Antitrust Issues for Hospitals Association of Washington Public Hospital Districts Davis Wright Tremaine LLP

Presenters Douglas Ross Davis Wright Tremaine, LLP Dick Goldsmith Director, Legal Services and Health Policy AWPHD

Webcast Outline Why worry about antitrust? What are the antitrust laws anyway? What are typical antitrust issues hospitals face? Are there any protections from the antitrust laws for hospitals? What about additional protections for public hospital districts?

Why Worry about Antitrust?

Washington A group of surgical specialists in Yakima was sued by: –The Federal Trade Commission –The State –A class of patients and payers –A former partner And both Yakima hospitals were sued by the former partner as well

Oregon McKenzie Hospital (114 beds) sued Sacred Heart (425 beds) Sacred Heart’s conduct Acquisition of “feeder” hospitals, MDs Bundling Contracts with Regence Jury’s verdict For Sacred Heart on all claims but one Then awarded significant damages …

Alaska Background –Providence: exclusive contract with group of anesthesiologists –Independent physician conducted procedure –Group protested Lawsuit –Antitrust and other damages (over $1 million after trebling) –Fees for plaintiff’s lawyers

Montana Blue Cross/Blue Shield sued Defendants –Only radiology group in Missoula –Imaging center joint venture between group and hospital Alleged antitrust violation: joint venture

What Are the Antitrust Laws Anyway?

The Goal of the Antitrust Laws Competition –Lower prices –Higher quality

Anticompetitive Activities Agreements that harm competition –Sherman Act, Section 1: “contract, combination or conspiracy in restraint of trade” Single entity actions –Sherman Act, Section 2: monopolization Mergers and joint ventures Price discrimination

Antitrust Enforcement Federal –Federal Trade Commission –Antitrust Division, Department of Justice State Private –Class actions –Treble damages –Fees

Test Your Knowledge Discussion: American Airlines and Braniff

Poll Is the previous example a violation of antitrust laws? –Yes –No –Not sure

What Are Typical Antitrust Issues Hospitals Face?

Antitrust Issues Medical staff issues –MultiCare Health System –PeaceHealth St. John Medical Center Price fixing or market division –Central Washington Hospital Exclusive agreements with physicians –Kadlec Medical Center Joint ventures with physicians –Missoula

Antitrust Issues (cont.) Hospital referrals – affiliated DME, home health care services –Providence St. Peter Hospital Payer contracting – provider networks –Yakima Mergers and acquisitions –St. Joseph Hospital (Bellingham) –Providence Everett Medical Center

Other Antitrust Issues Group purchasing Fee, wage, salary surveys Drug purchasing

Joint Provider Contracting PayerPayer Network

Joint Provider Contracting Competitors collectively contract with a payer –Possible price fixing Provider contracting on a risk basis –Take and share substantial financial risk –Integration: may set price jointly

Joint Provider Contracting: The Messenger Model Use: if no risk sharing –Fee-for-service –Per diem –Case rates Transmit offers between payer and each of the providers Requirements: –Each provider determines own fees –Each provider determines whether to accept payer’s offer

Joint Ventures with Physicians Outpatient Surgery Center Clinic 33% Hospital 67% Hospital 67%

Joint Ventures with Physicians Outpatient Surgery Center Hospital 50% Clinic 50%

Are There Any Protections from the Antitrust Laws for Hospitals?

Health Care Quality Improvement Act (HCQIA) Credentialing and peer review Response to Astoria case (1980s) Purpose: encourage self- regulation and provide immunity

HCQIA Immunity Action must be: –In reasonable belief that furthers quality health care –After a reasonable effort to obtain the facts –After notice and hearing –Warranted by the facts

Other Protections Petitioning the government –Example: opposing a CON application Northwest Kidney Centers State Action –Can apply to private entities

Protections for Non-Profit Institutions Exempt from price discrimination laws (Robinson-Patman) –For sales or purchases for their “own use” –Typically: pharmaceuticals

Antitrust Immunity Process RCW –Used four times (mid-90s) –No procedures in place

What about Additional Protections for Public Hospital Districts?

Local Government Antitrust Act Bars recovery of damages in antitrust cases from local governments and officials acting in official capacity –15 U.S.C Sections Actions for injunctions not blocked

Rural Public Hospital Districts Cooperative agreements and contracts –Between rural PHDs –To provide for health care needs –RCW Rural PHD –No city > 30,000 population

Rural Public Hospital Districts (cont.) Permitted activities include: –Allocation of health care services –Combined purchases and allocations of medical equipment –Joint agreements for health care service delivery and payment –Other arrangements permitted under the Interlocal Cooperation Act Chapter RCW

Conclusion

For More Information Doug Ross Davis Wright Tremaine, LLP Dick Goldsmith AWPHD

Questions?

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