Joseph Miller, Co-Chair, Antitrust Practice, Mintz Levin, and Holden Brooks, Partner, McGuireWoods, discuss recent developments in the health care antitrust space. They cover the DOJ’s health care monopolies task force, private equity in health care, Hart-Scott-Rodino changes, the FTC’s final rule on non competes, state statutes, Indiana’s pre-transaction review law, and entrenchment in the health care market. Joseph and Holden spoke about this topic at AHLA’s 2024 Advising Providers: Legal Strategies for AMCs, Physicians, and Hospitals, in New Orleans, LA.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
Joseph Miller, Co-Chair, Antitrust Practice, Mintz Levin, and Holden Brooks, Partner, McGuireWoods, discuss recent developments in the health care antitrust space. They cover the DOJ’s health care monopolies task force, private equity in health care, Hart-Scott-Rodino changes, the FTC’s final rule on non competes, state statutes, Indiana’s pre-transaction review law, and entrenchment in the health care market. Joseph and Holden spoke about this topic at AHLA’s 2024 Advising Providers: Legal Strategies for AMCs, Physicians, and Hospitals, in New Orleans, LA.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
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Speaker 2:This episode of A HLA speaking of health law is brought to you by A HLA members and donors like you. For more information, visit American health law.org.
Speaker 3:Hello and welcome to an HLA podcast. Uh, my name is Joe Miller. I'm co-chair of Mince Levin's Antitrust Practice, and I also sit in a healthcare practice. Uh, today's podcast , uh, grows out of , uh, presentation that Holden Brooks and I did , uh, in January, I think it was at the Advising Providers Conference. Uh , Holden, would you like to introduce yourself?
Speaker 4:Sure. I'm Holden Brooks. I'm a partner at the Indiana Antitrust Group at McGuire Woods in Chicago. And I also , uh, am sort of an honorary member of our healthcare group , uh, at the firm as well. And Joe's w Right . We had a great time in New Orleans , uh, presenting a lot of this information in a more comprehensive format , um, at the Advising Providers Conference, which I think we would encourage everyone to register for next year.
Speaker 3:Exactly. Um, and as Holden and I sat down to plan for this, we looked at our slide deck and realized it was, even though it was only a few months old, it was already outdated. A lot of what we're gonna talk about today has happened since the conference, or has been updated since the conference. So I think where we'd like to start is actually some pretty recent news. The government or the DOJ announced , um, this week, something called the Healthcare Monopolies Task Force . Uh , that is , uh, an effort that , uh, will look to do a whole of government and whole of justice approach , uh, to looking at healthcare , um, monopolies or in a fresh way. Uh, this , um, echoes , uh, some public , uh, reporting , uh, that we've seen in the Wall Street Journal and elsewhere , uh, that the government's looking at a Section two case in managed care. Uh, the , uh, task force didn't specifically mention which sector of healthcare we're looking at. They did talk about it as looking , uh, newly at healthcare markets , uh, holistically. Uh, so they're talking about healthcare as a platform. They talked about multi-sided giants , uh, and instead of looking at a single line of business , um, they're looking at , uh, the , uh, conglomeration of different healthcare functions , uh, insurers, providers, PBMs, banks, claims processors, and, you know , trying to understand it , uh, in, in that way. So that is , uh, that is , uh, really pretty big news. Um, we hear talk about , uh, those entities that have accumulated ranges of assets as gatekeepers. Uh, this echoes what Lena Khan has talked about in terms of PBMs. She does talks about , uh, middlemen in a skeptical way. And so now we see this at justice too . Um, this task force , you know, comes after , uh, recent , uh, announcement that the Justice Department and the Health, and, sorry, the Federal Trade Commission, are going to , uh, have an open line for complaints in healthcare for anybody who wants to talk about potential violations. Uh, and so that's , um, that's news as well. Um, I will say, as someone who's spent a little less than half my career in the federal government, this is a very significant undertaking. So, to rethink how you've been thinking as from an antitrust perspective about markets, which has legal definitions in a much broader way , uh, is in my view, years worth of work , uh, as a , um, uh, as an analog , uh, the FTC , uh, in the nineties , uh, and DOJ brought a series of hospital merger cases, which they lost , uh, six in a row than the state of California. Brought the seventh. Uh, and then the Federal Trade Commission, you know, took a timeout and said, we really need to rethink this. And did that for about three years. Uh, so they did a retrospective study of hospital mergers to try to understand it better. Uh, and they, you know, then brought an administrative case against Evanston in 2004. Uh, and then, you know, they've been on a pretty significant winning streak , uh, since then. Uh, and so the rethink about the analytics of how they were approaching hospital mergers really set the stage for a change in enforcement, a change in their theories, how they collected evidence, the change in the economics. Um, this is an even bigger deal. So, you know , re-imagining healthcare markets , uh, as this , uh, cluster of services much broader , uh, than they have in the past. Thinking about , um, providers , uh, with insurers, with PBMs, with banks , claims processors is really a significant undertaking from , um, from , uh, the enforcement perspective. Um, I mean, it's goodness, it's hard enough to bring in when a case that seems relatively simple. This is very, very complicated. Uh, and so that's the news. Um, there's been some commentary that's, you know, thinking this is a very significant change, and if they follow through on this, it would be, but as I say, it's, it's a very large undertaking. Uh, other commentary has thought this looks more like a political effort in an election year to show that there's enforcement activity in healthcare, where, of course , um, it becomes more expensive by the year. So a wait and see on that one. But that happened very recently, so I thought it was a good place to start. Um, other federal news , uh, that we should, that we should touch on , uh, there's a development , um, as in the , uh, USAP case, US Anesthesia Partners, federal Trade Commission brought this case , uh, last year , uh, in 2023 , uh, against , uh, US anesthesia partners, which did a rollup strategy of anesthesiologists in Texas. They had a private equity sponsor, wel Carson , who was also brought into the case as a defendant , uh, yesterday , um, uh, we're recording this on May 15th. On May 14th, the district court dismissed the private equity sponsor out of that case, did not dismiss against , uh, USAP . So what the court said, and spent most of its time , um, on the issue of the private equity sponsor , um, what the court looked at was , uh, how the private equity sponsor had reduced its ownership stake and now had a small minority stake , uh, and also looked at the Federal Trade Commission Act and , um, said, you know, based on the provision of the Federal Trade Commission Act that the FTC brought , um, there was not , um, there was not something that the government could do there, and dismissed , uh, dismissed the PE sponsor off of it. Um, the private equity sponsor , um, uh, has, or I'm sorry, private equity sponsors, I think have been looking very skeptically at the government enforcement , uh, of roll ups . Um, so that's, this is a big deal still to monitor what's going on in private equity as it relates to healthcare. The government's been very vocal and very skeptical about the role of private equity in healthcare. They're talking about a lot. Every conference they can go to, they do to talk about why they think private equity is a problem in healthcare. Uh, and so this has been a very, very closely watched case. Uh, and so we've got, you know, now some further development in the law , uh, that I think is , um, going to be helpful in clarifying , um, how far the government can push , uh, against, against PE and healthcare. Um, related to the private equity in healthcare , um, concern, there's a new , um, harsco redeemer rule . So for those who don't practice here all the time , uh, HS r Hard Scott Rodino is a notification statute that any transaction over a certain size must be notified to the government, both the FT C and the DOJ . Uh, and this is to give the government a chance to , um, go get an injunction , uh, rather than try to get a remedy after the fact if they think the transaction , uh, violates the Clayton Act or, or any other act, usually the Clayton Act, though , um, and the notification rule, the HSR rule has been in effect since the late seventies. Uh, this is the first major update to the HSR rule. Uh, we've seen in a very long time. Uh , the, the update to the rule was published a while ago. We've been hearing from the government that it will be weeks, not months , uh, to get the final rule, but they also said that the , um, rule is being revised to take account of a lot of public comments, which thought it was over broad . Uh, so we'll see how that turns out. Um, a lot of the, of the , um, proposed rule was focused around , uh, roll-ups and private equity. Now, of course , um, the Federal Trade Commission in rulemaking can't change the statutory thresholds, which remain the same for reporting and the size of person and size of transaction tests, but does have , um, does have other provisions that are trying to , um, capture , um, private equity roll-ups and be notified of them. Um, so that's , uh, that's an important development , uh, as well. So, Holden, do you have any , uh, any thoughts on any of that? We just covered a lot.
Speaker 4:Sure. I just wanna , uh, make a plug for , uh, anyone who's interested in really understanding where the federal agencies are coming from when it comes to healthcare and private equity. Uh, the March 5th workshop that was held , um, as part of the public inquiry into healthcare private equity that F-T-C-D-O-J and HHS have mounted is really very interesting listening. Um, so there's a transcript, I think there is a recording. Um, they brought together , uh, you know, a lot of what they consider to be relevant voices on this point. And so , uh, you know, if you're looking to understand more about where the government is coming from in this area, I think that's a pretty efficient way to , um, to get a gist of their, of the , of their concerns and their case. Um, that public comment period has just been extended, so it will go through, I believe, June 6th or early June. Um, and , uh, you know, that's also an interesting space to watch is, you know, the, the comments that are, that are flowing in there. So, so that is one other federal development that I would just flag. Um, but also I think, Joe, you've probably been , uh, like me receiving a lot of questions from clients about the recent issuance of the final non-compete ban rule by the Federal Trade Commission that just happened in the last couple of weeks. Um, that , uh, is a rule that , um, you know, is obviously gonna affect many sectors, but, you know, healthcare in, in particular , um, and there are very specific concerns that healthcare providers may have with respect to how that rule will apply. Um, that rule is not slated to go into effect until early September. And as you know, there are already , uh, litigation challenges to that rule , uh, where a court might issue an injunction, sort of holding that rule in abeyance , uh, in effect to , um, to give the court time to consider the, the merits and, and , and whether the rule is gonna hold up. So I, I think that for most healthcare providers , um, who are concerned about how that rule is going to affect them, it's a, it's a wait and see , um, uh, situation. I don't know if you feel the same, Joe.
Speaker 3:Yeah, I think there's , um, at least , so I'm not an administrative law expert, but , um, from what I've been reading, there seems to be a high likelihood , uh, that the court , uh, the district court will issue an injunction. Um, so the rule doesn't go into effect before it can be litigated. Um, so there's a lot of , um, skepticism around the FTCs authority to issue the rule in the first place. There's a lot of skepticism around, even if they have rule banking authority for , uh, competition issues as opposed to consumer protection issues. So even if they have that authority, they have the authority to do something, you know, here and as broadly as they did. Um, so if you're interested in what those legal arguments are, the dissents , um, if you , um, from the two FTC commissioners who voted against the rule , uh, laid out , um, in, you know, very summary fashion, but at least at a top level , um, what some of those legal challenges are likely to look at.
Speaker 4:So, you know, one other , uh, I think piece of advice that we've been giving our clients is also to just be mindful of how this effort of the FTCs around non-competes has affected the environment and sort of the enforceability , uh, uh, considerations around non-competes, particularly in healthcare as the, the final, the sort of preamble to the final rule indicated, you know, there, there were many, many public comments submitted that talked about the particularly negative effect, again, in the words of the commenters of non-compete clauses in the healthcare , um, arena, the FTC, you know, noted that. And , uh, and , and so I think that as clients are thinking about their non-compete strategies, so to speak , um, just realizing that this rulemaking has potentially changed the environment so much , even if the rule itself falls , um, is, is probably good advice. And one place that we're seeing the influence maybe of this FTC effort showing up is in the states. So I think it was just yesterday that the , um, the Maryland legislature pass a law that will limit the use of , uh, non-competes in healthcare , um, employment contracts and contracts in the veterinary space as well. And I think we might see , uh, that happening in other, in other states as well, as they, they take the opportunity to, to take the, the data that emerged from this FTC rulemaking process and , and think about how it, it should be implemented in their, in their states.
Speaker 3:So hold on just one thing to, to mention about the federal rule. Um , because the FTC has this odd hole in its jurisdictional statute , um, the rule will not apply to nonprofit hospitals , um, at least as it's being seen now. Um, so the FTC can sue over mergers , uh, because of , uh, Clayton seven gives them the , that authority in the FTC act. But the FTC ACT itself doesn't allow , um, the FTC to sue over conduct , uh, uh, for, you know, by a nonprofit . That doesn't mean , uh, only its tax status, but if it's, you know, not organized for the profit of its members , um, then the FDC can't sue. So the American Hospital Association noted in its comment , um, that this, you know, creates a real divide in the industry between, for-profit hospitals and not-for-profit hospitals and their ability to employ non-competes. Uh, and so the final rule, you know, sort of , um, at least , um, you know , one of the commissioners noted that , uh, during the vote , uh, on the non-compete. So that's sort of added complexity in addition, as you were talking about, to what an individual states are doing.
Speaker 4:And certainly that nonprofit aspect is , um, you know, the applicability to nonprofits is something we've been, we've been getting a lot of questions on. And, and it's, it, it is something that I think our, for-profit clients are concerned about in terms of the, you know, what the, what the playing field looks like, and whether it's level. Um, so that'll be a really interesting , uh, part of this to, to see play out. Um, speaking of the states , uh, uh, I think we have moved from the stage of being , um, I think shocked at the, or surprised , uh, at the number of state statutes affecting , uh, healthcare transactions. Um, and we've sort of moved into a , a , a time where at least I am seeing more and more clients , uh, realizing that this is sort of the new normal and building in consideration of all of the state statutes , um, that affect healthcare transactions in one way or another, sort of building that into their deal process , um, at the due diligence stage in terms of figuring out which of these state statutes apply , uh, what the effect of the waiting period is going to be. Um, and , uh, and just generally , um, uh, sort of building this in, in, in the same way that they, they look at , uh, HSR, et cetera. Um, so, you know , I, I've been talking about these state statutes to our clients and, and in podcasts and so forth , uh, for a long time , um, they have continued to , um, proliferate. Um, so I think the current list now is , um, there are really two kinds of statute state statutes that I think we need to, to, to cover. One of them is what I'm just gonna call pre-close transaction review statutes , um, that cover more than just hospital transactions. And, and these are the state laws that, you know, require that the Department of Health or some similar agency or the State Attorney General, usually the antitrust , uh, function within the Attorney General's office to, to review , uh, transactions that , uh, qualify before those transactions can close. Um, and, you know, no pun intended , uh, the thresholds and triggers and waiting periods for these statutes are really all over the map , uh, with respect to these , uh, these state laws. Um, so these are the laws that are on the books and in effect and, and have been, you know, for, for quite some time in Massachusetts, Connecticut, Washington, Oregon, Nevada, Minnesota, Illinois, New York. Um, and , uh, and as of , uh, uh, April 1st also California , um, you know, I am on a little bit of a personal campaign to stop calling these things, mini hsr. Um , Joe, as you know, the Harts Scott Act or the HSR Act is really focused exclusively on antitrust issues. And many of these state statutes , um, are really focused on more than antitrust. They are focused on , um, healthcare , uh, aspects of the , uh, of healthcare that are what I would just call antitrust adjacent. So cost access, equity, quality , um, but oftentimes , uh, looked at in a way that has nothing to do with, with competition. So sometimes I think we do our clients a disservice by calling these mini HSR statutes, because in a client's mind that might mean like, oh, well, I really only need to worry about a state reviewing my deal under one of these mini HSR statutes, be , uh, if I have an antitrust issue. But in reality, a lot of these state statutes, and , and we can see this playing out in these reviews, are looking at things that have nothing to do with consolidation , uh, market share, you know, bringing together competitors, you know , uh, reducing horizontal competition, et cetera. Um, these are statutes where, you know, particularly in states like, you know , uh, Oregon and , uh, you know, New York, California, et cetera, where the, where the main reviewing agency is, the, he is a healthcare agency where you can see the investigations kicking off because of things that, that don't have to do with traditional antitrust , um, uh, questions or, or issues.
Speaker 3:That's a , that's a really good point. Um, so whenever you're in an trust investigation and there's an AG involved, and they're looking for , um, a remedy that's broader than what the federal agencies would typically take, 'cause it involves some ongoing, you know, behavioral monitoring. You know, what you always hear is that the ags have, you know, a broader policy focus. And I think that's really true here, is that there's, you know , more than the technical, substantial lessening of competition concern , uh, when the states get involved. It's sort of a polite way to put it.
Speaker 4:And some of these statutes really are purely antitrust statutes. So in Washington and Illinois, for instance, I think it's clear that , uh, you know, this is a filing that's going to the Attorney general, and they're going to look at, you know, whether there is an antitrust issue here and whether there's an enforcement action that they , uh, that they want to take. They also require that the parties, to the extent they are filing an HSR filing would, would forward a copy of that filing to the, the ag , um, as, as one of the requirements under that, under that statute. So certainly there are some states that are still primarily looking at antitrust, but again, I think what we're seeing is that states are, are, have many states feel they have sort of a broad mandate to monitor what's going on in their states in the healthcare space. And, and, and these statutes are, are one thing they're using. Right. So the other category that I think is, is really , uh, uh, interesting and I'm, I'm putting in sort of a separate bucket, are the state statutes that would subject private equity investments in healthcare entities to extra scrutinies or potentially could even just ban them, like sort of a flavor of corporate practice of medicine , uh, laws in these states. So, so far we've seen Oregon look at one of these statutes, I believe that is , uh, that law is a sort of a dead letter for this legislature legislative session. Um, I think that the , um, uh, the statute in California, which would channel the review of healthcare private equity transactions to the attorney General , um, for a look under, you know, really through an antitrust lens that has , uh, is , is going to , uh, is still percolating. And I think there's a , there are some hearings on that just this week. And then I've also seen reports that Minnesota and other states have considered those statutes , um, as well. So that is a space to watch. So that is more than just a pre-transaction review that does, I think , um, amount to sort of a , a greater risk or , um, or more serious scrutiny , uh, giving , um, more power to the regulators in those states where private equity transactions are, are concerned. Uh, the Maryland legislature has also passed a bill that would require the state to undertake a study of private equity in healthcare that would seem to be , uh, maybe a precursor to one of these laws , um, coming onto the books. So definitely , uh, another area of , uh, state legislative activity to keep an eye on. Um, I also wanna flag , uh, a new pre-transaction review law that is going to come into effect on July one. And that is the statute in Indiana that was passed back in March, and which goes in into effect in July one. Uh, you know, this has gotten some attention because it's a red state. Indiana is a red state, and so far these laws have popped up mostly in blue states. Um, but the other unique thing is that in that statute, they have defined a healthcare entity to include a private equity firm looking to enter into a healthcare transaction. So usually in these statutes, we see something like, you know, all transactions between two healthcare entities in this state that meet these requirements, X, y or Z must be, you know, reported and reviewed before close. And here just being a private equity firm, you may have no stake in any healthcare entity whatsoever going into the transaction. Just being a private equity form looking to , uh, acquire a healthcare entity can, can qualify the buyer there as a , um, as a healthcare entity. Um, I think that , uh, you know, moving on from, from that , um, the next topic, Joe, that we talked about covering, was just the , the general , um, status of some hospital mergers that are being reviewed by the, the Federal Trade Commission right now and state ags. Um, one of them is the Ascension Henry Ford , uh, joint venture in the Detroit area. The other is the , um, acquisition of, of Washington Health in Pennsylvania by UPMC. Um, I would expect that those would, we would see some action there , um, a decision one way or the other. Um, and then also the , uh, an actual hospital merger challenge by the Federal Trade Commission , uh, in North Carolina where , uh, Novant Health was , uh, seeking to acquire , um, a couple of facilities , uh, CHS facilities in the Charlotte area. And I think that , uh, case has gotten a lot of attention because it turns on some interesting , uh, sort of market definition , um, uh, issues or turns in part on some market definition , um, issues. But , um, but what, what I think is, is worthy of some discussion today is that it also involves this concept of entrenchment. Um, and that's something that showed up is one of the, the, the concepts that I think the , the FTC and DOJ kind of dredged out of history and revived in the new merger guidelines that were issued in , uh, December of 2023, and that we're now seeing , uh, sort of playing out in, in current merger reviews and, and challenges. Um ,
Speaker 3:Um , right , so the, the merger guidelines , um, so for those who don't practice in this area, were a very big deal. Um, so there are statements of prosecutorial discretion. They describe , um, how the FDC and DOJ , um, use their analytical framework to decide which cases to bring. Uh, and there was a big, big change in the merger guidelines that just came out from the previous version, which were , um, you know, which were probably due for a , a refresh. They were old , um, but it really was a much , um, a much more expansive , uh, look at what the, what , uh, sorts of cases they would bring in the theories that they would bring them , um, bring them under. And this was one of the first cases that actually got litigated , uh, that, you know, used one of these more expansive looks , um, at what, you know, would constitute an illegal merger. So there's, there's a broader sort of antitrust point here, but I think it should, you know, bear mention for anybody thinking a hospital transaction that this is, this is the first time this has actually been , um, put to the test , uh, before a court.
Speaker 4:And so I think that, you know, the thing to, to really focus on here is understanding what entrenchment actually is. And what it is, is a concept that , uh, it , you're not only looking at what's happening in a transaction in terms of bringing two parties together, reduction of horizontal competition, those sort of like traditional theories of antitrust harm. You're looking at what's going on in the ecosystem of this market that will be affected by the transaction. Is there something about this transaction that is going to give some additional power or presence to a , a , a acquiring party or a party to the deal that already has a significant market presence , um, uh, that would essentially do things like allow them to , um, uh, exclude , uh, new competitors, existing competitors, weaken competition in some way, disincentivize nascent competitors , uh, from , um, entering the market or, or, you know, building in the market, et cetera , um, such that, that alone would be a reason to challenge the transaction. So the idea is that, you know, the agencies, this is direct quote from the guidelines, the agencies can consider whether a merger may entrench or extend an already dominant position , um, based on , uh, uh, you know, the possibility that this, that the resulting entity could engage in exclusionary conduct weakening of competitive constraints or otherwise harming the competitive process. So it really broadens the aperture of the competitive dynamics that the FTC and DOJ can take account of when they are looking at mergers. And I will say that at a recent press event , uh, just last week, the DOJ said that entrenchment of market power is , um, in the healthcare market is really of particular concern to them. It's a sort of par , the quote is a paradigmatic example of how entrenchment , um, as a theory of harm should be a focus of the, of the, of the , uh, agencies when they are reviewing , uh, when they're reviewing mergers. Um , so
Speaker 3:The , the , the context here is , um, or the sort of new aspect of this is the statute. Section seven says a substantial listing of competition, meaning this particular transaction , um, either lessons head-to-head competition in some significant way, or , um, helps facilitate cartel like behavior or, or go ballistic behavior. I think what the government's saying here is a more European concept of , um, entrenchment of the dominant position, whereas they put in the complaint , um, increasing concentration in an already concentrated market. So they don't sort of talk about what this deal will do to lessen competition specifically. So , um, because we're talking about hospitals and lots of hospital markets across the country have , uh, somebody who they would characterize as being in a dominant position , uh, this could, if the theory is upheld, this could , um, really chill. Um, this could really chill , uh, acquisition activity.
Speaker 4:And I think Joe, from a practical perspective, for the people who are listening here who are taking antitrust risk into account when they're thinking about potential transactions, partnerships , uh, et cetera, this is just a signal that we need to think more expansively about the sources of risk. Um, and , uh, to think more about this sort of what I'm just gonna call the ecosystem, that's a word that the FTC and DOG have been using to think about the ecosystem and the effect of a , of a deal on the sort of general dynamics in a market as opposed to being focused on, I think what we traditionally looked at as the, the , um, you know, indicators will , will market share go up, how would this affect payers specifically, et cetera. Just I think it's a , a signal that we just need to be thinking more broadly.
Speaker 3:Right. Well, so , uh, when we talked about this in January, we had a 75 minute , um, time slot. Um, we didn't have 75 minutes today, but I think we packed in a lot in about a half hour. So thank you, Holden. That was , uh, was really a great discussion and appreciate all the insights that you bring , uh, to all this area, but it's , you're , um, you know, quite up on all the state activities . So Appreci appreciate that, especially
Speaker 4:Always good to talk to you, Joe.
Speaker 3:Okay, good to talk to you as well. Bye-Bye.
Speaker 2:Thank you for listening. If you enjoyed this episode, be sure to subscribe to a HLA speaking of health law wherever you get your podcasts. To learn more about AHLA and the educational resources available to the health law community, visit American health law.org.