Health Care Antitrust Update: Accountable, Coordinated, and Reformed, So What’s New? Art Lerner Pennsylvania Bar Institute Health Law Institute Philadelphia, PA March 12,

Agenda New Supreme Court ruling in N.C. State Board of Dental Examiners v. FTC Recent Payor Challenges Powerful Providers Provider Collaboration Initiatives Recent Challenges to Provider Combinations The Saga of Western Pennsylvania 2

Supreme Court Rejects Antitrust Immunity for Unsupervised Professional Licensing Board State licensing board controlled by “active market participants” must be supervised by State to meet one of the two elements required for “state action” antitrust immunity. N.C. Carolina State Board of Dental Examiners v. FTC, 574 U.S. ___ (Feb. 25, 2015) (slip opinion).slip opinion – To meet requirement: (1) the supervisor must review the substance of the decision; (2) the supervisor must have the power to veto or modify particular decisions to ensure they accord with state policy; and (3) the state supervisor may not itself be an active market participant. – Court already rejected lax construction of immunity requirement that action of non-sovereign subordinate state government entity must further a clearly articulated stated purpose to displace competition with regulation, such as where the anticompetitive effect was an "inherent, logical and ordinary" result of exercise of delegated authority. FTC v. Phoebe Putney Health System, Inc., 568 U.S. ___ ( Feb. 19, 2013) (slip opinion)slip opinion Note: Case addresses immunity only, not antitrust merits. The sky will not fall. 3

DOJ monitors the health insurance mergers closely: – Aetna/Coventry (permitted after state required divestiture of Medicaid business in Missouri) – Humana/Arcadian (permitted with divestitures in selected Medicare Advantage local markets) – Anthem-Wellpoint/Amerigroup (permitted after divestiture of Medicaid plan business in Northern Virginia) – BCBS Michigan acquisition of small HMO plan dropped after DOJ announced opposition Key Issues: – Geographic market share in local/regional market areas – Product market definition (e.g., large vs. small group, individual Medicare Advantage, Medicaid managed care, etc.) – Ultimate impact of new health care exchanges 4 Recent Payor Merger Challenges

Challenge to MFN Use DOJ challenged alleged anticompetitive use of most favored nation clauses in hospital contracts by powerful health plan. U.S. v. Blue Cross Blue Shield of Michigan, No. 2:2010-cv (E.D. Mich. Oct. 18, 2010) (complaint).complaint – Case dropped after state adopted restrictions on MFNs – Follow-on litigation continuing 5

Key Takeaway Heart of issue is whether: – (good) MFN clause serves to assure competitive treatment of the party protected by the clause and fosters efficiency by permitting parties to peg contract terms to evolving market pricing and avoid the need for inefficiently frequent renegotiation of contract terms, or – (bad) it maintains prices at a higher level than otherwise and undermines the ability of smaller players in the market to compete. 6

Powerful Provider Contracting Practices Recent cases and guidance go beyond mergers, addressing conduct that could raise serious anticompetitive concerns: Use of ‘‘anti-steering,’’ ‘‘anti-tiering,’’ ‘‘guaranteed inclusion,’’ ‘‘most-favored-nation,’’ or similar clauses to discourage payors from directing or incentivizing patients to choose certain providers Certain tying, expressly or via pricing policies, of services to a payor's purchase of other services Contracting on an exclusive basis with providers Restricting a payor's ability to make cost, quality, efficiency, and performance information available to enrollees Department of Justice and Federal Trade Commission Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program, 76 Fed. Reg. 67,026 (Oct. 28, 2011). 7

Case Law Cascade Health Solutions v. PeaceHealth, 515 F.3d 883 (9th Cir. 2008) United States v. United Regional Health System, Civ. A. No. 7:11-cv (N. D. Tex. 2011) UFCW & Employer Benefit Trust v. Sutter Health, CGC (Sup. Ct. SF, Cal. April 14, 2014) Heartland Surgical Specialty Hosp., v. Midwest Div’n, 527 F. Supp.2d 1257 (D. Kan. 2007) 8

United Regional “Unallocated” Discount Illustration Hospital Rates

Allocating United Regional Bundled Discount to “Contested” Lines of Service Hospital Rates

Key Takeaways Health systems dominant in a local market area should be wary of offering discounts across their full range of facilities and services conditioned on health plans’ exclusion of smaller competitors. Antitrust issues can also arise if bundled pricing “discount” forces health plan to include large system’s full range of services and facilities, such as home health, DME, or satellite hospitals, at prices not advantageous to health plan relative to alternatives, where bundled pricing puts health plan in an “all or none” situation via “offer it can’t refuse.” Effect is similar to an express “tie in” where a hospital system refuses to contract on other than a “take all of me” basis. 11

Another Key Takeaway Where a powerful provider demands inclusion of potentially anticompetitive language into an agreement with a health plan (or a powerful plan inserts such language in an agreement with a provider), antitrust liability can go in both directions if the arrangement is deemed an agreement in restraint of trade. 12

Provider Collaborations and Networks Agreements on price: “Per Se” or “Rule of Reason”? Is there real integration that provides efficiencies - clinical, financial or otherwise? Is joint price setting needed to make the initiative work? Will the venture block competition or cause competitive harms that outweigh benefits -- too much market power? Exclusivity commitments by providers that create a bottleneck or united front? 13

Key Takeaways Even where there is clinical or financial integration, an antitrust violation can still occur if the combined enterprise will be able to wield market power via exclusivity with providers and, in some instances, over-inclusiveness. Some providers may be tempted to employ health reform lingo to try out familiar “united front” managed care contracting strategies, but with only lip service to real integration, or its deferral to a later date. The enforcement agencies will pierce the rhetoric, where integration claims are empty, to challenge price fixing activities. The antitrust agencies are not likely to press to the limit where there is some real effort toward legitimate quality improvement and clinical integration and no “market power” problem. Where there is real integration, but there might also be a market power problem, agencies sometimes have to make a tough call. Cf. North Texas Speciality Physicians v. FTC, No (5th Cir. 2008); Southwest Health Alliances, dba BSA Provider Network (FTC complaint/consent agreement (May 10, 2011) 14

Recent Challenges to Provider Combinations Saint Alphonsus Medical Center-Nampa Inc. v. St. Luke’s Health System, No (9th Cir. Feb. 10, 2015.)(upholding preliminary injunction) Commonwealth of Massachusetts v. Partners Healthcare System, Civ. A. No BLS2 (Sup’r Ct. June 24, 2014) (complaint for injunctive relief and joint motion for entry of final judgment by consent); Id., (Jan. 29, 2014) (order disapproving proposed consent judgment) ProMedica Health System v. FTC, No (6 th Cir. April 22, 2014)(upholding FTC order finding merger unlawful) FTC v. OSF Healthcare System, Civ. A. No. JI-CVV (N.D. Ill. April 5, 2012) (preliminary injunction) (deal then abandoned) In re Reading Health System, FTC Dkt (Nov. 16, 2012) (administrative complaint) (deal abandoned) In re Omnicare, FTC Dkt (Jan. 27, 2012) (administrative complaint) (deal abandoned) 15

9 th Circuit Rejects Efficiencies Defense in St. Luke’s case Court rejects defense based on alleged need to acquire physician group to move toward integrated care. – “It is not enough to show that the merger would allow St. Luke’s to better serve patients.” – “The [district] court found “no empirical evidence to support the theory that St Luke’s needs a core group of employed primary care physicians beyond the number it had before the Acquisition to successfully make the transition to integrated care,” and that “a committed team can be assembled without employing physicians.”” – “The [district] court also found that the shared electronic record was not a merger-specific benefit because data analytics tools are available to independent physicians.” – “[T]he district court concluded that St. Luke’s might provide better service to patients after the merger..., but the Clayton Act does not excuse mergers that lessen competition or create monopolies simply because the merged entity can improve its operations.” 16

Key Takeways Efficiencies must foster improved competitive market performance that will benefit consumers/patients Efficiencies must be merger specific 17

Payer vs. Provider vs. Payer The players: West Penn Allegheny UPMC Highmark BCBS With appreciation to Doug Ross for this and succeeding slides on Western Pennsylvania 18

Payer vs. Provider vs. Payer The story so far … West Penn v. UPMC and Highmark Claim: UPMC and Highmark protected each other’s turf Claim: UPMC acted unilaterally to damage West Penn Highmark and UPMC … “a bitter relationship” “UPMC offered a ‘truce’ to Highmark” West Penn v. UPMC and Highmark District court granted MTD for failure properly to allege agreement or injury Court of Appeals reversed 19

Payer vs. Provider vs. Payer The story so far … … West Penn and Highmark announced plans to merge… Antitrust Division reviewed; issued closing statement April 2012: Vertical affiliation No foreclosure concerns 20

Payer vs. Provider vs. Payer UPMC sued Highmark and West Penn – Claim: conspired to steer patients to WP Then, some West Penn hospitals seek to avoid merger with Highmark Highmark sued West Penn – To enforce exclusivity clause West Penn made up with Highmark 21

Payer vs. Provider vs. Payer Ad war: UPMC vs. West Penn

Payer vs. Provider vs. Payer Ad war: UPMC vs. West Penn Governor tried to broker a settlement

Payer vs. Provider vs. Payer Ad war: UPMC vs. West Penn Governor tried to broker a settlement PEACE!!!

Payer vs. Provider vs. Payer Ad war: UPMC vs. West Penn Governor tried to broker a settlement PEACE!!! Not so fast…

Payer vs. Provider vs. Payer Ad war: UPMC vs. West Penn Governor tried to broker a settlement PEACE!!! Not so fast… Litigation in 2014 over Highmark offering Medicare Advantage product that does not include UPMC

Payer vs. Provider vs. Payer Ad war: UPMC vs. West Penn Governor tried to broker a settlement PEACE!!! Not so fast… Litigation in 2014 over Highmark offering Medicare Advantage product that does not include UPMC Court permits product offering “Health Care Antitrust Update” … 2016 … 27