Health

Revised Vertical Merger Rules Not Expected to Impact Proposed Deals

While regulators are expected to crack down on the acquisition of hospital-led medical practices, the FTC’s revision of vertical merger guidelines will not interfere with the proposed deals, antitrust experts said.

The FTC canceled its 2020 vertical merger recommendations last month after several of its members and policy experts criticized them as being too lenient. This move was expected as the agency passed to the Democratic majority.

The FTC and the Department of Justice jointly replaced the regulatory framework in June 2020, the first update since 1984. The recall means the commission will take a tougher stance on vertical mergers, bringing together two or more companies operating at different levels of the supply chain like hospitals buying doctor’s practices – similar to President Joe Biden’s promise. The Justice Department maintains the 2020 guidelines, which could lead to different enforcement strategies depending on which agency is challenging the proposed transaction.

“When it comes to vertical mergers, things are going to get more stringent,” said Pal Zinn, antitrust lawyer for Dickinson Wright. “The real problem from a practitioner’s perspective is that the FTC’s removal of the recommendation leaves a lot of confusion.”

“Whether the FTC is applying stricter rules or not, it’s not the law,” said Catherine Funk, Baker Donelson’s antitrust attorney.

“If you are filing a vertical merger case, you don’t have clear rules, as with horizontal mergers – it’s much more subtle and depends on economic data,” she said. “I think the agency will have the same problems as with past vertical transactions.”

The case law on vertical integration is not evolving, which is frustrating for antitrust lawyers and economists, said Alicia Butts, an antitrust partner at Faegre Drinker Biddle & Reath.

“I think most people think that the system needs to be improved a little. The question is how strong, ”she said.

When the government challenges horizontal mergers, such as when hospitals are merged, it uses standards such as the Herfindahl-Hirschman Index to measure market concentration and assess the impact on competition. But there is no clear methodology applicable to vertical transactions, which means that most mergers are contested on a horizontal basis. It is generally assumed that vertical integration promotes competition, although this consensus is subject to change.

“(The Herfindahl-Hirschman Index) gives the courts something tangible; there is nothing of the kind in vertical case law, ”Funk said. “I can’t imagine how they will ever be.”

On July 1, the FTC expanded Section 5 of the FTC Act, which empowers the commission to investigate and challenge “unfair competition practices affecting trade,” although this provision is more vague than the Sherman and Clayton Acts.

“There has been a debate around Section 5 for some time now. There was definitely a bar (association) component that believed the FTC and the Justice Department should have the same standards and enforce the same laws, ”Butts said. “The more progressive part of the legal profession would like the FTC to be more aggressive in filing cases.”

Some argue that vertical integration can improve quality and lower health care costs by improving economies of scale. Executives are betting that the upfront costs of upgrading information technology, providing compensation packages, and adding office space can pay off in a more coherent network of doctors that increases referrals, reduces duplicate care, and minimizes variation.

Others argue that large integrated healthcare companies can compete against competitors, which can increase costs and reduce quality. Companies can block access to downstream merger partner products and share confidential business information about competitors.

Clinical practices acquired by hospitals can receive higher payment rates from payers and patients, both through hospital fees and leverage when negotiating rates with the insurer. Consolidation of physician practices reduces competition that can reduce quality… Prices jump 14.1% after hospitals acquired doctors, 2018 study published in the Journal of Economics citing another study showing acquired doctors are more likely to refer patients to more expensive hospitals.

“The FTC may have been concerned that the courts might rely on elements of vertical merger guidelines that recognize the potential for competitive advantage to clean up transactions that it believes could be damaging,” said Gorav Jindal, partner and antitrust lawyer. attorney Akin Gump Strauss Hauer & Feld.

He added that the FTC and the Justice Department may consider replacing both sets of guidelines with a consolidated version.

Health care systems, insurance companies, private equity firms, large groups of physicians, and growing commercial primary health care practitioners are doing their best to lure physicians and their referral networks.

Nearly seven in ten American doctors now work in hospitals or corporations such as private equity firms and health insurance companies, according to a recent report by Avalere Health. While the Biden administration is seeking to make one-sided markets more competitive, in part by increasing FTC and DOJ budgets, vertical transactions will not slow down.

In 2017, Santa Barbara, California-based health care providers Cottage Health and Sansum Clinic canceled an alleged merger after four years of trying to convince regulators.

Cottage, which operates the only hospital in southern Santa Barbara County and the Santa Ynez Valley, has tried to team up with Sansum and its 23 outpatient clinics. But industry leaders were concerned that the merger would increase the influence of suppliers in an already concentrated market and lead to overpricing.

The FTC has sued to block a merger between St Luke’s Health System and Saltzer Medical Group in Idaho, arguing that the merger would leave the combined provider about 60% of the market share of primary care physicians in Nampa, Idaho’s second largest city. But this deal was done horizontally.

However, many transactions are outside the purview of the FTC or the US Department of Justice. Health systems often acquire small practices that do not require validation. Economists and policy experts have asked Congress to change the threshold for revising regulations to curb health monopolies. In the meantime, regulators are collecting more data from insurers on claims related to the recruitment of doctors to hospitals.

“There may be certain presumptions applied regarding market definition or market share to make it easier to challenge small vertical transactions,” said Jean Kim, an antitrust lawyer and partner of Constantin Cannon, adding that there could be more specific guidance on how to assess foreclosures foreclosures and whether the hospital system can block referrals of its working doctors to competing hospitals. “More attention is likely to be paid to the non-price effects of vertical mergers, including the impact on quality, consumer access, choice and innovation.”

Funk said agencies are likely to start identifying M&A patterns rather than looking at deals in isolation.

“I think agencies will start looking at whether there has been a series of acquisitions and what the implications of these serial acquisitions might be,” she said.

Outside the hospital sector, lawyers are overseeing the Illumina Grail acquisition. In March, the FTC sued to block Illumina, which detects cancer through DNA sequencing, from acquiring Grail, which develops biopsy tests to properly diagnose cancer. The deal will slow progress in the diagnostics sector, the complaint argued.

Optum UnitedHealth Group is also under the scrutiny of the antitrust attorney as the medical conglomerate seeks to acquire Change Healthcare, a revenue cycle management and data analytics company. Hospitals and pharmacists are urging regulators to block a deal that would allegedly create an anti-competitive corporate giant.


Source link

Read More

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button