FOR YOUR INFORMATION..............................MARCH 10, 1993
FEDERAL TRADE COMMISSION STAFF CAUTIONS NORTH DAKOTA THAT HEALTH-CARE ANTITRUST-EXEMPTION BILLS COULD RAISE COSTS AND REDUCE QUALITY TO CONSUMERS
Two bills before the North Dakota Legislature to exempt certain cooperative agreements among hospitals and other health providers from antitrust liability appear to be based on the premise that antitrust enforcement efforts prevent or inhibit agreements that would benefit consumers, according to the staff of the Federal Trade Commission in comments made public today. In fact, the staff said, "antitrust enforcement has played an important role in facilitating reforms in the health care sector and the hospital industry in particular, by removing obstacles to the use of innovations such as managed care to take advantage of competition to contain costs and overcome some of the inefficiencies of health care markets."
At the request of North Dakota Assistant Attorney General David W. Huey, the FTC submitted its staff comments in a letter signed by Michael O. Wise, Director of the Office of Consumer and Competition Advocacy.
The Commission's antitrust enforcement activities concerning hospitals and other health care providers, the FTC staff said, "attempt to maintain the competitive market forces needed to make the current health care system work, and provide opportunities for improvements in the system to make it work better.
Under Senate Bill 2295, North Dakota health care providers could negotiate with each other about the allocation of equipment or services without risk of antitrust liability, so long as their
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(North Dakota Health Care--03/10/93)
discussions are designed to reduce costs or to improve the quality of, or access to, health care and so long as they do not involve price-fixing. The bill provides for review of cooperative agreements by the attorney general, who would weigh the benefits against the reduced competition before deciding whether to issue a certificate immunizing the agreements from any state or federal antitrust liability. Such agreements could involve the sharing or allocating of patients, personnel, support services or facilities.
The companion bill, S.B. 2426, contains provisions substantially similar to S.B. 2295, but would apply only to agreements among hospitals and their affiliates. Under S.B. 2426, certificates would be issued by the state health department -- in consultation with the attorney general -- following a hearing in which the applicants would be required to show "by clear and convincing evidence" that the likely advantages of the proposed agreement outweigh the disadvantages from reduced competition.
The FTC staff emphasized that antitrust enforcement action has not prevented cooperative agreements among hospitals or other health care institutions that are beneficial to consumers. "Moreover, neither the Commission nor the Justice Department has ever challenged any of the numerous joint ventures among hospitals," the staff said. "Indeed, when they have challenged proposed mergers, the agencies have identified joint ventures -- for example, an existing magnetic resonance imaging ('MRI') service shared between two hospitals in Augusta, Georgia, where the Commission challenged a proposed hospital merger -- as desirable alternatives for hospitals to achieve efficiencies... without sacrificing the larger benefits of price and quality competition by merging their entire operations."
The FTC staff expressed concern that provisions of the two bills could be interpreted to encourage or permit agreements that are more explicitly anticompetitive in intention and effect than those contemplated before. Of specific concern, the staff said, would be agreements that did not reflect efficiency-enhancements, but instead amounted to agreements to divide markets and refrain from competition. This type of agreement could be just as harmful to consumers as price-fixing, the staff said. Moreover, the staff cautioned, there is a risk that, in the process of negotiation, competitors could reach anticompetitive understandings even where no agreement is requested and no certificate issued.
(North Dakota Health Care--03/10/93)
The FTC staff comments note two requirements in federal law to establish a state action exemption from federal antitrust law. First, there must be a clearly articulated state policy to displace competition; and second, the state must actively supervise the policy. The "active supervision" requirement means that the supervision must extend to specifics of implementation. Applying this requirement to health care, the FTC staff said, it has been held that an authorizing certificate alone without a means to monitor conduct to ensure consistency with state policies would not confer antitrust immunity.
In their present form, neither bill calls for subsequent scrutiny of the actions of the parties to an agreement once a certificate has been issued. The staff comments recommend that scrutiny of actual conduct under these agreements is not only desirable but might also be necessary to accomplish the goal of conferring antitrust immunity. Another way to minimize the risks that anticompetitive agreements could become institutionalized, the FTC staff recommended, would be to issue certificates only for defined, limited terms. The burden then would be on the parties to demonstrate that the benefits continue to outweigh the disadvantages.
In conclusion, the FTC staff said, "we recommend that [if these bills] are nonetheless considered desirable for other policy reasons, measures be included to make it easier, rather than more difficult, to terminate 'agreements' whose net effect is detrimental to consumers' interests."
These comments represent the views of the staff of the Federal Trade Commission. They do not necessarily represent the views of the Commission or any individual Commissioner.
Copies of the comments are available from the FTC's Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired, 1-866-653-4261.
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MEDIA CONTACT: Don Elder, Office of Public Affairs 202-326-2181
STAFF CONTACT: Michael O. Wise, Office of Consumer and Competition Advocacy 202-326-3344 (NODAKOTA)