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Health Law Alert
2012: Issue 8 - Focus on Antitrust
Overview: Provider Mergers in Response to Health Care Reform and Changing Market Dynamics
Merger activity between hospitals, health systems, and physician groups has been on the rise in the last few years. In 2011, there were 92 transactions involving 212 hospitals, and in 2009 and 2010 there were 85 and 89 mergers, respectively. In addition to hospital-merger activity, physician groups have been increasingly affiliating with hospitals, whether by full merger resulting in hospital employment or less than full integration, such as joint ventures. For example, in the cardiology specialty, a consulting firm, MedAxiom, recently surveyed 144 cardiologist practice groups, and of those, 38.2 percent were fully integrated with hospitals by the fall of 2011, up from just 14.3 percent in the spring of 2010. What is driving the recent increase in hospital and physician-group merger and affiliation activity? This consolidation trend is caused by three interrelated factors: (1) increased access to capital for some large health systems following the recession and the corresponding weak financial condition of smaller hospitals; (2) across-the-board reductions in Medicare reimbursement rates (primarily to physicians); and, most significantly, (3) systemic changes in the country's health care structure, primarily (but not entirely) resulting from the Affordable Care Act. Patient Protection and Affordable Care Act, Pub. Law 111-148, 124 Stat. 119 (2010), and Health Care and Education Reconciliation Act of 2010, Pub. Law. 111-152, 124 Stat. 1029 (2010).
Click to continue...Recent Enforcement Actions: Hospital Mergers
By: E. John Steren
Rockford Hospitals Abandon Merger After Preliminary Injunction Order
The proposed acquisition by OSF Healthcare System (OSF) of Rockford Health System (Rockford) is abandoned after the United States District Court for the Northern District of Illinois grants the FTC's request for a preliminary injunction. According to the opinion by Judge Kapala, the claimed efficiencies appeared too speculative at this point in the litigation to over come the FTC's strong prima facie case. See Federal Trade Commission v. OSF Healthcare System and Rockford Health System, No. 11C50344 (N.D. Ill. Apr. 5, 2012).
The administrative complaint in this matter identified concerns in both the hospital and physician services markets, and the FTC alleged that the merger is "presumptively unlawful by a wide margin." See OSF Healthcare System and Rockford Health System, 111 FTC 0102 (2011). According to the FTC, OSF/Rockford's post-merger market share in the market for general acute-care inpatient hospital services would be 64 percent, and the merger would increase the Herfindahl-Hirschman Index (HHI) by 2032. In addition, the FTC alleged that post-acquisition, OSF/Rockford and SwedishAmerican would be the only two competitors left in the market, controlling 99.5 percent of the Rockford hospital market, thus increasing the likelihood of, and incentive for, coordinated interaction. The FTC further alleged that the post-merger health system would control 37.4 percent of the primary care physician market; the HHI index would increase by 696. According to the FTC, the merger will reduce the number of hospital-employed physician groups from three to two in the Rockford region and leave the remainder of the market highly fragmented with small independent physician practices.
Click to continue...Recent Enforcement Actions: Physician Group Mergers
Typically, physician group mergers have received less attention from the enforcement agencies than hospital mergers, likely because the transactions are usually small and thus are not reportable under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act or simply have not warranted investigation relative to larger transactions. Consequently, no physician merger challenges have been litigated, nor have any resulted, at least recently, in Federal Trade Commission (FTC) or Department of Justice Antitrust Division (DOJ) consent decrees. This appears to be changing, particularly as hospitals increasingly acquire physician groups and employ the formerly independent physicians. Notwithstanding the smaller nature of the transactions, FTC Bureau of Competition Director Richard Feinstein recently stated in connection with the FTC's investigation of one such hospital-physician merger that the FTC would "aggressively enforce the antitrust laws to ensure that consolidation among health care providers will not increase health care costs in local communities across the United States." Consistent with his statements, the FTC and states Attorneys General have recently investigated and/or challenged several physician practice-group mergers, and two of those challenges have been resolved by state Attorney General consent decrees.
Click to continue...Federal Research Grant Recipients Face False Claims Lawsuit
Many of the high-profile False Claims Act (FCA) cases against the health care industry have involved allegations that false claims for payment were submitted for items or services provided to Medicare or Medicaid beneficiaries. A recent case, however, highlights the fact that health care providers may face FCA liability based on other types of interaction with the federal government.
In U.S. ex rel. Jones v. Brigham and Women's Hospital, __ F.3d ___, 2012 WL 1571232 (1st Cir. May 7, 2012), a whistleblower alleged that the defendants submitted a false application for a research grant to the National Institute on Aging (NIA), a federal agency. Defendants sought the grant to continue their research regarding factors that would predict the onset of Alzheimer's Disease. That research involved the use of MRI scans to track "regions of interest" in the brains of study participants. In the course of their preliminary research conducted before the grant application, the defendants encountered "anatomical anomalies" in the data originally collected, which led them to gather additional data from some (but not all) of the study participants. The whistleblower, who was part of the defendants' research team, raised concerns that the additional data relied upon by defendants to show a causal relationship between certain changes in brain structure and the development of Alzheimer's was flawed because the additional data was not collected through a "blinded" study methodology, but rather, was allegedly "manipulated" and "cherry picked." In response to the whistleblower's concern, the defendants asked an expert to review the data. That expert concluded that the defendants' use of the additional data was appropriate.
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