Feds, Private Actors Increasing Scrutiny of Anti- Competitive Activity

Labs should review their conduct and relationships with others, now that there's been a renewed interest in whether they are engaging in unlawful antitrust activity.

Antitrust lawsuits involving labs have been making news this summer. In August, the class action suit against Quest Diagnostics and three health insurance companies brought by Hunter Laboratories and Surgical Pathology Associates settled for an undisclosed amount just five days before the lawsuit was to go to trial. The lawsuit had originally also been brought by Rheumatology Diagnostic Laboratories and Pacific Breast Pathology Medical Corporation; their claims had been dismissed earlier. The plaintiffs had alleged that Quest offered below cost lab pricing in exclusive agreements to Aetna, Blue Cross Blue Shield Association and Blue Cross of California to injure the smaller labs and destroy competition among labs in California.

Another class action antitrust lawsuit against Quest, brought by several consumer-patients in California, was dismissed in June because the complaint lacked sufficient information about the alleged anticompetitive behavior. The court granted the plaintiffs time to amend the complaint, but they did not do so.

In addition to this antitrust attention, the Federal Trade Commission (FTC) issued a policy statement Aug. 13 clarifying its "standalone" authority to enforce unfair competition even when the activities involved don't specifically violate the antitrust laws but contravene the "spirit" of the laws and could violate them if allowed to mature or complete. The "Statement of Enforcement Principles Regarding 'Unfair Methods of Competition' under Section 5 of the Federal Trade Commission Act" asserts that the FTC has such "standalone" authority since the laws themselves were written generally to accommodate changing markets and business practices and enable the FTC to challenge activities on a case-by-case basis. While the FTC did not explain the reason for or timing of the policy statement, it may be a sign that the agency intends to ramp up its enforcement activities.

Expect more private challenges
There's been an increase in agreements and transactions in health care in the past few years, especially as the Affordable Care Act and improved economy has fueled more business deals among providers, according to attorney Jonathan Lewis, with Baker & Hostetler in Washington, DC.

But the improved economy is also spurring more private antitrust lawsuits by aggrieved competitors or customers challenging a deal, relationship or other type of conduct, as evidenced by the lawsuits against Quest. Unlike some laws, like the Health Insurance Portability and Accountability Act, where private citizens cannot file lawsuits for violations of the law, there is no such restriction for challenging possible anticompetitive conduct.

And while there was a downtick in private antitrust litigation during the recession because people were more careful about spending their money on lawsuits, private antitrust litigation is on the rise again, according to attorney Bill Berlin, with Hall, Render, Killian, Heath & Lyman in Washington, DC.

Entities are also more likely to be sued privately for antitrust violation allegations than be investigated by the government. Many of the deals that are challenged in private litigation are smaller, local situations that are less likely to come to the attention of the government, says Lewis. While the FTC and the Department of Justice (DOJ) have increasingly been targeting health care deals, and apparently FTC is extending its authority further, the government tends to focus on larger deals, such as the Humana/Aetna and Cigna/Anthem health plan mergers announced this summer, points out Berlin.

Moreover, usually the government is content to let a private litigant bring an antitrust challenge without joining the fray unless it had also been investigating the activity that is the subject of the litigation, which was the case when the FTC joined in the lawsuit against St. Luke's Health System's acquisition of Saltzer Medical Group in Idaho. That lawsuit had been initially brought by a competitor of St. Luke's, says Berlin. The court in that case ruled against the providers and ordered the health system this past February to unwind the deal.

"A challenge [via a private lawsuit] is not necessarily invalid or less credible [to the government] but the FTC and DOJ have limited resources," Berlin explains.

However, don't think that you only need to worry about lawsuits and can fly under the government's enforcement radar. It's common for competitors, individuals and managed care plans to file complaints with the FTC for perceived antitrust violations rather than filing a private lawsuit, and anyone is fair game. "You're not immunized because you're smaller. Sometimes the FTC or DOJ will pick a small antitrust matter to use as an example," Berlin warns.

Anticompetitive behavior takes many forms
There is a multitude of ways to violate the antitrust laws. Some of the most common anticompetitive issues affecting labs include:

• Deals by the larger labs. These include bundled/discount pricing that smaller labs can't offer, "most favored nations" clauses in managed care contracts, which force the smaller labs to lower their prices to meet the discount set by the "most favored" lab provider, or exclusive contracts that shut out the competition, which was the allegation in the lawsuits against Quest.
• Acquisitions, mergers and joint ventures, which can create market power in a geographic area.
• Unlawful concerted activity, such as joint price fixing with other labs, joint boycotting of managed care contracting unless the plan meets a certain threshold compensation, or other anti-competitive collusion.

Unfortunately, many labs don't realize that a deal or conduct they're considering or engaged in violates the antitrust laws. And while some transactions are clearly anticompetitive— such as independent labs banding together to set prices—many deals fall more into a gray area and may not necessarily be hurting competition, depending on the context, market power of the parties, and other factors. "It's not cut and dried," Lewis explains.

For instance, exclusive contracts, which are common in health care, are not inherently unlawful. "There's nothing wrong with them as long as they are up for bid at regular intervals and terminable on short notice," Lewis explains. But if the exclusive contract enables one provider to lock up a lot of volume with more than one contract and those contracts are staggered, so that there's no real opportunity for others to bid for the global business, then the exclusive contract can be an unlawful barrier.

Five steps to reduce risk of antitrust violation, challenge
Many activities are permissible under the antitrust laws. Very few deals are "dead on arrival," but sometimes they do need to be reviewed and possibly tweaked or restructured, says Lewis.

And of course, even a deal that passes legal muster can be costly to defend. To protect themselves, labs should consider these five tips:

1. Assess the benefits and risks of a deal from an antitrust standpoint, ideally with an antitrust attorney. If deal is procompetitive, such as providing increased efficiency, improving quality of care and reduction of costs, it's more likely to be lawful. "Have a real motive for the conduct. If you're signing a contract just to get bargaining leverage, it's indicative of anticompetitive effect. If there are procompetitive justifications, it's more likely to be legitimate," says Berlin.

2. Document any deal/conduct carefully. Make sure your legal documents, emails and the like contain language that addresses the legitimate reasons for the activity, says Berlin. You want evidence to help you defend your actions.

3. Watch your market share. A deal in an area where there's a lot of competition for laboratory services is less likely to be problematic from an antitrust perspective, says Lewis. "It's more complicated the bigger you are," he warns.

4. If you're merging or forming a network, check to see if there's a market for it. "From a practical matter, will a payor want to buy [from the new entity]? If so, it's less risky and less likely to raise an antitrust risk. But if it will really aggravate a payor or competitor, then it's more risky and more likely someone will challenge it," says Berlin.

5. Be careful when deals or relationships go sour. These often lead to antitrust claims from the aggrieved party, even though many of these are unsuccessful, warns Lewis.

Takeaway: Laboratory compliance officers should assess whether a proposed or existing relationship, activity or agreement with other providers or entities could invoke antitrust concerns and, if so, determine how to reduce the risk that the lab will have to defend itself in court or to the government.