The Future of Antitrust Enforcement in Healthcare
Post President Biden’s “Executive Order on
Promoting Competition in the American Economy”

With Dr. Cagatay Koc

In September 2022, Managing Director Dr. Cagatay Koc participated in an American Health Law Association (AHLA) podcast addressing antitrust policy and enforcement in the wake of President Biden’s 2021 executive order “Promoting Competition in the American Economy.” The “Policy” section of the executive order states: “This order affirms that it is the policy of my Administration to enforce the antitrust laws to combat the excessive concentration of industry, the abuses of market power, and the harmful effects of monopoly and monopsony — especially as these issues arise in … healthcare markets (including insurance, hospital, and prescription drug markets). . ..”

What follows is a summary of Dr. Koc’s perspectives on what the executive order has accomplished and the potential role economists may play in both antitrust policy and determinations of specific cases.

Is implementation of the “all-of-government” policy already having an impact?

Important implementation steps are already occurring. First, the Federal Trade Commission (FTC) announced a retrospective study on the physician group and healthcare facility mergers. The FTC requested information from several insurance companies to analyze the impact of consolidations such as physician practice group mergers with hospitals. This study should further our knowledge about the link between physician competition and quality of service.

In addition, there have been antitrust challenges to four major hospital mergers: Lifespan and Care New England, Hackensack Meridian and Englewood Health, Jefferson Health and Einstein Healthcare Network, and Methodist Le Bonheur Healthcare and Saint Francis Hospitals. The Department of Justice (DOJ) also has pursued criminal cases against individuals for alleged wage-fixing agreements, which likely will continue to be an important labor-antitrust issue for the agencies going forward.

Should merger reviews consider whether entities gain sufficient labor market power to depress employee wages?

This is a difficult question for economists, who strive to understand merger-induced changes in employer concentration in the context of other sources of variation in employer concentration that have contributed to slower wage growth. An empirical comparison between wage growth in labor markets that experience a concentration-increasing merger and wage growth in otherwise identical labor markets without any merger activity would be helpful, because mergers may also affect wages through mechanisms such as managerial changes designed to reduce labor costs.

Some research suggests that the slowing of wage growth following mergers that led to a substantial increase in employer concentration applied only to workers whose skills are less transferable outside of the industry.

How will economics play a greater role in the economic foundation of the guidelines?

There will be a greater emphasis on economics in analyzing how transactions are reviewed and evaluated in such areas as:

• Determining a merger’s impact on labor markets
• Continuing our use of the “consumer welfare” standard to analyze mergers, versus a broader standard that incorporates a more comprehensive group of stakeholders
• How agencies address the issue of buyer power
• How to account for key areas of the modern economy, such as digital markets
• The importance of multi-sided markets in the healthcare industry
• The types of evidence that should be considered in evaluating non-price effects such as the quality of and access to healthcare
• Guidance on dynamic competition, meaning how to analyze potential competition and innovation in certain industries

Why do some deals go through without a legal challenge?

While economic analysis plays an important role, specific market positions and customer options also influence regulators’ final decisions.

For example, in the case of the Cedars-Sinai and Huntington Hospital merger in 2021, the California AG allowed the transaction to go forward even though an economic analysis determined that cross-market competitive harm was likely. One of the following factors may have led the AG and the FTC to not take any legal action:

• Neither of the merging parties possessed sufficient market power in their geographic markets
• The parties provided largely non-overlapping products that were complementary to one another’s products
• Common customers could readily protect themselves against the cross-market price increases by purchasing single-market provider networks, for example by slicing their accounts across multiple insurers with distinct networks in each geographic market

Is there a sensible, economics-based alternative to the “consumer welfare” standard?

For more than 40 years, the “consumer welfare” standard has provided a consistent basis for the enforcement of antitrust law, asking if prices will increase and quality decrease, if access to services will be compromised, and if innovation will be suppressed.

However, in recent years, there has been debate among economists on whether the “consumer welfare” standard should remain or should the agencies shift to a “total welfare” standard. Proponents of the “total welfare” standard argue that it would allow a merger to be evaluated based on its likely effect on multiple parties, depending on the transaction at issue – for example, consumers, workers, competitors, small businesses, or even policy objectives such as environmental goals.

Economists, as well as others engaged in antitrust matters, are continuing to evaluate these competing views.