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Top Ten 2023: Health Care Antitrust Enforcement Trends and Outlook

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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 2023. In the second episode, David McMillan, Chief Financial Officer and Managing Principal of Consulting Services, PYA, speaks with Dionne Lomax, Managing Director of Antitrust and Trade Regulation, Affiliated Monitors, Inc., about the major health care antitrust enforcement trends to watch out for. They discuss the FTC’s recent proposed rule banning employment non-competes, the DOJ’s track record on criminal prosecutions, and merger enforcement developments. Sponsored by PYA.

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Speaker 1:

A H L A is pleased to present the special series highlighting the top 10 health law issues of 2023, 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 H L A in this series is provided by P Y A, 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 and welcome to this episode of a H L a's Top 10 series. My name is David McMillan. I am the managing principle of consulting for p y a, and I am pleased and privileged to be facilitating this session today with, uh, someone who's, uh, familiar to many of our A H L A listeners, uh, Dionne Lomax. So, today Dionne is going to be talking with us about, uh, antitrust enforcement trends and the healthcare industry. So, Dionne, for those who may not know you, would you take just a moment and introduce yourself before we get started?

Speaker 3:

Sure. Thank you, David. So nice to be here. Of course, I love a H l a, like hopefully most of those who are listening, I am Dionne Lomax. I am managing director of Antitrust and Trade Regulation at Affiliated Monitors Inc. So I'm an independent monitor, but you know, why have one job? Well, you can have two. So when I'm not doing monitoring, I'm also a professor at Boston University where I teach at the school of law, as well as at the Questrom School of Business. So nice to be here.

Speaker 2:

Well, fantastic. Thank you, Dion. And as everybody can tell who knows you, and for those who just heard that introduction, Dionne is well qualified to be speaking on this subject today and sharing her insights with us. So as we kick it off, Dionne, um, are you ready for me to go ahead and and get us started?

Speaker 3:

Yes. Let her rip

Speaker 2:

<laugh>. Fantastic. Well, um, there's been a lot of activity, um, over the course of the last few years, uh, with respect to healthcare, uh, antitrust enforcement. What are some of the big ticket items that we should probably pay closer attention to, uh, in the upcoming year as we start 2023?

Speaker 3:

Yeah, yeah. No, that's a, that's a great question. You know, every year, I think for the past few years, I feel like I've been, um, saying, oh, there's a host of activity and we're having an unprecedented time. And each year it never fails. I'm saying it again, we remain in the midst of unprecedented times in terms of antitrust enforcement generally, but specifically the healthcare sector. So what are the big ticket items? Well, you've got the, got the DOJ continuously prosecuting, uh, conduct criminally in the healthcare sector, particularly as it relates to labor market collusion. You have many hospitals and health systems continuing to seek to merge horizontally. Some providers are also seeking to vertically integrate, you know, no surprise, the agencies are continually, continuously, aggressively challenging horizontal transactions that they view as anti-competitive, as well as vertical transactions. You've got the FTC doing retrospective studies with respect to certificates of public advantage or cos and now looking into the PBM industry, of course, state attorneys general are not to be forgotten. They are very active, particularly as it relates to challenging healthcare mergers. And we have the FTC that just issued proposed rule that would ban employment non-competes nationwide. So, I, I'll just stop there, but, um, but yeah, those are the big ticket items, David<laugh>.

Speaker 2:

Well, let's, let's, let's, we can, let's pick up on that last one. Can you give us some thoughts from your perspective about what this proposed rule might, might mean for the healthcare industry?

Speaker 3:

Yeah, this is, this is really, really interesting. And of course, the impact on something like this, and, and again, let's, let's just say these are proposed rules, right? So they've gotta go through the rule making process. So we're not assuming that this is a done deal, but if it were to go into effect, you gotta look at all of these hospitals and health systems and ancillary providers where noncompetes are kind of common. You know, a if you're an anesthesiologist for x, y, z, uh, hospital or health system, if you leave for a couple of years, there may be a, a clause in the contract that says, Hey, within a 20 or 25 mile radiation, you can't do anesthesiology services or maybe radiology. So if this goes into effect, all of that is, is done with. So let me take a few steps back and just, and just bring us up to, um, you know, kind of let's recall kind of maybe where this started. And that is about a year and a half ago, president Biden issued an executive order announcing right post, like 72 different initiatives about promoting competition in American economy. One of the things that was focused on, of course, is healthcare and abuse of market power, all of that. But Biden proposed that the FTC use its rulemaking authority, remember, to curtail the unfair use of non-compete clauses and other agreements that unfairly limit worker mobility. So for the last year or so, we've been saying, Hey, nothing, you know, he put this out there, nothing yet from the ftc. And then of course, on the eve of<laugh>, us having our discussion, this room comes out and some will ask, well, why the focus on non-competes? Right? You know, we've always been taught that non-competes, even in, you know, in certain contexts, of course, when you're talking about a merger or transaction, they've always been permissible within certain boundaries as long as they're reasonable on time and scope, even employment non-competes have been viewed as not reasonable as long as, you know, reasonable non in time and scope, not overly burdensome on the employee. So, like, why they're focused while the FTC is, has said in this proposed rule as they issued this proposed rule that they view post-employment non-fee as an unfair method of competition that violates section five of the FTC act. From their perspective, the they suppress employee wages, it hinders innovation. These things prevent entrepreneurs from starting new businesses. Block, you know, basically blocks employers from hiring the best talent. And so if this proposed rule goes into effect, it would make it illegal for an employer to enter into or to attempt to enter into a non-compete with any worker. And notice there's no, it, there's no categories of workers. It doesn't say, well, only if you're full-time or only if you are a, um, independent contractor, it applies to full-time employees as well as independent contractors. It would also make it unlawful for them to maintain a non-compete with a worker. So if you have existing non-competes, now you have to resend in the existing non-competes and actively inform workers that they're no longer in a effect. Um, you have to represent to your employee base or your workers that under no, under certain circumstances, that worker is, um, uh, subject to a, um, noncompete. Like, you cannot do that anymore. You can't tell'em that they're subject to a noncompete. So this is, this is pretty huge. And as you might imagine, there's always been some already been some backlash. The US Chamber of Commerce has already saying, wait, you know, Congress didn't give the FTC that, that breath of authority, this flies in the face of what a lot of states are already doing to combat non-competes. Um, and so I'll stop there. I I, uh, to see if you have any follow up questions before I continue.

Speaker 2:

Well, uh, so let's just follow up maybe in one area, uh, as we think about a lot of our, a lot of our listeners and, and the things that occupy their day and the challenges that they face, um, many of them are, um, as, as we, as we, you mentioned, there's, there's a lot of ambulatory, ancillary, um, healthcare facilities and entities out there. There are professional services contracts, um, that are associated with those oftentimes including, uh, contracts, as you mentioned, anesthesiology with, with physicians. So let's take a market for example, where there are 2, 3, 4 different competitors. Let's say it's primary care in a market, and, and one is a private group and one's a hospital employed group, and one is a group that maybe, maybe has some sort of investment from some third party, a a private equity firm, or perhaps even, um, you know, a, an insurance company. Um, if we, if we roll that out and we think about what's going to happen, um, is it, is it sort of open season for a competition from an employment standpoint among all of those various competitors in that same market?

Speaker 3:

No, no. I, I absolutely think that that's likely the goal, right? To free up some of those providers from those types of arrangements. I think the, you know, if this goes into effect, what's the, you gotta think, oh, okay, what's the provider? You know, what's a hospital gonna do that that feels like, oh, no, now I don't have my critical mass. Because if you think about population health management and all that, the, the in, in value-based care, the ideas that, hey, you know, we, we've got the physicians who know our system and maybe there's some type, you know, there, there's maybe there's some type of integration there and what have you, clinical integration or something. And you know, this, you know, having this group of physicians connected with us in this way really is gonna help reduce cost, at least, you know, greater care, greater, you know, for our patients in higher quality and all of that. So, you know, the provider now is to say, Hmm, this goes into what do I do now? All I can do maybe is, you know, I don't know, just acquire more physicians and, and sweeten the pot, offer more, you know, higher salaries offer, I don't know,<laugh>, it's gonna, it's, it's a free now<laugh>.

Speaker 2:

Yeah. Yeah. Well, I mean, it's, and, and more to come, right? Like you said, this is a proposed rule. We're starting to hear the commentary already. We'll follow that closely. And so maybe, you know, with that as a, as a great primer for folks to kind of keep their eye on, we'll, we'll turn the page and flip to a new question. How about that?

Speaker 3:

Sounds good.

Speaker 2:

Sounds great. Well, let's, let's turn, uh, just a minute to criminal prosecution, because the, the healthcare and I trust Barr, um, recently, uh, viewed the DOJs criminal co prosecution of healthcare providers as a very significant, uh, moment, right? Impact. Can you, can you help us understand that reaction a little bit?

Speaker 3:

Y yeah, you know, it, it's, it's, the reaction was so significant because it really represented a very stark departure from how the do OJ previously had been challenging such conduct in the healthcare industry. And so it, it's not that the DOJ had never challenged similar conduct in the past, but the enforcement tool that they were using or started to use was different. So, intersection one of the Sherman Act, it prohibits contracts, combinations, and conspiracies that unreasonably restrain trade. So we all understand that to me. Okay. Of course, no price fixing, you know, you know, you can't agree on price or components of price with the competitor. Well, same goal score, you know, competition for labor, right? You can't get together and agree on nurse wages or executive wages, same type of deal. It's still gonna violate section one. And so, you know, federal antitrust challenges related to wage suppression and, and, and things of that nature, you know, happened. They still happened rarely though, but it, it was, they, they were brought civilly. So if you look back to the mid 1990s, you'll see that the DOJ in 1994 brought, brought a wage fixing case against the, um, Utah Society for Healthcare Human Resource Administration that dealt with registered nurse wages. You'll see that in the mid two thousands, they brought a case against the Arizona Hospital and Healthcare Association, same thing for, you know, fixing rates paid to nursing agencies. Um, it wasn't until, gosh,<laugh> 2020<laugh> that we saw the first criminal prosecution, and that was in reference to, um, uh, basically market division. Essentially, it was a, uh, case against the u uh, Florida Cancer Specialist in Research Institute. And in that indictment, they were alleged to have conspired with another oncology clinic and other, uh, name co-conspirators to allocate markets in southwest Florida. Idea being, okay, we'll do medical oncology and you will do radiation oncology. And so of course, they ended up, they, they got a deferred prosecution agreement from the d oj, but they had to pay a hundred million fine to the, to the do oj, and this is F c s, and they paid 20 million fine to to Florida. And so, you know, criminal prosecutions have, have been ongoing since that point in time.

Speaker 2:

Well, that's fascinating and chilling, uh, to, to certainly hear for, for everybody. But, um, as we think about what you just described, just one follow up question, in a world where acute care hospitals right now are dealing, uh, well all healthcare providers are, but we read about it most often with our acute care providers dealing with significant staffing shortages. Um, how, how do you think that the, the environment in the market right now with respect to the drastic need for healthcare labor and the apparent lack of supply for that labor may or may not impact some of the circumstances that you just described?

Speaker 3:

You know what? I, you know, I, I don't think it's, if their, if your question is whether or not that's going to, because there's a lack of supply and issues, is that going to deter the doj? No. Is that lack of supply going to<laugh> entice providers to maybe continue in, in this type of conduct and Rolo dice? I don't know. And, and the reason why I say that is because we do recognize that when the government brings these cases, it's not a foregone conclusion that they're gonna actually win the cases, right? Mm-hmm.<affirmative>. So I hate to say, but there, there may be some providers out there that are like, Hey, you know, DOJ didn't do two on their first two go arounds with this, this, so, you know, maybe we roll the dice. I, I would not recommend that, you know, I'm no longer practicing attorney, but I would not recommend that. But, um, yeah, but I think it's, it's, it, we have to wait and see. It's a wait and see approach, I guess.

Speaker 2:

Yeah, it certainly is. And, and I think some of the unprecedented times we've faced the last three years, um, you know, quite honestly haven't sort of made their way through the legislative or the ju judicial process just yet. So all of this is, is, um, is something to keep our eye on, certainly.

Speaker 3:

Absolutely. Absolutely.

Speaker 2:

All right, well, thanks for that. That's fascinating. All right, so let's talk about the DOJ for just a minute. And to your point about, hey, they've not always been super successful. We know they've, they've faced some uphill battles, um, lately, especially going again to this, this issue about labor and trying to, uh, prosecute healthcare entities for wage fixing or no poach kind of conduct. Um, so in your, in your opinion, let's kind of tackle that. Why did the, do OJ maybe lose its first wage fixing no coach case, uh, sort of battle and and what do you think the outcome is for these future cases?

Speaker 3:

Yeah, so what, what I'll say is this, I I think that, um, so US versus gender was the first criminal wage fixing case, which was, um, that was brought in December of 2020, of course, went to trial. And the, the second one was the US versus DaVita Inc. And that was the first criminal no coach case, which was filed in December of 21, and of course went to trial. And as we know, both of those cases, the DOJ lost. Now let's look at the wage fixing case for a moment. The G case, uh, in that matter, the DOJ alleged that Jin and Rogers, who were operators of a, a physical therapy staffing company, essentially conspired with competitors to basically lower rates paid to physical therapists and physical therapy assistance. They, the government presented evidence that Gin and Rogers had reached out to, you know, a number of competitors, and that ultimately they entered into an, an unlawful agreement with one of those competitors. The defense, um, you know, put, of course, during their, their, their time at trial, they had a contrasting story. They basically said, Hey, there was no agreement with any of the competitors. They cited evidence that the sole alleged co-conspirator. Basically, they initially agreed, but subsequently stated, Hey, that they never planned to go through with it. Uh, the defense also attacked the credibility of the co-conspirator whose court testimony, uh, differed from the statements that that witness had made to the F T C during the investigation. So I think that may have had a lot to do with why the, why the jury did not, you know, why the jury acquitted, uh, the, the Vita case, that was the no poach case, and that was the, uh, criminal indictment against the Vita, the former c e o of Devi, Vita Kent theory alleging that theory coerced three other companies led by Devi Vita alumni, essentially to agree not to recruit or poach each other's employees, or hire away each other's employees. Um, in that case, the defense, uh, um, basically argued and said that there was no evidence that the deals were made in order to end competition between DaVita and these competitors. But well, they just, you know, they know theory and they agreed to maintain a relationship. So the, the jury agreed with that, and there, and there were no indictments. But I think the most notable aspect of these, the cases is what happened before the trial. And that is that these, um, judges that were assessing these motions to dismiss both of these indictments, um, declined and said, no, we think that in the gender matter, this indictment sufficiently alleged a per se violation of section one, because, hey, wage fixing is merely a different form of price fixing. Similarly, in devita, the court held that the agreement among the competitors to the alleged agreement among the competitors to allocate markets, um, should be given per se treatment because that court said that, Hey, that's no different than a horizontal allocation of goods or services. And the court basically said, quote, if naked non-solicitation agreements or no higher agreements allocate the market, they are per se, unreasonable. I think that that's really what we need to focus on. And, and let's not forget in late October of last year, the DLJ did get us first win in us versus he, that was a case that was brought, um, involving, um, an alleged conspiracy with a competitor to allocate employee nurses and to fix wages for nurses. And in the defendant in that matter, essentially pled guilty and, uh, agreeing to refrain from, you know, recruiting each other's nurses and suppress the wages, et cetera. So technically that's their first win. It wasn't, it wasn't because it was a jury trial though. So I think that the jury is still out on, on how juries will assess these types of cases.

Speaker 2:

Yeah. Literally, the jury's still out on how juries will assess these types of cases, right? Pun, pun intended there, but,

Speaker 3:

But lemme just say one other thing before you ask your next question, and that is, you bet. I think, you know, what does all this mean for healthcare and, and, and for healthcare participants? I think it means you really do have to, you know, we have always focused on antitrust, on prices and all of that. So what we are now realize is you gotta bring that human resource component into it. Make sure that your human resource officers understand what types of agreements they can enter into with whom, you know, and that also includes the whole non-compete situation, right? You even have to look at the states that you operate in, because there are a number of states, I didn't talk about this earlier, but there are a number of states who even in recent years started changing their laws around what's a, a, an acceptable post-employment non-compete agreement in the state. You got Oregon and Nevada, there's all these, some states have said, Hey, we gotta, um, you know, limit it to certain workers. Some states have said, well, you can only have up to a 12 month. So human resources really needs to keep their eye on those types of arrangements as well as these types of things. So recognize that they're doing training with their employee base to understand what's, what's i, what's permissible and what's not permissible. They need to have a robust antitrust compliance program that is effective in really looking at making sure that the culture of the entity is to be compliant with the antitrust laws. So I think that at the bottom line, that that's really key and important.

Speaker 2:

Well, that, that's great counsel, and, and actually just kind of transitions us into what will probably be our final question here before we wrap things up. But, you know, th this idea of competing for scarce resources and making sure that we, we have a compliance program in place that is, that is monitoring that, well, if we elevate that to a macro level, you know, we know that there's a lot of merger and consolidation activity continuing in this industry and, and at a macro level that is just that, right? And a, an ability to, to go for scale, to compete more effectively, more efficiently in its most noble case, that is to provide better care. Um, but the bad actors give us all a bad name and in terms of what they do, and, and they cast long shadow. So can you, can you kind of, uh, wrap this up where our listeners may be in talking about what's going on in the, in the world of mergers and acquisitions, what we need to be keeping our eye on, and, and, you know, especially some of the mixed results we've seen, uh, recently with respect to some of the challenges?

Speaker 3:

Yeah, yeah. No, ab absolutely. So, so once again, and, uh, there's two aspects to kind of look at. One is, again, going back to Biden's executive order, right from a year and a half ago. In that order, he urged the DOJ and the F T C to address consolidation, um, in the industry and maybe consider, you know, revisions to the horizontal or the, and or the vertical merger guidelines. Uh, one of the things that you saw in response to that was early last year, the agencies issued requests for information, kinda seeking some public comment around certain issues. One topic concerned issues of monopsony power or buyer power, also labor markets, you know, basically out of a concern that a transaction can lead to reduced employment and wages and or ad adversely impact working conditions. Um, I think both agencies have been quite active. You saw last year the FTC challenged four hospital mergers. Um, all of these mergers, by the way, were abandoned by the parties. Ultimately, they, the hack mm-hmm.<affirmative>, sac, Meridian Health, Inglewood Healthcare in New Jersey, you had the lifespan care, new England Health System, Rhode Island, rwj, Barnabas Health, and St. Peter's Healthcare system, New Jersey, and then in Utah. Mm-hmm.<affirmative>, hca, healthcare and Stewart Healthcare System. Mm-hmm.<affirmative>. And so I, I think, you know, why did you, you know, why would the parties abandon these merger challenges? Well, because merger challenges, they, they're harder and harder for parties to win when the F T C or the doj, whomever is challenging your transaction. And, um, why is that? Well, a couple of reasons. One is the murder merging parties have a heavy burden when they are trying to bring forth cred, credible evidence of efficiencies claims and things of that nature. It's over, over time, has become more and more difficult<laugh> for parties to mount an effective merge. I can't remember the last time, a, a merging parties have succeeded<laugh> in at trial on a efficiency's defense, right? Mm-hmm.<affirmative>, the other thing is mm-hmm.<affirmative>, you know, if you have bad documents, internal documents can be a, you know, killer to a deal. You know, because that, that serves as a, a heavy base of evidence for the agency when they're seeking to challenge a merger. Um, so y the other thing that I think that we need to look at is the fact that the agencies are now also looking at vertical integration in the industry and where they see vertical integration among, you know, healthcare market participants. They are challenging those deals. Now, they did lose recently, um, you know, United Health Group and the change healthcare under DOJ lost that case, right? ALJ denied the FTCs bid to block the Illumina and the Grail case, but that doesn't mean that the agencies are going away. They absolutely are looking at the impact of providers that vertically integrate and whether or not, you know, how that's impacting competition in the industry. Is it giving a competitor access to information it shouldn't have? Is it allowing a competitor to, um, kind of block a another competitor from competing? Is someone being foreclosed from the market? All of these things are important considerations when you're looking at mergers. And the other thing that I'll say on this, on this point is, you know, one of the common themes and everything that we've even talked about here today has to do with the impact of conduct on labor markets. And so the other thing that emerging parties have to really consider and look at is that's something that the agencies are gonna start asking. They're not just gonna ask, what impact does this that this hospital merger have on general acute care inpatient services? They're gonna wanna say, does it have a negative impact on your, your, your nurses, your physicians, your, you know, employee physicians, certain certain aspects of the labor market, they're gonna start talking to unions in those areas to, to assess, look at, you know, whether or not that deal has, has an impact on, um, the labor market as such, as well. So that's something that merging parties need to be prepared for, even before they maybe even have to submit a har Scott Rodino filing or something of that nature.

Speaker 2:

Right. So, so as we think about, about sort of wrapping this up and, and all of the comments that you've, and the expertise that you've shared with us, um, number one, uh, the environment is dynamic and we've gotta keep an eye on what's happening because cases are being litigated and precedent is being set, and we need to, to keep our eye on that, right?

Speaker 3:

No, a absolutely, and, and let's not forget again about the state attorney's general, the state ags. They are out there, they are very aggressive and challenging mergers. Some states also have now passed in recent years, state level pre-merger notification statutes that don't have the same kind of monetary threshold that the federal, that the H S R statute has, right? So that, you know, that means that a lot of deals that normally would kind of fly under the radar, they're, you can't assume they're gonna fly under the radar. So the, the, the moral, the stories to just be prepared and be ready,<laugh>

Speaker 2:

Well, and, and to that point, and, and not necessarily does it go unnoticed, this is a bit of a shameless plug for our audience here, but, but, but get qualified counsel, get qualified professionals involved early, um, it, it, it can be a lot more costly to try to go back and reduce something than perhaps design it in a compliant fashion to begin with utilizing competent counsel, you know, qualified professionals to help you with that. I'm sure you'll agree. So I won't necessarily even, uh, ask you to, to respond, um, to respond to that. And, and sort of in just the final couple of minutes here, Dionne, anything else that you would, you would recommend to our listeners or that you would want them to know as they think about the antitrust environment looking into 2023?

Speaker 3:

Yeah, the d lj another recent development, the d LJ is now prosecuting monopolization cases criminally. They paid lip service to potentially doing that sometime last year or so. And now it has happened in, in October. They brought, they secured their first criminal monopolization conviction in more than 40 years. It was a, it was a, it's US versus Nathan, um, NEHI Zeto who pled guilty to one count of attempted criminal monopolization in violation of section two. Of course, you know, they had to do with, you know, um, crack ceiling services for public highways, but hey, they're, they're in this area. I think the healthcare sector needs to be aware of this and who knows when or if we'll see a similar challenge in the healthcare sector.

Speaker 2:

Absolutely. Certainly something to keep our eye on. So, as a reminder to our listeners, uh, this has been David McMillan from P Y A and Dionne Lomax, and we've been talking with you today and, and listening to all of Dionne's great expertise about what to expect in 2023, uh, as we think about antitrust enforcement and the environment that we're, that will continue to evolve. Dionne, thank you so much for your expertise and for being with us today for, um, taking time out of your day to, to share that expertise with our audience. We're so appreciative.

Speaker 3:

Thank you, David. Happy to do it. It was a pleasure.

Speaker 1:

Thank you for listening. If you enjoy this episode, be sure to subscribe to a H L A, speaking of health law, wherever you get your podcasts. To learn more about a H L A and the educational resources available to the health law community, visit American health law.org.