Law & Medicine: Antitrust issues in health care, part 3

Question: Which of the following is likely to run afoul of antitrust laws?

A. A medical center in a big city buys the practices of several retiring doctors.

B. The only two hospitals in a rural area agree to merge to integrate better delivery of health care at lower cost.

C. A medical association’s president advises members of the drawbacks of a new managed care health plan.

D. All of the above.

E. None of the above.

Answer: B. Choice B constitutes illegal monopolization, whereas A is not likely to wield market power and C, without more, does not amount to a boycott. This article, the last in the series on health care antitrust, will showcase several cases illustrative of recurring themes such as the "state action doctrine," exclusive dealings, and mergers.

One broad category of cases concerns the so-called "state action doctrine," which confers antitrust immunity to all state governmental agencies.

For doctors, the most dramatic example is probably Patrick v. Burget (108 S. Ct. 1658 [1988]), an adverse peer review action against a physician who challenged it as nothing less than an anticompetitive ploy. In 1973, Dr. Timothy Patrick, a surgeon, chose to leave the Astoria Clinic in Oregon to establish an independent practice in general and vascular surgery. He continued to have staff privileges at Columbia Memorial Hospital, Astoria, but experienced refusal of professional dealings by former colleagues who were still at the clinic. One of them lodged a complaint that Dr. Patrick had left a patient unattended following surgery. In due course, the hospital medical staff voted to revoke his privileges because of substandard care.

Dr. Patrick’s lawsuit alleged that the staff’s true purpose was to eliminate him as a competitor, rather than to improve quality. The U.S. Court of Appeals for the Ninth Circuit found that the state of Oregon had articulated a policy in favor of peer review and had supervised the process. It therefore held that the "state action doctrine" exemption protected the hospital staff from antitrust liability even if the peer review proceedings were abused to disadvantage a competitor.

However, in a unanimous decision, the U.S. Supreme Court reversed, finding that the "active supervision" requirement was not satisfied, because that required Oregon to exercise ultimate control over the conduct of peer review, not simply some state involvement or monitoring. The state’s agencies were the Oregon Board of Medical Examiners and the Health Division, neither of which had the authority to expressly supervise the peer review process.

In a recent merger case, Federal Trade Commission v. Phoebe Putney Health System Inc. (133 S. Ct. 1003 [2013]) the U.S. Supreme Court again refuted the use of the "state action doctrine" defense.

The state of Georgia had claimed immunity when county-owned Phoebe Putney Memorial Hospital, Albany, Ga., made a bid to purchase Palmyra Park Hospital, also in Albany, its chief competitor. The Eleventh Circuit acknowledged that the challenged transaction would substantially lessen competition. However, the court reasoned that the transaction was exempted from the antitrust laws because the legislature, under the Georgia Hospital Authorities Law, had given hospital authorities the power to acquire or lease out hospitals despite potential anticompetitive effects.

However, the U.S. Supreme Court disagreed and reversed, holding the doctrine inapplicable because the general grant of power to the hospital authority did not clearly articulate the state’s intent to restrict competition.

Another remarkable example of the "state action doctrine" at play is North Carolina State Board of Dental Examiners v. Federal Trade Commission (719 F.3d 359 [4th Cir. 2013]). The case, currently under appeal, deals with the North Carolina State Board of Dental Examiners’ (NCSBDE) actions to forbid nondentists from providing teeth-whitening services to the public at spas, salons, and various retail outlets. NCSBDE also urged mall owners not to lease space to such providers. The FTC argued that most of the board members were practicing dentists rather than state employees; so, for purposes of the antitrust laws, the NCSBDE should be deemed a private person rather than part of a state government. Because North Carolina did not actively supervise its actions, the NCSBDE could not hide behind the protection of the "state action doctrine."

The United States Court of Appeals for the Fourth Circuit sided with the FTC, holding that NCSBDE could not restrain competition through means such as the use of cease and desist letters. The U.S. Supreme Court has agreed to hear the case, which has major implications for the regulatory authority of professional licensing boards.

A different recurring antitrust issue concerns the exclusion of doctors from a provider network. In Little Rock Cardiology Clinic v. Baptist Health (591 F.3d 591 [8th Cir. 2009]), the Little Rock (Ark.) Cardiology Clinic sued Baptist Health for entering into an exclusive contract with Blue Cross/Blue Shield of Arkansas in order to monopolize the market for cardiac care services. However, the trial court as well as the U.S. Court of Appeals for the Eighth Circuit held that the complaint failed to identify the relevant geographic area, product, or service market, without which it was impossible to reach a finding of monopolization.

Can a professional organization advise its members of pitfalls or drawbacks of health care plans? In International Healthcare Management v. Hawaii Coalition for Health (332 F.3d 600 [9th Cir. 2003]), the Hawaii Medical Association (HMA), the state’s medical organization, was sued for allegedly organizing a boycott of two managed care organizations when it advised its doctor members of certain problems with the proposed provider contracts. HMA argued that it neither forged an agreement to act in concert nor encouraged its members to participate in any boycott. It won a summary judgment in the U.S. District Court dismissing the suit, which the U.S. Court of Appeals for the Ninth Circuit affirmed.

Finally, antitrust prosecutions may be expected to increase under Obamacare, which advocates the efficient integration and consolidation of quality health services to achieve health cost savings. Any action taken, however, must still pass antitrust scrutiny.

One scenario is the trend toward hospital acquisitions of physician practices. The case of Idaho’s St. Luke Health Systems, a nonprofit, six-hospital system based in Boise and the largest in the state, is a prime example.

In a recent decision, a federal judge sided with the FTC in blocking St. Luke’s Health System from acquiring the 40-doctor Saltzer Medical Group – an acquisition made in the name of better "integrated health care." The FTC had alleged that the merger would give St. Luke a nearly 60% share of the primary-care market, resulting in diminished competition among primary care physicians. Idaho’s attorney general, as well as two other competitor health systems in Boise, also joined in the suit.

The federal court ruled against St. Luke’s, claiming that there was a legal and less anticompetitive way to achieve its goal of improving health care delivery in the area. The acquisition had in fact taken place more than a year ago, and St. Luke’s is now left with the task of dismantling the acquisition.

Antitrust law is complex and difficult, some issues and results may appear surprising and counterintuitive, and penalties can be severe (such as treble damages). All business transactions including those that touch on health care should therefore proactively examine whether they illegally affect free market competition.

Dr. Tan is professor emeritus of medicine and former adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical, or legal advice. Some of the articles in this series are adapted from the author’s 2006 book, "Medical Malpractice: Understanding the Law, Managing the Risk," and his 2012 Halsbury treatise, "Medical Negligence and Professional Misconduct." For additional information, readers may contact the author at siang@hawaii.edu.

Question: Which of the following is likely to run afoul of antitrust laws?

A. A medical center in a big city buys the practices of several retiring doctors.

B. The only two hospitals in a rural area agree to merge to integrate better delivery of health care at lower cost.

C. A medical association’s president advises members of the drawbacks of a new managed care health plan.

D. All of the above.

E. None of the above.

Answer: B. Choice B constitutes illegal monopolization, whereas A is not likely to wield market power and C, without more, does not amount to a boycott. This article, the last in the series on health care antitrust, will showcase several cases illustrative of recurring themes such as the "state action doctrine," exclusive dealings, and mergers.

One broad category of cases concerns the so-called "state action doctrine," which confers antitrust immunity to all state governmental agencies.

For doctors, the most dramatic example is probably Patrick v. Burget (108 S. Ct. 1658 [1988]), an adverse peer review action against a physician who challenged it as nothing less than an anticompetitive ploy. In 1973, Dr. Timothy Patrick, a surgeon, chose to leave the Astoria Clinic in Oregon to establish an independent practice in general and vascular surgery. He continued to have staff privileges at Columbia Memorial Hospital, Astoria, but experienced refusal of professional dealings by former colleagues who were still at the clinic. One of them lodged a complaint that Dr. Patrick had left a patient unattended following surgery. In due course, the hospital medical staff voted to revoke his privileges because of substandard care.

Dr. Patrick’s lawsuit alleged that the staff’s true purpose was to eliminate him as a competitor, rather than to improve quality. The U.S. Court of Appeals for the Ninth Circuit found that the state of Oregon had articulated a policy in favor of peer review and had supervised the process. It therefore held that the "state action doctrine" exemption protected the hospital staff from antitrust liability even if the peer review proceedings were abused to disadvantage a competitor.

However, in a unanimous decision, the U.S. Supreme Court reversed, finding that the "active supervision" requirement was not satisfied, because that required Oregon to exercise ultimate control over the conduct of peer review, not simply some state involvement or monitoring. The state’s agencies were the Oregon Board of Medical Examiners and the Health Division, neither of which had the authority to expressly supervise the peer review process.

In a recent merger case, Federal Trade Commission v. Phoebe Putney Health System Inc. (133 S. Ct. 1003 [2013]) the U.S. Supreme Court again refuted the use of the "state action doctrine" defense.

The state of Georgia had claimed immunity when county-owned Phoebe Putney Memorial Hospital, Albany, Ga., made a bid to purchase Palmyra Park Hospital, also in Albany, its chief competitor. The Eleventh Circuit acknowledged that the challenged transaction would substantially lessen competition. However, the court reasoned that the transaction was exempted from the antitrust laws because the legislature, under the Georgia Hospital Authorities Law, had given hospital authorities the power to acquire or lease out hospitals despite potential anticompetitive effects.

However, the U.S. Supreme Court disagreed and reversed, holding the doctrine inapplicable because the general grant of power to the hospital authority did not clearly articulate the state’s intent to restrict competition.

Another remarkable example of the "state action doctrine" at play is North Carolina State Board of Dental Examiners v. Federal Trade Commission (719 F.3d 359 [4th Cir. 2013]). The case, currently under appeal, deals with the North Carolina State Board of Dental Examiners’ (NCSBDE) actions to forbid nondentists from providing teeth-whitening services to the public at spas, salons, and various retail outlets. NCSBDE also urged mall owners not to lease space to such providers. The FTC argued that most of the board members were practicing dentists rather than state employees; so, for purposes of the antitrust laws, the NCSBDE should be deemed a private person rather than part of a state government. Because North Carolina did not actively supervise its actions, the NCSBDE could not hide behind the protection of the "state action doctrine."

The United States Court of Appeals for the Fourth Circuit sided with the FTC, holding that NCSBDE could not restrain competition through means such as the use of cease and desist letters. The U.S. Supreme Court has agreed to hear the case, which has major implications for the regulatory authority of professional licensing boards.

A different recurring antitrust issue concerns the exclusion of doctors from a provider network. In Little Rock Cardiology Clinic v. Baptist Health (591 F.3d 591 [8th Cir. 2009]), the Little Rock (Ark.) Cardiology Clinic sued Baptist Health for entering into an exclusive contract with Blue Cross/Blue Shield of Arkansas in order to monopolize the market for cardiac care services. However, the trial court as well as the U.S. Court of Appeals for the Eighth Circuit held that the complaint failed to identify the relevant geographic area, product, or service market, without which it was impossible to reach a finding of monopolization.

Can a professional organization advise its members of pitfalls or drawbacks of health care plans? In International Healthcare Management v. Hawaii Coalition for Health (332 F.3d 600 [9th Cir. 2003]), the Hawaii Medical Association (HMA), the state’s medical organization, was sued for allegedly organizing a boycott of two managed care organizations when it advised its doctor members of certain problems with the proposed provider contracts. HMA argued that it neither forged an agreement to act in concert nor encouraged its members to participate in any boycott. It won a summary judgment in the U.S. District Court dismissing the suit, which the U.S. Court of Appeals for the Ninth Circuit affirmed.

Finally, antitrust prosecutions may be expected to increase under Obamacare, which advocates the efficient integration and consolidation of quality health services to achieve health cost savings. Any action taken, however, must still pass antitrust scrutiny.

One scenario is the trend toward hospital acquisitions of physician practices. The case of Idaho’s St. Luke Health Systems, a nonprofit, six-hospital system based in Boise and the largest in the state, is a prime example.

In a recent decision, a federal judge sided with the FTC in blocking St. Luke’s Health System from acquiring the 40-doctor Saltzer Medical Group – an acquisition made in the name of better "integrated health care." The FTC had alleged that the merger would give St. Luke a nearly 60% share of the primary-care market, resulting in diminished competition among primary care physicians. Idaho’s attorney general, as well as two other competitor health systems in Boise, also joined in the suit.

The federal court ruled against St. Luke’s, claiming that there was a legal and less anticompetitive way to achieve its goal of improving health care delivery in the area. The acquisition had in fact taken place more than a year ago, and St. Luke’s is now left with the task of dismantling the acquisition.

Antitrust law is complex and difficult, some issues and results may appear surprising and counterintuitive, and penalties can be severe (such as treble damages). All business transactions including those that touch on health care should therefore proactively examine whether they illegally affect free market competition.

Dr. Tan is professor emeritus of medicine and former adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical, or legal advice. Some of the articles in this series are adapted from the author’s 2006 book, "Medical Malpractice: Understanding the Law, Managing the Risk," and his 2012 Halsbury treatise, "Medical Negligence and Professional Misconduct." For additional information, readers may contact the author at siang@hawaii.edu.

Question: Which of the following is likely to run afoul of antitrust laws?

A. A medical center in a big city buys the practices of several retiring doctors.

B. The only two hospitals in a rural area agree to merge to integrate better delivery of health care at lower cost.

C. A medical association’s president advises members of the drawbacks of a new managed care health plan.

D. All of the above.

E. None of the above.

Answer: B. Choice B constitutes illegal monopolization, whereas A is not likely to wield market power and C, without more, does not amount to a boycott. This article, the last in the series on health care antitrust, will showcase several cases illustrative of recurring themes such as the "state action doctrine," exclusive dealings, and mergers.

One broad category of cases concerns the so-called "state action doctrine," which confers antitrust immunity to all state governmental agencies.

For doctors, the most dramatic example is probably Patrick v. Burget (108 S. Ct. 1658 [1988]), an adverse peer review action against a physician who challenged it as nothing less than an anticompetitive ploy. In 1973, Dr. Timothy Patrick, a surgeon, chose to leave the Astoria Clinic in Oregon to establish an independent practice in general and vascular surgery. He continued to have staff privileges at Columbia Memorial Hospital, Astoria, but experienced refusal of professional dealings by former colleagues who were still at the clinic. One of them lodged a complaint that Dr. Patrick had left a patient unattended following surgery. In due course, the hospital medical staff voted to revoke his privileges because of substandard care.

Dr. Patrick’s lawsuit alleged that the staff’s true purpose was to eliminate him as a competitor, rather than to improve quality. The U.S. Court of Appeals for the Ninth Circuit found that the state of Oregon had articulated a policy in favor of peer review and had supervised the process. It therefore held that the "state action doctrine" exemption protected the hospital staff from antitrust liability even if the peer review proceedings were abused to disadvantage a competitor.

However, in a unanimous decision, the U.S. Supreme Court reversed, finding that the "active supervision" requirement was not satisfied, because that required Oregon to exercise ultimate control over the conduct of peer review, not simply some state involvement or monitoring. The state’s agencies were the Oregon Board of Medical Examiners and the Health Division, neither of which had the authority to expressly supervise the peer review process.

In a recent merger case, Federal Trade Commission v. Phoebe Putney Health System Inc. (133 S. Ct. 1003 [2013]) the U.S. Supreme Court again refuted the use of the "state action doctrine" defense.

The state of Georgia had claimed immunity when county-owned Phoebe Putney Memorial Hospital, Albany, Ga., made a bid to purchase Palmyra Park Hospital, also in Albany, its chief competitor. The Eleventh Circuit acknowledged that the challenged transaction would substantially lessen competition. However, the court reasoned that the transaction was exempted from the antitrust laws because the legislature, under the Georgia Hospital Authorities Law, had given hospital authorities the power to acquire or lease out hospitals despite potential anticompetitive effects.

However, the U.S. Supreme Court disagreed and reversed, holding the doctrine inapplicable because the general grant of power to the hospital authority did not clearly articulate the state’s intent to restrict competition.

Another remarkable example of the "state action doctrine" at play is North Carolina State Board of Dental Examiners v. Federal Trade Commission (719 F.3d 359 [4th Cir. 2013]). The case, currently under appeal, deals with the North Carolina State Board of Dental Examiners’ (NCSBDE) actions to forbid nondentists from providing teeth-whitening services to the public at spas, salons, and various retail outlets. NCSBDE also urged mall owners not to lease space to such providers. The FTC argued that most of the board members were practicing dentists rather than state employees; so, for purposes of the antitrust laws, the NCSBDE should be deemed a private person rather than part of a state government. Because North Carolina did not actively supervise its actions, the NCSBDE could not hide behind the protection of the "state action doctrine."

The United States Court of Appeals for the Fourth Circuit sided with the FTC, holding that NCSBDE could not restrain competition through means such as the use of cease and desist letters. The U.S. Supreme Court has agreed to hear the case, which has major implications for the regulatory authority of professional licensing boards.

A different recurring antitrust issue concerns the exclusion of doctors from a provider network. In Little Rock Cardiology Clinic v. Baptist Health (591 F.3d 591 [8th Cir. 2009]), the Little Rock (Ark.) Cardiology Clinic sued Baptist Health for entering into an exclusive contract with Blue Cross/Blue Shield of Arkansas in order to monopolize the market for cardiac care services. However, the trial court as well as the U.S. Court of Appeals for the Eighth Circuit held that the complaint failed to identify the relevant geographic area, product, or service market, without which it was impossible to reach a finding of monopolization.

Can a professional organization advise its members of pitfalls or drawbacks of health care plans? In International Healthcare Management v. Hawaii Coalition for Health (332 F.3d 600 [9th Cir. 2003]), the Hawaii Medical Association (HMA), the state’s medical organization, was sued for allegedly organizing a boycott of two managed care organizations when it advised its doctor members of certain problems with the proposed provider contracts. HMA argued that it neither forged an agreement to act in concert nor encouraged its members to participate in any boycott. It won a summary judgment in the U.S. District Court dismissing the suit, which the U.S. Court of Appeals for the Ninth Circuit affirmed.

Finally, antitrust prosecutions may be expected to increase under Obamacare, which advocates the efficient integration and consolidation of quality health services to achieve health cost savings. Any action taken, however, must still pass antitrust scrutiny.

One scenario is the trend toward hospital acquisitions of physician practices. The case of Idaho’s St. Luke Health Systems, a nonprofit, six-hospital system based in Boise and the largest in the state, is a prime example.

In a recent decision, a federal judge sided with the FTC in blocking St. Luke’s Health System from acquiring the 40-doctor Saltzer Medical Group – an acquisition made in the name of better "integrated health care." The FTC had alleged that the merger would give St. Luke a nearly 60% share of the primary-care market, resulting in diminished competition among primary care physicians. Idaho’s attorney general, as well as two other competitor health systems in Boise, also joined in the suit.

The federal court ruled against St. Luke’s, claiming that there was a legal and less anticompetitive way to achieve its goal of improving health care delivery in the area. The acquisition had in fact taken place more than a year ago, and St. Luke’s is now left with the task of dismantling the acquisition.

Antitrust law is complex and difficult, some issues and results may appear surprising and counterintuitive, and penalties can be severe (such as treble damages). All business transactions including those that touch on health care should therefore proactively examine whether they illegally affect free market competition.

Dr. Tan is professor emeritus of medicine and former adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical, or legal advice. Some of the articles in this series are adapted from the author’s 2006 book, "Medical Malpractice: Understanding the Law, Managing the Risk," and his 2012 Halsbury treatise, "Medical Negligence and Professional Misconduct." For additional information, readers may contact the author at siang@hawaii.edu.