Nathan Nash, November 13, 2015
Moderator: Alvin Klevorick – Deputy Dean and John Thomas Smith Professor of Law, Yale Law School, and Professor of Economics, Yale Department of Economics
- Erin C. Fuse Brown – Assistant Professor of Law, Georgia State University College of Law; and Jaime S. King – Professor of Law, Associate Dean and Co – Director, UCSF/UC Hastings Consortium on Science, Law, and Health Policy, UC Hastings College of Law
- Deborah Haas-Wilson – Visiting Professor of Public Policy, Harvard Kennedy School, and Marilyn Carlson Nelson Professor of Economics, Smith College
- Brent L. Henry – Vice President and General Counsel, Partners HealthCare
- Toby G. Singer – Partner, Jones Day
- Henry C. Su – Office of Chairwoman Edith Ramirez, Federal Trade Commission
Panel IV was full of fireworks, and not just because it concluded the Solomon Center’s successful inaugural conference. Building on topics and themes that previous panels explored, Panel IV debated whether health systems’ increased pursuit of vertical integration was beneficial adaption or malevolently anticompetitive behavior. Like the rest of the panels, all viewpoints were energetically represented: Deborah Haas-Wilson and Henry Su emphasized the traditional importance of competition, while Toby Singer and Brent Henry argued that vertical integration can provide efficiencies and benefits otherwise very difficult to achieve. Erin Fuse Brown and Jaime King attempted to resolve this deadlock by proposing policy solutions that would increase state involvement in provider and insurance negotiations, as well as mergers among providers. In his questions to the panelists, Moderator Alvin Klevorick captured the central challenge in antitrust challenges to vertical integration: because antitrust enforcers largely act prospectively, balancing the anticompetitive and beneficial effects of a merger involves a series of imperfect assumptions and predictions. While the precise consequences of vertical integration may be uncertain, the panelists drew on their extensive experience and expertise to lead a highly informed, and at times contentious, discussion of the role of vertical integration in our changing health care system.
Deborah Haas-Wilson began the discussion by describing the steep rise in vertical integration since 2008 and her analysis of the vertical integration at issue in the St. Luke’s case. She found that the anticompetitive effects of vertical integration manifested at two basic stages: (1) market concentration can weaken payers’ bargaining power against a “must-have” provider; and (2) vertical acquisition can substantially change physician referral patterns and lead to “vertical foreclosure” of competitors. Like Deborah Haas-Wilson, Henry Su was involved in the St. Luke’s litigation. He explained that the first step of merger review involves asking why providers are seeking vertical integration. What advantages does the proposed integration provide, and, more critically, what effects would the combination have on other possibly beneficial collaborations? If the merger cements certain relationships at the expense of other commercially efficient combinations, then the FTC will often take enforcement action to protect competition.
Toby Singer challenged Deborah Haas-Wilson and Henry Su’s reading of St. Luke’s by noting that the District Court did not reach St. Alphonsus’s vertical integration argument. Instead, the Court rested its judgment on the Federal Trade Commission’s (FTC’s) horizontal theory. More broadly, Alvin Klevorick noted that vertical antitrust theories in health care are relatively untested: while the FTC’s Horizontal Merger Guidelines have been revised several times since their original promulgation, the FTC has never revised the Non-Horizontal Merger Guidelines. Toby Singer explained that her more practical perspective of the business realities involved in these mergers leads her to take a more balanced approach to vertical integration. Specifically, she recommended greater consideration of the efficiencies vertical integration may create, even if the FTC can make a prima facie case for injunctive relief. She also argued that competitors outside the merger can take reasonable measures to maintain competition. Like the District Court in St. Luke’s, Toby Singer concluded by noting the benefits vertical integration can provide in a changing health care market.
Brent Henry gave life to these benefits in recounting of Partners HealthCare’s expansion. For example, by creating sufficient economies of scale through integration, Partners HealthCare was able to make a $1.2 billion investment in Electronic Health Records. This investment has benefited providers across Partners HealthCare’s large system. As a large academic medical center, Partners HealthCare is asked to provide a platform for training, education, and research, as well as high-cost and primary clinical care. Without the ability to spread these costs across a range of providers, Partners HealthCare and other academic medical centers may not be able to provide the broad range of high-quality services for which they are renowned. In response to audience questions and the FTC’s position, Toby Singer and Brent Henry agreed that arm’s-length contractual relationships alone could not achieve the same benefits as vertical integration. In sum, Toby Singer and Brent Henry’s provider-oriented perspective gave them a significantly different view of the costs and benefits of vertical integration than Deborah Haas-Wilson and Henry Su.
After these opposing camps explained their differences, Erin Fuse Brown and Jaime King entered the conversation to find a constructive policy solution. Their primary recommendation was to foster state-specific analysis and engagement through states’ adoption of an All-Payer Claims Database (APCD). Through an APCD, states can collect price, utilization, and quality data across private and public payers. States can then use these data to determine the empirical effects of vertical integration and develop more flexible responses that encourage beneficial efficiencies while limiting anticompetitive harm. Henry Su reported that the FTC was similarly bringing an evidence-based approach to its antitrust enforcement through retrospective studies of hospital mergers and recent conferences devoted to antitrust issues specific to health care. Erin Fuse Brown also proposed five additional state policy options, including more nuanced and engaged responses to proposed mergers and insurance rate oversight and regulation. These proposals drew on the theme, repeated throughout the conference, that states are indispensible partners in regulating inherently local health care markets.
This panel showed that different perspectives on the health care system can produce dramatically different conclusions. Bringing together practitioners, academics, and government officials allows us to understand how these differences arise and construct a compromise that embraces the nuances that this complexity demands. While health care can challenge traditional economic and legal assumptions, promoting robust interdisciplinary discussion will help us address the range of pressing issues facing our health care system.
[1] For purposes of discussion, the panel defined “vertical integration” as mergers between physician practices and hospitals, using as an example Saint Alphonsus Medical Center-Nampa, Inc. v. St. Luke’s Health System, Ltd., Nos. 1:12-CV-00560-BLW, 1:13-CV-00116-BLW, 2014 WL 407446 (D. Idaho Jan. 24, 2014).
[2] Currently, about eighteen states have an APCD, and approximately another twenty are considering adopting an APCD.