Striking out! Federal enforcers' losing streak in antitrust cases shows need for new game plan.

Federal agencies have been striking out when they step up to the plate to challenge a hospital merger in court.

Like baseball teams that haven't won a pennant in years, the Federal Trade Commission and the U.S. Justice Department are on a four-case losing streak with hospital mergers they have tried to stop for antitrust reasons.

Applying the aging antitrust laws to hospital mergers is a relatively new sport for the federal government. It was only a decade ago that the Justice Department first challenged hospital mergers, contesting deals in Roanoke, Va., and Rockford, Ill. Rockford was a victory that dampened merger activity temporarily. Roanoke, however, was a defeat for the feds--the first of several.

In the last four cases--in Joplin, Mo.; Dubuque, Iowa; Grand Rapids, Mich.; and Long Island, N.Y.--the government has emptied its bench, exhausting financial and human resources to try and brake up potential monopolies.

Theories explaining why the trustbusters can't hit a home rum abound.

Some point to the loss of key players who have signed on with the private sector. Others say the complex economic models introduced in court can throw judges a curve. And some insist that no matter how many cases a judge has tried, there's never been a legal game as complicated and intangible as antitrust litigation.

'In each case you can point to a different reason, a different failure of proof,' says Toby Singer, a former FTC official who now practices antitrust law at Jones Day Reavis & Pogue in Washington.

Home field advantage. When the feds seek to block a merger involving a hospital owned by a national chain, they usually file the antitrust complaint in federal court in Washington.

But when the complaint involves two or more locally owned hospitals, the government must file at the federal district court closes to the hospitals, giving the hospitals a head start on the case.

'The government is at a serious disadvantage by virtue of that fact,' says Mark Horoschak, a former FTC official who now practices antitrust law at Womble Carlyle Sandridge & Rice in Charlotte, N.C. 'The hospitals are playing on their home court. It's an additional burden you have to bear along with the burden of proof.'

Federal judges usually have strong local ties and might have served on hospital boards in the past, as did the judge in the Long Island case.

They could have been born at one of the hospitals, like the judge who presided over the Dubuque case.

They might have peers who recommended the hospital merger, as did the judge in the Grand Rapids case.

Or they might simply want the feds to mind their own business and stay in Washington, as the judge in the Joplin case stated in court.

'I suspect judges already have preconceived notions about the market that can't easily be shaken,' says one antitrust attorney, who asked not to be identified. 'That's not to say it's improper, but it is a reality. And it cuts both ways. It could be good for the defense or good for the government.'

'When you bring cases against not-for-profits where the community supports the merger, you're facing witnesses and a judge who will be affected by the outcome, who live in the community,' Singer says. 'It's difficult to persuade the court that this (deal) is bad.'

Federal judges in the district courts are also less likely to have seen as many antitrust cases as judges in Washington.

'Judges don't think of healthcare providers the same way they think of defense contractors' when it comes to antitrust issues, Singer says.

'You could argue that local judges have more knowledge of the community's needs,' says another antitrust attorney who also sought anonymity. 'Healthcare is one service industry that the judges is already familiar with. They're more likely to be open-minded (in their decisions)if it's an industry they're not familiar with.'

'It's been suggested every now and then that special antitrust courts be set up,' says Jeff Miles, an antitrust attorney with Ober Kaler Grimes & Shriver in Washington. 'It's been recognized for a long time that as areas of law go, antitrust demands a degree of specialization.'

Not-for-profit defense. Most community hospitals are not-for-profit, giving them another edge in the fight taking place on their home turf.

'Not-for-profit status matters more than the government thinks it does and less than most other people think,' says William Kopit, an antitrust attorney with Epstein Becker & Green in Washington. 'Agencies see it as irrelevant, but on the other hand, people assume you can just whisper `not-for-profit' and that does it, and that's wrong.'

Kopit and his team won the Grand Rapids case for their clients, the now-merged Butterworth Health Corp. and Blodgett Medical Center, in part because they argued that not-for-profits are not likely to exercise market power the way for-profits would.

'For the first time, people from the agencies now believe that all things being equal, not-for-profits are less likely to exercise market power than for-profits,' Kopit says. 'But that doesn't mean not-for-profits can get away with things.'

In his opinion in the Grand Rapids case, Judge David McKeague echoed that sentiment: '(The hospitals' commitment to freeze prices and limit profit margins) corroborates other evidence that nonprofit hospitals may be treated differently under the antitrust law and further undermines the predictive value of the FTC's . . . case.'

In the Long Island case, Judge Arthur Spatt noted that while the not-for-profit defense alone may not hold enough water, 'this factor may be considered if supported by other evidence that such status would inhibit anti-competitive effects.'

Robert Bloch, former head of the Justice Department's healthcare antitrust section, agrees.

'There's a basic belief of the courts that the people who sit on these boards will make decisions for the community's benefit, but they're not always aware of the day-to-day decisions that are made,' says Bloch, now an antitrust attorney with Mayer Brown & Platt in Washington. '(That belief) clashes with the competitive world, where not-for-profits do many things that for-profits do to survive.'

At least one federal judge has acknowledged that in his decision. Judge Michael Melloy, who presided over the Dubuque case, wrote: 'There is nothing inherent in the structure of the corporate board on the nonprofit status of the hospitals which would operate to stop any anti-competitive behavior.'

'Economic supermodels. Both government and private defense attorney have started using more complex economic analyses to bolster their arguments in court.

'Defense attorneys have come up with more sophisticated market analysis than in years past,' Horoschak says. 'They have economic models for predicting market size and the likely market dynamic if certain things occur. Judges are more receptive to these models than they were previously.'

Adds Monica Nother, a Boston-based economist and expert witness for the government in the Dubuque case: 'Hospitals may spend more time doing sophisticated studies. From an economic perspective, it's hard to predict what valid arguments will be.'

To further complicate the issues, the two sides in a ease often argue for different definitions of a market when pushing their economic theories. Geographic market is defined by city or county lines, while product market is determined by the kinds of services in question.

'Geographic market is always critical in these cases,' Bloch says. 'The whole issue is the question of market power. Market definition can really determine the outcome of a case.'

It's not that the government's economic models aren't sophisticated, Singer says. The problem is that government attorneys sometimes dismiss certain facts as irrelevant.

'The government has been pioneering the use of econometric data in cases,' he says. 'But the prosecutorial mind-set causes them to discount some evidence.

'Sometimes the government takes an unduly narrow view of the geographic market. They discount the patients who travel into an area. They tend to downplay it too much,' Singer adds. 'But if enough patients who had been traveling from outside start staying home for services, it can make a difference.'

For example, consider the Dubuque case. The hospitals presented evidence that their market area extended to a 100-mile radius around the city, including some fringe areas where patients could have gone to a Dubuque hospital or another hospital.

'If you had a narrow definition of the market, it was clearly a monopoly,' Nother says, echoing her testimony. 'But if you looked at the 100-mile area, there were plenty of hospitals to compete with. My contention was that it would be difficult to convince patients to leave Dubuque if the prices went up. Some patients in the fringe area could have gone either way.'

Depending on elaborate economic theories also can backfire. In Long Island, the Justice Department espoused its 'anchor hospital theory,' which says that managed-care plans build networks of providers to offer employers services in a given area. The employers would be more interested in a plan that includes a nearby hospital with a solid reputation, which would be the anchor hospital the plan is built around.

'While the theory may have been legitimate, the facts (in the Long Island case) made it difficult to win.' Singer says, referring to the geographic market. In that case, the hospitals successfully argued that they competed not only with hospitals on Long Island but also with Manhattan facilities. By that definition, they could not be anchor hospitals.

Judges with little antitrust experience can get confused by the myriad economic outcomes possible.

'Antitrust law depends on relatively sophisticated economic theory,' Miles says. 'It's more economics than law. Judges are trained as attorneys, not economists. Applying economics is more subjective than objective. You never have enough data to provide a conclusive answer. The data suggest this or that. But you can manipulate the data so that both sides can take the same data and reach different conclusions.'

Consider what Judge Spatt wrote in his Long Island opinion: 'The alleged efficiencies are often speculative and vigorously disputed by the testimony of contradicting experts.... The defendants must clearly demonstrate that the proposed merger itself will in fact create a net economic benefit for the healthcare consumer.'

Managed-care allies. When the government wants to prove that a merger would drive up prices for patients, it often calls on local HMOs to testify.

'There's a growing antipathy to managed care,' Horoschak says. 'Relying purely on managed-care views has hurt the government in certain contexts. You've got to bring in other witnesses, like employers.'

Adds Bloch: 'Different courts have varying degrees of hostility toward managed care. Butterworth made the point that managed-care plans are more concerned with profits than patients.

'Payers are credible witnesses in principle and concept,' he says. 'The government looks at who is most likely to be directly affected by this merger, who are the biggest buyers of care.'

If there's any doubt as to how the courts feel about managed care, one need not look much further than the opinion of Judge McKeague in the Grand Rapids case: 'In the real world, hospitals are in the business of saving lives, and managed-care organizations are in the business of saving dollars.'

Critics of the managed-care strategy say cases cannot be won on such testimony alone.

Singer believes government attorneys sometimes give too much weight to managed-care testimony. 'They have to realize plans have their own ax to grind. They would like nothing more than lots of hospitals competing with each other.'

Adds Kopit: 'The government historically has not paid enough attention to what the local community and employers want. The government relies almost entirely on managed care, which is not beloved in this country.'

In his Grand Rapids opinion, fudge McKeague made the same point: 'Despite its diligent efforts, the FTC has turned up remarkably little employer opposition.'

Likewise, in the Joplin case, Judge Dean Whipple wrote: 'Notably, no third-party payers or customers have expressly objected to this consolidation.'

If you're the federal government, it also helps to have the state attorney general in your corner.

'How the state comes out has to affect (the federal government's) success one way or another,' Horoschak says. 'It's an important factor.'

In the Long Island case, for example, New York Attorney General Dennis Vacco endorsed the merger after his office reviewed the deal at length.

'It's a marginal help if (the state attorney general is) on your side, but having him against you is significant,' Miles says. 'The attorney general is more local and has a better knowledge of the people involved.'

Outgunned? Because the government is picky about which cases it takes to court, its attorneys may not be as seasoned in the art of trial as their counterparts on the defense team.

'They don't have the trial experience the hospital attorneys do because the government tends not to litigate many cases,' Miles says. 'The fact that a number of attorneys have left the agencies (for private-sector jobs) has a significant effect. Being a good trial attorney requires certain skills and experience.'

Those skills are in high demand in the private sector, which has led to some thinning in the ranks of government enforcement agencies.

'The reality is that antitrust is hot with a capital H,' Horoschak says. 'And it's not just with healthcare. It's Microsoft, Boeing, Staples. When I was there (at the FTC), it was unusual for attorneys to leave, because no matter how good you were, no one wanted you. Now law firms are wooing attorneys away Even second-tier, third-tier attorneys are getting offers.

'To some extent, it's a talent drain from the agencies. But there are talented people coming into the agencies as well. They're attracting people who can spend a few years there and get some great experience.'

The government's budget for a particular case may know no bounds, and the agencies may put almost all their attorneys on that case. But it still may not be enough, some attorneys say.

'The government has more resources financially speaking because in regard to a case, resources are unlimited,' says Miles, who wasn't involved in any of the cases. 'If you look at the human resources, in most litigation matters private firms have more attorneys and paralegals working on a case. It all boils down to how much a client wants to pay.'

'If you ask the agencies, they devote significant resources to healthcare as far as bodies go,' Kopit says. 'But if you look at their activities now and what they could be doing, they're woefully understaffed.'

Attorneys who have worked for the government disagree.

'In my experience, at the government level, you're never overwhelmed by the other side's resources,' Horoschak says. 'In Dubuque, the Justice Department had an army of lawyers, and so did the FTC in Butterworth. The last time I tried a case (for the FTC) C) was in 1994, and I felt as if the government could meet the opposition toe to toe.'

Extra innings. The government's less-than-stellar batting average may have the teams down, but the series isn't over yet.

For the first time in two years, the five FTC commissioners voted unanimously this month to seek an injunction in federal court to block the proposed merger of the only two acute-care hospitals in Poplar Bluff, Mo. (April 20, p. 2). The agency is hoping for a victory in its case against the merger of for-profits Doctors Regional Medical Center and Lucy Lee Hospital, both financially healthy institutions.

'It hasn't made the feds gun-shy,' Miles says. 'It's caused introspection. They're asking a lot of the same questions (MODERN HEALTHCARE) just asked me.'

'Where they continue to have concerns, you'll surely see more challenges,' Bloch says. 'They're clearly mindful of their track record, and they want to win.'

There is no one pitch that strikes out agency attorneys every time; rather, there are several factors that collectively can sway courts for or against the feds' team.

'It's impossible to say (why they keep losing),' Miles says. 'We can only speculate. Antitrust is so fact-specific that it's dangerous to draw broad conclusions.'

Advantage Health Grand Rapids

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воскресенье, 30 сентября 2012 г.

Striking out! Federal enforcers' losing streak in antitrust cases shows need for new game plan. - Modern Healthcare

Страницы

воскресенье, 30 сентября 2012 г.

Striking out! Federal enforcers' losing streak in antitrust cases shows need for new game plan. - Modern Healthcare

воскресенье, 30 сентября 2012 г.