The Regulator: The State of Healthcare in Georgia

The Regulator: The State of Healthcare in Georgia

On March 18, 2016, the Georgia Association of Healthcare Executives sponsored a closed door session for C-Level Executives throughout the state to hear perspectives from two insiders: Harold Kirtz, Senior Litigator for the Federal Trade Commission, and Mr. Will Melson, President of the Broadwell Group. The discussion went long, but here’s half of what was shared from a regulator’s perspective. Please note that any comments by Harold Kirtz are not necessarily the views of any individual Commissioner or of the Commission as a whole.

Q: What things does the FTC look for in its jurisdiction over mergers and acquisitions?

A:  We look for whether the merger or acquisition will substantially lessen competition in a particular market.  We have to determine what the product or service market is, what the geographic market is, what concentration is there among the current players in the market, and whether there is the likelihood of substantial entry by new or expanding players in the market. 

One example of a recent merger in Georgia is the Phoebe Putney merger in Albany, GA. The Commission challenged that particular transaction (and won the case in the Supreme Court) on the issue of “state action immunity” – the Commission will look to see (1) if a State has clearly articulated a policy that they want to restrict competition in the marketplace and (2) whether the state is sufficiently supervising the activity in the marketplace; then a challenge by a Federal agency may be overcome if both of those criteria are met.  In this particular instance, Phoebe Putney had gotten the State to pass a set of regulations to say the State was going to approve this kind of transaction, but even though the State said that hospital systems could merge, that was not enough – there had to be a specific articulation by the State to restrict competition when merger activities took place… so the Supreme court found that the State action immunity was not sufficient enough to keep the challenge from taking place against the merger.

However, the lower courts allowed the merger to go through while the appeal was taking place, so by the time we had the result from the Supreme Court, the merger had taken place and there was no way for us to get a structural remedy in the situation.  There were several conduct provisions, but the merger stood, even though we had gotten a favorable result from the Supreme Court.

This is a big concern of ours – whether consumers are going to be able to have choices in the marketplace, even for various kinds of healthcare services.

Q: If you could have gotten a structural remedy (Phoebe Putney case), what would that have looked like?

A: There are two general kinds of remedies that we look at.  One is structural and the other is conduct. Typically, in merger situations we prefer the structural remedy, because that’s a much better way to re-establish competition into the marketplace. So we would have preferred to have the two hospitals, with the acquiring hospital divesting itself into the acquired hospital.

Q: What concerns does the FTC have about CON regulations?

A: We encourage states to consider the competitive effect of CON laws. We think there are a number of issues. It’s time-consuming, there are multiple layers of review, it’s often a costly process, it creates barriers to entry and expansion on the part of other market participants. It suppresses more cost-effective, innovative and higher quality options that could be available in the marketplace. We think it is often exploited by competitors, and promotes anticompetitive agreements.

Q: Is there any data looking at price, for example, on the market effects of CON restrictions?

A:  There have been a number of studies that the FTC and others have done in this area. Some are related to COM restrictions.  These studies typically show that CON restrictions lead to higher prices or a reduction of or restriction on services offered to the public.  Another big area of concern where there’s a lot of activity in courts now is in what we call “pay for delay” cases, where the brand name pharmaceuticals try to keep generic pharmaceuticals out of the market.  Some of that is done by trying to delay entry of generics into the market.  Consumers pay hundreds of millions of dollars per year more than is necessary because of these activities.

Q:  What are the FTC’s concerns with regard to Joint Ventures?

A: With Joint Ventures, we determine what the anti-competitive effects versus the pro-competitive effects are.   One item we look at is whether there’s a true integration of the joint venture entities, or is it more of a proposal for horizontal collaboration that creates higher prices, lower quality, or lower amount of services.

Another area we look at in addition to mergers and joint ventures is what we call “Horizontal Collaboration”. Are competitors cooperating?  That can be a problem in the marketplace. What we look for are activities that are going to potentially increase prices to consumers, reduce the number of services offered or whether it’s going to reduce the quality of what’s being offered?

Q: What are some of FTC’s areas of concerns regarding Consumer Protection?

A: One major area in the Healthcare market is in false advertising. There are a number of things that consumers need to be cautious of and alert to in the healthcare area.  One is the false advertising regarding “miracle cures”; “cancer cures”; “dietary supplements”; medical discount scams; and “Obamacare scams”. For example, someone may call up and say you need a health card in order to buy Obamacare. There’s no such requirement. They’re just trying to get $200-$500 out of consumer.  We have sued on these types of product/service areas a number of times.

Another area we’re concerned about is privacy. This is a new area for the commission in the past 15-20 years.  Before the Internet, there was not as much concern about privacy as there is today. We have a concern with access to patient information that can be used to target consumers.  So there has to be a lot of care taken in the privacy of patient information area.

Then there’s the area where hospitals and medical offices themselves are the targets of scams. Some of those are in unordered merchandise scams where cleaning supplies, office supplies, or Xerox paper, etc. are coming to an office. Someone (from the scam company) calls up, talks to a Secretary, saying “it’s time for your cleaning supply order to come. Can we go ahead and send it?”  They may send office supplies through the mail or through delivery, but along with it comes a humongous bill for the merchandise. This is something hospitals and medical offices need to be aware of and put protections in place, because the scam artists call numbers (for example, in a hospital system) until somebody answers and says, “oh yah, go ahead and send those supplies on to us.”

Q: What is your perspective about the consolidation of the National Health Insurance Companies? Any concerns that all of the major Payers are consolidating?

A: We certainly would be concerned if the consolidation was leading to a lot fewer choices for consumers in the marketplace. One of the things that is frustrating for the FTC is that while we can look at merger issues related to insurance companies, the “business of insurance” (that is, premiums, benefits, coverage, etc.) is one of the areas that we are restricted from by Congressional Statute.  But it’s really each State’s Insurance Commissioner that is supposed to be concerned about the business of insurance. From my perspective, we would like to see the ability of insurance companies to practice across state lines, so that there are not state restrictions on competition to purchase insurance. We are concerned about consolidation in the area, simply because we don’t like to see fewer choices for consumers.

Q: Is there ever a case where a regulatory burden can be seen as anti-competitive?

A: Yes, we have actually made comments to other Federal agencies where legislation is being proposed for them that could raise anti-competitive issues.  In our Competition Advocacy Program, some of our work relates to anti-competitive provisions that in proposed legislation at the State level, that may be instituting additional restrictions that State agencies might be enforcing. So, it is an area we are concerned about and we do, from time to time, make comments to other agencies about potentially anti-competitive provisions.

Q: Carolina’s healthcare in Charlotte has about 60% market share. It’s the highest of any MSA. Do you have a rule of thumb for determining at what point (% market share) it becomes “anti-competitive”?

A: There are guidelines we follow in terms of market share to make evaluations of transactions (look on-line under Horizontal Merger Guidelines where you’ll see what the baselines are for that). We calculate market share based on what we call a Herfindahl-Hirschman index, which is the addition of the squares of market share percentages.  Usually, if somebody with 30% market share tries to buy someone with 30% market share for 60% market share, we’re going to be concerned.  Especially if someone with 60% buys someone with 40%.

Q: How do you distinguish between “mergers” and “integration”? How do you differentiate one, which is thought to be favorable, versus another that is considered anti-competitive?

A: Mergers are where one party is going to be buying another, or there’s going to be some combination of two parties to create a new, third party. Integration (without a merger), like a joint venture is something we would take a look at. It could be that it’s the equivalent of a merger, in which case we might look at it as though it were a merger. One factor we would take a look at is the reason for the integration. We’re also going to take a look to see how consumers are affected by the integration. Will the integration have the potential for reducing prices, providing better quality of care, or providing more options for the consumer? But we’re still going to look to see whether the anti-competitive effects of any integration are going to override whatever pro-competitive effects there are.

Harold Kirtz Bio
Harold Kirtz is a Senior Litigator with the Federal Trade Commission. He is a magna cum laude graduate of the University of South Carolina and a member of Phi Beta Kappa, and graduated in 1974 from Harvard Law School. He has been with the Federal Trade Commission since 1974. Starting in the Bureau of Competition in Washington, he worked primarily on merger litigations before becoming Assistant to the Director of the Bureau of Competition.  He moved to the Atlanta Regional Office in 1978, and was in management as Assistant Regional Director or Regional Director for 19 years. In 1997, he took a Senior Litigator position and worked on antitrust matters for several years, including hospital merger investigations. Since 2000, he has worked almost exclusively on the litigation of consumer fraud cases.

Harold was also asked by the Commission to manage the Southwest Regional Office while the Commission looked for a new permanent Regional Director.  He served as Acting Regional Director in Dallas from late June to early October 2013. Harold was awarded the 2012 Robert B. Pitofsky Lifetime Achievement Award from the Commission and was a 2010 recipient of the Director’s Award for the Bureau of Consumer Protection.

 

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