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Agenda for Joint FTC/DOJ Hearings
on Health Care and Competition Law and Policy

Wednesday, April 23, 2003 Morning Session 9:15 am- 12:15 pm

Framing Presentation: Paul B. Ginsburg, Center For Studying Health System Change

Title: Health Insurance Monopoly Issues - Market Definition
Health care coverage is a highly differentiated product, and comes in many varieties, including health maintenance organizations ("HMOs"), preferred provider organizations ("PPOs"), point of service plans ("POSs") and indemnity plans. Some insurance products are regulated by the state in which the coverage is issued, while other arrangements are subject to partial or exclusive federal regulation. Many firms and individuals self-insure, with the extent of self-insurance influenced by the cost of coverage. Given these dynamics, what are the relevant economic and legal principles for defining the relevant product market in the health insurance setting? Do these principles differ in material ways from the principles of market definition applied in other industries? What information is required to determine the relevant market in a particular case? What, if any, guidance is provided by examining consumer behavior and enrollment shifts among these options over time?
  • Henry R. Desmarais, M.D., Health Insurance Association of America
  • Roger Feldman, University of Minnesota Center for Health Services Research
  • Barry C. Harris, Economists, Inc.
  • Arthur N. Lerner, Crowell & Moring
  • David Monk, National Economic Research Associates

Wednesday, April 23, 2003, Afternoon Session 2:00 pm-5:00 pm

Title: Health Insurance Monopoly Issues - Competitive Effects
This session will explore the range of potential competitive effects theories that might predict higher prices or diminished quality following a merger. Are the merging plans sufficiently close substitutes for each other in their various price and non-price attributes that the merger might allow a unilateral competitive effect? Are the merging plans the low cost bidders for employer contracts such that auction theory would predict a price effect from the merger? How important is brand name loyalty in the health insurance industry? Because health insurance cannot be resold, do insurers price discriminate either geographically or among employers of different sizes? What does this imply about the competitive consequences of insurance plan mergers? Under what circumstances should the agencies be concerned about coordinated effects arising from a merger of insurance plans?

Thursday, April 24, 2003, Morning Session 9:15 am- 12:15 pm

Title: Health Insurance Monopoly Issues - Entry and Efficiencies
In most geographic markets in the United States, insurance plans frequently enter and exit. This session will examine entry, expansion, or product repositioning in this industry. Is entry generally likely in response to an otherwise anti-competitive combination, and is such entry generally likely, timely, and sufficient to defeat each source of potential competitive effect? What factors do plans take into account when considering entry into a particular market? Do contracting practices such as "most favored nation" clauses or "all product clauses" make entry more difficult? What, if any, regulatory barriers to entry exist in health plan markets? What, if anything, does the exit of national and provider-sponsored plans from some geographic markets reveal about the existence and significance of barriers to entry in health plan markets?
 
A second part of this session will be devoted to possible efficiencies arising out of insurance plan mergers. A variety of empirical research has indicated that economies of scope and scale are exhausted at relatively modest levels in the provision of insurance. When insurance plans merge, however, they often claim that significant efficiencies will stem from the merger. What specific types of efficiencies are claimed? How should the agencies evaluate these statements and what factors or tests should they employ to evaluate whether or not the efficiencies are merger specific? What types of efficiencies are most likely (and least likely) to be cognizable and merger-specific?
  • Jay Angoff, Roger G. Brown and Associates
  • Stephen Foreman, representing American Medical Association
  • Ruth Given, Deloitte Consulting
  • Arthur N. Lerner, Crowell & Moring
  • Mary Beth Senkewicz, National Association of Insurance Commissioners
  • Lawrence Wu, National Economic Research Associates

Thursday, April 24, 2003, Afternoon Session 2:00 pm -5:00 pm

Title: Health Insurance Monopsony - Market Definition
Conceptually, monopsony can be viewed as the flip side of monopoly -- it is substantial market power being exercised by buyers over sellers. In the health insurance industry, health insurers are both sellers (of insurance to consumers) and buyers (of, for example, hospital and physician services). In this session we examine monopsony product market definition by asking how to apply the hypothetical monopolist paradigm to buyer side/monopsony concerns. We consider whether and how to reverse the standard seller-side formula that asks about the extent to which at-risk consumers can and will shift to other sellers in response to a post-merger small but significant and non-transitory increase in price ("SSNIP"). Do we, for example, ask in the monopsony context about the extent to which at-risk suppliers will substitute other outlets for their services in response to a small but significant and non-transitory decrease in price ("SSNDP")? What are the costs faced by different suppliers in switching to different outlets for their services? What are the other outlets and how do such substitution possibilities differ across physicians, hospitals, or other potentially vulnerable supplier groups? How do we apply the concept of price discrimination in a buyer side case, and what are the potential product markets for such a theory? How do these theories apply to private and public purchasers of coverage from monopsony insurers? What interesting or unusual geographic market issues for different supplier groups are implicated by insurer monopsony theory?
  • Roger D. Blair, University of Florida, Gainesville
  • Stephen Foreman, representing American Medical Association
  • H.E. Frech III, University of California, Santa Barbara
  • Thomas R. McCarthy, National Economic Research Associates
  • John J. Miles, Ober, Kaler, Grimes & Shriver

Friday, April 25, 2003, Two Sessions, 9:15 am - 12:15 pm, 2:00 pm - 5:00 pm

Title: Health Insurance Monopsony - Competitive Effects
Mergers between health insurers may raise a concern that monopsony power could be exercised against providers. Many providers accuse insurance companies of forcing them to accept unreasonably low rates and unattractive contract terms. When a merger increases the share of a physician's patients covered by a given insurance plan, the cost to the physician of withdrawing from that plan in response to a lowering of rates increases. What is the relationship between market shares and this cost? How do the agencies distinguish between a shift in relative bargaining power and an unlawful exercise of monopsony power? Is it sufficient to show that provider prices will likely be reduced from premerger levels to demonstrate the exercise of monopsony power, or must we affirmatively show that price levels will fall below competitive levels? Must the acquisition and exercise of monopsony power be accompanied by a reduction in the output of provider services? Is it plausible that a payor without downstream market power could exercise monopsony power unilaterally? What are the conditions that must exist for such a payor to exercise monopsony power? Are those conditions likely to be satisfied in health care markets?

Wednesday, May 7, 2003, Morning Session 9:15 am - 12:15 pm

Title: Health Insurance/Providers - Countervailing Market Power
Providers have argued that health plans routinely wield monopsony power, reducing provider reimbursement and quality. Solutions proposed by providers include legislation or doctrinal development that would permit providers to acquire countervailing market power. The providers argue that, if permitted to acquire countervailing market power, they can correct the problems caused by the health plans’ exercise of monopsony power. Assuming the possession of significant monopsony power by health plans, would the aggregation of market power by providers have a net benefit or cost? Under what conditions, if any, would the aggregation of market power by providers reduce the monopsony power of purchasers? Are those conditions likely to be present in health care markets? Does the reverse also hold, that is, should health plans be permitted to acquire monopsony power in response to the possession of significant market power by providers? Should both physicians and hospitals be permitted to acquire countervailing market power, or is this an option that should only be available to certain providers? Leaving aside the economic justifications for acquiring countervailing market power, does existing legal precedent leave open the possibility of doctrinal developments that would permit providers to engage in what would otherwise be unlawful collective bargaining?

Wednesday, May 7, 2003, Afternoon Session 2:00 pm- 5:00 pm

Title: Most Favored Nation Clauses
A "Most Favored Nation" ("MFN") clause is a contractual agreement between a supplier and a customer that requires the supplier to sell to the customer on pricing terms at least as favorable as the pricing terms on which that supplier sells to other customers. These clauses are not infrequently found in contracts health insurers enter into with hospitals or physicians. They allow the insurer to be confident that the reimbursement rates it pays providers are no greater than those that its competitors have negotiated. MFNs, however, may raise competitive concerns because they can discourage providers from lowering the reimbursement rates they offer to some insurers. Consequently, the agencies continue to receive and evaluate complaints about MFNs to determine whether they merit more complete investigation and enforcement action. This session will consider the following questions: What are the pro-competitive justifications for MFNs? What competitive concerns do they raise? What are the agencies’ prior enforcement activities with respect to MFNs, and what are the characteristics of the market and/or the contracts that lead to such action?
  • Jonathan B. Baker, American University Washington College of Law
  • William G. Kopit, Epstein, Becker and Green, P.C.
  • Thomas Overstreet, Charles River Associates
  • Robert M. McNair, Jr., [Letter] Drinker, Biddle and Reath, LLC
  • Steven E. Snow, Partridge, Snow & Hahn, LLP

Thursday, May 8, 2003, Morning Session 9:15 am- 12:15 pm

Title: Physician Hospital Organizations
A Physician Hospital Organization ("PHO") is a vertical arrangement that combines physician and hospital services within one organization. In theory, PHOs may create incentives to lower prices and enhance quality. In practice, many PHOs have declared bankruptcy or dissolved. The agencies have taken several enforcement actions against PHOs in response to specific anti-competitive conduct. What anti-competitive risks do PHOs create? For example, would doctors who are not members of the PHO be denied privileges at the hospital or given less favorable treatment? Under what circumstances might it be anti-competitive for a physician hospital organization to offer an insurance product? What factors have led the agencies to take action against PHOs?
  • Brad Buxton, Illinois Blue Cross & Blue Shield
  • Serdar Dalkir, Microeconomic Research Consulting Associates
  • Margaret E. Guerin-Calvert, Competition Policy Associates, Inc.
  • John P. Marren, Hogan, Marren & McCahill, Ltd.
  • John J. Miles, Ober, Kaler, Grimes and Shriver
  • Ernie Weiss, representing the American Hospital Association