FTC refocusing on anti-competitive practices
Potentially anti-competitive practices have crept their way into healthcare, particularly when it comes to hospital consolidation.
Photo: Eric Cavan/Getty Images
The Federal Trade Commission is refocusing and strengthening its policy of enforcing the federal ban on unfair methods of competition, the agency said by statement Thursday, and this could have ramifications on the healthcare industry.
Congress gave the FTC the unique authority to identify and police against these practices, beyond what other antitrust statutes cover. But in recent years, the agency said it "has not always carried out that responsibility consistently."
The FTC's previous policy restricted its oversight to a narrower set of circumstances, making it harder for the agency to challenge the full array of anti-competitive behavior in the market. Its statement removes this restriction and declares the agency's intent to exercise its full statutory authority against companies that use unfair tactics to gain an advantage instead of competing on the merits.
Potentially anti-competitive practices have crept their way into healthcare, particularly when it comes to hospital consolidation. A new Health Affairs analysis released this week found that while hospital consolidation within markets has become a common practice, consolidation across markets is on the rise.
Economic theory predicts – and evidence is emerging – that cross-market hospital systems raise prices by exerting market power across markets when negotiating with common customers, primarily insurers.
Since more than half of mergers and acquisitions over a nine-year period qualified as cross-market, evidence is emerging that this trend could have negative effects on market competition, enabling hospital systems to increase prices through cross-market power.
WHAT'S THE IMPACT?
Unfair methods of competition, the policy statement explains, are tactics that seek to gain an advantage while avoiding competing on the merits, and that tend to reduce competition in the market.
It's unclear whether the FTC will focus on hospital consolidation as it refocuses on broader anti-competitive practices, but with the policy change, more enforcement actions are potentially on the table.
Congress passed the Federal Trade Commission Act in 1914 because it was unhappy with the enforcement of the Sherman Act, the original antitrust statute. Section 5 of the FTC Act bans "unfair methods of competition" and instructs the commission to enforce that prohibition.
In 2015, however, the commission issued a statement declaring that it would apply Section 5 using the Sherman Act "rule of reason" test, which asks whether a given restraint of trade is "reasonable" in economic terms. The new statement replaces that policy and explains that limiting Section 5 to the rule of reason contradicted the text of the statute and Congress' clear desire for it to go beyond the Sherman Act. And it shows how the FTC will police the boundary between fair and unfair competition through both enforcement and rulemaking.
The statement makes clear that the agency is committed to protecting markets and keeping up with the evolving nature of anti-competitive behavior.
FTC staff researched the legislative history of Section 5 and its interpretation across hundreds of commission decisions, consent orders and court decisions – including more than a dozen Supreme Court opinions. This case history will guide the agency as it implements Section 5.
Through enforcement and rulemaking, the FTC will put businesses on notice about how to compete fairly and legally. This is in contrast with the rule of reason, which requires judges to make case-by-case economic predictions.
THE LARGER TREND
The American Hospital Association prompted the FTC and the U.S. Department of Justice to update its merger guidelines in March, in response to a request by the two federal agencies for comments and suggestions regarding how to overhaul the merger rules.
The FTC and DOJ solicited suggestions about modernizing the guidelines in ways that better detect and prevent anti-competitive deals.
In a letter to the agencies, the AHA floated two proposed revisions: that antitrust enforcers should address defects in the economic models used to evaluate hospital transactions, and that guidelines should enable antitrust agencies to account for the better care coordination that can be achieved through mergers.
In January, the FTC and the DOJ's Antitrust Division launched its joint public inquiry aimed at strengthening enforcement against what it called "illegal mergers," citing evidence that many industries across the economy are becoming more concentrated and less competitive. This imperils choice as well as economic gains for consumers, workers and entrepreneurs, the FTC said, and can result in higher prices and lower wages.
It would leave insurers with few alternatives for inpatient general acute-care services, which encompass a broad range of inpatient medical and surgical diagnostic and treatment services that require an overnight hospital stay, the FTC said.
The agencies' power to go after anti-competitive conduct has recently been expanded with the 2021 passage of the Competitive Health Insurance Reform Act (CHIRA), which repealed the McCarran-Ferguson Act's federal antitrust exemption for the health insurance industry.
Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com
