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
- more -
(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.
# # #
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)
(V930010)