Chapter 14 - Competition and Antitrust Laws

seek to protect the public against trusts and monopolies so large that they have the power to control a market

antitrust laws

• restrict free trade

• restrict freedom of choice (restrict or eliminate competition) - via group boycotts (UR, med staff credentialing, 3rd party payers)

• control pricing and other practices (3rd parties - price fixing, monopolization)

• potentially result in diminished quality

ways in which trusts/monopolies control a market

one corporation absorbs another when corporations are similar in size and agree to the merger

merger

one corporation is subsumed by another; often involves the takeover of a smaller organization by a larger organization

acquisition

creation of a new corporation made up of two or more organization

consolidation

Community Hospital and Mercy Hospital created a new corporation, Community-Mercy Hospital, Inc. Community Hospital and Mercy Hospital each ceased to exist as individual organizations. The process that has taken place is called?

Consolidation

• mergers involving small hospitals (one has less than 100 beds and average census of less than 40 patients)

• joints venture for expensive or high-tech equipment

• joint ventures to offer specialized services

• efforts to provide medical data - information sharing

• provisions of healthcare fee/price information to purchasers of health services

• surveys about prices, wages, and benefits - market review

• joint purchasing arrangements between healthcare organizations

• exclusive and nonexclusive joint ventures with physician networks

• multiprovider networks (evaluated under the rule of reason)

safety zones

most healthcare antitrust litigation involves charges that defendants have violated section 1 or 2 or both sections of this act

civil and criminal penalties allowed - can receive up to triple the amount of actual damages

The Sherman Antitrust Act - 1890

no contract or combination of parties can work to restrict competition in the marketplace

Section 1 of the Sherman Act

anyone who monopolizes and attempts to monopolize a segment of trade or commerce “shall be deemed guilty of a felony”

Section 2 of the Sherman Act

In a case alleging violation of Section 2 of the Sherman Act, a court must:

• determine _______, both geographically and for product

• decide whether evidence shows ______ or ________.

• determine whether this monopoly power was ______ or ________.

relevant market;

control of prices or exclusions of competitors;

acquired, maintained willfully

• language was too vague - some courts used the Sherman Act to prevent labor unions from boycotting and organizing (i.e., combining to restrict commerce)

problems with Sherman Act

What problem of the Sherman Act did the Clayton Act address?

clarified the language

addresses:

• price discrimination

• exclusive-dealing contracts and typing arrangements

• merges and acquisitions

• interlocking directorships or officer positions in competing organizations

The Clayton Act of 1914

Who or what does The Clayton Act (1914) apply to?

for-profit and not-for-profit corporations

Civil remedies of the Clayton Act state that you can receive up to ____ the amount of actual damages.

triple

According to the Clayton Act, labor unions are _____.

not an illegal combination in restraint of trade

price discrimination

can’t sell goods on the condition that the purchaser not use goods from your competitor

trying arrangements and exclusive-dealing contracts

True/False: According to the Clayton Act, you can’t merge or buy another company for the purpose of lessening competition.

True

True/False: Despite the draw of increased efficiencies, courts have often ruled against healthcare mergers as being a risk for anticompetitive behavior

True

• Several pharmaceutical manufacturers sold drugs to not-for-profit hospitals at lower prices than they charged commercial pharmacies

• Pharmacies trade association filed suit, believing that the pricing gave the hospitals an unfair commercial advantage

• Key issue was what the not-for-profit hospitals were doing with the drugs to qualify for price differential

  • Court found that, except in emergencies when no other source of supply was available, the hospital was not permitted to use the drugs to refill prescriptions for its former patients to sell them to walk-in customers

Abbott Laboratories v. Portland Retail Druggists Assoc, Inc.

• empowers the FTC to enforce antitrust laws

• prohibits “unfair or deceptive” practices

The Federal Trade Commission Act

• false advertising

• misleading prices

• untrue accusations against competitor’s product

• overbearing door-to-door methods

issues FTC has sued on

Per the U.S. Constitution, Congress only has power to regulate _____.

international and interstate commerce

Healthcare has traditionally been an ______ issue and therefore not subject to Congressional jurisdiction.

intra-state

continues to expand healthcare to the international setting

medical tourism

• law and medicine — the learned professions

• state action exemption - if the state requires a particular action, it cannot violate the antitrust laws

• Noerr-Pennington exemption

• failing business defense

antitrust exemptions

relates to actions by competitors intended to induce government action (1st Amendment right to petition government)

Noerr-Pennington

if a merger involves one or more failing businesses, the courts may allow it on the theory that the failing business(es) will not be a competitor in the future anyways

failing business exemption

state actions

• evidence of purpose and effect of the particular restraint on competition

• costly and complicated

rule of reason

rule of reason continued

first looked for by the courts; only the first three are of much concern to healthcare

• agreements on prices

• division of markets

• group boycotts

• tying arrangements

they cannot collude with competitors to agree about prices or to divide the market (geographically or by product)

group boycott charges can stem from decisions about medical staff privileges

per se violations

• Focus in on future/potential adverse effects of competition & can be challenged long after transaction occurs

  • Statute of limitations doesn’t begin until anticompetitive effects are felt

restraints of trade

involves two or more entities at different levels in a distribution change acting together to restrain trade; union of vendor/customer

• doesn’t directly eliminate competitor, but ensures availability of supplies

vertical restraints of trade

Hospital agreed to acquire 2 largest MD clinics in area — other hospital filed suit, alleging it would cause MD clinics to shift patients

example of vertical restraint of trade

• Foreclose customer competitors form their source of supply

• Foreclose vendors competitors from access to market

• Force actual/potential competitors into vertical arrangements of their own

problems of vertical restraints of trade

Competitors (for example, two hospitals) agree to fix prices and divide the market, or exclude others from competing in the market; likely to have most significant effects on competition (higher score = higher potential for investigation); precombination and postcombination scores are compared

horizontal restraints of trade

antitrust safety zones

competition laws

• shared services

• Utilization review

• Med staff privileges

• Third-party contracts

• managed care

• mergers, consolidations

• state licensing

• big pharma

areas of possible concern

future expectations

ciese and desist issued to cosmotologists to stop teeth whitening services

FTC v. Phoebe Putney Health System - state action

True/False: Antitrust violations are generally governed by individual state laws.

False, state laws provide exemption opportunities

True/False: The FTC allows hospitals to offer misleading prices on their services in order to be competitive with others in their geographic area.

False, you cannot mislead

True/False: The Sherman Act is the oldest of the three major federal antitrust statutes.

True