Peter J. Mucchetti Chief, Litigation I Section

Antitrust Division

United States Department of Justice October 23, 2013

The views expressed in this presentation are the author’s and do not purport to reflect those of the United States Department of Justice

Recent Challenges to Health Insurance Mergers ◦ Health Insurance Product Markets

◦ Analyzing Health Insurance Mergers

Potentially Problematic Conduct in the Health-Care Industry ◦ Use of MFN provisions by insurers

◦ Exclusive contracts

◦ Joint price setting by providers

Potentially Beneficial Joint Conduct

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WellPoint-Amerigroup (2012)

Humana-Arcadian (2012)

BCBS of Montana-New West (2011)

BCBS of Michigan-Physicians Health Plan of Mid-Michigan (2010)

UnitedHealth Group-Sierra Health Services (2008)

UnitedHealth Group-PacifiCare (2005)

Aetna-Prudential (1999)

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WellPoint proposed to acquire Amerigroup for approximately $5 billion.

The merger would have substantially lessened competition in the provision of Medicaid managed care plans in Northern Virginia.

WellPoint and Amerigroup were the only two providers of Medicaid managed care plans in Northern Virginia.

The companies addressed the Department’s concerns by divesting Amerigroup’s Virginia operations

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Humana sought to acquire Arcadian Substantial concentration in 45 counties in

Arizona, Arkansas, Louisiana, Oklahoma, and Texas

Product market – no broader than the sale of Medicare Advantage plans

Settlement required divestitures in 51 counties

Settlement requires acquirer to have substantially the same access to health-care providers

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Hospitals owned New West, a health insurer

New West was one of only two significant competitors to Blue Cross in commercial health insurance in four parts of Montana

Hospitals collectively agreed to buy health insurance only from Blue Cross for six years

Hospitals received two seats on Blue Cross’ board if they did not compete with Blue Cross

The agreement effectively eliminated New West as a competitor.

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Divestiture of New West’s remaining commercial health-insurance business

Hospital owners required to enter three-year contracts with the acquirer on substantially similar terms to New West’s terms

Blue Cross must provide notice before using exclusive contracts with health-insurance brokers, or exclusive or most-favored-nation provisions in agreements with health-care providers

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Closing Statements ◦ UnitedHealth Group-Oxford (2004)

◦ Anthem-WellPoint (2004)

Chapter 6 of the DOJ/FTC report, “Improving Health Care: A Dose of Competition” (July 2004)

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Medicare Advantage ◦ Two cases have alleged markets no broader than

Medicare Advantage

Medicaid managed-care plans Individual vs. Group Health Insurance HMO/POS vs. PPO ◦ Found separate markets in Aetna-Prudential ◦ In United-Oxford, found that definitions of plans

had blurred

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Self insurance vs. Full insurance ◦ United-Oxford investigation did not reach definitive

conclusion, but suggested that separate market for fully insured product could exist

Small Group ◦ Defined a market for the sale of commercial health

insurance to small-group employers in Tucson, AZ, in the UnitedHealth-PacifiCare merger

Product market can vary by geographic market

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Unilateral effects ◦ Differentiated product market analysis

Coordinated effects ◦ Have not alleged a coordinated effects case in a

health insurance merger

◦ But certainly will if evidence suggests it, for example customer or geographic market allocation

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Unpersuasive arguments that entry and expansion are easy ◦ No capacity constraints ◦ Health insurance is just financing

Arguments that entry and expansion are difficult ◦ Need competitive provider network ◦ Reputation ◦ Provider and broker relationships

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Central questions ◦ Are there enough other payers that would buy the

health-care providers’ services such that an attempted price decrease would be unprofitable?

◦ What payers do the health-care providers consider to be substitutes for the merging parties?

Monopsony concerns present in three mergers ◦ Blue Cross of Michigan-PHP ◦ UnitedHealth-PacifiCare

Division alleged a monopsony, but not a downstream, case in Boulder, CO.

◦ Aetna-Prudential

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Many kinds of conduct that can create antitrust issues in healthcare

Three examples from recent DOJ cases:

◦ MFN Provisions

◦ Exclusive contracts

◦ Joint price setting

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United States v. BCBS of Michigan

Justice Department alleged that BCBSM had used MFNs with approximately 70 of Michigan’s 131 hospitals

Some MFNs ensure that competitors could not get better rates than BCBSM

Other MFNs require hospitals to charge competitors more than they charge BCBSM, in some cases between 30 and 40 percent more

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How analyze whether MFNs are anticompetitive?

Fact dependent, rule of reason analysis that looks at likely effect of MFN provisions

In BCBS of Michigan, DOJ alleged ◦ MFNs caused hospitals to increase prices to

BCBSM’s competitors and

◦ MFNs never resulted in BCBSM paying lower prices

Michigan enacted law in 2013 that bans MFNs

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◦ An exclusive dealing arrangement with a dominant plan or dominant hospital could make it difficult for new plans or small hospitals to enter or compete

◦ Can benefit or harm competition, depending on the circumstances

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Having monopoly power does not by itself constitute “monopolization.”

Rather, Section 2 of the Sherman Act makes it unlawful to maintain monopoly power through exclusionary conduct.

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DOJ alleged that United Regional was by far the largest hospital in Wichita Falls

To maintain its monopoly, United Regional required most commercial health insurers enter into contracts that effectively prohibited them from contracting with United Regional's competitors.

Settlement prohibits United Regional from using improper contracting provisions

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Statements of Antitrust Enforcement Policy in Health Care (1996) ◦ Addresses hospital and physician joint ventures;

collective provision of fee and non-fee related information; joint purchasing arrangements; and provider network arrangements

Antitrust Guidelines for Collaborations Among Competitors (2000)

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Many physician network joint ventures promise significant procompetitive benefits for consumers by developing and implementing mechanisms that encourage physicians to collaborate in practicing efficiently as part of a network.

But what happens when providers collectively set prices without any benefits for consumers?

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US v. Chiropractic Associates Ltd. of South Dakota

US v. Oklahoma State Chiropractic Independent Physicians Association

Both cases alleged that chiropractor associations set prices for chiropractic services on behalf of their members

Proposed settlements would prevent the associations from establishing prices or negotiating with payers

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Greater New York Hospital Association business review letter

Gainsharing program to member hospitals in New York.

Under the program, physicians could receive a share of the savings generated from reducing costs for treating patients if the physicians meet hospital-specific quality standards.

Should not harm competition because hospitals will not exchange confidential information and will independently determine physician gainsharing amounts.

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Peter J. Mucchetti

Chief, Litigation I Section

Antitrust Division

U.S. Department of Justice

450 Fifth Street, N.W.

Suite 4100

Washington, DC 20530

Peter.J.Mucchetti@usdoj.gov

202-307-0001