Leslie Overton, Partner, Axinn Veltrop & Harkrider LLP, speaks with Peter Mucchetti, Partner, Clifford Chance US LLP, and Cagatay Koc, Managing Director, Secretariat Economists, about the Biden Administration’s changing approaches to antitrust in health care since the release of its July 2021 executive order on antitrust competition. They discuss the administration’s “all of government” policy approach to antitrust, recommendations for navigating merger reviews and antitrust investigations in the health care sector, considerations related to labor theories in the antitrust framework, and what to expect from revisions to the merger guidelines. Sponsored by Axinn.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
Leslie Overton, Partner, Axinn Veltrop & Harkrider LLP, speaks with Peter Mucchetti, Partner, Clifford Chance US LLP, and Cagatay Koc, Managing Director, Secretariat Economists, about the Biden Administration’s changing approaches to antitrust in health care since the release of its July 2021 executive order on antitrust competition. They discuss the administration’s “all of government” policy approach to antitrust, recommendations for navigating merger reviews and antitrust investigations in the health care sector, considerations related to labor theories in the antitrust framework, and what to expect from revisions to the merger guidelines. Sponsored by Axinn.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
Support for ALA comes from action, which brings unmatched depth in the skills needed to address healthcare, collaboration, and competition. They are one of the best known antitrust firms in the world. With more than 60 full-time competition lawyers, they represent companies across the healthcare universe and help clients avoid antitrust landmines, complete mission, critical deals and protect their interests and litigation and investigations from my information, visit axon.com.
Speaker 2:Hello everyone. This is Leslie Overton. I'm a partner at axon in the DC office, and it is such a pleasure to be speaking to you all, uh, on this podcast where we are addressing, uh, developments, uh, since the white house executive order. Although we will be addressing topics beyond that. I have been doing antitrust for a long time, and I've been fortunate to have experience with healthcare during that time, including at the department of justice, where during the Obama administration, uh, I had responsibility for, um, healthcare antitrust policy. And, uh, I am going to give a super brief introduction of our two wonderful speakers. And then they're going to expand on those introductions. Uh, the first is Peter ETT, who is a partner in Clifford Chance's DC office. And I had the wonderful pleasure of working with him on healthcare matters while I was at DOJ. And then the second who you'll hear from after you hear from Peter is Dr. Chai, uh, coach, who is a managing director at secretariat economics in the Washington DC office. So I'll first turn to Peter to give a little bit more information about himself.
Speaker 3:Thank you, Leslie. It is great to be on this podcast with you and chati, uh, and, uh, it's great to think about the, the money many wonderful years that you and I worked together in the antitrust division of the justice department. That's where I spent the vast majority of my career about 19 years. And, and, uh, most of that time in the healthcare and consumer product section, which I led for about seven and a half years before, uh, coming to Clifford chance, but I'm excited to talk about, uh, the various, uh, uh, healthcare topics that we're going to, uh, work through on today's, uh, podcast. There, there is just so much going on at the antitrust agencies and in the healthcare industry, um, in particular. So I look forward to our conversation.
Speaker 2:Great, Dr. Coach.
Speaker 4:Uh, thank you, Leslie. It's, it's great to be on this podcast with you and Peter. Um, I have been, uh, working on, uh, uh, healthcare issues in the last 15, 20 years since basically, uh, my dissertation at that graduate school. Um, at one point I was also at the federal trade commission as a visiting scholar for two years, uh, working on, uh, healthcare issues in terms of particular cases. Um, I have analyzed, um, uh, allegations of monopolization and exclusionary conduct in, uh, in health insurance. And in pharmaceuticals, I have worked on mergers in hospital services, physician services and pharmaceuticals cases. Uh, and also lately I have been working on, um, statistical sampling and damages issues in rate disputes between, uh, providers and, and insurers companies.
Speaker 2:Excellent. Well, again, it's so wonderful to have both of you here and, um, I'm looking forward to a robust discussion. So we're going to start with talking about, um, Biden's all of government and holistic approaches to antitrust. And so I will begin with chati and, um, ask how is Biden's all of government policy approach being implemented. And are there any recent developments in antitrust enforcement that you think embody this policy?
Speaker 4:Yeah, I think there are, um, uh, several developments in antitrust enforcement, uh, recently that embody this, this policy, um, that the first, uh, development that I've seen is that the federal trade commission announced, uh, a retrospective study, um, on physician service acquisitions, um, and, um, uh, they, they, they basically requested information, um, from several insurance companies to analyze the impact of physician consolidations. Um, these could be, these could be physician practice, group mergers, or hospital acquisitions or physician practices. And I find this, uh, important, uh, especially in the area of, uh, the analysis of quality competition for physician services while we know a great deal about, um, quality competition in hospital services. Um, especially, you know, there's a lot of, uh, academic writings, uh, both on the conceptual side and on the empirical side, on the issue of, uh, quality competition in hospital services, we don't know much about the link between physician competition and quality. There is not much academic work. So I think, uh, this study might be important, uh, to further our knowledge, uh, on that issue. Uh, another area, uh, that I've seen is, uh, in a relatively, uh, short amount of time in a couple of years, uh, we have witnessed four hospital merger challenges, uh, the proposed transaction between care, new England and lifespan, uh, the proposed merger between Hackensack and, um, Englewood, and then the Jefferson health, uh, Einstein transaction, even though the FTC declined to pursue further his challenge, uh, when a federal judge refused to join this transaction and finally, uh, the Methodist St. Francis transaction. So all of these four hospital merger challenges, I think, um, are also can, can, can, can be in this recent development in antitrust enforcement bucket. And finally, uh, the dije pursued, uh, some, uh, criminal cases against individuals for alleged wage fixing agreements. And, uh, this might be, um, uh, in the area that, uh, that the, uh, labor antitrust issues I think will be important going forward, uh, for the agencies.
Speaker 2:Well, thank you very much. We're going to talk more, um, shortly about, uh, those labor issues, because those have definitely been a big focus of, uh, of antitrust, um, uh, within healthcare and beyond healthcare. Um, but next I want to go to Peter and just ask, um, with new perspectives at the DOJ, the FTC, and at many state AGS offices, what recommendations should we give clients when navigating merger reviews and antitrust investigations in the healthcare sector?
Speaker 3:Yeah, it's a great question. I mean, how, how has the, the world shifted and, uh, how should, uh, healthcare companies react to that? Well, let me, let me give three high level takeaways that I think in house council or outside council, um, should keep in mind when advising their clients is first understand that the, the, the climate at the agencies is much more aggressive, both the federal trade commission and the justice department's antitrust division are very proud about the fact that they are trying to be, uh, as aggressive as they can, uh, with, um, uh, challenging mergers that they see as anti-competitive or business practices that they see, uh, as harming, uh, consumers and that many of the state attorney General's offices, who of course, are also responsible for enforcing, uh, state antitrust laws, uh, are also, uh, very aggressive. And there, we we're seeing, uh, uh, strong cooperation between the federal and the state antitrust agencies. The second high level, um, takeaway is that, uh, when interacting with the antitrust agencies focus on how your transaction or your business practice helps consumers and your community, the, the arguments to make in front of the agencies can be broader. Now, it's not just about, uh, consumers, uh, there, the agencies are concerned with, um, more than some of the traditional consumer welfare theories, uh, of harm. And I think that gives the opportunity to say, um, uh, to talk about how, uh, mergers are, uh, helpful, not only in, um, the product markets that the antitrust division or the federal trade commission are looking at, but more generally how the, uh, transaction or business practice are helping consumers in the larger community. And finally, uh, my, uh, uh, main takeaway is to just be prepared, uh, do your antitrust analysis upfront, figure out early what your affirmative and defensive, uh, stories are, uh, because there is a much greater risk at the agencies, investigations are going to last longer and result in, uh, potential challenges. So knowing what your best arguments are upfront, um, is very important, but it, uh, I do wanna say it's not all bad news. Uh, there are healthcare and transactions that are going through, and there are healthcare investigations that are being closed. Um, so, so definitely, uh, uh, companies should continue to, uh, pursue those transactions that they feel will benefit, um, their, the, the communities that they serve. And then finally, maybe in, in kind of an, uh, the, the flip side of the fact that the agencies are being more aggressive is that if you do find yourself in a situation where you want to complain about anti-competitive conduct, uh, you may have, um, uh, agencies that are more interested and willing to listen to those concerns. Uh, you, you will have, uh, probably a more fertile ground, uh, uh, for, uh, sewing, uh, those concerns with the antitrust agencies.
Speaker 2:I, those are all, um, great takeaways, Peter, and, um, you know, that the idea that the agencies are definitely more open to newer theories, um, newer theories of harm, but also as you said, um, perhaps might be more open to, um, uh, newer, uh, pro-competitive, uh, rationales and the like, but, uh, I think just remembering that this is, um, there've been a number of changes and that just because, um, a particular transaction may have been viewed in one way, um, in prior years does not mean that's how it will be viewed, uh, today. So I, I like your point a lot about being prepared. Um, alright, so we're gonna move on to labor and monos, um, which, um, uh, Chatta had, um, previewed for us. And so, Peter, I'll start, I'll start with you. Um, the antitrust division survived motions to dismiss in general and Devita, but lost both back to back at trial. What do you think that the future holds for the division's approach to criminal labor market antitrust investigations?
Speaker 3:Well, this, this is a really great question because it has been a huge area of focus for the antitrust division and, uh, many state attorney generals as well. Um, uh, and, uh, even though the justice department had two very high profile trial losses in labor cases, they have, uh, indicated that they will very much, uh, continue to, uh, prosecute wage fixing and, uh, no poach investigations. And I thought I might just talk a little bit about, uh, the G doll and the Devita case that you mentioned, because just like you said, um, it both cases survived a motion to dismiss, and then ultimately the justice department lost a trial and the, and the G doll case, uh, which like the Devita case is a healthcare case. Um, that was a, a wage fixing case where the allegation was you had competitors agreeing on how much they would pay, uh, people that they were hiring. So that's the, the wage fixing part of it. And then in DaVita, it was a different kind, uh, although a similar kind of labor market agreement, that's a non-solicitation agreement. Uh, I won't, uh, try to hire your employees if you don't try to hire, uh, my employees. And then with the motions to dismiss the justice department saw this as, as a very important victory, uh, for them just to establish the fact that these kind of allegations could be prosecuted criminally, that that was legally permissible. In the G case, the court rejected the defendant's constitutional arguments that they hadn't received fair notice saying that yes, they had, there was decades of precedent saying that this kind of, uh, wage fixing agreement could violate the Sherman's act per se rule. And then very similarly in the DaVita case, uh, the court, uh, rejected the idea that the defendants hadn't received fair notice, um, uh, but did add, uh, that DOJ would have to show, uh, not only that the defendants entered into a non-solicitation agreement, but also that the defendants intended to allocate a market. Um, so move forward. The government tried both of these cases, uh, at the same time. Uh, they almost, uh, at the same time, uh, juries came back with, uh, two not guilty verdicts, uh, but, uh, Jonathan Candra who leads the antitrust division, uh, indicated that, uh, the division is, uh, clearly gonna continue to bring this kind of case describing these labor market cases as extremely important programmatic cases. Um, also the, the head of, um, the, uh, criminal program, uh, at the antitrust division, uh, Richard Powers made a very similar statement saying that labor competition enforcement goes straight to the heart of the antitrust division's economic justice mission. And indeed we see other labor market cases that are working their way through the courts. And I'll just mention one, which is the mana he case, which involves, uh, uh, employers at home healthcare agencies. And that matter is scheduled to begin trial in September of this year. So we will see if the division can get a trial win in that case. And then maybe one last case dimension, um, is that, um, the, uh, division has, um, uh, filed, uh, papers in, um, the he case, which is in Nevada, indicating that the parties have, uh, reached a preliminary resolution, uh, for, um, the, this alleged labor market violation. And if that happens, that will be the first DOJ conviction for a labor market case.
Speaker 2:Thank you very much, Peter, for, um, um, that deeper dive into these issues. I'll just note, um, a practical application for our listeners. And that is just a reminder to take a look at your compliance policies and make sure that they are up to date and that they encompass, uh, labor, um, issues. So, because that is something that some companies have, uh, have run into that they just haven't updated their policies. And, um, sometimes their, uh, their people are not as aware of the sensitivities around these issues. So, um, I'm next going to go back to chati, um, and to a case that, uh, or matter he mentioned earlier, the lifespan care, new England transaction. So, um, so chair con and commissioner slaughter announced that they would've supported an allegation that the effect of the lifespan care new England transaction may have been to substantially lessen competition in an unspecified labor market, Republican commissioners, Phillips, and Wilson disagreed with their assessment, given the evidence, but noted that mono claims can have relevance in merger review. Now with the appoint appointment of democratic commissioner Bedoya, how do you predict labor considerations might be incorporated into hospital merger review?
Speaker 4:Yeah, so, um, ho hospital mergers that significantly reduce the number of hospitals competing locally for, uh, labor may depress, uh, wage growth. Uh, so, so the, the question is, uh, should merger review consider whether merging firms gain labor market power, uh, that enable them to decrease, uh, employees wages? Uh, I think this is at least a for, for an economist. This is a really difficult, um, empirical question, uh, to, to, to analyze, because what we are really trying to answer is the merger induced changes in employer concentration. So this is, this is similar to, for example, analyzing, uh, merger induced efficiencies, which is, which is another difficult topic. Uh, so it is difficult to, to analyze, uh, merger induced changes in employer concentration, um, because, uh, it is important to examine whether the actual mergers, as opposed to, uh, other sources of variation in employer concentration have contributed to slower wage growth. So, uh, as an economist, I would, I would like to then compare wage growth in labor markets that experience a concentration increasing merger to wage growth, uh, in otherwise identical labor markets without any merger activity. So that's the, that's the first thing a, an, an empirical analysis, uh, should need to, um, uh, differentiate before responding before answering this merger induced changes in employer concentration. Another, I think important aspect is, uh, that mergers may also affect wages through other mechanisms such as managerial changes designed to reduce labor costs. So before concluding that, um, uh, that there's a merger induced change in employer concentration, we need to rule out these, um, these other effects as well. So as a result, uh, I think it becomes difficult to, uh, uh, it is not impossible obviously, but it, it becomes difficult and requires some good data, uh, to analyze, uh, merger induced changes in employer concentration. And so far there is very limited academic require on this issue. There are a couple of very good papers, uh, which suggest that, uh, such effects these ion induced changes in employer concentration. Uh, they typically apply in relatively narrow circumstances. So wage growth slows only following mergers that led to substantially increase in employer concentration, and only for workers, uh, whose skills are less transferable, uh, outside of the industry. So, uh, I think ju just to conclude, it's, it's definitely an interesting area, and it's an area that, uh, I think we need to focus in merger reviews, uh, but we might need good quality data, uh, and we might need to, um, uh, analyze these data really, uh, properly to conclude whether, uh, there is a merger in use change in employer concentration.
Speaker 2:Well, thank you. Chatta. And so, um, you just described, um, a, a lot of complexity, uh, in a potential analysis here, which I think leads into the next question that I have for Peter, um, still sticking with the lifespan transaction, um, commissioners Phillips and Wilson noted that adding a labor theory would add complexity to the case without changing the relief that the commission could obtain or improving the commission's odds of blocking the transaction. And so just, is it possible Peter to incorporate labor theories into the antitrust framework without inadvertently hindering enforcement efforts?
Speaker 3:It it's a, a very good question. And I think it, um, depends on the case. And I think there are balancing considerations, you know, as commissioner Phillips and Wilson noted. When you add an upstream labor market case you are taking on, uh, as, as the plaintiff and additional set of burdens. Now you've got establish a market. You've gotta establish effects in that, uh, in that market. Um, and, uh, that's gonna make the trial more complex. It's gonna make the trial longer. Um, and what do you, what do you get for that? Um, uh, in, in, in their view, you don't get much for it because by pleading harm in a downstream market, which is probably usually gonna be general acute care services, uh, if the plaintiffs win, uh, that there's harm in, uh, downstream healthcare services market, they already get to block the transaction. You can't block the transaction more than once. So why bother to have an additional theory of harm? I think there are reasons why a government plaintiff may wanna do that. Uh, one of them is it does give them an alternative, uh, theory of harm to go after, um, which, uh, may be potentially an independent ground on which to block the transaction. Um, it can also be that there's an additional, uh, group that, uh, the, the plaintiffs are showing that they're defending, uh, could be nurses for example. Uh, and that can be, um, uh, a very good, uh, uh, uh, uh, a set of individuals to defend a market to show that, uh, you care about this very important group, um, of healthcare workers. Um, and then also it does increase the size of the harm, uh, that, uh, the transaction potentially, uh, hurts. Uh, and so if you're balancing efficiencies, this puts a little more potentially on the side of the scale, showing that there's antitrust harm and, you know, most recently, I think we've been thinking about, uh, labor market cases in the context of hospital mergers, but it does come up in other, uh, ways as well right now, for example, um, the labor market, uh, issue is the only, uh, issue in the justice department's case seeking to block the merger of penguin, random house and Simon and Schuster, not a healthcare case, but it is a case where the government has alleged that the merger is going to decrease the amount of, uh, money and services that authors are, are able to negotiate from, uh, the big, uh, book publishing companies. And there's no downstream case. So you can have, uh, a merger case that's focused solely on labor market issues. And then going back to the healthcare space, we have seen over the years, a number of, uh, labor market allegations concerning health insurance, mergers, uh, starting with the Aetna Prudential, uh, merger about, uh, 30 years ago, but also in United Pacific care, there was a standalone, uh, theory in Boulder, Colorado that, uh, that transaction would have decreased, uh, compensation to physicians. Uh, and then more recently there were, um, uh, labor market concerns in the blue cross of Michigan PHP merger, and then the Anthem Cigna merger, uh, concerning the effect that the merger of those, uh, insurance companies would have on payments to hospitals. Uh, so, so definitely there's a variety of ways that we can see, uh, uh, labor theories getting incorporated into, uh, merger enforcement. And I think it, I think it does come down a little bit to the facts of each specific case, whether the plaintiffs will find that, um, that's the main theory they wanna pursue, or it's an additional theory they wanna pursue, and that it's worth the, the complexity of taking that on.
Speaker 2:All right. Well, thank you. Thank you very much for that. Um, Peter, we're just gonna touch very quickly on the United change, uh, transaction, um, which the division challenged, uh, and in opening arguments, uh, the division said that United would gain access to vast amounts of data in quote on how rival insurers do business, if the deal goes through. So we just wanted, um, from Peter to just hear at a high level quickly, what the issues are in the case, why the division wants to block the merger, and if there are lessons we should take away.
Speaker 3:Sure. So this is a, a matter that is being tried, uh, right now, as we, uh, are recording this podcast, um, and, uh, United healthcare, of course, a large health insurance company that also has its Optum arm, uh, which handles a lot of, uh, data related services, uh, would like to buy, uh, change, uh, health. And, uh, uh, and there are two issues in this matter one's horizontal and one is vertical on the horizontal side. Um, the transaction without a divestiture would combine claims, extend, and United claims edit system, which are, uh, two first past claims editing solution solutions that, uh, are used to, to process, um, uh, medical claims. Um, uh, but United is divesting this business to a private equity company called TPG. So the main question at trial is whether that divestiture includes all the assets that are needed to successfully run the business and whether the buyer, uh, will have the incentive and the ability to successfully run with that business. So that's, that's where we're keeping our eyes on there, uh, concerning the horizontal claim on the vertical side. Uh, it's, it's a much different story. Uh, change operates. One of the nation's largest electronic data interchange clearing houses, which are, which is how healthcare providers and insurance companies, uh, transmit the data that they use to process claims. And the government's allegation is that United will have access to this data, which will give harm in two potential ways. One is United may, uh, no longer make this service available to competing insurance companies, or at least not to the same extent that it makes it available to United itself. Um, and the other concern that the government has is that, um, uh, United will be able to look at the, uh, data from other, uh, health insurance rivals, uh, and use that in a way that will discourage, uh, health insurance rivals from innovating, uh, or to otherwise, uh, harm, uh, competition United's response to that is, uh, multifold. Uh, they say on the one hand, um, uh, United argues that it, it won't use that information for any improper purposes that it's contracts with, uh, uh, payers prevent them from doing that, uh, that it has an economic incentive to make sure that its Optum business truly appeals to many different, uh, payers, um, uh, and, uh, that in any event United already has access to a tremendous amount of data. And so there, so the, the marginal data, the, the incremental data that United will get access to because of this merger, uh, even if it were to use it in the way that the government alleges, uh, is not something that would lead to the harms that the government is suggesting will happen. So, uh, that matter is before judge Nichols, uh, in the, uh, district of Columbia, uh, and, uh, oral, uh, uh, closing arguments are scheduled in early September. So we might expect a decision sometime in the late September to November, uh, timeframe on that, uh, very large, uh, health insurance data merger.
Speaker 2:Great. Thank you. All right. Next, we're gonna turn to the revisions that are underway with respect to the merger guidelines. And I'm going to start with Chatta, um, and just ask, uh, what changes do you anticipate with respect to the economic underpinnings of the guidelines, and might there be less emphasis on economics or a more progressive approach?
Speaker 4:Um, I, I anticipate, um, more emphasis actually on, on economics given, um, uh, what, what, what I've read so far, uh, in terms of, um, uh, the, uh, potential changes in the guidelines, uh, for example, uh, we might, uh, see more guidance on, uh, how to analyze the mergers impact on labor markets in the new guide guidelines. Uh, and as we just talked about, uh, that requires some, some economic analysis to, to answer the, to answer that important question. Uh, the second area we have, we have been seeing some discussions on the welfare standard, uh, to analyze the mergers, whether we should continue to use the consumer welfare standard versus a different welfare standard standard, uh, incorporating, uh, a broader, uh, group of, uh, uh, uh, of, uh, stakeholders and, um, that I think, uh, will, uh, definitely include, uh, some, some, uh, more economics. Um, also, uh, I think agencies, uh, are seeking input on how to address the issue, EEO buyer power in more detail. Um, and, uh, that, uh, in my opinion is also important, uh, in the market definition for hospital mergers and might require some additional economic thinking. Um, uh, there is, uh, also some discussion on how to account, uh, for key areas of the modern economy, like digital markets, uh, and, uh, here in this industry, multi-sided markets are important and, uh, that's a branch of economics where, uh, we have seen a lot of literature lately. Um, uh, also, uh, I think the guidelines are also seeking, uh, guidance on what types of evidence, uh, should be considered in evaluating non-price effects such as quality or, uh, access to healthcare. Uh, and I think, uh, this is another area that, um, uh, we might see more emphasis on economics and finally, um, uh, we might see more guidance on dynamic com competition, uh, meaning how to, uh, analyze potential competition and innovation, certain industries and, and, and economics could also, uh, contribute to that, to that, uh, uh, um, a area as well.
Speaker 2:Well, thank you. Chatta um, Peter, do you have, uh, anything to add in terms of the agency's, uh, efforts to quote, reflect modern market realities, um, of our dynamic and multidimensional economy and, and what they're they're trying to do here, and whether they can, um, adjust the merger framework without overstepping the bounds of antitrust law?
Speaker 3:Well, it's, it's a very good question. When, uh, many people read the government's, uh, announcement that they were going to look to revise the merger guidelines and their request for information that asked, uh, uh, many questions, uh, about how the guidelines might be changed. Uh, I think many people thought the, the questions in this request for information did have, uh, a strong tilt to them towards increased, uh, antitrust enforcement. Uh, we don't yet have a sense as to just how aggressive the revisions to the merger guidelines are going to be. Um, uh, they did attract, uh, to a tremendous amount of comments, uh, about 5,800 comments, uh, were filed with the antitrust agencies, uh, commenting on how the guidelines should be changed and how they should not be changed. Um, uh, uh, uh, don't hold your breath because we're not likely to see revised guidelines this year. Uh, but we should, we should get, uh, a sense of what's, uh, what the guidelines will look like sometime, uh, next year. Um, there are a number of areas where changes seem especially likely, um, digital markets, for example, labor markets we've discussed. Uh, another area of, um, increased focus for the agencies is the role of private equity companies there's concern, uh, that private equity, as opposed to other kinds of owners of a business, um, uh, harm, uh, competition. Uh, that is a view that, uh, commissioner Christine Wilson, uh, has taxed saying that we shouldn't judge, uh, companies by who they are, uh, but rather by their actions. Uh, so we'll see what happens, um, there, uh, but, um, certainly another sign that the agencies are looking to be more aggressive and therefore might, um, be more aggressive with the revisions to the vertical merger islands is the fact that, uh, the FTC withdrew their support of the vertical merger guidelines that were adopted. Um, really just, uh, a couple of years ago, uh, indicating that they withdrew the guidelines because they thought they were, um, too friendly towards, um, accepting, um, uh, uh, uh, benefits to, uh, vertical mergers. So, uh, this is certainly a space to, to keep our eye on.
Speaker 2:And I know one thing that I'm really going to be looking out for is, um, what courts do when we have new merger guidelines, because I think that, uh, you know, that was some of the power of, um, the 2010, um, revised, uh, horizontal merger guidelines that they were well received by courts. And so, Peter, do you have any thoughts on, um, how much it matters in terms of, uh, what the courts say?
Speaker 3:I, I agree because like you, like you say, you can, one can point to specific provisions of the current horizontal merger guidelines that courts have expressly adopted. And, and that is likely because what's in the horizontal merger guidelines today does reflect the, a consensus among antitrust practitioners and economists and other people that are working in the field. But to the extent that these new guidelines that the FTC and DOJ are working up, start to push the bounds of what existing precedent and economic theory support, then it's more and more likely that the courts are going to say, well, the antitrust agencies guidelines are just that it's not law that the courts have to follow. And to the extent that the, the courts say, well, we expressly decline to follow a particular policy of the guidelines. I think it can have this overhang effect where it's gonna start to call the guidelines into questions. So I think the, I think the agencies, when they're, when they're revising the guidelines should ask themselves, how are courts likely to react to this? Do you want to be aggressive in one area, if it's going to call into question the validity of the guidelines as a whole.
Speaker 2:Gotcha. Yeah, I completely agree. Um, all right. I'm gonna turn back to, uh, Chatta and, um, ask about, um, some more about hospital consolidation. So, so chati, we saw cross market effects, theories come into play in two recent hospital, mergers, Beaumont, spectrum health in Michigan and Cedar, Sinai, Huntington, and California. What concerns did the agencies have about those deals and why do you think, um, the, they were approved without legal challenge, or they weren't challenged, I should say. Um, do you think we will see more cross market effects theory from the FTC during this administration?
Speaker 4:So let me talk about this, uh, uh, in the context of the, um, Cedar SNY, Huntington merger. Uh, so in that merger, uh, while, uh, the, um, federal regulators, uh, did not issue a second request, the California attorney generals, uh, imposed, um, several conditions such as price caps, um, separate negotiation teams and mandatory arbitration, uh, when negotiations with PA with payers fail and, um, the ag, uh, imposed these conditions based on a cross market analysis, uh, which found that, uh, the parties are not head to head comp competitors in the same geographic market, but that they have market power and they respect the markets and the AGS economic analysis, uh, also relied on, uh, certain plus factors to determine, um, that cross market competitive harm was likely, uh, these included, you know, payer concerns and the presence of a large employer customers, uh, whose members desire the inclusion of both parties in their provider networks. Um, so there, there is also, uh, I think some good economic literature, um, on cross market mergers, uh, that recognize that for competitive or harmful cross market effects to arise, um, at a minimum, you know, these parties, uh, need to be in separate markets. They need to possess market power, and finally they need to satisfy what we call the, uh, cavity condition and this condition basically a very intuitive condition. And it requires, uh, that the negotiating health plan to suffer a larger decline in its network quality when both hospitals are left out of the network simultaneously, um, than the sum of the quality reductions with each hospital excluded individually. So when I combine the, the, the facts of the case with this economic literature, uh, you know, typically agencies don't tell us, uh, if they don't go for a second request, uh, or if they don't, uh, legally challenge a case, uh, we don't typically know why, um, uh, they didn't do that, but based on the facts and this economic condition, um, uh, I could say, uh, that maybe one of the following, uh, three factors, um, might, um, might have involved, uh, in, in the agency's decision. Uh, it could be that, um, neither of the emerging parties really possessed sufficient market power in their, uh, geographic markets, um, or it could be that the parties, uh, provide largely non overlapping products and are complementary to one another's products, in which case, uh, the condition does not, uh, uh, uh, follow. And finally it is possible that there might be some, um, uh, the, the common customers can readily protect themselves, um, against the cross market price increases by purchasing, uh, single, uh, market provider networks, for example, uh, by slicing their accounts across multiple insurers with distinct networks in each geographic market. Um, so in light of the, in light of the, you know, uh, recent economic, um, uh, literature, I can just, uh, I can, I can say that one of these, uh, maybe three factors, uh, was evident in the case, which led the, uh, uh, uh, FTC, uh, and, and, and the attorney general, um, uh, of California not to take any legal action.
Speaker 2:Thank you. Chatta and I think this, your answer, this question is just an important reminder for all of our listeners that, um, state AGS, um, the states are sovereign. And so, uh, while they often, um, coordinate very closely, uh, with enforcers at DOJ or the FTC, uh, they certainly have the ability to, um, to go a different way, um, based on, uh, what they believe is in the interest of, uh, their constituents. And so, um, and state AGS tend to often be very interested and focused on healthcare competition issues. So just important to keep in mind that it's not just the FTC, we're just the DOJ, but, um, there are a number of, um, of, uh, enforcers at play. So who may be interested in, uh, a transaction. Um, so now in our remaining time, we're going to turn back to the consumer welfare standard debate, which, um, which we touched on, um, briefly before. Um, and I'm going to start with, uh, chati and, um, just say the Biden administration, uh, has amplified voices that are advocating for move away from the consumer wealthier standard, uh, and expanding its scope beyond prices, output, quality, and innovation, um, to address broader public interests. And so I wanted to just hear more, uh, from you Chatta about the alternatives being proposed and what is the total welfare standard, the public welfare standard, just get more from you on that.
Speaker 4:Sure. So, um, the, the historical focus, um, uh, uh, is, is the consumer welfare standard, uh, where the mergers are evaluated, um, based on the effect on consumers and, and the questions that we typically ask are, uh, you know, as a result of the merger, will prices increase, uh, will quality decrease, will access to services, be compromised, uh, with innovation be compromised. Um, so basically, you know, cons consumer welfare measures, the welfare that consumers get from low price, low prices, high quality, and good excess, and it is largest, uh, when, when markets, uh, are competitive, uh, because competitive market, competitive, uh, markets result in, uh, low prices, uh, and, and better quality. Uh, but lately there was, there were some critiques of this, of this standard, uh, and in particular, the main critique was, uh, that there is insufficient focus, uh, on other stakeholders and, and other policy objectives other than the consumer. And, uh, in light of this public interest standard, um, people started thinking about, um, the total welfare, uh, standard where, uh, uh, the focus or, or the mergers are evaluated based on their effect on multiple parties, uh, depending on the, on the, on the transaction at issue, for example, consumers, uh, workers, competitors, small businesses, uh, or, or the merger could even incorporate some policy objectives, uh, such as some certain environmental objectives, um, and all of these, uh, essentially needs to be, uh, considered when evaluating, uh, a merger. Uh, the, the main point here from, from an at least an economist perspective is, uh, that, you know, as economists, we can SEM evidence, uh, in terms of how the merger could impact consumers or workers or any other stakeholders in the merger. But when we calculate the total welfare, we need to basically, um, uh, find a way to assign weights to each of these stakeholders. And that's something I think the policy makers, uh, uh, needs to, uh, think about. Uh, so, um, what I think about this is that if, if we move from the consumer welfare standard to, to another standard, which might, uh, incorporate, uh, more of the stakeholders in a transaction, uh, the key issue will be how to, how to assign rates, uh, to the, to the evidence of the merger on each of those stakeholders.
Speaker 2:Gotcha. Thank you very much. Um, for that, that background. Um, so Peter, I think this is gonna be our last question. Is it possible for courts to consider wider ranging consumer harm? So labor, uh, ESG, which, um, uh, environmental, social and governance, um, racial impact wealth in inequality while maintaining practicability and objectivity?
Speaker 3:Well, you know, I think in some sense courts and the antitrust agencies already do, um, and, and he, let me give two examples. Uh, the first is with, um, hospital mergers. Uh, we have often seen the case that one of the merging hospitals, um, is a safety net hospital and, uh, serves a high percentage of the people that it serves, uh, are, um, uh, lower income. Um, and in, in that case, you, you certainly see both sides talking about the importance of the transaction to help that, uh, community. Now I'll, I'll say both sides, try to use the, the importance of, uh, better serving, uh, the, this vulnerable community, uh, to the advantage in their case. Uh, you would typically see the government arguing that, uh, because of this special concern about serving, uh, a lower income individuals, um, you especially need to have competition because that's what motivates the hospitals to provide better services. But defendants response to that is typically that the merger will produce greater efficiency and therefore actually, uh, the better way to serve, uh, the, the lower income community, the vulnerable community is to allow the merger to go through because you'll have these efficiencies. So I, and so those arguments go to the court and then the court, uh, takes those, uh, arguments, uh, as, as part of its, uh, opinion. And just one other example of where you see this, uh, kind of argument, uh, playing out, uh, would be with, um, uh, insurance populations. So for example, in the Aetna Humana case, that concerned Medicare advantage, which is a health insurance, uh, plan that replaces original Medicare. So this is, uh, uh, mostly for, uh, the population that's age 65 and over, uh, and there, uh, you certainly saw the argument talk about the importance of Medicare advantage to serving the senior community and the court take up that argument of, Hey, we've gotta get the analysis, right, uh, in this transaction because, uh, these are, uh, communities, uh, where protecting them, um, has, uh, uh, more value than just the dollars. Uh, you know, these are vital services that go to, uh, uh, to, to healthcare services and the quality of life itself, and therefore, um, uh, the courts, uh, should really focus in on, on how the transaction is going to affect, uh, certain communities.
Speaker 2:All right. I want to thank, um, our wonderful panelists. Thank you, Peter. Thank you. Chat and thank you to our listeners. We hope you enjoyed, uh, today's podcast.
Speaker 3:Thank you, Leslie. Thank you. Chat. Thank
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