FTC and DOJ Continue to Turn Up Antitrust Heat on Healthcare Industry

The Federal Trade Commission (FTC) and U.S. Department of Justice (DOJ) continued their online listening tour on April 14, 2022, with a discussion regarding the effects of mergers and acquisitions on the healthcare industry as told by patients, employees, practitioners in the field and independent business owners. The healthcare industry discussion was the second installment in the FTC and DOJ's efforts to obtain input for use in updating their merger guidelines, which are currently under revision.

Summary of Healthcare Industry Listening Forum

Like the food and agriculture listening forum before it (see Holland & Knight's previous alert, "FTC Focuses on M&A in the Agricultural and Food Industry," March 31, 2022), the healthcare industry listening forum sought to solicit the feedback from "affected groups who might not otherwise participate in the process" of providing comments to help shape the preparation of new merger guidelines. FTC Chair Lina M. Khan and Deputy Assistant Attorney General Doha Mekke from the DOJ's Antitrust Division led the forum. During the discussion, several key themes surfaced. First, multiple participants voiced concerns that horizontal mergers led to a perceived decrease in the quality of care, particularly at hospitals, stemming from merger-related staffing reductions, limited access to specialized care, centralized care management, and, at times, increased patient costs due to increased costs for coverage or certain services being excluded from coverage. Another common concern expressed was the perceived misaligned incentives flowing from vertical integration, which some participants complained emphasized shareholder benefits at the expense of patients and healthcare workers. Participants also ascribed vertical consolidation to be the cause of a perceived anticompetitive environment for independent healthcare companies and new market entrants in the industry. Finally, a lack of competition in the pharmaceutical industry was attributed as the cause for unsustainable price increases in certain medications, particularly those designed to treat diabetes.

While these complaints are not unfamiliar to organizations in the healthcare industry, Khan's response reflected the growing shift in federal policy toward increased regulation and enforcement as a favored solution. Kahn emphasized the FTC will be "very skeptical" of claims that vertical consolidation will increase efficiency, improve patient care and lead to cost reductions, and focus on potential conflicts of interest. Signaling increased government regulation and enforcement, Kahn stated that the anticompetitive use of market power, which various participants mentioned during the forum, is best stopped at the time the merger is happening. Kahn also expressed criticism of hospital mergers, noting that efficiency in providing care becomes irrelevant if a patient's preferred local hospital disappears as a result of a merger. Finally, Kahn acknowledged complaints from participants that both healthcare workers and their patients are suffering, and she emphasized that the FTC will focus on the effects of consolidation and anticompetitive conduct on workers and labor markets as well. Bekke and later Assistant Attorney General for the Antitrust Division Jonathan Kanter both echoed various comments from Kahn. Public comments were then received from various stakeholders and interested persons.

Key Takeaways

The selection of speakers, their commentary and the reactions from Kahn were all in step with the recent messaging from the FTC and DOJ, which is growing louder by the day, that the healthcare industry is and will remain under close government scrutiny for potential anticompetitive conduct. Two key areas of concern that arose during the forum are 1) the likely return of vertical integration regulation and enforcement, and 2) continued antitrust enforcement in the labor markets.

Vertical Integration Enforcement Back from the Dead

With few exceptions, vertical consolidation – mergers between organizations at different levels of the supply chain – has traditionally been viewed as infrequently raising competitive concerns. However, Kahn's remarks during this most recent listening forum suggest a revitalized interest in reviewing and potentially challenging mergers between firms at different levels of the supply chain. Moreover business objectives, such as efficiency, improved patient care and decreased cost, likely will no longer receive the same deference that has existed for the past few decades.

Viewed in context, Khan's remarks certainly appear to be another step toward jumpstarting vertical merger enforcement. The foundation for this policy shift was laid with the decision in September 2021 to reject the Trump-era 2020 Vertical Merger Guidelines due in part to a "flawed discussion of the purported procompetitive benefits (i.e., efficiencies) of vertical mergers, especially its treatment of the elimination of double marginalization" and a failure to address "increasing levels of consolidation across the economy."¹ Although enhanced vertical merger enforcement has yet to occur in the healthcare industry, government regulators have begun to implement this policy objective in the aviation industry. In light of the consolidation that has occurred in recent years in the healthcare industry, government regulators will likely pay closer attention as future vertical mergers are announced in healthcare.

The government's renewed commitment to vertical merger regulation and enforcement should give pause to healthcare organizations considering acquiring another organization downstream or even upstream in the supply chain. More careful consideration of the competitive impact of a proposed vertical merger is certainly warranted

Antitrust Enforcement in Labor Markets Undeterred

Antitrust enforcement in the labor markets has long been an ancillary issue to the antitrust regulatory landscape. However, in the past few years, government regulators have begun taking a an aggressive enforcement stance against agreements between organizations not to hire competitors' employees, often referred to as "no-poach" agreements. Khan's comments are consistent with FTC's recent administrative action to block the proposed merger of two New England hospitals because the combination of the two hospitals would allegedly lead to a substantial lessening of competition in the relevant labor market. Beginning with the FTC and DOJ's guidelines for human resources issued in 2016, which led to significant enforcement actions and prosecutions during the Biden Administration, and despite two recent significant losses in criminal cases brought by the DOJ, it is likely that government regulators will not be deterred, particularly those in the healthcare industry, where much of the no-poach antitrust enforcement has focused of late.

Despite the DOJ's recent unsuccessful criminal prosecutions, the government's attention to no-poach agreements cannot be ignored. For years, no-poach agreements were accepted as a show of civility and respect among competitors. But now such agreements create the risk of significant civil monetary sanctions, as well as business interruption and the reputational harm that can accompany government investigations. 

Within the context, a few key steps forward emerge. First, organizations in the healthcare field should ensure that those within their firms are receiving the proper training and education regarding potential antitrust risks flowing from their hiring practices. This typically requires training and education to be delivered at multiple levels within an organization and not simply to the legal department or the executive team. Second, organizations should take a close review of existing employment agreements and related practices to ensure they are in harmony with existing law. Such assessment will necessarily require careful consideration of the business justifications for the arrangement, duration of any such agreement, the geographic scope to which it applies, and whether the agreement involves direct competitors or those at different stages of the supply chain.

While current antitrust policy shifts are expected to create some headwinds for the healthcare industry, strategic self-assessment and adherence to best practices remain the best tools to steer through the changing conditions. Holland & Knight's Antitrust Team, which includes former leaders in the federal and state antitrust enforcement agencies, stands ready to assist clients as they navigate this new enforcement environment and consider steps that they can take to minimize potential risks this environment presents to their businesses. If you have any questions, please contact the authors of this alert.

Notes

¹ Statement of Chair Lina M. Khan, Commissioner Rohit Chopra and Commissioner Kelly Slaughter on the Withdrawal of the Vertical Merger Guidelines (Sept. 15, 2021), at 1–2.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.