant Hospital Association, Clearwater, Fla., 258-bed Mease Hospital Dunedin (Fla.) and 100-bed Mease Countryside Hospital, Safety Harbor, Fla., from merging. However, the deal permitted the hospitals to partner on some clinical and administrative services, allowing them to continue to compete while enjoying some benefits of collaboration. But the decree forbade the systems from price sharing. In July 2000, the hospitals admitted some violations of the 1994 antitrust settlement and paid $500,000 for sharing sensitive pricing and managed-care contracting information (July 17, 2000, p. 2).
The Justice Department hailed the consent decree as a trend-setting way to settle the lawsuit. Conners said not every state has antitrust enforcement authority by law or even staffs an antitrust section. Several states must proceed under federal law.
Robert Hubbard, director of litigation for the antitrust division of the New York attorney general's office, said his office will continue to aggressively scrutinize healthcare transactions, regardless of federal intervention.
"We examine transactions between hospitals and providers, and the vast majority of those are resolved without litigation," said Hubbard, whose office is considered one of the most aggressive in the country.
He said it's too soon to determine the impact of the proposed federal restructuring.
"We've had many joint investigations with the FTC and (the Justice Department) and had a fruitful working relationship. It's hard to tell where this will take us," he said. "Healthcare issues are pocketbook issues that greatly affect consumers. And if there is less help from the feds, we're going to try to do the best we can."