United States: Healthcare

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Perhaps unlike any other industry, the world is fast changing at the intersection between healthcare and competition law and the specific effects on transactions between and among healthcare providers and insurers in the United States today. Transactions are fast and furious, as is intervention by the United States’ antitrust authorities on the federal, state, and even local levels. Recent legislation, designed to streamline and make the delivery of healthcare more efficient, shows further interventions by the United States’ executive and legislative branches. Simply, the healthcare transactional world is ablaze.

In order to appreciate the depth of this situation, it is essential first to appreciate the unusual and unique way in which the healthcare markets are structured. To begin, unlike many other countries, there is no system of ‘universal healthcare’ for all citizens funded by government entities. Rather, the United States’ system operates on a decidedly private basis with employers acting as the primary liaisons between most individuals, healthcare providers (doctors, hospitals, etc), and healthcare insurers. This distinction between the United States and its developed world counterparts is important because total national health expenditures represent more than US$3 trillion or close to US$10,000 per capita per year.1 The same study indicated that while the United States’ spending was dramatically higher than other developed nations, the quality of care outcomes were, actually, worse.1

In light of this higher cost, lesser outcome backdrop, it is no wonder that there are multiple entities throughout United States government – and especially its antitrust enforcers – who focus significant regulatory, policy, and law enforcement resources in trying to assure competitive markets across the healthcare spectrum. For the United States Federal Trade Commission (FTC) and Antitrust Division of the United States Department of Justice (DOJ), assuring robust competition in this sphere is of utmost importance. For example, at the FTC alone, and by their own measure, healthcare-related enforcement actions accounted for 50 per cent of total FTC fiscal year activity from 2011–2015.2 The fact that healthcare is such a ‘high touch’ area of consumer activity – after all, every person has gotten sick at least once in their life – means that such scrutiny is destined to continue.

Yet the legislative and regulatory changes brought about by President Barack Obama’s passage of the 2010 Affordable Care Act (ACA) further complicates the healthcare transactions competition landscape. As its name suggests, the purpose of the law was to make healthcare more affordable, both by controlling the costs of care, reducing insurance premiums, and also by increasing access to insurance for those who could not secure sufficient (or any) coverage via employers or other sources. The change in rules, which are still very much ongoing due to extensive litigation in the courts that is now (mostly) resolved some six years after passage, has necessarily had an effect on the way in which providers and insurance companies choose to deliver and coordinate care to consumers.

It is at this point that the coordination of care to consumers most often raises antitrust and competition concerns because there can be tension between collaboration and coordination to reduce costs on the one hand – the putative aims of the ACA – and consolidation of market power on the other hand – a concept often anathema to enforcement of the antitrust and competition laws. This is the juncture where the past, present, and future of competition law enforcement in the healthcare transactions environment lies.

FTC and DOJ activity in healthcare transactions

The FTC and DOJ maintain incredibly active healthcare portfolios and have done so for decades. In an effort to provide insights into the current trends and nuances of competition law enforcement as it relates to healthcare transactions, an examination of each agency’s most recent and most prominent healthcare enforcement actions affecting healthcare providers, for whom the FTC remains most active, and healthcare insurers, for whom the DOJ is the primary antitrust enforcement agency, is presented below. These examples provide a snapshot of the healthcare transaction enforcement landscape.3

Federal Trade Commission

Over the past 10–15 years, the FTC had enjoyed an unprecedented success rate of halting healthcare transactions among providers that it believed violated section 7 of the Clayton Act, the operative federal statute prohibiting transactions that threaten to lessen competition substantially.4 Their wins did not discriminate. They stopped large transactions, and small. But perhaps one of the most notable was the FTC’s forcing St Luke’s Health System (St Luke’s), the operator of seven large hospitals in Idaho to unwind its acquisition of Saltzer Medical Group (Saltzer), one of the largest Idaho-based multi-specialty physician groups, with more than 40 physicians.

St Luke’s/Saltzer

This transaction, which did not require pre-merger notification to the federal antitrust authorities, was consummated in 2012 over the objections of nearby competitors, the FTC, and other public entities. The FTC and the State Attorney General of Idaho (Idaho AG) continued to examine the effects of the transaction despite its closing and, in 2013, the two filed suit to undo the transaction in the District Court of Idaho.

Throughout the hearing, the FTC and Idaho AG presented testimonial and documentary evidence that healthcare costs would rise because the combined entity would obtain a dominant market position that would enable it to raise prices for many services, as well as negotiate higher reimbursement rates from health insurance plans. These higher reimbursement rates, the FTC and Idaho AG argued, would be passed on to consumers and were hallmarks of a Clayton Act violation.

For its part, St Luke’s argued that the combined entity would be procompetitive because of its ability ‘to offer coordinated, patient-centered care; to support physicians in the practice of evidence-based medicine in an environment that rewards teamwork and value of care rather than volume of care; to accept risk and accountability for patients’ outcomes; and to manage population health.’5 In looking at the way in which St Luke’s framed its defence, it is clear that St Luke’s was arguing that the ACA – with the ACA’s goals of collaboration and cooperation – effectively inspired the transaction. This was therefore, among the first cases to test the bounds of the ACA against the limits (or not) of the antitrust and competition laws.

The district court here ultimately sided with the FTC and Idaho AG and, after certain procedural manoeuvres, ordered the transaction undone. It could not ignore the ample documentary record – that is statements by St Luke’s itself about the likely effects of the transaction. A few of the more colourful (and obvious) examples that captured the district court’s attention include St Luke’s or Saltzer’s statements:

  • That ‘St Luke’s should use its bargaining leverage to increase reimbursements from health plans.’6
  • From a high-ranking Saltzer’s executive predicting that ‘the clout of the entire network’ could help Saltzer get back lost reimbursements.7
  • Contained in St Luke’s board presentations highlighting the ‘importance of gaining negotiating leverage with health insurance plans.’8
  • Projecting that extra income from the higher reimbursement rates would inure to St Luke’s, and that it would result in raises to its physicians.9

St Luke’s and Saltzer appealed their loss to the United States Court of Appeals for the Ninth Circuit. The Ninth Circuit’s 2014 opinion began by noting that its adjudication would be limited to an examination of the antitrust laws and not designed to proscribe the optimal future of the United States’ healthcare system. With that simple declaration, the Ninth Circuit effectively dismissed any perceived mandates of the ACA and instead narrowed its analytical focus to the antitrust laws alone. In so doing, their decision was immediately presaged: they upheld the District Court decision.

Many viewed this decision as an endorsement that the creation of market power could not be immunised by calling to the legislative intent of the ACA, and that the antitrust authorities would still be skeptical and likely to prevail. Indeed, some questioned how the goals of the ACA could ever be achieved in the face of such skepticism.

Perhaps emboldened by this victory, by the end of 2015, the FTC commenced three additional provider challenges across the United States in Illinois, Pennsylvania and West Virginia. These challenges, too, would pit directly parties’ arguments that the core aims of the ACA (collaboration and cooperation) necessitated consolidation against the competition laws’ general concern for such results. These cases, however, would result in three losses and ultimately, may have a decidedly different effect on the complexion of the FTC’s enforcement agenda.


In the capital of chocolate-making in the United States, on 9 December 2015, the FTC sought to block the merger of two non-profit healthcare provider systems Penn State Hershey Medical Center (Hershey) and Pinnacle Health System (Pinnacle).10 The Attorney General of Pennsylvania (PAAG) joined the lawsuit in the nearby federal District Court, and together with the FTC alleged that the combination would create the dominant entity in the provision of acute care inpatient hospital areas across the four county area surrounding Harrisburg, Pennsylvania.

The FTC and PAAG argued that together, the combined entity would control over 60 per cent of the relevant product and geographic market and that the two entities, who were unabashed competitors, would benefit from the cessation of competition between them, thus leading to increased healthcare costs and reduced quality. In the FTC and PAAG’s estimation, the geographic market was relatively straightforward. The FTC presented evidence that most patients in the four-county area stayed for care in the four-county area and that hospitals outside the four counties did not draw a significant number of patients from within those four counties, among other items.

Hershey and Pinnacle, for their part, argued strenuously that the geographic market definition was incorrectly defined and unreasonably narrow. The character of evidence of Hershey and Pinnacle amounted to demonstrating that over 40 per cent of Hershey patients came into the four-county area from outside the four-county area.

In May 2016, the District Court here agreed and went even further in its opinion, noting that this geographic area was highly rural which meant consumers were willing – and indeed did – travel substantial distances, especially for hospital care where a 30-minute drive was not unusual. The judge pointedly concluded that the FTC’s and AG’s geographic product market was divorced from the commercial realities facing consumers in the region and could not withstand scrutiny.

The Court also looked at existing insurer contracts. Both Hershey and Pinnacle had signed 10-year agreements that would have maintained the price differential between Hershey and Pinnacle, thus ensuring some competition. Despite the FTC’s efforts to ask the Court to consider the outcome after expiration of the contracts, the Court noted that healthcare was an area of rapid development and change, especially as it related to payments to insurers. Thus, the Court implicitly acknowledged the shifting landscape of healthcare and seemed to tip its cap to the possibility that traditional antitrust theories were ill suited to the modern commercial realities. More specifically, the District Court cited the ACA’s desire to encourage collaboration and cooperation among entities to create advantages in the quality and cost of care. To wit:

We find it no small irony that the same federal government under which the FTC operates has created a climate [under the ACA] that virtually compels institutions to seek alliances such as the Hospitals intend here. Like the corner store, the community medical center is a charming but increasingly antiquated concept. It is better for the people they treat that such hospitals unite and survive rather than remain divided and wither.

This explicit acknowledgment of the ACA is most certainly meaningful moving ahead as it demonstrates that courts are willing to listen to defendants’ arguments that to achieve the aims of the ACA, consolidation that may otherwise raise a spectre of anticompetitive harm should be sanctioned.

While this decision is on appeal at present and could certainly be reversed, this was the first time in many years that the FTC had not prevailed and the first time a court was on record as preferencing the mandates of the ACA above traditional antitrust analyses. A second defeat would follow soon thereafter.


On 17 December 2015, the FTC announced its intention to block the potential merger of Advocate Health Care Network/Advocate Health and Hospitals Corporation (Advocate) with NorthShore University HealthSystem (NorthShore). The FTC alleged that the combination of these two not-for-profit healthcare systems would create a market dominant entity in the North Shore area of Chicago and, in fact, become the largest single hospital system in the same area. Advocate, for its part, operated 11 general acute inpatient hospitals across Illinois, two of which were in the North Shore area. For its part, NorthShore operated four general acute care hospitals in the North Shore area. Together, the FTC estimated their combined market share in the North Shore area would be north of 50 per cent for general acute care inpatient hospitals, thus leading to increased costs that would be passed along ultimately to consumers. The FTC pointedly stressed that the combined entity would be the eleventh largest non-profit hospital system in the United States, with over US$7 billion in revenues, thus bestowing tremendous clout on the combined entity.11

It was a very traditional antitrust challenge in the sense that the competitive effects were premised around demonstrating market power in both a relevant product market and a relevant geographic market. Here, both the FTC and the merging parties agreed that the relevant product market was ‘[general acute care] inpatient hospital services sold and provided to commercial payers and their insured members…’12 The two diverged, however, on the topic of relevant geographic market. Using a heavy arsenal of econometric evidence, the FTC argued that the North Shore area of Chicago was the proper geographic market and when analysed through that lens, the ensuing concentration would violate the Clayton Act. The FTC also made a series of exclusions in defining its vision for the geographic market, notably excluding so-called ‘destination’ hospitals from the competitive landscape on the basis that insurers were interested only in ‘local’ hospitals, even if these local hospitals were mere miles from the higher-profile, higher-bandwidth destination hospitals.

Advocate and NorthShore argued instead, however, that the FTC’s geographic market was gerrymandered and that excluding the destination hospitals did not comport with the reality of market choices from which consumers and insurers could choose, and that there were several other deficiencies with the econometric evidence relied upon by the FTC. Advocate and NorthShore also argued that their combination would permit the combined entity to offer new products and services to patients and that in particular, it would mean the offering of a new, lower-cost insurance product, as well as expanding access and quality, all specific aims of the ACA.

Ultimately, in mid-June 2016, the Court embraced Advocate and NorthShore’s arguments and held that the FTC’s econometric methodology in defining the geographic market was flawed and rested the majority of its analytical opinion on this basis. Nevertheless, the fact that the FTC’s traditional geographic market definition was again undermined calls into question the strength of the concept and simultaneously opens the door to parties making additional ACA-based arguments to give courts greater comfort about the competitive effects of proposed healthcare provider transactions.

At the time of writing, the Illinois Court’s opinion, like the case in Pennsylvania, is on appeal.

West Virginia

In early November 2015, the FTC challenged the proposed acquisition of St. Mary’s Medical Center, Inc (SMM) by Cabell Huntington Hospital, Inc (Cabell).13 Both entities were located in an area surrounding Huntington, West Virginia, just three miles apart, and among very few competitors in close proximity. The FTC argued that the combined entity would account for more than 75 per cent of discharges in the market for general acute care inpatient hospital services.14 There was one key difference between this challenge and the previous two – in this case, the Attorney General of West Virginia (WVAG) had already approved the transaction after reaching an agreement with Cabell and SMM that put forward a series of promises and remedies.

This was unique and the first known instance of the FTC deciding to challenge a transaction of local importance in the face of local government approval of the same transaction. Not content to allow that process to proceed, the West Virginia legislature decided that it, too, would play a part and enacted a law that empowered the West Virginia Health Care Authority (WVHCA) to be the sole decision maker when it came to considering any ‘cooperative agreements’ to which healthcare providers may enter.

By focusing the power to decide the fate of any ‘cooperative’ transaction in the hands of the WVHCA, the legislation appeared to leave the FTC with very little room to challenge the underlying transaction because of the doctrine of state action. Generally speaking, in the United States, states, municipalities, and localities are empowered to pass legislation that could have foreseeable anticompetitive results (that would otherwise violate the federal antitrust laws) so long as it is pursuant to a clearly articulated and defined policy goal. This is exactly what transpired here.

Not surprisingly, shortly after the WVHCA reviewed the transaction, it approved it. And on 6 July 2016, recognising its inability to challenge a local law such as this, the FTC withdrew its complaint and the transaction was allowed to proceed. In its public statement, the FTC noted that to the extent some argued that the ACA required consolidation to achieve high-level collaboration, the antitrust laws should not be regarded as an impediment and that the antitrust laws could embrace the same principles as the ACA.15 Yet here, again, on the back of an ACA-driven framework, parties were achieving consolidation in the face of opposition from the federal antitrust authorities.

Antitrust division of the Department of Justice

While the FTC has long focused on provider transactions, insurance or payor mergers have been the providence of its sister antitrust enforcement agency, the DOJ. Like the FTC, the DOJ has been incredibly active in its enforcement of the antitrust laws and when presented with two payor transactions in 2015 and 2016 – the potential mergers of Anthem with Cigna, and Aetna with Humana – observers knew both would face close scrutiny. In terms of national providers of healthcare, these two deals would have reduced the number of players from five to three, unquestionably triggering competition alarm bells on this structural basis alone. In an unprecedented manoeuvre, on 21 July 2016, the DOJ announced its decision to go to federal court to seek to block both transactions simultaneously. The DOJ indicated it needed to do so because of the transformative nature of both deals and how they would jointly impact the nature of competition among healthcare insurance firms. The merging firms also indicated that they were driven to do these transactions to meet the true aims of the ACA and so, at least as of the time of this writing, both transactions appear headed to trial.

Anthem, Inc/Cigna, Inc

The DOJ’s core concern surrounding this US$54 billion transaction revolves around the fact that Anthem and Cigna were increasingly competing head-to-head, with Cigna creating more innovative plans and systems to lower its customers’ medical costs.16 In other words, Cigna was becoming a thorn in Anthem’s side and the removal of Cigna as a separate competitive presence would prove harmful. This harm, the DOJ argues, will be spread across multiple product markets. Specifically:

  • national accounts, where there are only four credible offerors and Anthem and Cigna are two of those four;
  • local commercial markets, where Anthem and Cigna are the best and sometimes only options for large employers in certain cities;
  • individual exchanges, where Anthem and Cigna compete directly in certain cities; and
  • the purchase of healthcare services by commercial health insurers, where the market power would be such that the combined entity could effectively dictate prices in an anticompetitive fashion.17

The DOJ’s complaint is highly detailed and specific. In often excessive detail, it explains the relative market positions of Anthem and Cigna and why the transaction poses a threat to competition in these markets and across certain geographies.

Needless to say, Anthem and Cigna take a different view of the transaction’s merits. Their belief is that the combination would provide affordable, high-quality and innovative care for consumers across the United States in ways that could not be achieved absent the transaction.18 And that such a combination is necessary in the face of the shifting healthcare landscape driven by the ACA. What is clear is that the DOJ will be arming itself with its traditional antitrust arguments, while Anthem/Cigna will be arguing a new healthcare world order is emerging and one that requires consolidation to achieve the laudable goals of ACA collaboration.

Aetna, Inc/Humana, Inc

Aetna’s proposed merger with Humana is valued at US$37billion but faces a slightly different procedural posture than Anthem/Cigna. Aetna and Humana raised the DOJ’s ire because of the resulting consolidation in the market for Medicare Advantage insurance plans, as well as certain public exchange markets across the United States, the latter which are a central component of the ACA.19 But unlike Anthem/Cigna, Aetna/Humana believe they had a remedy suitable to fix the competitive concerns raised by the transaction. The DOJ vehemently disagrees and thus, as this case enters the judicial branch, the focus will be on whether the ‘fix’ is sufficient or not. And yet here, too, the merging parties intend to argue that the ACA is driving their need for consolidation so that cost savings can be passed along meaningfully to customers.


Although enforcement of the antitrust laws in the United States of late has been incredibly robust across industries, transactions in the healthcare sphere have always been subject to intense scrutiny and should expect to see the same in the foreseeable future. This is despite the fact that, at least on the healthcare provider side, the FTC has been chastened and parties with ACA-driven arguments appear to be winning (at least until the United States’ appellate courts weigh in). The direction of provider transactions will be known in the months to come as the appeals make their way through the federal courts.

For healthcare insurers, the DOJ’s decision to challenge both transactions effectively means no further national payor consolidation will be permitted, at least until the courts weigh in or a new US president is inaugurated and has an opportunity to either continue this path or instruct the DOJ to shift course.

The only item one can say with confidence is that the complexion of healthcare transactions in the years to come will look very differently from how it has up until this point.


  1. See, Centers for Disease Control and Prevention, ‘Health Expenditures’ for 2014, available online at www.cdc.gov/nchs/fastats/health-expenditures.htm. This accounts for an impressive 18% of the United States’ gross domestic product. To put this in further global context, one study recently indicated that in similar high-income countries, the next closest spenders in terms of gross domestic product on healthcare were France and Sweden (approximately 12 per cent), followed by Germany and the Netherlands (approximately 11 per cent).
  2. See, The Commonwealth Fund, ‘US Health Care from a Global Perspective,’ available online at www.commonwealthfund.org/publications/issue-briefs/2015/oct/us-health-care-from-a-global-perspective.
  3. See, Federal Trade Commission, ‘2015 Annual Highlights, Stats & Data 2015,’ available online at https://www.ftc.gov/node/943403.
  4. This article does not cover developments affecting the pharmaceutical industry (intellectual property, conduct, or mergers) or medical devices or products (conduct or mergers). The dynamics of competition law enforcement in those areas, while ostensibly healthcare-related, vary significantly from those in the healthcare provider and insurer markets because of the latter’s unique posture.
  5. In most provider-related challenges, the FTC also files a nearly simultaneous challenge in its home administrative law court for a full trial on the merits. But because the FTC does not have the power to stop transactions by injunction – only a federal court may do so – the FTC also must go into federal court in an effort to halt the transaction because enforcing a remedy on a consummated transaction is significantly harder. For purposes of simplification, this article focuses on the federal court actions only.
  6. Saint Alphonsus Medical Center - Nampa, Inc. et al. v. St. Luke’s Health System, Ltd., 2012 WL 6651167, *17.
  7. Id at *10.
  8. Id at *11.
  9. Id at *11.
  10. Id at *12.
  11. All pleadings and case filings are available online at https://www.ftc.gov/enforcement/cases-proceedings/141-0191/penn-state-hershey-medical-centerpinnaclehealth-system.
  12. Complaint in Federal Trade Commission v. Advocate Health Care et al., No. 2015-c-11473-JLA, available online at https://www.ftc.gov/system/files/documents/cases/151222advocatecmpt.pdf  (Dec. 22, 2015 N.D.Ill.)
  13. Id at paragraph 27.
  14. The relevant materials are available online at https://www.ftc.gov/enforcement/cases-proceedings/141-0218/cabell-huntington-hospitalst-marys-medical-center-matter.
  15. Because there were many other state and local regulatory approvals the parties needed to satisfy before closing this transaction, the FTC needed to only seek an administrative complaint. The FTC was further empowered to go into federal court should the need arise because those other state or local approvals were in hand.
  16. See, Statement of the Federal Trade Commission In the Matter of Cabell Huntington Hospital, Inc., Docket No. 9366 (6 July 2016), available at https://www.ftc.gov/system/files/documents/public_statements/969783/160706cabellcommstmt.pdf.
  17. See United States of America, et al., v. Anthem, Inc. and Cigna, Inc., available online at https://www.justice.gov/opa/file/877886/download.
  18. See, id.
  19. See, Anthem and Cigna ‘Better Healthcare Together, available at http://betterhealthcaretogether.com.
  20. See United States of America, et al., v Aetna, Inc. and Humana, Inc, available online at https://www.justice.gov/opa/file/877881/download

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