AHLA's Speaking of Health Law
AHLA's Speaking of Health Law
Antitrust Agency Update: A Conversation with FTC Assistant Director Mark Seidman
2023 has been a very busy year for the federal antitrust agencies, as it relates to important guidance for the health care industry. Lisl Dunlop, Partner, Axinn Veltrop & Harkrider LLP, speaks with Mark Seidman, Assistant Director for the Mergers IV Division of the FTC’s Bureau of Competition, about the promulgation and repeal of different sets of antitrust guidance and the FTC’s views on antitrust enforcement in the health care industry. They discuss the Health Care Policy Statements of 1993 and 1996, which, along with the 2011 Medicare Shared Savings Plan Accountable Care Organization guidance, were repealed by the DOJ and the FTC earlier this year; the new draft Merger Guidelines, which were released for comments in July; and the proposed changes to the Hart-Scott-Rodino premerger notification regime, which were also released for comments in July. From AHLA’s Antitrust Practice Group. Sponsored by Axinn.
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Speaker 2:Guidelines, guidelines, guidelines. The US antitrust agencies have been very active in promulgating and repealing different sets of guidelines that have a great deal of importance to the healthcare industry. My name's Lisl Dunlop. I'm a partner in the New York Office of Axinn. Uh, we're a specialist antitrust IP and litigation shop, and I advise organizations in the healthcare and other industries regarding antitrust issues in strategic transactions and other business relationships. This podcast will focus the on the federal antitrust authorities actions with respect to three sets of guidelines, the healthcare policy statements of 1993 and 1996 , um, along with the 2011 Medicare Shared Savings Plan, a c o guidance. Um, the second is the new draft merger guidelines, which were released for public comment in July this year. And finally, the proposed changes to the H SS R pre-merger notification regime, which were also released for comments in July. So I'm joined today by Mark Seidman , who is the assistant director for the Mergers four division of the FTCs Bureau of Competition , uh, mergers four investigates transactions involving hospitals and physicians, as well as a range of other industries. Mark has been at the commission since 2005, serving in various roles in the Bureau of Competition, and also served on detail to the US Attorney's Office for the District of Columbia. Hi Mark , and welcome to the podcast.
Speaker 3:Hi, Lisl. Thanks so much for having me. And, and thank you to the AHLA for, for hosting us. Um, I, before we get started, I, I have to note as always that , uh, my comments today are my own and, and don't necessarily reflect the views of the FTC or any individual commissioner.
Speaker 2:Great. Well, Mark, thanks so much for joining us and, and sharing your experience and , um, wisdom on all of these topics. Um, turning first to the healthcare statements , um, a little bit of background for our listeners. Um, between September, 1993 and August, 1996, so quite a long time ago, the D O J and the F T C issued several policy statements relating to antitrust enforcement in healthcare markets. Uh, these statements addressed antitrust enforcement policy in a variety of hospital and health insurer transactions and conduct, conduct, and provided antitrust safety zones under which the agencies would not absent extraordinary circumstances pursue antitrust enforcement against healthcare market participants. In 2011, the F T C and D O J issued an Affordable Care Organization policy statement, and that one applied to collaborations among independent providers and provider groups , uh, participating in the Medicaid Shared Savings Program. Um, and the guidance provided another antitrust safety zone for those kinds of ACOs , um, that also operate in the commercial market. So, fast forward to 2023 , um, earlier this year, the D O J and then the F T C repealed all of these guidelines , uh, saying that the statements no longer serve their intended purpose due to profound changes in these markets over the last 30 years. So it'll just focus on a couple of aspects of the healthcare statements. Um, there's a lot of different conduct that that's covered by them. But , um, looking principally at the merger related , uh, provisions, which I think is Mark , that's probably where you have the most interest and involvement. Um, the 1996 statements included a safe harbor for small mergers , um, that would be mergers of two general acute care hospitals where one hospital has an average of fewer than a hundred licensed beds over the most recent year. Um, and an a d C of fewer than 40 patients over the last three most , most recent years . Um, the safe harbor didn't apply to new hospitals less than five years old. So why was this particular statement repealed and how have the FTCs views on small hospital mergers changed since 1996?
Speaker 3:Yeah , no , that's a great question, Lisl, and I think it's important to , to take a step back and first of all, note that as you mentioned, this was one of , um, one of many , uh, aspects of the healthcare statements. So it's not as though this statement was, was surgically removed. It was part of the, the entire withdrawal of , of, of all of the healthcare statements, the 96 and, and , uh, 2011 healthcare statements. Um, but thinking on hospital mergers, especially from the agency side, has evolved a great deal since 1996. Um, there was, in particular the merger retrospective project that was , um, that the F T C went through in the early two thousands. And then that led to a series of, of really landmark hospital cases , um, the Evanston Highland Park case , uh, at the F T C , the ProMedica St . Luke's case , um, in 2011. Uh, and , and then , uh, it in the 20 16 20 17 timeframe , uh, we had the advocate Hersh , a advocate, north Shore and Hershey Pinnacle , uh, decisions from the, the Seventh Circuit and the third Circuit respectively. Um, and although those cases didn't necessarily involve mergers, that that would've implicated the safety zone, they did really illustrate and, and elucidate the, the competitive dynamics between mergers. And , uh, in my view, what, what those cases and what the, the , the evolution in the , in the thinking about hospital merger shows is that , um, that that hospital, the anti-competitive effects of a hospital merger aren't necessarily determined by that hospital's size. Hospital size is often determined, frankly, more by the size of the community that it serves not its competitive significance. So a , a merger of small hospitals in a small community could still have a significant anti-competitive effect on that community. And so I think with that understanding, it's, it's, and, and now with our more , um, evolved and nuanced thinking around hospital mergers , uh, it it's, it's much less clear what a, what a safety zone for small mergers , um, what purpose that would really serve,
Speaker 2:Right? So even a small merger is going to be subject to a full review, and we'll then have to argue it out as to whether it's , uh, anticompetitive or whether there are significant benefits to those kind of transactions. But you, you and I will be on the opposite sides of the table on that discussion, I'm sure <laugh> . So looking at some other things in the 1996 statements , um, in particular , um, clinically and financially integration for physician joint ventures and multi provider networks. Um, and these concepts are also in the M S S P A C O guidance , um, that was also repealed. So there are several F T C advisory opinions, and I, I don't think there's been one out for a while, but the last one was about the Norman P H o. Um , but they kind of build on the healthcare statements , um, principles about the pro competitiveness of these kinds of collaborations. Um, and they respond to specific examples , um, to give the industry guidance as to what is a clinically integrated network, for example, what, what is the status of that kind of an advisory opinion going forward now that the healthcare guidelines have been repealed?
Speaker 3:Right? And so to be clear, the commission has not what withdrawn the advisory opinions. Um, technically the, the advisory opinions apply specifically to the , the requesters. Somebody has to request an advisory opinion, and it , it applies to their specific question and , and the specific situation that they lay out. But the advisory opinions and, and the F T C um, uh, conveys this on , on the FTC website. They , they retain their , um, what I would call informational and educational function or what the F T C calls, informational and educational function. Um, so they , they, they do still provide some guidance and some of the advisory opinions, if you go back through them , um, they do, there , there are references to the now withdrawn healthcare statements. But the legal analysis in the advisory opinions is really based on, on antitrust law and antitrust principles. I'm not aware of an advisory opinion that expressly turns , um, purely on a principle, like a safety zone that exists only in the healthcare policy statements. They really are , um, the , the , they really are driven, as I said, by antitrust case law and antitrust principles. I ,
Speaker 2:Yeah, I think that's fair. I mean, even the policy statements themselves, you know , they don't set out , um, you know, too many safety zones in this regard, although they do highlight which features are going to be relevant in, in an assessment of, of the competitive , um, impact of some of these collaborations. Um, and then of course, we've got the competitive collaboration guidelines , um, that the FTC put out several years ago. And I think those, those are still in place and they kind of apply more generally to collaborations, not just in healthcare, but , um, in, in any industry. Um, and I, I think, mark, you'd agree that those are also kind of based on case law and antitrust principles , um, rather than being any kind of specific , um, you know, protection for particular conduct.
Speaker 3:Y y yes. I mean , that those, those guidelines , uh, those are still out there. I think , uh, I , I think as is true with any set of guidelines , um, this is, this is true with merger guidelines and healthcare policy guidance. Um, the antitrust division at , at D O J and the F T C are fundamentally law enforcement agencies. And so what, what guides our actions at the end of the day is still antitrust case law and antitrust principles.
Speaker 2:Well, that leads us on to the draft merger guidelines, and we'll hear a little bit bit more about antitrust case law here, I think. Um, so a bit of background for our listeners. One of the most high profile events this year from strictly antitrust, no point of view , um, has been the release of the much anticipated draft merger guidelines. Um, the draft guidelines were intended are intended to replace both the 2010 horizontal merger guidelines, as well as the 2020 vertical merger guidelines, which were , uh, withdrawn earlier this year. Um, so from a practitioner's point of view, the guidelines look pretty different from past versions of merger guidelines. I mean , we've had merger guidelines, you know , since I think about 1968, and they tend to get updated every, you know, 20 years or so . Um, you know, the , the last major set was 2010. Um, but this time around the , the guidelines , uh, certainly much broader in scope because they're not just horizontal , uh, merger guidelines. They're applying to all types of mergers, horizontal and non horizontal. Um, and they also kind of start from a point of principle referencing a whole lot of old Supreme Court cases and introduce a really broad range of possible theories of harm that I think go beyond what we've seen in at least the 2010 merger guidelines. So from, from your point of view, mark, what are the most significant changes in the guidelines? And do they really represent current practice at the agency? So,
Speaker 3:I , I think the, the biggest change in , in these proposed guidelines in the 2023 draft guidelines from the 2010 horizontal merger guidelines , um, is , is is the breadth of the guidelines, a as the title implicates , um, uh, or indicates in, in the 2010 guidelines , uh, those were limited to horizontal mergers. Um, the 2023 guidelines go much broader than that. They cover vertical mergers, other types of mergers. And so in that sense, i, I, I think that , uh, they provide a much broader lens and, and frankly, much more transparency into what the types of competitive harm that, that the agencies will be looking at when a, when a merger comes across our desk. Um, and I think that they, they do, in that sense, they do much more accurately reflect the type of analysis that , um, that, that the agencies and the staff will do when, when reviewing a merger. Um, but for horizontal mergers, which is where I expect a , a , a lot of the action will remain a lot of the action in, in, in merger cases over the, the , at least the last, you know, decade or two has been in , uh, uh, in horizontal mergers. And I think it's gonna remain there. The 2023 draft guidelines keep most of the, the, the concepts of , uh, from the 2010 guidelines in place , uh, guidelines one, two, and three in particular in the draft merger guidelines contain very similar ideas to what was in the , the 2010 guidelines.
Speaker 2:Yeah. And, and just to give a little bit more background to people listening , um, who might not be as deep into these as we are , um, guideline one is mergers should not significantly increase concentration in highly concentrated markets. Guideline two is mergers should not eliminate substantial competition between firms. And guideline three is mergers should not increase the risk of coordination. So at least at a , at a headline level , um, you know, those are pretty familiar concepts to us. And, and I think most people would agree with, with those principles as a, as a general matter.
Speaker 3:Yeah. And I think if anything, they, they clarify and, and really sharpen the, the goals, the, the intended , um, uh, effects of , of the 2010 guidelines. Uh , one of the, one of the, the changes in the draft merger guidelines, that's, that's garnered a lot of attention and , um, in the antitrust community is the return in guideline one to the 1800 H h I threshold. Um, in the 2010 guidelines , uh, those guidelines define a, a highly concentrated market is in excess of 2,500 h h I points. Um, but I think this, this return to 1800, which is where it was before 2010 , um, I think correct , a , a perhaps a misimpression of, of what 2010 was attempting to do , um, in my view, the , the , the change in 2010. And my understanding was that was driven by really an empirical observation at that point, that the agencies rarely brought a case , um, where the, the, the market was below a 2,500 h h i if you actually read the 2010 guidelines. And it's always a good idea to actually read them. Um, the language is , is clear that mergers below 2,500 can still lead to significant anti-competitive problems. Uh , but in practice, since 2010 , uh, many merging parties and, and I think courts , um, can a , a appear to view 2,500 as as creating a safe harbor. Um, I don't think that was the intention of the 2010 guidelines. And I think that's one of the things that, that these guidelines , uh, can, can really correct. Um, I would also highlight guideline two , uh, which you mentioned Lisa as, as the, I'll call it the unilateral effects guideline. Um, again, in 2010, there , there's some language in the 2010 guidelines that attempted to make it clear that direct evidence of substantial competitive effects between two merging parties could be enough for liability. Um, the , the very beginning of section six of the 2010 guidelines highlights that the elimination, elimination of competition between two firms , um, I'm reading it now, that results from their merger may alone constitute a substantial lessening of competition. Right. That that line is pretty clear. Nevertheless, in practice, litigation hasn't really followed that path. Most cases still focus on fights over the border of the market. And I think guideline two really attempts to clarify this point. Um, and, and that's particularly important in what we call differentiated product markets. Um, and , and I think that that applies to most healthcare markets, right? These are markets where , um, a , uh, is , is contrasted with a commodity market like gasoline or concrete. Differentiated markets like hospitals or physician services are characterized by situations where the, the, the parties are competing not just on price, certainly on price, but not just on price, all , they're also competing on quality and on innovation and on customer service. And in those types of situations, it's the closeness of competition between the, the merging parties that really is the, is the core of the agency analysis. And, and guideline two highlights that and really makes that clear.
Speaker 2:Interesting. So, yeah, I mean, we've certainly discussed those kinds of theories in the course of , um, investigations, but you are right that when, when the cases go to court, if, if they get that far, the focus is on the , um, you know, definition of the market and then what the concentration is in that market. So it will be interesting to see how a court approaches a case if it's only brought on that, you know, direct competitive effect theory. Um, so we'll have to see how that , how that one plays out. So do you think that the , the guidelines represent a broader range of concerns than the FTC has looked at in the past? Ha has , has the focus of merger review changed significantly?
Speaker 3:The way I, the way I view it is the breadth of these guidelines, and as I said, they're , they're much broader in, in scope than the 2010 guidelines. But these, these guidelines, these draft guidelines , uh, paint a much more accurate picture of the range of issues that come up in agency merger review now. Um, and , and so again, I think these, these guidelines can correct perhaps a misinterpretation if, if merging parties look at the 2010 guidelines and think, well, this covers the waterfront for anything that I could run into at the agencies, anything the agencies might think about that would be a mistake. And, and the draft guidelines provide much more transparency into the, the , the range of, of theories and competitive harm that the agencies have been thinking about. Um, and, and I expect we'll be thinking about in the future.
Speaker 2:Yeah. And there are a couple of, of new ideas in, in these guidelines, in, in the headlines that aren't captured by those first three that we just talked about, which were kind of familiar concepts from , um, the horizontal merger guidelines. And we'll come to those in a , in a moment. Um, but first of all, economics , um, there's been some criticism out there that economic analysis has been demoted in these draft merger guidelines compared with the 2010 guidelines, which kind of started from a , um, perspective of we're really here to look at competitive effects. And kind of launched off from there. What , what, what's your view about that? Does, does your shop still , um, you know, look deeply into the economic analysis?
Speaker 3:I I can answer that simply in yes, we absolutely do. Yes , <laugh> , um, I , I , that was the key economic <laugh> e economics are still very important to merger analysis. That's true today. It's been true over the , since the 2010 guidelines and before that. And I, I fully expect it'll be true going forward, even after , um, the, the , these draft merger guidelines go into effect. Uh, I , I think that most of the economic discussion, the more technical economic discussion , um, it is in that , uh, uh, appendix section of these draft guidelines, I don't think that's an indication that the economics are any less important. Um, it's the draft guidelines are structured in, in three, three parts, three phases that go from , uh, really most accessible, most readable in , in , in the beginning. It's a , the , the first few pages are really a , a broad overview of the goals of merger enforcement, the goals of these guidelines , um, that that should be accessible to, to even non antitrust practitioners to the extent they're interested in reading them . Um, and then the, the middle section really dives into each of , um, each of the guidelines in, in, in much more detail , uh, but , but still in, in , uh, fairly readable prose. Um, and then the, the, the appendices are the, the place where it gets much more technical. Um, so it, it wouldn't surprise me at all if , um, and this is frankly my expectation that , um, that antitrust practitioners, when we're going through an investigation or going through a litigation, that we will spend a lot of our time focused on the , the , the , the appendix focused on trying to understand what's in the appendix, probably arguing about what's in the appendix. I think that's where a lot of the action is gonna be. So the fact that it comes at the end, I don't think is an indication that it's any less important.
Speaker 2:Okay. So we've talked a bit about horizontal mergers already, so I think maybe we should move forward into some of the stuff that is really new in these guidelines. Um, so as, as we said, they're not only addressing horizontal mergers, but also not non horizontal mergers. And I, I I'm calling them non horizontal mergers deliberately because , um, not just vertical mergers anymore, right? They're mergers involving, you know, parties that are in adjacent markets or, you know, have conglomerate effects or, you know, all kinds of other kind of ideas of concentration beyond the typical horizontal vertical. So, you know, is the FTC seeing a lot more of these transactions in the healthcare space? And, you know, what are the types of harm that you are , um, concerned about with these kinds of deals? And how, how are they addressed in the guidelines?
Speaker 3:We , we are seeing a lot more than just what's , uh, just horizontal transactions. Um, we , we are seeing vertical transactions, conglomerate transactions , uh, cross market transactions , um, which are still, I still think of as more or less in the horizontal , uh, bucket, but, but they're a little bit different. Um, and so again, I think this is a place where the, the, the merger guidelines, the draft merger guidelines, again, paint a more accurate picture of what's really going on , um, at the agencies because it covers such a broader swath of mergers. Um , but I do think it's a , it's worth highlighting , um, vertical transactions , uh, because these, these are, are our transactions where you're talking about the combination of, of , um, products or services at different levels of the supply chain. So one product may be an input into, to the , a downstream , uh, product. And these can create , uh, these kinds of deals, can create a situation where one company may have the ability to, to competitively harm its rivals , uh, by denying them access to an important ingredient. Um, I think a , a good healthcare example is the acquisition of, say, an important physician group in a local area by an insurer. And then that insurer might be in a place where , uh, it can deny access or make access more difficult to that physician group, to its rival insurers. And it may that, that, that could ultimately, and these are always very fact specific, but that could ultimately , uh, lessen competition , um, in, in , in the market for insurance in , in , in that local area. If the alternative rival insurers now have a much less marketable, much less saleable product. Um, this was a , a dynamic that, that we thought a lot about in the United DaVita transaction. Um, there were both horizontal and vertical aspects to that , um, especially in the market where the commission ultimately took relief, and that was in the Las Vegas area, but thinking about what united the insurer could do with , um, w with a , with an important physician group in that area was, was key to that analysis.
Speaker 2:Right . So you, you just described a dynamic where , um, an acquiring company gets control of an important of an ingredient that's important to its competitors. And, you know, I think the, the term we use for that is foreclosure. Um, how can't parties address those kind of concerns by committing to make the services generally available to competitors? Um , you know, is is there an assumption that they're going to kind of tie up those, those kind of resources?
Speaker 3:So it's, it's , it's hard to paint with a , a broad brush. As I said this , these are always very fact specific. But as a general matter, I would say a commitment in, in that circumstance is unlikely to solve the problem. Um, e especially because total foreclosure , um, that means completely , um, preventing your rivals from accessing the input. That's not the only way a competitive issue can come up. Um, there can be, what we've thought about is partial foreclosure, right? Even if , uh, there is some ability for, we will go back to this insurer physician example again, some ability for the rival insurer to have technically have access to that physician group , um, that might not be enough to keep the market competitive. If the, the vertically integrated insurer that that now controls that physician group might s significantly increase the price to its rivals, it could disadvantage its rivals members in some way could make , um, customer service like getting appointment times more difficult, things like that, that, that by default make its insurance product relatively more attractive than its rivals by, by, by harming its rivals. Um, so there's lots of ways in which there could be competitive harm, short of total foreclosure.
Speaker 2:So we won't, we won't talk about how you might fix something like that, but I think we understand the , the theory and, and it's, it's helpful to have that set out in the guidelines. Um, but one of the arguments you are going to hear , um, of course about vertical mergers is that there actually, you know , pro-competitive , it , it's efficient for the insurer to own the physician group because they can be , um, integrated in a, in a way that reduces costs and , uh, increases access and, and may and has a whole lot of other benefits. Um, you know, what kind of , um, economic analysis will, will be , um, you know, used in these kinds of cases. Um, there was a concept in the vertical merger guidelines of something called elimination of double marginalization or E D M, and maybe that's way too much jargon for this audience, but that seems to have gone away. So what, what is, what is the FTC gonna be looking at here?
Speaker 3:Yeah. And, and Lisl, you're referring to the, the 2020 vertical merger guidelines. That's right. There's a lot of , a lot of guidelines being thrown
Speaker 2:On , not the horizontal ones <laugh> , right ? Lots of guidelines .
Speaker 3:I wanna make sure we're, we're, we're clear about which guidelines we're talking about. And those were promulgated in 2020 and , and then withdrawn shortly thereafter. Um, and they did discuss this idea of, of E D M or elimination of double marginalization. And that's not , um, a concept that that's discussed , um, in, in detail in, in, in the, the draft merger guidelines from this year. But there , there is a, an efficiency section of the draft guidelines, and I think that E D M would fall into that category if, if the merging parties can demonstrate that E D M is verifiable and merger specific. And, and just to be clear, e D M is this idea that when you combine two products at different levels of the supply chain, that where you previously had different sellers, and now you have a single seller, that there's, there used to be two margins because you had two companies selling and now there would be a single margin , um, that, that it will be incumbent on, on the merging parties to demonstrate that, that that type of effect will result from their, their vertical merger. Um, and I think most importantly, and this is really highlighted in the draft merger guidelines, not just that that effect will happen, that it's verifiable and merger specific, but that it's going to yield a more competitive market , um, if, if merging parties can demonstrate that. I don't have any reason to think it wouldn't be considered, but that's the, the aspect of the draft merger guidelines where , um, I , I would expect that that analysis to take place,
Speaker 2:Right? And, and the guidelines are fairly , um, clear that those are arguments for the parties to bring. So it , it's kind of , it's , um, characterized as a rebuttal argument in there. So , um, something for us to think about in those. So another part of these draft merger guidelines , um, talk about serial acquisitions and things like that. And we've heard about these kinds of concerns in acquisitions by PE firms. Um, there was a , a case brought only last week, I think, or the week before by the F T C against US Anesthesia partners, and its PE owner Welch Carson . So is that the kind of case that the new guidelines are aimed at addressing?
Speaker 3:I , I think broadly, yes. Um, a as you said, there's been a lot of discussion, especially in in policy circles about , um, private equity and, and private equity's effect on, on healthcare markets. Um, from an enforcement perspective, to be clear , uh, we're primarily focused on market structure, changes in market structure, elimination of competition between existing competitors or, or potential competitors and, and the development or the exploitation of market power. And , and that's true whether it's private equity or some other entity. Uh, but one of the practices that has attracted a lot of attention in, in recent years is the, the roll-up or so-called roll-up strategy pursued by, by some private equity firms where they appear to look for a , a fragmented industry. And through a series of relatively small acquisitions, the PE firm , uh, usually through a portfolio company gathers up the , the fragments of that industry that, that , that they've targeted for consolidation. And while no one acquisition may be significant on its own to, to trigger an investigation or trigger an enforcement action taken as a whole, it can become clear that the, the firm has amassed significant market power and bargaining leverage , um, which can ultimately lead to, to higher prices and, and other anti-competitive effects. Um, and as you mentioned, the, the commission's recent case against , uh, US anesthesia partners , uh, and, and Welsh Carson, it's, it's , uh, private equity parent is a good exemp good example of this dynamic. Um, the complaint alleges that , um, over a period of roughly 10 years, Welsh Carson and, and U SS A P bought up anesthesiology practices across the state of Texas , and they were ultimately able to significantly raise prices for, for these , uh, anesthesia services. Um, so I , I , I , I think I expect that this complaint will, will send an important signal that even after mergers have been completed , um, antitrust enforcers will continue to monitor, continue to investigate, and if necessary , uh, pursue , uh, enforcement against anti anti-competitive conduct.
Speaker 2:Yeah, I mean, the FTCs always , uh, been able to, and, and has on occasion brought , um, you know, post consummation , um, enforcement actions against transactions. But I think this is probably the first time where it's gone and taken a look back at a , a whole series of smaller acquisitions and, and the impact on the market , um, you know, every case is , is different. And, you know, all we have right now is what's in the complaint, but I'm sure we'll, we'll be hearing a lot more about exactly, you know, what the impact of , of this was. Because, you know, from a , um, from a provider perspective, you know, you could see that there could be a lot of efficiency in combining , um, you know, smaller , um, practitioners. Although, you know, at the end of the day, you have to look at what markets they're operating in and, and what the structure of those markets ultimately, ultimately is. So it will be interesting to see how that one, how that one pans out. One more of these guidelines to talk about , um, is this guideline for about potential entrants. Um, so the, the guideline itself says mergers should not eliminate a potential entrant in a concentrated market. Um, and this is getting at the idea of elimination of potential competition, which could be actual poten actual potential competition or perceived potential competition. There's a lot of words there. Um, we , we've seen the commission bring these kinds of actions in the past. I think there was , um, a potential perceived potential competition , uh, concept in the medal within case. Um, and then there was the Stace case where , um, there was a question about , um, whether one of the merging parties was an actual new entrant or an actual potential new entrant, I'm sorry, lots of <laugh> getting my words mixed up here. Um, so we know that you , you guys have been looking at it , um, but how does it actually work in practice? And now we have this guideline. I, I think, does that signal that you're gonna be looking at these ideas a lot more closely?
Speaker 3:Well, I , uh, there's been a , a , a long history at the F T C , um, and, and at D O J , um, but certainly at the F T C of , uh, of , of looking at potential competition and, and , um, merger harm, that that could come from potential competition. Um, e especially in, in markets where you have , uh, where , where you have a , a pipeline of, of products that, that , um, could come to market. Um, this is especially true in the pharmaceutical space and in the medical device space. And again, these are , these are always very fact intensive investigations. You want to understand what the market looks like today and, and what the , um, what the, the potential entrance likelihood of, of entry is and, and who else is looking to enter. But fundamentally the question is, is it reasonably probable that the potential entrant is , is going to enter? And if so , um, that could raise a serious competitive concern. And
Speaker 2:What about with this concept of perceived potential competition? So I , as I understand it, this is a , a player who isn't in the market yet, of course. 'cause we're talking about potential competition, and they don't actually have any like plans or products developed or anything like that. So they're not like about to enter. Um, and yet your , your , the , the guideline says that the concern is about, you know, the , um, perception that they might enter being a competitive dynamic that you are concerned to lose. So the guidelines say that the actual perception of the industry participants doesn't matter to that kind of theory. Why , why is that?
Speaker 3:So, I, I wouldn't say that it doesn't matter, but the, the competitive dynamic that, that you're concerned about, I think you explained it well, but I'll , I'll try to explain it in my words too. Where you have a, a, a potential entrant that who whose entry is, is, is whose potential entry is, is obvious enough to the current participants in the market that it can serve as a competitive constraint. So if you think about, for example , uh, a hospital market, right? If you have a, a large sophisticated, well of capitalized hospital system in an area that's not currently competing in a, in a , in an another market, in a , a relatively, like an adjacent market, for example, the hospitals that are in that market might frankly live in fear of, of that hospital system entering their market. And it might , um, induce them to maintain their, their quality, improve their quality to innovate, to keep their prices under control, right? Because they don't want to induce entry. Now the question there, in a perceived potential competition case, is the objective likelihood, the objective ability of the, the perceived potential entrant to enter, right? And, and sometimes that's very clear, sometimes it's clear that they have the ability to enter, and it could be having a, an effect on the market. It's not, I I don't read, read the draft guidelines as saying that the subjective perception of the participants is irrelevant or not important at all. It's just that you don't necessarily need to see evidence that they are connecting those dots, that they're saying, we are going to invest in this new technology because we are perceiving this potential entrant that when that entrant is there, you can presume that effect. Now certainly if there is that evidence that the current market participants are , um, are , are reacting to the perceived entry of, of this, this, this other large player , um, I , I I, I would fully expect that, that type of evidence to, to play a role.
Speaker 2:So that's interesting. I mean, if the commission is, is worried about the loss of that type of competition in a, in a pace where you're, you're acquiring that that entity or when that entity is, is acquiring someone in the market that we are looking at, what about when, you know, we're in there arguing as a rebuttal that , um, you know, the, the competitive dynamic in a , in a, in a market is , uh, that an important factor in that competition? Is this perceived potential entrant standing outside the market? Um, do the same standards apply when we're making those arguments in defense of a horizontal merger in a particular market?
Speaker 3:So it's, it's hard to answer in the abstract 'cause this is so fast . All of
Speaker 2:These are hard to , they
Speaker 3:Always are . Um, it , it never hurts to say it again and again. But I I think in general, I , I , I'd answer your question as as not necessarily would the same dynamic apply. It may very much be true that you have, that there is a perceived potential entrant that is exercising some competitive constraint on the current market participants. But typically, if you're talking about a merger of two current very close competitors or even closest competitors to each other , um, yes, there might be some other constraints on their, on their , uh, activity and on their pricing and on their innovation. But they are likely to be among the most important, if not the most important constraints on each other. And so in that situation, it , it , it's hard for me to imagine , um, saving a merger that's, that's really, that that much of a, what I would think of center of the bullseye for, for section seven of the Clayton Act by saying that there's a, a perceived potential entrant outside that may at some level be having some effect. So I, the , we're talking about two, two different, two different problems here. And yes, you could have a competitive problem with a , a perceived potential entrant , uh, acquiring a , a current market participant, but that doesn't necessarily negate the, the anti-competitive nature of two very close current competitors merging.
Speaker 2:I see. So it , the , the perceived potential entrant, you know, exercises some competitive effect on the market, but maybe not of a magnitude that is , is there between two direct competitors. So that, that would be the kind of comparison.
Speaker 3:I I think it's important to remember that mergers can be illegal even when there is still some competition remaining. The standard is not that it has eliminated all competition.
Speaker 2:Good point. So in the bit of time we have left, I'd like to address the final set of antitrust regulatory changes, which are proposed changes to the H S L Primo notification form . Um, these might seem a little bit antitrust nerdy to some people, but I think they have the potential to really significantly change the merger review process , um, in, and in some ways have a greater practical impact on how transactions proceed than the, the changes to the merger guidelines, which, which are kind of reflecting current , um, enforcement practice. So briefly , um, the proposed changes would basically require huge amount of additional information , uh, with the H S R filing. Lot more documents need to be filed. Um, we would have to produce draft documents, a lot of ordinary course business documents that you normally wouldn't produce until , um, somebody like Mark was looking at the transaction. Um, a lot of really detailed information on employees including locations and industry categories. Um, and finally , um, a much longer kind of narrative explanation of the , uh, transaction itself, its rationale and its impact on , um, markets. Whereas, you know, we never used to have to provide quite that much information before . So, you know, from a someone who represents companies doing these kinds of deals, it really does bring us practice a bit closer to that in some other jurisdictions. Um, but it does have the potential to lengthen the pre notification and make it a bit more complex. So a lot of this is handled by the FTCs Primo Notification office , not by the , um, substantive merger shops. Um , but Mark, to give us a little bit of a , an inside view of how H SS R works in the substantive , um, review process, how does a case get from, you know, us making a an H S R filing with the P M O to your team reviewing it and, and, you know, how does that go?
Speaker 3:Right? So a a assuming that we haven't , um, heard about the merger through some other entity, whether it's the the press or from a state ag or, or oftentimes when, when council know that , that we'll be looking at a transaction, they , they will call us ahead of time and let us know. Um, when sometimes we can, we can get the process started a little bit earlier or at least be aware that the, the , uh, an H S R filing is coming in. Um, absent that , uh, the filing comes into the pre-merger office and it, it will usually take several days, maybe even a week , um, because there are a lot of filings , uh, for them to sort, to sort through those filings, figure out which division , um, is supposed to look at that. 'cause we're talking about much more than just just healthcare transactions here. We're talking about transactions across the whole , um, the whole scope of the economy. Um, and then at that point , uh, hopefully it will, it will find a home in, in, in one of the divisions. Um, if it finds a home in mergers four , uh, we'll we'll look for , uh, a staff attorney to, to, to start to look into it. By this point though, we're already a good bit into the 30 day statutory review period that the H S R Act creates. And so , um, we may have a , a week or two to do some, some real investigation, and that involves evaluating the filing, but, but also talking to emerging parties and to, to market participants, hopefully , uh, getting a little bit more information from merging parties. Um, but then we have to make a decision and ultimately , um, the, the bureau and, and the the chair's office have to make a decision about whether or not to continue that investigation through a second request. And all of that is to say, this ends up being a , a very abbreviated review. Sometimes you can learn a lot , um, and you can learn enough to, to determine whether or not , uh, there's, there's a competitive problem or not. And, and you can, you can easily dispense with it. Um, but, but much more often we're left with significant questions and, and we'll choose to continue the investigation really to answer those questions.
Speaker 2:So I , I guess that that does inform us a bit more about, you know, why , um, so much more information there . There is a lot of stuff , um, that we now have to provide or that we will have to provide, assuming this all comes to, to pass , um, about the substantive issues in the transaction. So in the past, parties never really had to kind of do that analysis, make those kinds of arguments in filings. Um, the filing itself was fairly objective and we'd provide item four documents, which were the company's own , um, strategic assessment of why they were doing the deal. Um, how do , how do you think the additional information is going to help your shop assess whether they should look at a deal more closely?
Speaker 3:So I think , um, we will see how this plays out in practice, but, but I think that it will make it easier for us to identify when a merger could, could raise an issue. It will really help that, that initial triage process. Um, sometimes it's obvious , um, we're , we're looking for all sorts of competitive relationships, including head-to-head competition, but also vertical supply relationships or adjacent products being sold to, to similar or the same customers or what , what the current market positions are of the companies. And so it , it , it , it may help us identify those issues sooner , um, and, and more efficiently. Um, it , it also will hopefully help us understand the nature of the transactions. Um, again, sometimes that's obvious, sometimes it's very clear , uh, if we have two hospitals merging the structure of the transaction can be, can be pretty straightforward, but oftentimes it's much more obscure. Um, if there's a vertical relationship, it can be hard to, to tease out that vertical relationship , uh, quickly and easily. Um, and if the, the corporate structure is complex , um, or if the merger structure is complex, it can be difficult to, to figure out , um, what's going on. Private equity, we talked a little bit about private equity before, and oftentimes , um, private equity will have a , a PE firm will have many portfolio companies, and we'll, we'll wanna understand whether there's an overlap or other , uh, competitive relationship among the portfolio companies. And that can be a lot to sift through in this very short timeframe. And hopefully , uh, these, these types of , uh, changes will, will help make that process faster and more efficient.
Speaker 2:So one last question. Um , and this also goes a little bit to the merger guidelines. Um, you know, we've talked before about labor markets being a really important , um, priority for the F T C these days, and there is a specific merger guideline now , um, that highlights that the F T C is examining the impact of transactions on competition in labor markets. And then the , um, the proposed new H SS R form is going to contain a whole lot of extra questions and data , um, specifically relating to employees and and labor markets. So what, what kind of information are you looking at these days , um, in preliminary investigations, specifically relating to labor markets?
Speaker 3:So there's, there certainly has been , um, a significant interest and I think a growing interest in how mergers affect , uh, labor markets. And this is especially true in, in healthcare markets. Um, o oftentimes healthcare providers, especially hospitals are, are large employers and they, they employ , uh, lots of different types of workers and often a , a high volume of workers. Um, and so the impact of, of those mergers on, on labor markets is , uh, uh, certainly an issue of focus. I don't know that there's yet a single data set or category of data or, or evidence that can answer the questions , um, about , uh, how a merger might affect a labor market. Um, but we're thinking about , uh, generally , uh, we're looking at lots of different ways of trying to get to the, the answer about what, what alternatives do different sets of workers have? W what , what are their employment options and how might a merger restrict those employment options? And that's not just a question of what is the, whereas everywhere that they could work, it's, it's more of a question of reasonably what are their, what are their options, what are their alternatives given their level of training, their level of specialization. Um, and, and there's also a geographic component. Where do they live? How far are they willing to commute? What other options are are within that, that commuting area? It's a , it's a fairly complex analysis. Um, and again, it is highly fact specific <laugh> . Um , but we're, we're , um, this, I think what's what's being asked for in the the H S R form , um, is, is hopefully a starting point to get some sense of what does the labor force look like, where are they located, what are their, and , uh, and , and what are their alternative , um, employment options so that we can understand what the potential impact of the merger would be on, on the labor market.
Speaker 2:Great . Well, Mark, thanks so much for joining me and sharing your insights. Um, always a pleasure to talk to you and , uh, thank you to a H L A for hosting our podcast. That's all.
Speaker 3:Thanks so much, Lisl.
Speaker 1:Thank you for listening. If you enjoy this episode, be sure to subscribe to AHLA 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 .