Antitrust and Unfair Competition Law

Competition: Fall 2015, Vol 24, No. 2

HEALTH CARE MERGER ANALYSIS IN THE ERA OF PAYMENT REFORM1

By Kenneth W. Field and Douglas E. Litvack

Health care providers, from the most acclaimed academic medical centers to independent primary care practitioners, have continued their blistering pace of consolidation and mergers in an effort to meet the demands of health care reform. It is through these mergers and affiliations that providers hope to generate the significant efficiencies required to survive as the world moves toward value and risk based reimbursement. But the provider mergers that stand to generate the largest efficiencies—those that involve proximately located providers who can optimize their delivery platforms—often raise the greatest antitrust concern because existing antitrust models suggest they may eliminate important localized competition.

As a result, the Federal Trade Commission ("FTC") has made health care merger antitrust enforcement a priority. In the past several years, the FTC has investigated hundreds of provider mergers and in each case it has applied largely the same analytic framework. And that framework, described in more detail below, has been validated by several federal district courts in the FTC’s recent successfully litigated challenges to hospital and other provider mergers. As the healthcare industry evolves, however, it is natural to ask if the FTC’s approach to analyzing provider mergers must change along with it.

Health plans and government payors are in the process of changing the manner in which providers are paid for services. The goal is to transition provider compensation to forms of value-based pay, which reward providers for the quality of the care delivered, not just the volume of care. While providers generally believe this fundamental shift away from fee-for service reimbursement will render the FTC’s analytic framework irrelevant, the FTC is unlikely to change its ways. In fact, for the reasons explained below, the FTC’s existing analytic tools are likely to continue to drive health care merger enforcement policy even as payment reforms takes hold. There is at least one type of transaction, however, where those very tools may actually help providers obtain antitrust clearance for their prospective mergers.

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