Health Care and Competition Law and Policy

April Topics

The Antitrust Division and the Federal Trade Commission are cohosting hearings on health care and competition law and policy. This page provides details on topics for the April hearings.

For more information, consult the hearings information page or contact David Kelly, Litigation I Section (david.kelly@usdoj.gov or 202-616-9447).

April 9, 2003

Afternoon Session
2:00 p.m. to 5:00 p.m.
Hospitals - Horizontal Networks and Vertical Arrangements

Hospitals are increasingly affiliating into horizontal networks and entering into vertical arrangements with other health care providers (physicians, nursing homes, home health agencies, and other entities). These arrangements, which occur against the backdrop of other laws and regulatory constraints, have paralleled several transformations in the nature of hospitals, from doctors’ workshops, to the center of integrated delivery networks, to complicated networked affiliates and contractual partners with other entities. Ronald Coase’s theory of the firm suggests that transactions can either be organized inter-firm (in other words, through the market) or intra-firm. The development of these arrangements is one example of the reconceptualization of the boundaries of a Coasean firm.

Questions for consideration:

• What horizontal and vertical arrangements have emerged in the health care marketplace?
• What are the key drivers for this behavior, and do the type of arrangements that prevail vary across geographic markets?
• Do consumers prefer these arrangements? Do employers and insurance companies prefer these arrangements?
• How do these arrangements change the competitive dynamics, including the relative bargaining power of hospitals and insurers?
• How do these arrangements affect the definition of the relevant product and geographic markets?
• How do these arrangements affect cost and quality?
• Are certain types of consumers particularly adversely affected?
• What are the pro-competitive and anti-competitive consequences of these arrangements?
• Are there efficiencies associated with particular arrangements?
• How should competition law and policy address such arrangements when networks seek to merge?
• Should the analysis be different when there are other hospitals in the area or there is no geographic overlap among the hospitals?
• What does economic theory have to say about the circumstances under which these arrangements emerge?
• Does traditional antitrust analysis, including but not limited to tying doctrine, adequately address the forms of anti-competitive conduct likely to emerge?

Robert Burns, Wharton School of Business
Robert Town, University of Minnesota
Robert E. Hurley, Virginia Commonwealth University on behalf of the Center for Studying Health System Change
Jim Burgess, Boston University School of Public Health
Additional witnesses to be announced

April 10, 2003

Morning Session
9:15 a.m. to 12:30 p.m.
Hospitals - Nonprofit Status

Nonprofit hospitals comprise approximately 60% of community hospitals in the United States. Nonprofit insurers comprise/administer a substantial proportion of total premium dollars spent on health care in the United States. Conversely, physicians, nursing homes, and many other health care providers are organized as for-profit operations.

Questions for consideration:

• How does entity status affect performance?
• Are there systematic differences between the performance of nonprofit and for-profit entities?
• How do consumers perceive the performance of nonprofit and for-profit entities, with regard to cost, quality, and access?
• Do consumers know when they are receiving care from a nonprofit entity?
• How should competition law and policy address nonprofit status?

William Lynk, Lexecon Inc.
Cory S. Capps, University of Illinois
Gary J. Young, Boston University School of Public Health
Peter Jacobson, University of Michigan
Frank Sloan, Duke University
Additional witnesses to be announced

Afternoon Session
2:00 p.m. to 5:00 p.m.
Hospital Joint Ventures and Joint Operating Agreements

Hospital joint ventures and joint operating agreements (JOAs) raise a number of distinct issues for competition law and policy. Because these arrangements fall short of full merger, such collaborations may, even when entered into between rivals, present fewer competitive concerns than a merger would. On the other hand, lack of complete integration may limit the prospect for substantial, pro-competitive efficiencies to be realized. Joint ventures are discussed in the 1996 Statements of Antitrust Enforcement Policy in Health Care (Statements) jointly issued by the Federal Trade Commission and the Department of Justice, but JOAs are not.

Questions for consideration:

• What are the advantages and disadvantages of joint ventures and JOAs?
• Under what circumstances are joint ventures, JOAs, and other forms of cooperation likely to be pro-competitive and under what circumstances are they likely to be anti-competitive?
• Can some types of joint ventures help limit costly “medical arms races?”
• If so, would the reduction in this form of rivalry represent merely a savings to the parties, or would it constitute a net benefit to consumers?
• What other types of efficiencies may result from joint ventures, and what does the available historical evidence indicate about these claims?
• Do administrative efficiencies, in the absence of clinical integration or efficiencies, constitute a “unity of interest” so as to merit single entity treatment under Copperweld Corp. v. Independence Tube Corp., 467 U.S. 762 (1984)?

Jeff Miles, Ober Kaler
Robert Taylor, Robert Taylor Associates
Margaret Guerin-Calvert, Competition Policy
William G. Kopit, Epstein, Becker & Green
Bob Hubbard, New York Attorney General Office
David Eisenstadt, Microeconomic Consulting and Research Associates, Inc.
Robert Moses, Oxford Health Plan

April 11, 2003

Morning Session - Originally scheduled on February 28.
9:15 a.m. to 12:15 p.m.
A Tale of Two Cities - Perspectives on the Little Rock Market

In many geographic markets in the United States there has been a significant amount of market turbulence and varying degrees of consolidation among health care providers and insurers. Boston and Little Rock provide two points on the spectrum of market consolidation. To provide a frame of reference for the balance of the hearings, a day will be spent painting a comprehensive picture of current market conditions in Boston and Little Rock. The full range of competitive issues will be addressed, including the cost and quality of the care rendered, the degree of market concentration among providers and insurers, and the impact of market consolidation on the performance of the payor and provider markets.

Jonathan R. Bates, M.D., Arkansas Children’s Hospital
Russell D. Harrington, Jr., Baptist Health System
James J. Kane, Jr., M.D., Arkansas Heart Hospital
Joseph Meyer, Alltel, Inc.
Kevin W. Ryan, Arkansas Center for Health Improvement
Robert L. Shoptaw, Arkansas Blue Cross and Blue Shield
John Wilson, M.D., Arkansas Medical Society

Afternoon Session
2:00 p.m. to 5:00 p.m.
Hospitals - Post-Merger Conduct

Before a hospital merger is consummated, the parties routinely make representations about the pro-competitive benefits of the transaction.

Questions for consideration:

• After a hospital merger, do the merged entities achieve the efficiencies they claim?
• Are the merged entities able to exert market power and raise prices?
• To what extent have hospitals actually combined administrative and/or clinical operations?
• Does patient flow data or “critical loss” computations accurately predict the post-merger behavior of hospitals in both the short and long run?
• Do critical loss computations cast any light on the relative magnitude of post-merger price increases, if any?
• How effective are payors at steering patients to alternative hospitals in response to post-merger price increases?
• What other strategies do payors have to resist demands for higher prices?
• How do state “sufficiency” requirements influence the bargaining power of hospitals and insurers?
• What roles do patients, employers, insurance product design, and non-hospital facilities play?
• What is the significance of any excess capacity in the hands of rivals?
• How effective are “non-traditional remedies” (for example, price freezes, indexed prices, community commitments, and the like) in addressing the market power that a merger may confer?

William G. Kopit, Epstein Becker & Green
Lawrence Wu, National Economic Research Associates, Inc.
David Balto, White & Case
James Langenfeld, LECG, L.C.C.
Seth Sacher, Charles River Associates
Robert Taylor, Robert Taylor Associates
Kirby O. Smith, Susquehanna Health System

April 23, 2003

Morning Session
9:15 a.m. to 12:15 p.m.
Health Insurance Monopoly Issues - Market Definition

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

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.

Questions for consideration:

• 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 B. Monk, National Economic Research Associates

Afternoon Session
2:00 p.m. to 5:00 p.m.
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.

Questions for consideration:

• 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?

Helen Darling, Washington Business Group on Health
John Gabel, Health Research and Educational Trust/American Hospital Association
Mike J. Mazzeo, Northwestern University
Lawrence Wu, National Economics Research Associates
Steven Pizer, Boston University
Fred Dodson, PacifiCare of California

April 24, 2003

Morning Session
9:15 a.m. to 12:15 p.m.
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, and product repositioning in this industry.

Questions for consideration:

• Is entry generally likely in response to an otherwise anti-competitive combination, and is such entry generally 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.

Questions for consideration:

• 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

Afternoon Session
2:00 p.m. to 5:00 p.m.
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).

Questions for consideration:

• 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

April 25, 2003

Two Sessions
9:15 a.m. to 12:15 p.m. and 2:00 p.m. to 5:00 p.m.
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.

Questions for consideration:

• 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?

Sharon Allen, Arkansas Blue Cross and Blue Shield
Stephen Foreman, representing American Medical Association
H.E. Frech, III University of California, Santa Barbara
Dennis A. Hall, Baptist Health System
Stephanie W. Kanwit, American Association of Health Plans
Stephen Mansfield, St. Vincent Health System
Thomas R. McCarthy, National Economic Research Associates
John J. Miles, Ober, Kaler, Grimes and Shriver
Marius Schwartz, Georgetown University

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