Exclusionary Practices in Healthcare May 25, 2010

1. Exclusionary Practices in HealthcareMay 25, 2010 William E. Berlin 202/326-5011 weberlin@ober.com 1401 H Street, NW, Suite 500 Washington, DC 20005

2. Introduction: Exclusionary Practices in Healthcare • Legal framework • Categories of exclusionary conduct • Factors to distinguish anticompetitive conduct from legitimate competition, and assess degree of antitrust risk • Economic considerations for analyzing potentially exclusionary practices • Examples from cases analyzing exclusionary practices

3. Typical Exclusionary Practices in Healthcare • Horizontal group boycotts • Exclusive or selective contracting • Discounting (predatory pricing) • Bundling • Tying • Full-line (system) forcing • Refusals to deal (transfer agreements, referrals, denying access)

4. Typical Exclusionary Practices in Healthcare (Cont.) • Terminating/restricting physician privileges • Peer review • Economic/conflict of interest credentialing • Terminating/limiting other relationships (medical staff leadership, hospital board membership, access to OR, scheduling surgery, test interpretation, etc.) • CON opposition • Reverse payment patent settlements • Even joint ventures

5. Factors For Analyzing Exclusionary Conduct • Threshold issues to assess degree of antitrust risk/viability of claim: • Parties involved/named in the suit • Proper relevant market • Unilateral vs. joint conduct • Ability to conspire and evidence of conspiracy • Per se violation vs. rule of reason

6. Factors For Analyzing Exclusionary Conduct (Cont.) • Factors to distinguish anticompetitive conduct from legitimate competition • Defendant’s market power • Plaintiff’s foreclosure • Anticompetitive price/output/quality effects • Legitimate business justifications

7. Who are the entities involved in the dispute and named in the suit? • Plaintiffs: • Antitrust standing: • Plaintiffs must show antitrust injury – their injury flows from injury to competition • In exclusionary conduct cases, foreclosed hospital competitor may be more efficient enforcer of antitrust laws than insurers or consumer/patients. Palmyra v. Phoebe Putney • Plaintiff must participate in alleged relevant market • Who the excluded party is can impact market definition

8. Who are the entities involved in the dispute and named in the suit? • Defendant or defendants: determines type of legal claim • If only single entity involved in the exclusionary conduct, claims limited to Section 2 unilateral conduct • If multiple entities involved, plaintiffs may allege Section 1 concerted action claims • But still may name only single defendant without including other conspirators as parties. Tactical reasons? Franco v. Memorial Hermann; LRCC v. Baptist Health • Concerted action may be vertical (e.g., hospital-health plan contracting) or horizontal conspiracy

9. Who are the entities involved in the dispute and named in the suit? • Certain horizontal conspiracies can be per se violations: • Where multiple hospitals or health plans involved, plaintiffs can alleged horizontal conspiracies, including group boycotts that are per se violations. Heartland v. Midwest Division • Horizontal agreements between competitor physicians (e.g., by medical staff to boycott a SSH) also may support per se claims

10. What is the proper relevant market? • A party cannot monopolize a market in which it does not compete • Thus physicians cannot maintain a Section 2 claim vs. hospital based on exclusionary conduct in the physician services market (unless hospital also employs physicians) • Cluster market of all hospital inpatient acute care services vs. only those specialty services implicated by the exclusionary conduct? • Commercially-insured patients only vs. all available patients (including Medicare, Medicaid, and self pay). LRCC, Rome

11. Is The Exclusionary Practice Unilateral or Joint Conduct? • Joint conduct viewed more strictly than unilateral, requires less market power, and may be per se violation • For unilateral conduct, under Section 2 plaintiff must prove significant market power (“monopoly” power) = market share > 65% • For joint conduct (and conspiracy to monopolize), plaintiff must show an agreement or conspiracy

12. Is The Exclusionary Practice Unilateral or Joint Conduct? • Proving an unlawful agreement • Hospital or hospital system, its board of directors, officers, employees; or health plan subsidiaries; or integrated JVs are usually incapable of conspiring as a matter of law because parts of same single entity • Circuits are split on whether a hospital and its medical staff (or the medical staff board, committees, or other entities) are capable of conspiring in the context of peer review credentialing • But apply outside of peer review? • Exception - one or more physicians has an independent personal stake

13. Proving an unlawful agreement • Even where legally possible, plaintiff must still show conspiracy by direct or circumstantial evidence • Often an express contract (e.g., exclusive) • If not, can be difficult to prove. Memorial Hermann; but see Heartland

14. Factors to distinguish anticompetitive conduct from legitimate competition • Do defendants have market power? • Higher market share = greater risk and increases types of claims available • Section 2: requires monopoly power • Section 1: • Exclusive contracts: little or no foreclosure unless health plan has market power • Hospital can use market power (“must have” hospitals) to coerce health plans to refuse to deal or to tie products/facilities • Reciprocal hospital-health plan market power

15. Factors to distinguish anticompetitive conduct from legitimate competition • Are plaintiffs foreclosed from the market? • Primary focus of the antitrust analysis of exclusionary conduct: access to patients • Must consider all types of patients • Plaintiffs must show foreclosure will prevent them from being viable competitor • Difficult where plaintiff remains financially successful, easier when forced out of business. Rome, but see Memorial Hermann • And must show competition/other competitors foreclosed, not merely plaintiff

16. Factors to distinguish anticompetitive conduct from legitimate competition • Are there any effects on competition? • If no significant foreclosure, highly unlikely that a plaintiff will be able to demonstrate anticompetitive effects. • Even if plaintiff is foreclosed and injured, often there is no apparent effect on competition. • Anticompetitive effects less likely where there are other competitors in addition to plaintiff • In healthcare context, plaintiffs often allege direct anticompetitive effects (e.g., higher prices, lower quality and reduced choice) • Difficult to prove; must present evidence harm actually occurred in the market. LRCC

17. Factors to distinguish anticompetitive conduct from legitimate competition • Does the defendant have a legitimate business justification for the conduct? • Will depend on the particular conduct at issue (e.g., exclusive contracting = discount for volume; economic credentialing = preventing cream-skimming/free riding and protecting cross-subsidies) • Justification must be non-pretextual: • Defendant should present contemporaneous evidence to support justification (e.g., studies showing patient steering to justify economic credentialing). Murphy v. Baptist Health, Dentsply • Conduct that targets specific competitors rather than applying universally may be pretextual. Heartland • Least-restrictive alternative/not overbroad