1. www.ober.com Antitrust Risk Rising: Challenges Faced By Health Plans in the Post-Reform Environment William E. Berlin September 15, 2011

2. www.ober.com 2 Post-Reform?  Still evolving: final ACO regs; GOP rollback; reimbursement changes  Many (most?) changes driven by market not health reform  Diminished profitability of traditional core insurance products  Provider consolidation  Competition from providers -- e.g., captive insurers  Increased FTC/DOJ enforcement?

3. www.ober.com 3 Health Plan Responses to Reform & Market Changes  Buying providers/forming ACOs  Selling back-room services to providers (e.g., practice management)  Merging with other health plans?

4. www.ober.com 4 What Antitrust Issues Do Health Plan Responses Raise?  Mergers: Horizontal v. Vertical; Plans and Providers  ACO Rules  Provider Contracting/Exclusionary Conduct By Dominant Firms  Information Sharing/Gun Jumping

5. www.ober.com 5 Enforcers  Antitrust Division, United States Department of Justice  Civil injunctive relief  Criminal prosecution: penalties include fines and prison  U.S. Federal Trade Commission  Civil injunctive relief only (but can refer criminal violations to DOJ)  Disgorgement

6. www.ober.com 6 Enforcers (Cont’d.)  State attorneys general  Enforce state antitrust laws and bring damage actions under federal antitrust laws  Typically follow and defer to FTC/DOJ  Private parties injured by the conduct  Triple the actual damages  Attorneys fees  Often tag-along on government cases

7. www.ober.com 7 Health Plan, Hospital and Physician Group Mergers -- Clayton Act, Section 7  Prohibits all types of mergers, acquisitions, and joint ventures whose effect may be to substantially lessen competition  Horizontal = Increased market power/coordination  Vertical = Foreclosure of competitors

8. www.ober.com 8 Mergers (and Joint Ventures)  Threshold consideration: Ensure the merger results in a single entity for antitrust purposes – American Needle v. NFL (2010)  Integration of firms must be near-total  If not, the firms continue to constitute separate competing firms for antitrust purposes  If so, their agreeing on prices, etc. constitutes unlawful price fixing (unless integrated and ancillary) or other Section 1 violation  Sherman Act Section 1: Prohibits agreements between competitors that unreasonably restrain competition

9. www.ober.com 9 Mergers: 2010 Horizontal Merger Guidelines  First revision since 1997 (minor), 1992  More aggressive approach  More flexible, less mechanistic  Better conform to existing agency practice  To achieve better results in court?  But is the bar raised?

10. www.ober.com 10 Revised Horizontal Merger Guidelines  Significant changes relevant to healthcare mergers:  Emphasize anticompetitive effects analysis/deemphasize market definition  Increased importance of other evidence of likely or actual adverse effects  Implications for healthcare transactions

11. www.ober.com 11 Horizontal Mergers -- Warning Signs:  Merging firms, together, have a 35 to 40% or larger market share  Four largest firms have a 50% or larger market share  Customers complain because merged firm would be able to increase prices significantly (or decrease payments to providers)  Few efficiencies  New firms would not enter the market  (New) Merging firms can raise (or have raised) prices or harm competition  Other new requirements?

12. www.ober.com 12 Health Plan Mergers (Horizontal)  Past DOJ Antitrust Division enforcement criticized by providers  Three prior challenges:  Prudential/Aetna (1999)  UnitedHealth/PacifiCare (2006)  United Health/Sierra Health Services (2008)  Partial divestitures in each  AHA lists 14 investigations since 1993  Many with no geographic overlap  DOJ investigation of Blue Care Network of Michigan - Physicians Health Plan of Mid-Michigan (2010): monopsony concern

13. www.ober.com 13 Provider Mergers (Horizontal)  Bottom lines:  Hospital and hospital-physician mergers on the upswing in 2010-11  More aggressive enforcement under revised Guidelines  Increasing emphasis on:  Pricing analysis and direct effects (retrospective review)  Effect on employers, health plans (key role)  Increased provider concentration/bargaining power?

14. www.ober.com 14 Provider Mergers: Agency Enforcement Activities  FTC v. Evanston (2005, aff'd 2007): retrospective; pricing evidence  FTC v. Inova (2008): effect on small employers; skeptical of efficiencies/quality claims; fast track procedure  Pro Medica – St. Luke’s Hospital (2011)  Phoebe Putney – Palmyra Park Hospital (2011)

15. www.ober.com 15 Health Plan Acquisition/Integration of Providers (Vertical)  Concern is foreclosure/exclusion of competitors  Can also be horizontal issue if health plan acquires large percentage of provider specialty/type  Highmark-West Penn Allegheny Health System

16. www.ober.com 16 The FTC/DOJ ACO Policy Statement  To which entities does the Policy Statement apply?  Steps in analysis  How to mitigate antitrust risk  Agency review process  Health plan perspective  one form of vertical acquisition/integration  increased concentration of horizontal providers

17. www.ober.com 17 To Which ACOs Does The Statement Apply?  Competing providers (even if with health plan)  Criteria for Shared Savings Program  Contracting with commercial insurers  Clinical integration

18. www.ober.com 18 Streamlined Analysis Based on ACO’s Share  How to calculate the PSA shares necessary to make threshhold determinations  Safety zone – 30%  Rural exception – can exceed 30%  Dominant provider limitation – single provider can exceed 50%  Mandatory review for ACO’s exceeding 50%

19. www.ober.com 19 ACOs: How to reduce risk of investigation or mitigate antitrust concern  Same factors used for ACOs with shares between 30-50% and over 50%. Don’t:  Prevent payor steering  Tie ACO services to services of providers outside of ACO (including participants)  Make ACO providers exclusive to the ACO (except PCPs)  Restrict payors ability to provide info to enrollees to select NW providers  Share price info among ACO participants

20. www.ober.com 20 ACOs: Agency Review Process  Documents and information required  90 day review period  Agency approval required for ACOs exceeding 50%

21. www.ober.com 21 ACO Bottom Line  Little provider interest now; health plan interest?  New regulations, models?  Provider ACOs able to exercise market power in bargaining with health plans?

22. www.ober.com 22 Dominant Firm Exclusionary Conduct -- Section 2 of the Sherman Act  Prohibits “monopolization,” “attempted monopolization,” and “conspiracies to monopolize”  Monopolization and attempted monopolization don’t require an agreement -- unilateral action sufficient  Typically result where a single firm has substantial market power and takes action to exclude its competitors from the market  A conspiracy to monopolize is basically the same as a Section 1 agreement unreasonably restraining competition

23. www.ober.com 23 Dominant Firm Exclusionary Conduct -- Section 2 Monopolization  Requirements:  “Monopoly power”: Typically, a 70% or larger market share  “Predatory conduct”: Conduct that excludes competitors from the market, not based on the predator’s competitive merits  Defense: A “legitimate business justification”  That is, the conduct benefits consumers

24. www.ober.com 24 Dominant-Firm Exclusionary Conduct  U.S. v. BCBS of Michigan – latest DOJ challenge of MFN clauses  Focus on monopsony (buyer-side) effects  U.S. v. United Regional HealthCare  Defining and identifying predatory conduct: difficult, fact- specific  Unreasonable agreement can also be predatory conduct (e.g., DOJ alleged only Section 1 claim v. BCBS Michigan)  Typically enforced by DOJ (protracted, complex investigation/litigation)

25. www.ober.com 25 Guidelines for M&A Due Diligence and Providing Management Services  Information sharing  Gun-jumping  Omnicare v. UnitedHealth and Pacificare  FTC/DOJ Healthcare Policy Statement 6  Safety Zone: third party; information 3 months old; aggregated  Public information OK; future prices not

26. www.ober.com 26 Resources: Federal Policy Framework  U.S. Dep’t of Justice & FTC, Merger Guidelines (1992, as amended 2010)(http://www.ftc.gov/os/2010/08/100819hmg.pdf )  Statements of Antitrust Enforcement Policy in Health Care (Aug 28, 1996) (www.ftc.gov/reports/hlth3.shtm) (Healthcare Guidelines)www.ftc.gov/reports/hlth3.shtm  FTC/DOJ Report, Improving Health Care: A Dose of Competition (2004) (www.ftc.gov/reports/healthcare/040723healthcarerpt.pdf)www.ftc.gov/reports/healthcare/040723healthcarerpt.pdf  FTC/DOJ Proposed Statement of Antitrust Enforcement Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program (April 2011)(http://gpo.gov/fdsys/pkg/FR-2011-04- 19/pdf/2011-9466.pdf)http://gpo.gov/fdsys/pkg/FR-2011-04- 19/pdf/2011-9466.pdf  FTC and U.S. Dep’t of Justice, Antitrust Guidelines for Collaborations Among Competitors (2000)

27. www.ober.com 27 Federal Policy Framework (cont.)  Business Review Letters/Advisory Opinions  FTC - www.ftc.gov/bc/healthcare/industryguide/opinionguida nce.htm www.ftc.gov/bc/healthcare/industryguide/opinionguida nce.htm  DOJ - www.usdoj.gov/atr/public/busreview/letters.htmwww.usdoj.gov/atr/public/busreview/letters.htm  Enforcement Actions  FTC - www.ftc.gov/bc/healthcare/antitrust/index.htmwww.ftc.gov/bc/healthcare/antitrust/index.htm  DOJ - www.usdoj.gov/atr/cases.htmlwww.usdoj.gov/atr/cases.html

28. www.ober.com 28 Other Helpful Resources  ABA Section of Antitrust Law, Antitrust Law Developments (6 th ed. 2007)  ABA Section of Antitrust Law, Antitrust Health Care Handbook III (2004) (revised edition forthcoming 2009)  Paul J. Felstein, Health Care Economics (6 th ed. 2005)  Herbert Hovenkamp, Federal Antitrust Policy (3d ed. 2005)  1-5 John J. Miles, Health Care & Antitrust Law (Supp. 2008)

29. www.ober.com 29 Questions?