AHLA's Speaking of Health Law

Health Care Corporate Governance: Implications of Current Antitrust and Competition Enforcement

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Rob Gerberry, Senior Vice President and Chief Legal Officer, Summa Health, speaks with Michael Peregrine, Partner, McDermott Will & Emery, about how the Biden Administration’s antitrust and competition enforcement initiatives are impacting health care board duties. They discuss how health care antitrust risk and enforcement have changed and how health care boards can respond.

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Speaker 1:

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Speaker 2:

This episode of A HLA speaking of health law is brought to you by A HLA members and donors like you. For more information, visit american health law.org.

Speaker 3:

Hello , everyone. I'm Rob Berry. I'm the Chief legal Officer of Summa Health and a member of the HLA Board of Directors. I'd like to welcome you to the latest in our continuing series of corporate governance podcasts. Today's topic is something of unusual one. Today we're gonna talk about the implications of the Biden Administration's antitrust and competition initiatives, and their impact on corporate governance. As always, we're joined by my colleague , uh, at HLA, Michael Peregrine of McDermott. Will Michael, thank you so much for taking some time today.

Speaker 4:

Oh, absolutely, Rob. My pleasure.

Speaker 3:

So, Michael, our listeners may be confused here. Why are we in introducing a separate section of law into our discussion of corporate governance?

Speaker 4:

No, I I get that, Rob. It's a totally legitimate question because, you know, when you think about it, the underpinnings of the antitrust laws are pretty far apart from those of the governance laws. And, but I think there's really quite a pressing reason for us to be talking about the antitrust laws. And what's supposed to be, are a series about corporate governance. And I think that's because the antitrust laws and the competition enforcement under the current administration, as you noted, really impact board duties and at least three very specific and material ways, more so than I think other aspects of government regulation.

Speaker 3:

Okay. So I'm guessing merger enforcement's one, what would be the other two?

Speaker 4:

You know, sure. There's the whole issue about merger enforcement and how it impacts the board's strategic planning opportunities, and, and that's clearly always going to be a governance issue there. Uh, I think most board members are very familiar with the , the current merger enforcement environment. That's, that's right. Uh , but the other two aren't as obvious, but they're, I think, really critically important. One of the , uh, one is in the work of the governance committee, the board's governance committee, and working on strategies for board composition, especially as they may involve overlapping board arrangements. I think it's really important, Rob , for governance committees to be vigilant in screening perspective and current board members for their other appointments or other activities that could raise interlocking or anti-competitive coordination concerns. This happens a lot in structuring affiliations between organizations and the use of overlapping boards as control mechanisms, but it also happens in less obvious ways , uh, through the nomination process when , uh, board members haven't , uh, disclosed 'cause they didn't think they needed to, some of their outside responsibilities. This whole thing about overlapping directorships is a huge issue . The other link to governance, I think, is in the risk oversight duties of the board, their active monitoring of key corporate risk factors. And believe me, and you've probably seen legal bills as well, that the specter of A DOJ or FTC scrutiny of the company's business or governance initiatives will certainly, you know, it's gonna be a key risk factor, especially when you consider the cost involved. Boards are gonna wanna have their finger on the pulse of initiatives that could create antitrust scrutiny if for no other reason than the cost of the scrutiny involved .

Speaker 3:

So we're saying boards really need to recognize that antitrust risk has become a whole lot more complicated over the last several years. We know the investment and the , uh, amount of energy that goes into a transaction, but it's not just about m and a anymore. You know , how do you see boards really preparing for , um, deals that may not happen?

Speaker 4:

Well, I think that's what you're saying is, is , is right Bob . It , it's not just m and a anymore. It's the , what we're suggesting is boards and their strategic , uh, planning committees and governance committees look beyond the, the , their familiarity with m and a to other aspects of the board's business and the company's business , uh, if they're gonna do their jobs effectively as possible. I think boards have to understand first, and this is a key thing, that there's been an absolutely fundamental shift in enforcement policy with the agencies. Second, they need to understand what that shift entails, and third, they need to understand what that means to their business, the health system's business. But also, I think just to the job of oversight. I think that those are the three key things that , uh, that are real takeaways here.

Speaker 3:

So , did the sh shift happen without any of us knowing it? Did we miss something?

Speaker 4:

Uh, well , uh, Rob , I know you're a vigilant guy, and I know you're 24 7 on your job, but unless you keep a running log of , uh, president's executive orders and you can Google them , uh, it would be, it'd be really easy to miss this stuff. Uh, but it really can all be traced back to, I think it's July 9th, 2021 executive order. It was, it was President Biden's executive order on promoting competition in the American economy. Now , that's a mouthful, but if you, you plug that in , uh, and , and , uh, it's all laid out there and it's really, I , I don't think it's a bad read. Uh, and I actually commend it for board members who were monitoring business transactions because it really provides a basic understanding , uh, whether you agree with it or not, a basic understanding of where the government has been going in this whole area. Uh , it's, it's one of the few policy statements that I would encourage board members to read top to bottom, because they'll , I think it will help them get it.

Speaker 3:

So maybe me and our members will take your word on it, on how interesting a document is, but what's the CliffNotes version if those , uh, of our membership choose not to read it?

Speaker 4:

Read Rob . Uh , you'll , you'll wanna know, I think, I'm sure your readers will be, your listeners will be fascinated that I still keep some of my cliff notes from Mo Park High School. Uh , I think that for sentimental reasons, but they, they don't have one on this, but here it is in a nutshell. I think we all know historically that the government's antitrust focus has almost exclusively been on how business practices impacted consumer welfare. You know, principally through price increases. And we've seen that in a lot of the merger transactions. But now following this executive order, the focus seems to be on how market concentration impacts a much broader universe of participants in the economy, ranging from workers and farmers and other producers to small businesses and startups, and of course, consumers. So what you end up with, I think with the shift is that antitrust enforcement is extending beyond those areas of business conducts and deals with which boards are most familiar. They get the thread of, of , you know, potentially anti-competitive mergers. They understand the concept of price fixing , and they basically get the risks of conduct that could be considered collusive. They, they, they know that from their prior transactional view , but what they might not be aware of is that the new antitrust enforcement policy extends to a whole bunch of business practices that I think were previously bypassed by antitrust enforcement or , or weren't , weren't given , uh, close consideration. And it's stuff like employee hiring, retention compensation, board composition, the use of ai, the pricing of goods and services, information exchanges among other market participants. And the one that drives me crazy is the , uh, ephemeral messaging systems . So that's the universe now , uh, the broader universe , uh, of where antitrust policy is going. And I , I , I think if, if, if boards are going to exercise their oversight authority and their compliance , uh, risk monitoring authority, seriously, they need to be aware of it. And then there's the whole , uh, with , with the Department of Justice refers to as the whole of government approach where , uh, the antitrust enforcement agencies essentially pull , pull resources from all the elements of governance in , in , in their enforcement efforts. So ultimately, I think the point of it is , if I'm a board member, what, what I need to understand is that my colleagues and I need to be aware of this shift given our obligations for oversight of stuff like strategic planning, human capital, and of course, com compliance. The antitrust issues are now coming right outta left field on a regular basis. They're super hard to predict. Uh , and that's important for the board to realize. They , I think that in the past, some board members and some executives have been effective in as playing antitrust lawyer when we're talking only about mergers. They just can't do that anymore.

Speaker 3:

So , Michael, as we look at items specific to healthcare, are there particular things you would point to our clients?

Speaker 4:

You know, I think we all are familiar , uh, with a lot of the enforcement action, not just in the merger area, but in other areas that the FTC and DAOJ have been pursuing. I think one in particular, one new one is relevant as an example of how serious , uh, the antitrust enforcement agencies are about this broad , um, poll of government approach to antitrust enforcement. And I'm gonna have to go slowly on pronouncing this because I don't wanna mess it up. It's the task force on healthcare monopolies and in collusion. And that's a perfect example , uh, from the do j's perspective of its commitment to antitrust enforcement. And it's what's interesting, Rob, is if you understand where the government is coming from, this has been prompted by what the, at least the antitrust division of DOJ views is , the increasing platformization of healthcare with the industry evolving towards a series of platforms with coordinated stacks of businesses that flow together. Now, if I had a whiteboard, I think we could, you know, do some stick figures and things like that and, and draw a line. But I think this is a situation where board members , uh, or , and the strategic planning committee should get together with their governance council and their antitrust council and say, let's talk this through. Let's kind of get a better handle of what are the things we need to be working about. And of course, I'm always gonna be worried, I'm always gonna be worried about the whole overlapping board member issue , because that kind of creeps up on you .

Speaker 3:

So this sure seems like a lot. So I've gotta ask the question, doesn't this all go away as we're here in political season? Is this still a governance concern? If there's a change in the administration next November, you know , surely we don't think the Trump administration will carry these policies forward, do we?

Speaker 4:

Uh, you know, that's the $64 question, and I'm the last person to ask that. But I do think that a couple of things are worthy of note. Um, there's a populist element of some of these policies, which, you know, we we're , we , we we're lawyers we're not political strategists, but theoretically could continue in investigations that commenced, that are commenced in the second half of , uh, 2024 could certainly carry over past , uh, uh, January 20th or whatever inauguration day is. And , and I have to tell you, I was kind of surprised to know that , I don't know if you saw this, but it was reported in deal book in the New York Times that , uh, the , the , uh, that Senator Vance is a big supporter of Lena Kahn's antitrust policies. She being the , uh, head of the FTC, I thought that was surprising. So , uh, I, I guess I'm not in a position to, to tell people, hold on, wait for six months. There's a , if there's a change in administration, everything will be , well, I , I don't think that's a real sound strategy .

Speaker 3:

So what would you say the ultimate takeaway then is for our healthcare boards ?

Speaker 4:

Keep your head in a swivel. Uh, uh, don't assume that the antitrust rules are only gonna be applicable in the merger context. Leave open the possibility that there's things in the periphery , uh, that , uh, in terms of antitrust enforcement that could affect , uh, the health particular initiatives of the health system and their strategies and the way they structure governance. Keep your head on the swivel, talk to your antitrust council and just be aware that their oversight cannot be, when it comes to antitrust enforcement, has to be broadened, not narrowed. Uh , and I, again, I was , I repeat that , uh, I , I'd say to corporate executives and board members , please don't plate lawyer or economist here in terms of making your own calculation of where the risks lie, because you're gonna get burned if you do. Listen to your in-house counsel , listen to your advisors. Don't try and assume I know this stuff. I've been through a second request. I've got this cold . 'cause you probably don't.

Speaker 3:

Well, Michael, thank you for sharing your thoughts on this topic with us today.

Speaker 4:

Well, thanks for the opportunity again, Rob . And I'd like to use this moment to give a shout out to my antitrust partner, Steve Wu , with whom I've written a lot on these and related topics for a HLA . Uh, he's been an extraordinarily helpful tutor to me on the antitrust issues, and we're slowly but surely making him a governance lawyer as well. So we thank Steve Woo as well. And thank you, Rob.

Speaker 2:

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