Articles Posted in Health Care and Hospitals

Hospital Antitrust CasesWhat is great about practicing antitrust law is that you take deep dives into the intricacies of different markets from the shelf space in drug stores for condoms—an actual case from several years ago—to insurance brokerage pricing to processed eggs and everything in between.

There are, however, certain industries that repeat themselves in the antitrust world, which isn’t a surprise because some industries are more susceptible to antitrust issues than others. For example, the airline and pharmaceutical industries consistently face antitrust scrutiny because of the nature of their markets and the regulations surrounding them.

But the industry I’d like to discuss here is the health-care or medical industry, and more specifically, hospitals. I’ve found myself with many antitrust and non-antitrust cases involving health-care of one sort or another over the last couple years, so this area has become an interest of mine.

Lately, I have also spent more time than I will publicly admit consuming materials (mostly books, blogs, and podcasts) on health, nutrition, and fitness, which (combined with my health-care cases) has my family often reminding me that I am not a doctor after some well-meaning but often unwelcome advice.

If you follow antitrust, you will notice that there are a lot of cases about hospitals. Why is that? This might seem surprising at first glance because many hospitals are non-profits or government-owned and you probably don’t picture a hospital in your mind when you think of the term “monopolizing.”

(If you can make it through the explanation below, you can read about a recent Department of Justice antitrust action against some Michigan hospitals that apparently agreed not to compete with each other in particular ways).

First, non-profit status is not a defense to the antitrust laws. Whether you have stockholders or owners that keep residual profits or not, you have to play by the antitrust rules. Non-profit entities (and their officers) still seek power, influence and prestige. And, increasingly, state and local government entities are subject to the antitrust laws. I’ve written a lot about that on The Antitrust Attorney Blog; you can access those articles in the State-Action Immunity category.

In fact, after the Supreme Court’s decision in North Carolina State Board of Dental Examiners v. FTC, it seems like many litigants want to go after state boards of various sorts. Anyway, I’ve received many calls about this and there are a few active cases, including one in Texas that I’ve written about.

Second, the health-care industry encompasses a series of narrow product, service, and geographic markets. That is because, except in limited circumstances, most people don’t travel far for medical care. They want to go somewhere near their work or home. So geographic markets are usually regional to a metro area (with some exceptions).

Within each geographic region, there are usually a limited number of hospitals or other medical facilities for particular specialties. Thus, each geographic market, that is each region, has what may be considered an oligopoly, or a handful of competitors that all know and depend upon each other. Whereas the airline industry is effectively a worldwide oligopoly, the markets for hospitals and other medical facilities are often oligopolies within metro areas. From that perspective, it isn’t a surprise that we see many hospital antitrust cases because there are so many different metro areas with oligopolies.

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Teladoc antitrustIt is easier to succeed in business without competition than with it. And if you are used to practicing your profession in a particular way, it is quite uncomfortable when new approaches develop that undercut your business.

(As an aside, Aaron Gott and I just published an article for CIO Story that discussed this idea in the context of the legal profession: Disrupting the Traditional Law Firm Model.)

Indeed, the first reaction is that the “guild” scrambles to find ways to stop the newcomers, often citing health, safety, or consumer protection reasons to cover what are, in fact, really actions of self-preservation. Several years ago, I published a law review article called “The Antitrust Implications of Licensed Occupations Choosing Their Own Exclusive Jurisdiction,” that discussed the antitrust implications of this problem.

North Carolina Board of Dental Examiners v. FTC

More recently, the United States Supreme Court decided a case called North Carolina State Board of Dental Examiners v. FTC. In that case, the Supreme Court held that a state board made up of dentists was not immune from the antitrust laws when it collectively acted to limit the market for teeth-whitening to dentists.

In the NC Dental case, dentists noticed that their high-margin teeth-whitening was facing lower-priced competition from non-dentists. They predictably reacted by citing health, safety, and consumer concerns and did what they could—collectively—to destroy their competitors and thus their competition.

That they did so through what was, in fact, a state board was no concern to the US Supreme Court because when an entity—even a state entity—is made up of a group of competitors it is in many ways just like a private trade association. If the competitors collectively violate the antitrust laws by excluding competition, they must face antitrust liability.

What the Supreme Court did not do in NC Dental, however, is determine the scope of what is an antitrust violation. For that, we must turn to basic antitrust doctrine. And like any other antitrust application, doctrine develops around different types of actions and situations.

One pertinent example, of course, is the state board made up of private competitors that seek to exclude their competition. The scope of antitrust liability—separate and apart from any state-action immunity issues—is an underdeveloped area of antitrust doctrine because there weren’t a great many cases of this nature.

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NC Dental DecisionIf you haven’t yet heard, the Supreme Court upheld the FTC’s antitrust action against North Carolina’s state dental board. And I think they did a good job with the opinion.

We wrote an amicus brief in this case and I have been studying these issues for years, so let me tell you some of my thoughts.

Justice Anthony Kennedy wrote the Court’s majority opinion and Justice Samuel Alito filed a dissent, which Justices Antonin Scalia and Clarence Thomas joined.

State Action Immunity Background

You can read a brief summary of the case here, but here is nutshell: The North Carolina dental board, consisting mostly of practicing dentists, took certain actions to keep non-dentists from offering teeth-whitening services in North Carolina. Noticing the blatant anticompetitive conduct, the FTC sued them under the federal antitrust laws.

The issue at the Supreme Court, however, wasn’t whether the conduct violated the antitrust laws or whether it was anticompetitive, which (in my view, the FTC’s view, and the Fourth Circuit’s view) it clearly was. The issue was whether the North Carolina State Board of Dental Examiners can use what is called the State-Action-Immunity doctrine as a shield from federal antitrust law.

To invoke state-action immunity (which is technically an exemption not an immunity), an entity must satisfy the Midcal test, which requires that it show (1) the state as a sovereign clearly articulated authority for the entity to engage in anticompetitive conduct; and (2) active supervision by the state as sovereign. Under prior case law, municipalities need only show the first requirement (we will discuss this point further below).

The issue in NC Dental v. FTC (link to the Court’s opinion) was whether state licensing boards must demonstrate active supervision as well as the first prong—clear articulation. NC Dental didn’t show active supervision, so if they must do so under law, their state-action-immunity defense fails. And that is what happened.

North Carolina State Board of Dental Examiners v. Federal Trade Commission

Significantly, the second line of Justice Kennedy’s opinion is “A majority of the board’s members are engaged in the active practice of the profession it regulates.” The opinion says a lot, but this core fact—competitors regulating competitors—is what ultimately matters.

After discussing the factual context of the case, the Supreme Court started its Section II—the legal background section—with the following line: “Federal antitrust law is a central safeguard for the Nation’s free market structure.” I expect that attorneys and judges will quote this line for years. You can compare it to the Court’s quote from National Society of Professional Engineers (which was originally from Standard Oil v. FTC): “The heart of our national economy long has been faith in the value of competition.”

Here is another good line from the same paragraph of NC Dental: “The antitrust laws declare a considered and decisive prohibition by the Federal Government of cartels, price fixing and other combinations or practices that undermine the free market.” So Justice Kennedy—the Court’s libertarian?—sets a positive free-market foundation.

There is, of course, a tension between the free-market policies of the federal antitrust laws and federalism. That, in fact, is what the state-action immunity doctrine is all about. Under federalism, “in some spheres [the States] impose restrictions on occupations, confer exclusive or shared rights to dominate a market, or otherwise limit competition to achieve public objectives.” So the Court’s task is to demarcate the line between the obligations of federal antitrust law and the states’ rights to depart from this free-market policy.

You can read more about this tension between federal antitrust law and federalism in an article I wrote with Luke Wake for Competition. In that article, we argue that the Court should apply a market-participant exception to state-action immunity. That is, if a state or local government engages in commercial competition rather than regulation, it should not be able to invoke the state-action immunity shield; it must play by the same rules as other competitors. As an aside, you might notice the Court’s language in NC Dental distinguishing between regulation and market-participants. I certainly noticed it.

In resolving the tension between federalism and federal antitrust law, the Court—as it did recently in Phoebe Putney—points out that state-action immunity, like other antitrust exemptions, is disfavored.

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NC Dental PictureThe US Supreme Court does not review many antitrust cases. So when they do, it is kind of a big deal for antitrust attorneys around the world.

On Tuesday, the Supreme Court heard oral arguments in North Carolina Board of Dental Examiners v. FTC, which addressed the scope of state-action immunity from antitrust liability. More specifically, the Court is reviewing whether a state licensing board must satisfy both prongs of what is known as the Midcal test to avoid antitrust scrutiny.

The first element, which everyone agrees applies, requires the defendant entity to show that the State “clearly articulated and affirmatively expressed” the challenged anticompetitive act as state policy. The Supreme Court is deciding whether state licensing boards are subject to the second element as well: whether the policy is “actively supervised by the State itself.” Municipalities and other local governments have a free pass from this second element, but private people and entities must satisfy the active supervision requirement.

So what is the big deal? If an entity—state or private—can show that state-action immunity doesn’t apply, it can violate the antitrust laws at will. It can grab consumer surplus for itself; it can exclude competition; it can behave under different rules than everyone else. And monopoly is quite profitable.

In NC Board of Dental Examiners v. FTC, a state-sanctioned dental board—composed of six licensed dentists, one licensed dental hygienist, and one public member—engaged in actions to exclude non-dentist teeth-whitening services. As you might recall, Bona Law filed an amicus brief in this case. You can learn about the case and our amicus brief here. Among other points, we argued that the Supreme Court should analyze the case as the Court outlined in American Needle, by reference to whether the units of competition—the independent decision-makers—are private. They are. We also advocated that the Supreme Court apply an active state supervision requirement with some teeth.

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I recently reported on my client’s antitrust case against the Virginia Board of Medicine. I also mentioned that I argued at the motion-to-dismiss hearing on March 28. I am excited to announce that we received the Court’s decision today rejecting the Board’s Motion to Dismiss.

If you are interested in the case, you can download the complaint and motion to dismiss documents below.

1. Amended Complaint

PillsLast week was a big antitrust week for the new law firm of Bona Law PC. First, it was the ABA Antitrust Spring Meeting, where antitrust lawyers from all over the world descend upon Washington, DC to obsess over antitrust and competition for several days. Second, I was writing an antitrust brief in a significant antitrust case.

Finally, I argued at a motion-to-dismiss hearing in the case Dr. Yvoune Kara Petrie, DC v. Virginia Board of Medicine, et al. I represent Yvoune Petrie, a doctor of chiropractic, in an antitrust lawsuit (Sherman Act, Section 1) against the Virginia Board of Medicine and several of its board members. Update: We survived the motion to dismiss.

With my client’s permission, I thought I’d tell you a little more about it.

As you might recall, I have experience and expertise in antitrust lawsuits against state and local entities, and believe that some of the most pernicious harm to competition comes from government conduct.

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