Enforcement Trends: New Emphasis on MD Practices Puts Labs at Growing Risk of Antitrust Enforcement

In addition to the usual Medicare and Medicaid anti-fraud laws, labs have a new liability risk to contend with: stepped-up federal and state enforcement of antitrust laws. The driving force behind this new emphasis on preventing and breaking up health care monopolies is consolidation and growing concern over purchases of physician’s practices by hospitals and insurers. And, of course, this puts not only physician and hospital labs but just about all labs squarely in the bull’s eye.

Higher Consumer Prices & Consolidation

Application of antitrust laws to big transactions within the health care sector is nothing new. But the rate and scope of enforcement are increasing as a result of the two phenomena within health care that bring the antitrust laws into play, namely, rising consumer costs coupled with market consolidation. The big health care players are gobbling up medical practices at an accelerated rate.

While health care organizations claim that consolidation leads to savings for consumers, the facts seem to indicate otherwise. Researchers have found that acquisitions have increased prices for health care consumers, which in turn drives up the costs of payors footing the bill, including federal and state government.  For example, according to one study done in 2018 by the University of California at Berkeley, average outpatient physician prices ranged from 35% to 65% higher in highly concentrated California markets, as compared to less concentrated markets.

Impact on Antitrust Law Enforcement

Although federal antitrust enforcement within the health care sector is nothing new, historically, it has focused on large mergers, acquisitions and other multistate transactions involving major entities like insurance companies, large health care networks and hospitals. Because their smaller in size and market impact, physician practice mergers and acquisitions have flown under the federal radar and been left to state enforcers.

But things are changing. Federal antitrust enforcement targeting physician group mergers and acquisitions is becoming far more common. Consider the following examples in which the Federal Trade Commission (FTC) stepped in to block a big player from acquiring a local physician group.

UnitedHealth’s Acquisition of DaVita Medical Group

In June 2019, the Federal Trade Commission (FTC) announced a settlement to unwind UnitedHealth Group’s acquisition of DaVita Medical Group’s Las Vegas operations. The FTC argued that the acquisition by United’s OptumCare of DaVita’s HealthCare Partners of Nevada would create a near-monopoly controlling more than 80% of the market for services delivered by managed-care provider organizations to Medicare Advantage plans. The combination, it contended, would also combine a Medicare Advantage insurer and a physician group. Both types of combinations, horizontal and vertical, FTC said would increase costs and decrease competition on quality, services and amenities by forcing rival Medicare Advantage plans to pay more for physician services.

Under the settlement, UnitedHealth agreed to sell DaVita’s Nevada medical group to Intermountain Healthcare, which offers a Medicare Advantage product in Las Vegas through its SelectHealth insurance arm.

Sanford Health’s Acquisition of Mid Dakota Clinic

In 2017, the FTC and Attorney General of North Dakota stepped in to block Sanford Health’s acquisition of Mid Dakota Clinic that they claimed would eliminate local competition. The federal District Court agreed and issued a preliminary injunction, characterizing the acquisition as a horizontal merger that would leave Sanford in control of 99.8% of general surgeon services, 98.6% of pediatric services, 85.7% of adult primary-care services, and 84.6% of OB-GYN services in the state’s Bismarck-Mandan market. In June, as the FTC was settling with UnitedHealth, the 8th U.S. Circuit Court of Appeals upheld the lower court’s ruling. The appeals court rejected Sanford’s “powerful buyer” argument that Blue Cross and Blue Shield of North Dakota, the state’s dominant insurer, had enough market power to resist any price increases on the basis of claims data analysis demonstrating the considerable market power the merged entity would have if the deal went through.

State Antitrust Law Enforcement

Of course, the states also have their own antitrust laws and enforcement regimes, typically targeting smaller transactions whose impacts are felt principally in the local market, including  mergers, acquisitions and other transactions involving physician practices–generally state law and enforcement initiatives. Recent cases suggest that state attorneys general are being more aggressive in policing physician acquisition deals.

Colorado’s Actions against UnitedHealth

Citing the harmful effects of “consolidation,” Colorado Attorney General Phil Weiser recently resolved a lawsuit imposing conditions on UnitedHealth’s acquisition of DaVita’s physician groups in Colorado Springs. Additionally, under a separate consent judgment, UnitedHealth agreed to lift its exclusive contract with Centura Health for at least 3 1/2 years, expanding the provider network available to other Medicare Advantage plans. DaVita Medical Group’s agreement with Humana. Weiser said in an interview, because health care costs in Colorado had been rising at an alarming rate. Weiser said his office had to intervene to protect the ability of Humana and other Medicare Advantage insurers to compete with United by having access to physicians and hospitals. “State attorneys general will be a critical part of protecting competition, both because we’re close to our citizens and because of a lack of action by the federal government,” he said.

Washington’s Actions against CHI Franciscan

In May, Washington settled an antitrust lawsuit with CHI Franciscan setting conditions on the health system’s 2016 affiliation with the Doctors Clinic and its purchase of WestSound Orthopaedics, both in Kitsap County. CHI Franciscan will pay up to $2.5 million, distributed to other health care organizations to increase access to care. The state attorney general claimed that transaction was designed to capture a large share of orthopedists and other physicians in Kitsap County, fix prices at a higher level, and shift more services to its Harrison Medical Center in Bremerton.

New State Antitrust Notification Laws May Impact Labs

Washington and other states have either passed or are looking into adopting laws requiring health care providers to give state officials advance notice before finalizing a merger or acquisition. Under federal rules, FTC advance notice is required for deals exceeding $78.2 million in value, a threshold that very few physician acquisitions ever meet.

Takeaway: Antitrust enforcement is becoming more aggressive at both the federal and local levels. For labs, the most immediate impact of this trend is the new focus on physician practice mergers and acquisitions. Ostensibly, these efforts don’t directly target labs. However, because of their physician-related ownership and business structures, labs, especially small and mid-sized ones, are likely to get swept into the antitrust enforcement net.