Based on AHLA’s annual Health Law Connections article, this special series brings together thought leaders from across the health law field to discuss the top ten issues of 2024. In the third episode, Michael Ramey, Managing Principal, PYA, speaks with Rosa M. Morales, Counsel, Crowell & Moring LLP, about the major antitrust trends affecting the health care industry. They discuss the DOJ and FTC’s 2023 merger guideline changes, how the health care industry is impacted by the agencies’ focus on pursuing “less traditional theories of harm” and closer scrutiny of labor market impacts, and recommendations for counsel to manage the proposed new Hart-Scott-Rodino requirements. Sponsored by PYA.
Watch the conversation here.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
Based on AHLA’s annual Health Law Connections article, this special series brings together thought leaders from across the health law field to discuss the top ten issues of 2024. In the third episode, Michael Ramey, Managing Principal, PYA, speaks with Rosa M. Morales, Counsel, Crowell & Moring LLP, about the major antitrust trends affecting the health care industry. They discuss the DOJ and FTC’s 2023 merger guideline changes, how the health care industry is impacted by the agencies’ focus on pursuing “less traditional theories of harm” and closer scrutiny of labor market impacts, and recommendations for counsel to manage the proposed new Hart-Scott-Rodino requirements. Sponsored by PYA.
Watch the conversation here.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
A HLA is pleased to present this special series highlighting the top 10 health law issues of 2024, where we bring together thought leaders from across the health law field to discuss the major trends and developments of the year. Support for A HLA in this series is provided by PYA, which helps clients find value in the complex challenges related to mergers and acquisitions, clinical integrations, regulatory compliance, business valuations , and fair market value assessments, and tax and assurance. For more information, visit PYA pc.com.
Speaker 2:Hello everyone, and welcome to the third episode of the A HLA Top 10 series. Uh, this particular , uh, episode is gonna be focused on antitrust trends and a FO forecast for the healthcare industry. I am Michael Raimi with PYA. I'm a principal in our healthcare consulting group, and I lead our strategic and transaction advisory services. Uh, the areas of focus for my practice are transaction advisory services, strategic planning , uh, and valuation mainly to hospitals, health system systems , uh, private equity investors within healthcare , uh, physician practices , um, and , uh, lead a team that predominantly works through due diligence matters, facilitation of transactions, and post-merger integration, as well as strategic planning initiatives. Uh , I'm joined today by Rosa Morales, who is the author of this article . She's with Kroll and Mooring , and I will turn it over to her to introduce herself.
Speaker 3:Thank you, Michael, and thank you for having, having me on your podcast. Um, my name is Rosa Morales, and I am a counsel in Roland Morning's Antitrust Group , uh, based out of New York City. I counsel and represent clients on , um, a range of , um, antitrust and competition issues, including in litigation, antitrust litigation, as well as in , um, government challenges to transactions, multi-district litigation and class actions. Um, I also , um, specialize in various sectors, particularly on , um, healthcare and pharma, telecoms and media and the financial sectors. I'm happy to be here today.
Speaker 2:Great. Thanks for joining us, Rosa. So , uh, expanding upon the article a little bit , um, there were several merger guideline changes proposed by the DOJ or the FTC in 2023. Can you help us understand, as we sit here today, kinda what's still proposed versus what's finalized? What's being implemented ? Just a , a little bit , uh, clearer picture of, of the current landscape.
Speaker 3:So , um, I believe it was shortly after we published that , um, article , um, the FTC and the DOJ jointly released , um, the , uh, final merger guidelines on December 18th, 2023. Um, they, the new guidelines reflect changes , um, from public comments on the draft version that was released , um, in July, 2023. But the main principles , um, under the new guidelines remain the same. Um, broadly speaking, the new guidelines , uh, reflect , uh, what we've seen , um, as an aggressive approach to , uh, merger enforcement under the Biden administration. And generally, they establish , um, lower thresholds and presumptions that make it easier for the agencies to challenge mergers that they have been, that they have viewed problematic in the past , uh, and have had a difficult time , um, successfully challenging. Uh , for example, the new guidelines set out new market share and , um, lower market concentration levels , uh, to identify presumptively unlawful horizontal mergers. Um, they also establish presumptions that can be rebutted with evidence , uh, to show that a merger would not be anti-competitive. Um, in that case , um, there's a bit of a shift , uh, of a bur , uh, um, uh, a shift in burden to the transacting parties to show that the merger is not , uh, anti-competitive. And , uh, notably the new guidance also includes language , uh, that update theories of harm , uh, that are designed to address , uh, in more detail platform markets , uh, labor markets, serial acquisitions, and minority investments that tend to be associated with private equity firms. Um, now the guidelines are, as you know, industry agnostic, but they do seem particularly primed or amenable to support and legitimize , uh, the agency's historical scrutiny of healthcare mergers and acquisitions, which may not be , um, any accident. As you know , um, the agencies have long viewed consolidation in the healthcare industry as leading to increased healthcare costs for consumers, and that has been a priority under the current administration as well as for the agencies in recent years. Now, the framework , uh, appears to target areas where the agencies have faced enforcement challenges , uh, in particularly, in particular in , um, in , uh, traditional, in non-traditional vertical or cross merger , uh, uh, merger transactions , uh, that are prevalent in, in healthcare , uh, and where the agencies have experienced setbacks in litigation until very recently, such as in the FTCs, recent appellate win in the , uh, before the fifth Circuit in the Illumina grail , uh, case, which , uh, ultimately led to that challenge not proceed , that merger not proceeding. Now , uh, while the, the guidelines , uh, reflect an aggressive enforcement , uh, for mergers, it is a little too early to tell how the , uh, agencies will , uh, proceed. Um , but , um, they on their face appear to add risk , uh, for , uh, deals that are prevalent in the healthcare industry. Um, but for parties that have been interacting with the agencies in recent years , um, some of these principles have already been playing out, so it may appear as if it's business as usual , uh, but it is , um, uh, we , we , what we can, what we can , uh, foresee is , uh, at least in the near future, is that merger enforcement will continue to be aggressive, at least , uh, under this administration.
Speaker 2:Yeah , it's interesting. As we go into a , um, election year, we are now, I guess technically in an election year , um, how that might impact if there's any potential administration or legislature changes, legislative changes , um, as a result of those elections. Any, any thoughts on how that could impact implementation in 2024 and potentially beyond?
Speaker 3:So the, as you know, the impact , the , the new guidelines are non-binding. Uh, the merger guidelines are non-binding. They are not law. Um, they provide key insights into how the agencies will evaluate transactions , uh, for potential antitrust concerns. And , um, as mentioned, the new guidelines are closely aligned with the Biden administration's policy for more aggressive enforcement , uh, uh, of the antitrust laws across the board. And those , um, principles were articulated in the president's July, 2020 first , um, executive order on competition. But , uh, as you mentioned , uh, we have been in an election year, probably for the past three years . Um, so , uh, that means that , um, given the, the leading candidates in , um, at this early stage in the presidential election year , uh, with different views on competition enforcement, this may all change if the , uh, white House changes , white House changes hands , uh, in November. So , uh, what we might see is , um, there's a pronouncement of a new approach , uh, that has already been playing out in recent years, but that approach may change , uh, if there is a change in the White House. Um, and beyond that , uh, beyond the impact that , um, on enforcement , uh, that a change in administration may have. The guidelines , um, have also historically served as persuasive authority , uh, for federal courts and antitrust , uh, litigation. Um, and like, and, you know, even though it is , uh, a little too early to tell what the courts will do , uh, there, there is , um, some, some critics have , uh, uh, observe that the courts may not be particularly amenable to , uh, getting the guidelines the same type of , um, weight that they have in the past, particularly given the changes in the judiciary in the past , uh, decades. So it's anyone's guess , uh, what the long lasting impact of the new guidelines will be. But for the time being , uh, I think that we can count on the agencies continuing to , uh, pursue their aggressive enforcement , um, uh, in merger review.
Speaker 2:Great . And Rosa, you mentioned earlier that the agencies are also focused on kind of pursuing less traditional theories of harm. Um, can you maybe expand upon that just a little bit as to what, what additional they may be looking into?
Speaker 3:Sure. Um, so I mentioned that the guidelines provide new frameworks , uh, that assess the competitive effects of mergers. And , um, this, these new frameworks , um, reject flexible analytical , uh, approaches that were , uh, allowed under the, or permitted under the prior guidance in favor of , uh, more rigid rebuttable presumptions and harm , uh, to assess the competitive effects of deals based on lower thresholds that allow the agencies to more , um, easily challenge less traditional deals. Um, these include , uh, vertical and cross market transactions that historically have been difficult to challenge under the old frameworks. For example , um, the new guidelines , uh, will presume competitive harm in horizontal transactions when the combined market share of the transacting parties is , um, 30% or , uh, uh, or greater, even if one of the parties shares , uh, is minimal on its own. In the vertical merger context , uh, the new guidelines presume , uh, foreclosure harm if one party holds , uh, a 50% share in any upstream or downstream market. And finally, the guide , the guidelines apply heightened scrutiny on transactions that would entrench an existing dominant position of , uh, one of the parties, or extend dominance into another, which is defined under the new guidelines as 10% or higher market share based on European standards of dominance. Um, the transacting parties can rebut this with , uh, with evidence , uh, that , uh, the, that the mergers unlikely to negatively, negatively impact competition. Now, as a practical matter , uh, dynamic and volatile industries like healthcare , uh, were transactions between competitors or transactions that may lead to further consolidation of integrated health systems, for example, may face more regulatory hurdles to clear , um, the new guidelines will make this , uh, will add the possibility of any of increased transaction costs and potentially prolonged regulatory review. Another aspect of the guidelines that is especially , uh, pertinent to the healthcare industry is the agency's , um, skeptical view of consolidation and serial , uh, transactions that are increasingly common in the healthcare industry. Uh, for example, acquisitions of , uh, physician practices by private equity firms , uh, the agencies have been, and in the guidelines have made clear that they will continue to closely scrutinize transactions that focus on , um, future consolidation activity or serial acquisitions , um, and are assessing the aggregate competitive effects of a series of acquisitions as opposed to assessing the competitive effects of a single transaction that may in the end be on its own , uh, competitively neutral. We saw this play out early on in the , um, uh, FTCs challenge to , um, an acquisition by a private equity fund , uh, Welsh Carson and its investment company , uh, in US anes , uh, US anesthesia partners in the Southern district of Texas. Um, I believe that was in September of last year. The FTC in that case alleged that Welsh Carson and usap , or the , um, US anesthesia partners engaged in anti-competitive conduct to monopolize the anesthesiology markets through a series of , um, roll-up acquisitions that USAP made over several years. Um, as well as , uh, looking at , uh, various price setting agreements that it entered into with competitors and , uh, market allocation agreements , uh, with competitors that were designed in the FTCs view to monopolize the anesthesiology market. So the , the FTC there focused on the rollup strategy that , uh, is sort of implied , uh, in the , uh, if not flatly, just , uh, explicitly laid out in the new guidelines as part of a monopolistic of scheme , a monopolistic scheme that would not really , um, uh, pan out well under , um, older , uh, more traditional theories. Um, we'll see if the courts , um, credit this , uh, these new theories. Um, but the implications for the healthcare, for healthcare companies , uh, and larger physician groups that adopt , uh, serial acquisitions as , uh, a business , uh, strategy for growth , uh, will , uh, we'll have to contend with these new realities.
Speaker 2:That's really helpful, Rosa. Thank you. Um, I've also seen an increased focus , um, and scrutiny on the impacts on labor markets in evaluating transactions. Can you maybe comment a little bit about what you're seeing in that realm?
Speaker 3:So , um, we have seen , um, in recent years that the agencies have been , um, intensely focused on identifying the competitive effects , uh, uh, of mergers , um, and acquisitions in labor markets. And , um, we , uh, we will continue to see that in , in fact , um, where there was doubt , uh, about whether the antitrust laws , uh, or , um, particularly as it relates to mergers , um, uh, encompassed , um, or addressed , uh, effects in labor markets. The new guidelines have made that very clear that , uh, the, the, the agencies will continue their aggressive enforcement , uh, in , uh, labor markets or looking at for , looking for labor market impacts. Um, they will, and I , and I think you've seen this play out my , uh, uh, Michael , um, in, in recent years where the agencies have , um, looked for evidence of collusion , um, uh, particularly between competitors for labor, even where they don't compete , uh, for services or products. Um, they have been looking for, for evidence , um, that , um, competitors for labor have been , have , uh, agreed not to compete for labor for , uh, uh, workers , um, as well as , um, entered into , um, agreements , uh, to fixed wages. And , um, where the FTC has identified evidence of , uh, such conduct, it has referred , um, these , uh, uh, it has referred these instances to the DOJ , uh, who that has in, in some instances pursued , um, uh, launched criminal investigations and , um, issued indictments , uh, for individuals and companies that have , um, have been , uh, have been identified as having , uh, en en engaged in this conduct. So I , I think that the inclu , the explicit inclusion of , um, labor , uh, as an area of focus in the, the merger guidelines , um, signals to parties that this is, this is not gonna go away, that the, that the agencies will continue to , uh, look for labor effects and that the , um, antitrust laws apply to labor markets , um, equally, if there was any doubt in the past.
Speaker 2:Thank you for that insight . Um, one more question, switching gears to the how , um, the, there's also changes to the Hart Scott Rodino Act filing requirements , uh, which make that more onerous , uh, in terms of the, the volume of information that must be included within those filings. Rosa, what , what recommendations do you have for transaction counsel to be able to manage those, those new requirements?
Speaker 3:So , um, as you suggested, the, the proposed changes to , um, the HSR forms and , um, and the enhanced filing requirements , um, are going to give , uh, the agencies more tools to develop the theories of harm that we just discussed under the new guidelines and more fodder to , uh, pursue investigations where they identify competitive concerns. Um, but as a practical matter , uh, even in the absence of that , um, these new requirements are going to increase the burden on transacting parties , uh, in HR filings. Um, in fact , um, just recently , uh, the FTC commissioner , uh, Rebecca Slaughter warned that the HSR changes are going to have a much more material effect , uh, than the guidelines on how the FTC actually executes its responsibilities to review transactions. So , um, we, we are heeding that warning. Um, so your question, how should transaction council manage the new requirements that are sure to come, because these have not been finalized yet , uh, but we expect them imminently. Um, so the, the proposed changes are going to dramatically increase upfront disclosures in HSR notifications and will require parties , um, to produce a cross section of strategic business documents , uh, in addition to documents related to the transaction itself. Um, these documents are gonna include , um, drafts of transaction related documents , um, in addition to the final documents that we've seen , uh, being required in the past , uh, narrative descriptions of products and , um, representations regarding , um, uh, planned products that may be potentially competitive with those of other emerging parties. Um, and , uh, information and data on employee types. And, and , uh, I think that this is , um, sort of , uh, in line with the agency's focus on the potential impact in labor markets . So they're gonna require more documentation regarding how , uh, employees might be affected. Um, this would, so council should really , um, I think what this means is that council should really start early. So when they are contemplating , uh, a , a transaction , uh, because of the heightened scrutiny on the ho on growth strategies that involve zero acquisitions and the other issues that the agencies are focused on, you wanna make sure that you know what's in your documents. Um, you wanna know , uh, that , um, you know, your documents are , uh, not going to create , uh, bigger problems down the line beyond just trying to get the, the, the, the, the deals , um, cleared. So , um, it is wise to engage antitrust counsel early on. It is wise to implement , uh, compliance programs that , um, especially if your deal is , uh, years down the line , uh, it is wise to implement , uh, compliance programs to , uh, train your employees and training programs to train your employees about how to create documents that don't raise any , uh, competitive concerns in connection with merger reviews. Um, so it'll be really important for emerging parties to fully understand the internal documents before signing deal , uh, deal documents, and to develop a strategy for how to engage , um, regulators on potential issues under the guidelines. Um, that means that they should , um, also be armed for , uh, with a potential litigation strategy early , uh, in the review process. And , um, also prepared to consider any potential remedies or modifications to deals in order to clear, clear them or , um, to, to resolve competitive concerns , um, as well as to improve , um, the , the litigation odds should the case be challenged in court , um, down the line.
Speaker 2:Great. Well, Rosa, thank you for your time today. This has been really informative. I know we've just started scratching the surface of everything we could talk about here. We didn't even get into the matters as to the, the why associated with, with some of these , uh, these matters , um, and including, you know, the , uh, the enforcement , uh, associated with, with providers compared to maybe other segments of healthcare. Um , but , uh, we'll reserve that for a , maybe a future podcast. But , uh, appreciate you joining us today , uh, appreciate the article. Would encourage everyone to go , uh, download that for additional information and contact Rosa , uh, if there's any follow-up questions. With that , uh, we'll conclude our podcast. Have a good day.
Speaker 3:Have a great day. Thank you so much for having me.
Speaker 1: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 ah , HLA and the educational resources available to the health law community, visit American Health Law .