Healthcare antitrust experts are disappointed that the federal government's new proposed guidelines on vertical mergers give little detail on how the government will analyze deals between organizations across the delivery system, such as hospitals and physician groups.
While the Federal Trade Commission and U.S. Justice Department highlighted potential competition risks from vertical mergers in the long-anticipated guidelines, the first update since 1984, some elected officials and antitrust attorneys say the release still doesn't give enough information to step up oversight of physician practice acquisitions by hospitals, insurers and private-equity firms.
"The guidelines are short and don't say much," said Douglas Ross, a veteran antitrust attorney at Davis Wright Tremaine in Seattle. "They don't really do much new, and they don't refer at all to healthcare or use any healthcare-related examples."
Vertical mergers create some specific competitive risks including preventing rivals from accessing products from the downstream merger partner, sharing sensitive business information about competitors and enabling coordinated interaction that hobbles rival firms.
The guidance update, released on Jan. 10, comes as concerns mount over the growing consolidation of hospitals and physician practices and the impact on prices and total health spending. There is also concern about more unorthodox vertical deals like those between CVS and Aetna and between UnitedHealth Group and DaVita.
The federal government has rarely challenged vertical mergers in any industry, in contrast to its more aggressive policy toward horizontal mergers between firms competing head to head. Antitrust enforcers and courts traditionally have viewed vertical mergers as much less likely to threaten competition than horizontal mergers. They often consider such deals pro-competitive.
But the new guidance included some surprises, according to Debbie Feinstein, a former top FTC official who heads Arnold & Porter's global antitrust group.
It proposed a safe harbor for vertical mergers if the merging firms have a combined share in the relevant market of less than 20%, and the "related product" produced by the downstream partner is used in less than 20% of the relevant market.
That's widely seen as an unusually low threshold, given that antitrust enforcers generally rule out action on mergers affecting less than 30% of a market at the very least.
Second, Feinstein said the draft has "no real discussion" of the standards by which the agencies will evaluate the ability of merging companies to reduce or cut off the supply of downstream products to rival firms, known as foreclosure.
That is what the agencies, as well as state attorneys general, have examined in recent vertical transactions. Those cases involved claims that acquisition of physician groups by insurers or hospitals may foreclose competition by making it more difficult or costly for rivals to obtain physician services.
The cases showed a new willingness by federal and state antitrust enforcers to use seldom-cited vertical merger theory.
Last year, the FTC announced a settlement with UnitedHealth Group and DaVita unwinding United's acquisition of DaVita Medical Group's Las Vegas operations. At the same time, Colorado's attorney general separately reached a deal imposing conditions on UnitedHealth's acquisition of DaVita's physician groups in Colorado Springs.
Also last year, the 8th U.S. Circuit Court of Appeals upheld a U.S. District Court ruling blocking Sanford Health's proposed acquisition of the multispecialty Mid Dakota Clinic in the Bismarck, N.D., area. That antitrust case originally was filed by the FTC and the North Dakota attorney general.
Researchers say there's little evidence that such consolidation has enhanced competition and produced benefits such as lower costs and better quality for patients and consumers. They also question the value of other types of vertical deals, like that between CVS and Aetna.
While FTC Chairman Joseph Simons said the agencies' vertical merger policy "has evolved substantially" since 1984 and maintained that challenging such mergers is "essential" for enforcement, his Democratic colleagues were less enthused about the new guidance.
Both Democratic FTC commissioners abstained from voting on the guidelines. In a written statement, Commissioner Rohit Chopra blasted the guidelines. He said "they are not supported by an analysis of past enforcement actions, perpetuate an overdependence on theoretical models, and do not reflect all of the ways that competition can be harmed."
He added that there is no indication of what the agencies have learned from past experience, "including errors made through under-enforcement."
Public comment on the guidelines is open until Feb. 11.