Current Antitrust Issues Relating To Physician Mergers, Acquisitions And Combinations David A. Ettinger Honigman Miller Schwartz & Cohn, LLP Physicians and Physician Organizations Law Institute: 2012 Heightened Interest In Physician Antitrust Higher shares. More challenges. Monitoring of ACOs. 2 1
Recent Physician Mergers/Acquisitions Spokane Cardiology. FTC investigated hospital s proposed acquisition of two cardiology practices. Reduced independent cardiology practices in area from 3 to 2. Hospital abandoned the deal and acquired only one practice. 3 Recent Physician Mergers/Acquisitions Urology of Central Pennsylvania: Allegedly all the urologists in metropolitan Harrisburg. 13 of 22 in alleged relevant market. Consent order permitted group to continue operating with some regulatory constraints. 4 2
When Is There An Antitrust Issue: How To Get Your Transaction Noticed Filing. Payor complaints. Doctor complaints. Competitor complaints. Modern Health Care. 5 Mergers May Interfere With Horizontal And Vertical Competition [A] network that included most or all of the surgeons in a relevant geographic market could create market power in the market for surgical services and thereby permit the surgeons to increase price. [A] hospital might use a multiprovider network to block or impede other hospitals from entering a market or from offering competing services. Statement of Department of Justice and Federal Trade Commission Enforcement Policy on Multiprovider Networks (http://www.ftc.gov/bc/healthcare/industryguide/policy/statement9.htm) 6 3
Horizontal Effects Managed care plans PCP PCP PCP PCP 7 Effect On Managed Care Federation of Certified Surgeons and Specialists ( FCSSI ) DOJ found that FCSSI s joint negotiations and other collusive activities left MCPs with a Hobson s choice : inflated contract rates for FCSSI surgeons or an unmarketable network without FCSSI surgeons. United States v. Federation of Certified Surgeons and Specialists, D.O.J. Case No. 99-167-CIV-T-17F (January 26, 1999) (complaint) 8 4
Physician Acquisitions May Interfere With Hospital Competition [V]ertical mergers can result in competitive foreclosure through the control of necessary upstream inputs, by either making it impossible for competitors to obtain these inputs or by raising their costs in doing so. This result could occur in a hospital s acquisition of physician practices, particularly if the hospital thereby acquired a large percentage of primary care physicians who could in turn control most referrals to specialists. Varney, Christine, "Efficiency Justifications In Hospital Mergers and Vertical Integration Concerns (1995) (http://www.ftc.gov/speeches/varney/varht.shtm) 9 Vertical Effects Before acquisition Physician Hospital A Hospital B Quality Price Patient preference 10 5
Vertical Effects After acquisition Physician Hospital A Hospital B OWNERSHIP Quality Price Patient preference 11 Vertical Effects Before Hospital A Hospital B 60% share 30% share After Hospital A Hospital B 70% share 30% share 12 6
When Is There An Antitrust Issue: Physician Practice Acquisitions Share of Specialty. Importance of specialty to managed care panels. Movement of key referrers. Post acquisition pricing. 13 Defenses Geographic market. Efficiencies. Entry. 14 7
The Size Of The Geographic Market More than 60 miles (Morgenstern v. Wilson Cardiac Surgery). 120 miles (Patel v. Verde Valley Medical Center Cardiology). 36 miles (Quorum Health Primary Care). 15 Physician Merger Efficiencies Professional staff. Greater physician productivity. Improved services. Clinical standardization. Economies of scale in equipment. Needed for effective ACO? 16 8
Is Entry Easy? Has entry occurred? Is there a shortage of providers? Recruitment patterns? 17 Possible Remedies Order to cease and desist from future acquisitions. Divestitures. Rate/referral regulation (State enforcement). Treble damages. 18 9
Practical Advice For High Share Entries Don t be greedy. Don t be boastful. 19 Smoking Gun Evidence On Price? Evanston Opinion: There is no dispute that ENH substantially raised its prices shortly after the merging parties consummated the transaction. Inova Complaint: [T]he respondents do not dispute that health care prices will increase as a result of the merger. 20 10
The Evanston Case The larger market share created by adding Highland Park Hospital has translated to better managed care contracts. Some $24 million of revenue enhancements have been achieved mostly via managed care negotiations. None of this could have been achieved by either Evanston or Highland Park alone. The fighting unit of our three hospitals and 1600 physicians was instrumental in achieving these ends. Hospital documents. 21 Due Diligence: Antitrust Issues Charges: Stop Managed Care Planning: Stop Wages: Stop Analysis of Costs and Efficiencies: Qualified Go 22 11
Antitrust Issues In Negotiations: Gun Jumping Payor Negotiations: Stop Changing Expansion Plans: Aid in Staffing Internal Functions: Stop Qualified Go 23 Antitrust Structure Issues: Loose Affiliations No change in finances. No change in offices. No change in staffing. Change in managed care negotiations. Change in corporate structure. 24 12
Evanston. Antitrust: The Issue That Never Dies Investigation began 2 years after merger. Final FTC decision - 8 years after merger. Urology of Central Pennsylvania. Investigation started 2 years after merger. Consent order 6 years after merger. 25 Antitrust Pitfalls: Post-Closing Conduct Payor Relationships. Prices. 26 13
Network/ACO Issues Competing Providers Negotiation With Managed Care Is Price fixing. Or Part of an integrated joint venture. 28 14
FTC Actions Against Networks: Common Elements Joint negotiation by independent providers. Absence of substantial integration. Dominant shares. Aggrieved payors. 29 An Illegal Agreement Must Involve Separate Competitors E.g. two independent orthopedic groups, or: Independent orthopedic group and employed orthopedic surgeons. Wholly-owned surgery center and minority-owned surgery center. 30 15
Elements Of The Messenger Model Physician groups offer individual preferences. Messenger does not choose, but simply passes on. Messenger does not negotiate. Individual physician groups do not communicate with each other. 31 Provider Organizations As Integrated Joint Ventures Financial risk sharing. Clinical integration. 32 16
The Standard For Clinical Integration The physician organizations must (b) implement an active and ongoing program to evaluate and modify practice patterns... 1 1 In the Matter of Urological Stone Surgeons, Inc. (emphasis added). 33 FTC: Networks Not Sufficiently Clinically Integrated Clinical integration was found insufficient where: IPA did not: engage in case management; provide feedback to physicians concerning patient care; require adherence to its clinical guidelines and protocols; operate or refer patients to any disease management programs or patient registries; or engage in meaningful education. 1 IPA did not monitor practice patterns and quality of care, or enforce utilization standards regarding services provided by its PPO network. Its physicians were required to abide by the utilization management guidelines established by payors, not by the guidelines in [the IPA s] risk-sharing contracts. 2 Network provided practice management programs (including two quality improvement projects, clinic inspections, and quarterly quality council meetings) but [t]hese activities... [did] not involve collaboration to monitor and modify clinical practice patterns to control costs and ensure quality or otherwise integrate their delivery of care to patients. 3 1 N. Tex. Specialty Physicians, Dkt. No. 9312 (FTC Nov. 16, 2004) (initial decision). 2 Cal Pac. Med. Group, 137 F.T.C. 411 (2004) (consent order). 3 Minn. Rural Health Coop., Dkt. No. 0510199 (FTC Dec. 28, 2010) (consent order). 34 17
Elements Of Clinical Integration Care maps, guidelines, and/or toolkits for disease management. Patient and physician education programs and materials. Utilization review (e.g., ER utilization, increase generic drug use). Review of medical records. Review of office procedures. Electronic medical records system and electronic patient registries. Data analysis and physician feedback/monitoring. 35 Elements Of Clinical Integration Pharmacy usage review. Preventive health management. Electronic prescribing. Surgical infection prevention. Surgery process improvements. Sharing of physician and hospital savings from reengineering. 36 18
Other Clinical Integration Issues Dedicated staff. Scope of programs. What specialties are clinically integrated? What specialties rates are negotiated? Timing versus negotiation. Integration by 2012? Negotiation by? 37 Other Clinical Integration Issues Marketing to managed care. Do the payors use your clinical programs? Are the clinical programs in the contract? Are they in your communications? The reasonably necessary standard. Why do you need to negotiate rates? Spillover effects. 38 19
A Truly Non-Exclusive Network May Have No Market Power 100% of Doctors Network A Payor 1 Payors 2-10 39 Evidence Of Network Exclusivity Contract language. How else do the providers contract? What happens if there is no deal with the payor? Communications with providers. 40 20
Other High Share Network Conduct Of Concern Preventing steering. Tying. Impeding information flow to consumers. 41 Network Behavior Have prices increased? Refusals to contract? Network communications. 42 21
Common Remedies Order to cease and desist. Dissolution of IPA or PHO. 43 Potential Remedies Disgorgement of price-fixing profits. Treble damages. Criminal penalties. 44 22
A Physician Combination Antitrust Checklist Merger/Acquisition 1. Potential filing? 2. 40% plus share of local specialty? 3. Integrated structure? 4. Likely effect on payors? hospitals? employers? 5. Due diligence safeguards? 6. Jumping the gun on closing? 7. Post-closing advice? 45 A Physician Combination Antitrust Checklist ACO/Network 1. Clinically integrated? 2. Shares of specialty greater than 40%? 3. Non-exclusive? 4. No spillover coordination? 5. Engaged in tying? preventing payor steering? impeding distribution of cost/quality information? 46 23
David A. Ettinger Honigman Miller Schwartz & Cohn, LLP 2290 First National Building 660 Woodward Avenue Detroit, MI 48226 (313) 465-7368 (313) 465-7369 (Fax) dettinger@honigman.com 10279841 47 24