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12.22.2022 Legal News

What’s Next for Health Care Antitrust in 2023?

In 2021, President Biden issued an Executive Order directing antitrust enforcers to make sure that health care would be an area of emphasis for antitrust enforcement, and in 2022 they did. Federal regulators brought several challenges to health care transactions in 2022, including high-profile losses by the DOJ Antitrust Division in the UnitedHealth/Change transaction and by the FTC in Illumina/GRAIL (although the agencies are appealing both decisions). State regulators brought a handful of additional challenges as well, requiring merging parties to accept conditions to gain approval for their deals. For the first time, health care entities were also indicted on criminal antitrust charges for allegedly entering into wage fixing and “no-poach” agreements. While the first such actions ended in acquittals, by year’s end the DOJ Antitrust Division had succeeded in obtaining its first criminal conviction (via plea agreement) for a health care entity’s role in suppressing nurse wages. Perhaps most significantly, antitrust regulators vowed to continue to take on “hard” cases in the future, both under traditional and novel legal theories.  

Accordingly, as we enter 2023, what should the health care industry expect of antitrust enforcement?  If 2022 is any indication, the new year is likely to see a continued interest in health care antitrust enforcement. Some of the most anticipated developments in the coming months are likely to include:

  • The issuance of new federal merger guidelines. In early 2022, the DOJ Antitrust Division and the FTC announced that they were considering changes to their merger guidelines, which the agencies use to assess whether to challenge a merger on antitrust grounds. FTC Chairwoman Khan explained that revisions were required to ensure that the guidelines “accurately reflect market realities and equip [the FTC] to forcefully enforce the law against unlawful deals.”  The agencies offered the public an opportunity to provide comments on the existing guidelines, and this summer the DOJ/FTC announced that they had received almost 2000 comments. Since then, the FTC/DOJ have been working on potential changes to the guidelines, which may include modifications regarding when a transaction would be presumed to be anticompetitive, the role of “efficiencies” in merger analysis, and the impact of monopsony power, including labor markets, in merger analysis. Once issued, these new guidelines are likely to shape the course of merger law going forward, not only in 2023 but for many years to come.
  • More criminal antitrust charges relating to health care labor markets. The DOJ brought its first indictment in a health care labor collusion case (U.S.A. v. Jindal) in December of 2020, charging the former owner of a health care staffing company with colluding with competitors to fix wages for physical therapists. Subsequently, the DOJ indicted the owner of a group of dialysis centers for allegedly agreeing with its competitors not to “poach” each other’s senior level employees (U.S.A. v. DaVita). While juries failed to convict the defendant of antitrust violations in either of those cases, in October the DOJ obtained its first criminal conviction when a health care staffing company alleged to have conspired to suppress nurse wages agreed to pay a criminal fine of $62,000 and provide restitution totaling $134,000 to the affected nurses (U.S.A. v. VDA OC LLC). In early 2023, another criminal antitrust case in the health care industry in which the DOJ contends that four home health care agency managers conspired to suppress employee wages (U.S.A. v. Manahe) is scheduled to be tried in Maine. That matter will be closely watched to see if a jury will convict an antitrust defendant for engaging in such conduct (if proven, of course). Perhaps most importantly, with the DOJ having announced that it currently has over a hundred pending grand jury investigations focused on antitrust-related conduct, all signs point to a continuing interest on the part of DOJ in investigating, and prosecuting, any alleged misconduct in this area.
  • State health care merger laws face constitutional challenges. Over the last several years, many states proposed, and a few states have enacted, statutes requiring health care entities to provide notice to a state attorney general when announcing a merger, even for mergers where the transaction value is well below federal Hart-Scott-Rodino Act reporting thresholds. The most inclusive of these laws was passed in Oregon in 2021 (“HB 2362”); that law requires notice and prior approval for all health care transactions in which one party has annual revenue of over $25 million and the other has revenue of over $10 million, greatly increasing the number of transactions that must be reported, and approved, in that state. However, only months after the law became effective, the Oregon Association of Hospitals (OAH) filed an action (Oregon Association of Hospitals v. State of Oregon) seeking to have the law declared unconstitutional under the federal Due Process clause. Among the many challenges raised by the OAH, it claims that the law fails to provide clear guidelines regarding the criteria for approval/rejection of a proposed deal. Should the action succeed, challenges to other similar state statutes are likely to follow, bringing considerable uncertainty to the merger review process in many states.
  • The DOJ Antitrust Division will seek to have its trial-court loss in the UnitedHealth/Change merger overturned by the D.C. Circuit. In September, the DOJ (together with several states), challenged the merger of UnitedHealth and Change Healthcare in the D.C. District Court. The challenge focused on (1) whether UnitedHealth’s offer to divest its ClaimsXTen business to a third party was sufficient to satisfy DOJ’s horizontal concerns about the transaction and (2) whether DOJ concerns that “firewalls” protecting against the sharing of competitor data that UnitedHealth would obtain through its merger with Change were insufficient to protect against competitive harm in the insurance markets in which UnitedHealth competes. In a 58-page decision, Judge Carl Nichols rejected the regulators’ challenge, ruling that – so long as the merging parties went through with their planned divestiture of ClaimsXTen – the transaction would not be enjoined. Subsequently, on November 21, after the parties had closed their transaction, the DOJ (joined by the states) filed an appeal to the D.C. Circuit seeking to have Judge Nichols’ ruling overturned. A ruling by the D.C. Circuit is anticipated in the first half of 2023 and, particularly if it is coupled with the issuance of new merger guidelines from the agencies, could usher in a new approach to merger analysis.
  • The FTC seeks to have its loss in the Illumina/GRAIL merger trial overturned by the FTC. In early September, Administrative Law Judge Michael Chappell ruled that the FTC had failed to prove that Illumina’s acquisition of GRAIL would cause harm to competition. In rejecting the FTC’s challenge, Judge Chappell held that the FTC had not proven that Illumina (a DNA sequencing provider) would use GRAIL (the maker of a multi-cancer early detection test) to stifle the ability of Illumina’s rivals to innovate and compete with Illumina. Central to the ALJ’s ruling was Illumina’s “open offer” to permit its rivals to make use of GRAIL technology in the future, which the ALJ held would satisfy any potential competitive concerns. Shortly after the ruling, the FTC announced that it would appeal the ALJ’s decision to the full Commission. That appeal is currently pending, with a decision expected in early 2023, and will be closely watched by all parties that litigate against the FTC.
  • Non-profit hospital mergers will continue to face significant challenges from State Attorneys General under both antitrust statutes and non-profit corporation “change of control” laws. In 2022, several State Attorneys General actively reviewed hospital mergers not only under traditional antitrust principles and statutes, but also under the broader regulatory authority provided to them under many state non-profit “change of control” statutes. For example, most recently, after a detailed review, the California Attorney General approved Trinity Health’s affiliation with Madera Hospital pursuant to California Corporation Code Sections 3920 et seq. Notably, this statute grants the Attorney General broad powers to review non-profit hospital changes in control, and to deny approval on grounds much broader than traditional antitrust principles. Ultimately, the Attorney General approved the transaction, but with numerous conditions, including Trinity’s agreement to accept “price caps” on future prices. Similarly, earlier this year, the Colorado Attorney General reviewed a transaction between Intermountain and SCL Health under a Colorado non-profit change of control statute, and similarly required that the parties agree to conditions to gain approval for their deal. Notably, these conditions were imposed notwithstanding the fact that the two systems did not have any hospitals in the same regions (and thus did not compete with one another in any way). Looking forward, it is likely that state attorneys general will make more frequent use of non-profit change of control statutes, where applicable, to challenge health care transactions in circumstances where traditional antitrust principles might not apply.
  • A new FTC Commissioner enters the scene. 2022 began with a vacant commissioner slot at the FTC, leaving 2 Democrat-appointed commissioners and 2 Republican-appointed commissioners at the helm of the FTC. Lacking a majority, this 2-2 split was viewed as a significant impediment to the ability of FTC Chairwoman Lina Khan to fully implement her agenda for the agency. This changed in the Fall, with the confirmation of Alvaro Bedoya to the fifth commissioner slot, creating a 3-2 Democrat majority at the FTC. Subsequently, the majority increased to 3-1 with the resignation of Republican Commissioner Noah Phillips in November. Notably, while the eventual nomination and confirmation of a fifth commissioner (who must be a Republican) will not shift the balance of power away from the Democrats, dissents by Republican Commissioner Christine Wilson and Commissioner Phillips - before he resigned - have not been without influence, and a loud, dissenting voice from a new Republican Commissioner could resonate throughout the FTC in 2023 and beyond.

With all of these significant events already on the calendar for 2023, and undoubtedly more to come, 2023 is very likely to be another year in which health care antitrust remains very much in the news. Stay tuned.