The DOJ Focuses on Anticompetitive Healthcare Markets

Practical Law Legal Update 8-518-5532 (Approx. 4 pages)

The DOJ Focuses on Anticompetitive Healthcare Markets

by PLC Antitrust

Health Insurance Markets

Health insurance has become a focus of the DOJ in part because:

Competition in the health insurance markets is critical to lowering healthcare costs for consumers.
Many health insurance markets are highly concentrated.

The DOJ has investigated this market for alleged merger and non-merger violations.

Health Insurance Merger Challenges

The DOJ challenged several recent mergers in the health insurance market, including:

The merger between Blue Cross Blue Shield of Michigan and Physicians Health Plan of Mid-Michigan, which the DOJ alleged would have resulted in:
- the elimination of Blue Cross' most significant rival;
- a post-merger market share of about 90%; and
- the loss of critical head-to-head competition on pricing, service and innovative products.
Blue Cross Blue Shield of Montana's exclusive agreement with the owners of direct competitor New West, which would have eliminated the competing insurance company, originally formed to challenge Blue Cross' dominance in the sale of commercial health insurance in Montana.

In her speech, Acting AAG Pozen noted that the DOJ carefully scrutinizes arguments that new health insurance entrants will counter potential anticompetitive effects caused by a merger. To be successful, merging parties must show that new entrants can overcome scale obstacles to obtain enough enrollees to be able to negotiate discounts with providers. This issue is more acute in highly concentrated than in less concentrated markets. In other words, it is more difficult to enter a market dominated by one or two plans rather than a market more evenly dispersed between many players. This theory contradicts a critical economic assumption that a monopolist's higher profits will often attract new entrants to the market.

In addition, the parties should be prepared to discuss whether brokers in the relevant geographic market would be willing to sell a new entrant's plan. Usually a broker is reluctant to do so unless the entrant has particularly good brand recognition or reputation in the broker's geographic market.

Health Insurance Conduct Cases

The DOJ has and will continue to focus on exclusionary practices of dominant health insurers that abuse their market power by trying to:

Eliminate competitors.
Deter entry.
Reduce rival's incentives to compete.

Most notably, the DOJ challenged Blue Cross Blue Shield of Michigan's use of most-favored nations clauses (MFNs) in its contracts with hospitals to guarantee that no competing insurer would get a better rate than Blue Cross. The DOJ's ongoing case against Blue Cross alleges that Blue Cross insures more than 60% of Michigan's commercially insured population and has entered into contracts that include MFN clauses with more than half of the general acute care hospitals in Michigan.

The DOJ's theory is that Blue Cross' MFNs increase insurance rates by both:

Preventing hospitals from offering lower prices to competing insurers.
Inhibiting competitive entry and market expansion from other health insurance plans.

The case against Blue Cross puts dominant insurers on notice that the DOJ is prepared to challenge MFNs and other potentially anticompetitive contracting practices. After the DOJ brought its case against Blue Cross, it worked with all of the states Attorneys General to determine in which markets MFNs were likely to harm competition. The DOJ has since opened investigations involving MFN clauses in those markets.

Healthcare Provider Markets

In healthcare provider markets, Acting AAG Pozen stated that the DOJ is focused on hospitals that:

Use contracting practices or agreements to maintain or expand their market power.
Coordinate with dominant healthcare plans to protect each other's market power.

As with health insurer markets, entry into hospital markets is difficult and often is not enough to counter a dominant hospital's exclusionary practices.

The DOJ filed a complaint against United Regional Health Care System, a dominant hospital in Wichita Falls, Texas. The complaint alleged that United Regional had high market shares in general acute care inpatient services and out-patient surgical services and was the only provider of certain essential services like obstetrics in its region. In addition, the DOJ alleged that United Regional entered into exclusionary contracts with almost all of the insurers in its region which punished the insurers if they contracted with any of United Regional's competitors. The parties settled in 2011 and agreed that United Regional would not enter into or enforce its exclusionary contracts or retaliate against its insurers.

Guidance Efforts

In an effort to be transparent and to educate key stakeholders, the DOJ continues to offer guidance on developing and maintaining new business models under the Affordable Care Act. For example, the DOJ and FTC issued a joint policy statement on accountable care organizations (ACOs), groups of healthcare providers working together to manage and coordinate patient care. While the goal of this coordination is to benefit consumers, the DOJ and FTC recognize that ACOs may reduce competition, increase prices and reduce the quality of care for consumers. The joint statement sets out how the agencies will analyze ACOs under the antitrust laws and provides safety zones for ACO participants.

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