1. Ober | Kaler www.ober.com Exclusionary Practices in Healthcare May 25, 2010 William E. Berlin 202/326-5011 weberlin@ober.com 1401 H Street, NW, Suite 500 Washington, DC 20005

2. Ober | Kaler www.ober.com 2 Introduction: Exclusionary Practices in Healthcare Legal framework Categories of exclusionary conduct Factors to distinguish anticompetitive conduct from legitimate competition, and assess degree of antitrust risk Economic considerations for analyzing potentially exclusionary practices Examples from cases analyzing exclusionary practices

3. Ober | Kaler www.ober.com 3 Typical Exclusionary Practices in Healthcare Horizontal group boycotts Exclusive or selective contracting Discounting (predatory pricing) –Bundling Tying –Full-line (system) forcing Refusals to deal (transfer agreements, referrals, denying access)

4. Ober | Kaler www.ober.com 4 Typical Exclusionary Practices in Healthcare (Cont.) Terminating/restricting physician privileges –Peer review –Economic/conflict of interest credentialing Terminating/limiting other relationships (medical staff leadership, hospital board membership, access to OR, scheduling surgery, test interpretation, etc.) CON opposition Reverse payment patent settlements Even joint ventures

5. Ober | Kaler www.ober.com 5 Factors For Analyzing Exclusionary Conduct Threshold issues to assess degree of antitrust risk/viability of claim: –Parties involved/named in the suit –Proper relevant market –Unilateral vs. joint conduct »Ability to conspire and evidence of conspiracy –Per se violation vs. rule of reason

6. Ober | Kaler www.ober.com 6 Factors For Analyzing Exclusionary Conduct (Cont.) Factors to distinguish anticompetitive conduct from legitimate competition –Defendants market power –Plaintiffs foreclosure –Anticompetitive price/output/quality effects –Legitimate business justifications

7. Ober | Kaler www.ober.com 7 Who are the entities involved in the dispute and named in the suit? Plaintiffs: –Antitrust standing: »Plaintiffs must show antitrust injury – their injury flows from injury to competition »In exclusionary conduct cases, foreclosed hospital competitor may be more efficient enforcer of antitrust laws than insurers or consumer/patients. Palmyra v. Phoebe Putney »Plaintiff must participate in alleged relevant market –Who the excluded party is can impact market definition

8. Ober | Kaler www.ober.com 8 Who are the entities involved in the dispute and named in the suit? Defendant or defendants: determines type of legal claim –If only single entity involved in the exclusionary conduct, claims limited to Section 2 unilateral conduct –If multiple entities involved, plaintiffs may allege Section 1 concerted action claims »But still may name only single defendant without including other conspirators as parties. Tactical reasons? Franco v. Memorial Hermann; LRCC v. Baptist Health »Concerted action may be vertical (e.g., hospital-health plan contracting) or horizontal conspiracy

9. Ober | Kaler www.ober.com 9 Who are the entities involved in the dispute and named in the suit? –Certain horizontal conspiracies can be per se violations: »Where multiple hospitals or health plans involved, plaintiffs can alleged horizontal conspiracies, including group boycotts that are per se violations. Heartland v. Midwest Division »Horizontal agreements between competitor physicians (e.g., by medical staff to boycott a SSH) also may support per se claims

10. Ober | Kaler www.ober.com 10 What is the proper relevant market? A party cannot monopolize a market in which it does not compete –Thus physicians cannot maintain a Section 2 claim vs. hospital based on exclusionary conduct in the physician services market (unless hospital also employs physicians) Cluster market of all hospital inpatient acute care services vs. only those specialty services implicated by the exclusionary conduct? Commercially-insured patients only vs. all available patients (including Medicare, Medicaid, and self pay). LRCC, Rome

11. Ober | Kaler www.ober.com 11 Is The Exclusionary Practice Unilateral or Joint Conduct? Joint conduct viewed more strictly than unilateral, requires less market power, and may be per se violation For unilateral conduct, under Section 2 plaintiff must prove significant market power (monopoly power) = market share > 65% For joint conduct (and conspiracy to monopolize), plaintiff must show an agreement or conspiracy

12. Ober | Kaler www.ober.com 12 Is The Exclusionary Practice Unilateral or Joint Conduct? Proving an unlawful agreement –Hospital or hospital system, its board of directors, officers, employees; or health plan subsidiaries; or integrated JVs are usually incapable of conspiring as a matter of law because parts of same single entity –Circuits are split on whether a hospital and its medical staff (or the medical staff board, committees, or other entities) are capable of conspiring in the context of peer review credentialing »But apply outside of peer review? »Exception - one or more physicians has an independent personal stake

13. Ober | Kaler www.ober.com 13 Proving an unlawful agreement Even where legally possible, plaintiff must still show conspiracy by direct or circumstantial evidence –Often an express contract (e.g., exclusive) –If not, can be difficult to prove. Memorial Hermann; but see Heartland

14. Ober | Kaler www.ober.com 14 Factors to distinguish anticompetitive conduct from legitimate competition Do defendants have market power? –Higher market share = greater risk and increases types of claims available –Section 2: requires monopoly power –Section 1: »Exclusive contracts: little or no foreclosure unless health plan has market power »Hospital can use market power (must have hospitals) to coerce health plans to refuse to deal or to tie products/facilities »Reciprocal hospital-health plan market power

15. Ober | Kaler www.ober.com 15 Factors to distinguish anticompetitive conduct from legitimate competition Are plaintiffs foreclosed from the market? –Primary focus of the antitrust analysis of exclusionary conduct: access to patients »Must consider all types of patients –Plaintiffs must show foreclosure will prevent them from being viable competitor »Difficult where plaintiff remains financially successful, easier when forced out of business. Rome, but see Memorial Hermann –And must show competition/other competitors foreclosed, not merely plaintiff

16. Ober | Kaler www.ober.com 16 Factors to distinguish anticompetitive conduct from legitimate competition Are there any effects on competition? –If no significant foreclosure, highly unlikely that a plaintiff will be able to demonstrate anticompetitive effects. »Even if plaintiff is foreclosed and injured, often there is no apparent effect on competition. »Anticompetitive effects less likely where there are other competitors in addition to plaintiff –In healthcare context, plaintiffs often allege direct anticompetitive effects (e.g., higher prices, lower quality and reduced choice) »Difficult to prove; must present evidence harm actually occurred in the market. LRCC

17. Ober | Kaler www.ober.com 17 Factors to distinguish anticompetitive conduct from legitimate competition Does the defendant have a legitimate business justification for the conduct? –Will depend on the particular conduct at issue (e.g., exclusive contracting = discount for volume; economic credentialing = preventing cream-skimming/free riding and protecting cross-subsidies) –Justification must be non-pretextual: »Defendant should present contemporaneous evidence to support justification (e.g., studies showing patient steering to justify economic credentialing). Murphy v. Baptist Health, Dentsply »Conduct that targets specific competitors rather than applying universally may be pretextual. Heartland –Least-restrictive alternative/not overbroad