The Department of Justice Antitrust Division (DOJ) recently withdrew three sets of policy statements regarding the US antitrust agencies’ enforcement approach to conduct in the healthcare industry. These policy statements created “safety zones” for a variety of practices where authorities would not take enforcement action outside of exceptional circumstances.
A contemporaneous speech by the Principal Deputy Assistant Attorney General of DOJ’s Antitrust Division, Doha Mekki, highlights that DOJ is particularly focused on competition in data-driven segments of healthcare provision and conduct by vertically integrated providers.
Companies that have previously relied on these safety zones should review and evaluate the potential risks given DOJ’s withdrawal of the policy statements.
Background: Safety Zones in Healthcare
Between 1993 and 2011, DOJ and the Federal Trade Commission (FTC) released several policy statements on antitrust enforcement in the healthcare industry. These statements offered guidance on various types of conduct in the healthcare industry, such as joint purchase agreements, joint ventures, and hospital mergers.
The 1993 policy introduced the concept of “safety zones,” which define conduct that the antitrust agencies deem procompetitive or benign and undertake not to challenge absent extraordinary circumstances. These safety zones had the virtues of being relatively easy to apply and enabling the agencies to say “with a high degree of confidence that arrangements falling within them are unlikely to raise substantial competitive concerns.”1
Over time, the scope of the safety zones grew as the antitrust agencies provided further guidance. In 1996, they expanded the 1993 guidance by broadening the types of healthcare providers covered by the safety zones. And in 2011, the agencies issued a policy statement adding an additional safety zone covering accountable care organizations (ACOs)—groups of hospitals, doctors, and other healthcare providers that coordinate to provide care to Medicare patients. Thus, under these policy statements, absent exceptional circumstances, DOJ and the FTC would not take action against:
- General acute-care hospital mergers if one hospital merger partner, over the prior three years, had fewer than 100 licensed beds and fewer than 40 patients per day.2 This safety zone excludes mergers where the relevant hospital is less than five years old.
- Hospital joint ventures to purchase or share equipment that include no more than the number of hospitals necessary to recover the cost of purchasing, operating, and marketing the equipment.3
- Competing providers collecting medical data and developing practice parameters to share with purchasers of medical services to enhance the manner, quality, or efficiency of treatment. This safety zone excludes coercive uses of the data or practice parameters, such as boycotting health plans that do not follow a joint recommendation.4
- Competing providers collecting fee, price, and cost information and collectively providing it to purchasers of medical services if the information is (1) managed by a third party, (2) at least three months old, and (3) based on at least five providers with no individual provider’s data representing more than 25% of the disseminated statistic, and the data are sufficiently aggregated so as to prevent identification of individual provider prices.5
- Joint purchasing arrangements among healthcare providers if the arrangement accounts for less than 35% of overall sales of the purchased product or service in the relevant market, and the cost of the product and services accounts for less than 20% of the total revenue of each participant in the arrangement.6
- Physician networks where all participants share substantial financial risk and whose share of physicians in each specialty with active hospital privileges in the relevant geographic market is less than either 20% for an exclusive network or 30% for a nonexclusive one.7
- ACOs where ACO participants providing the same service have a combined share of 30% or less of that service in each participant’s “primary service area.”8
DOJ Withdraws Healthcare Policy Statements
On February 2, Deputy AAG Mekki gave a speech announcing that DOJ would withdraw the three sets of healthcare policy statements with the safety zones.9 Mekki said that DOJ has “no immediate plans to replace” these policies10 and said the withdrawals were influenced by the fact that both the healthcare industry and DOJ’s understanding of healthcare economics have “evolved” since 1993.11 She pointed to two specific changes in healthcare.
First, healthcare is an increasingly “data intensive industry that relies on the power of machine learning, artificial intelligence, and other advanced tools to develop or deliver products or services.”12 These practices change “how buyers or sellers transact business, which may bear on important dimensions of competition in this industry.”13
Second, “consolidation in the healthcare industry has brought together industry participants who once served distinct or adjacent functions,” which “may have changed the underlying incentive structures in the industry.”14 As an example, she observed that “large health insurance companies now own providers, [pharmacy benefit managers], health data analytics companies, and acute care clinics.”15
The following day, DOJ issued a press release formalizing the withdrawal of the healthcare policy statements.16 It remains unclear whether the FTC—which is ordinarily responsible for reviewing hospital mergers and investigating many health-care related segments—will follow suit and withdraw the policy statements.
Guidance on Former Safety Zone Conduct
With DOJ’s withdrawal of the policy statements, companies should be prepared to reevaluate existing and future projects that would fall under one of the former safety zones. Many activities that were previously within the safety zones remain unlikely to receive serious scrutiny from a US antitrust agency. Conduct that formerly enjoyed safety zone treatment will still be evaluated and typically found lawful under the rule of reason. And the same is true for much conduct similar to behavior that was in a safety zone but not strictly within the confines of that safety zone—e.g., because the participants’ combined shares are modestly higher. Still, the withdrawal signals a shift in DOJ’s views on antitrust enforcement in at least some circumstances.
Based on Mekki’s speech, DOJ likely will pay closer attention to data-driven business practices like pricing algorithms and companies that operate at multiple levels of the healthcare value chain. Companies should be cautious of whether industry use of algorithms or vertical integration may change the competitive dynamics—or the way the antitrust agencies perceive those competitive dynamics—and create more risk that certain conduct will be deemed to harm competition. Antitrust law is highly fact intensive. Particularly given DOJ’s withdrawal of the guidance and the agencies’ interventionist stance and willingness to push the bounds beyond established doctrine, it is crucial for companies to consult antitrust counsel to assess the risks of proposed or ongoing former safety zone conduct and implement robust compliance procedures to minimize antitrust exposure. In the healthcare industry, activities that, though often involving little antitrust risk, can raise particular exposure to antitrust enforcement actions or private litigation depending on the circumstances include hospital mergers, joint ventures, purchase agreements, data sharing arrangements, and physician networks.
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