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References
Am. Med. Int’l v. FTC, 104 F.T.C. 1 (1984), as modified by 104 F.T.C. 617 (1984) and 107 F.T.C. 310 (1986). The Commission decision held that a for-profit hospital cha in’s acquisition of a competing hospital in the city and county of San Luis, Obispo, California, violated § 7 of the Clayton Act and § 5 of the FTC Act. The Commission found that the acquisition lessened both price and nonprice competition, and ordered divestiture of the acquired hospital.
U.S. Dep’t of Justice & Federal Trade Comm’n, Antitrust Enforcement Policy Statements in the Health Care Area § 1 (1996) [hereinafter Health Care Statements], available at http://www.ftc.gov/reports/hlth3s.pdf. Agency review of most proposed hospital mergers is typically completed in less than a month. Id. § 1. See also J. Jacobs 3/2 8 at 69.
Health Care Statements, supra note 2, § 1. The safety zone encompasses mergers between two general acute-care hospitals “where one of the hospitals (1) has an average of fewer than 100 licensed beds over the three most recent years, and (2) has an average daily inpatient census of fewer than 40 patients over the three most recent years, absent extraordinary circumstances.” Id. This sa fety zone does not necessarily apply if one of the hospitals is less than five years old. Transactions that fall outside the safety zone are not necessarily anticompetitive and may be pro-competitive.
The Agencies challenge relatively few mergers overall. In 2001, the Agencies were notified of 2,376 total mergers (the FTC challenged 23 and DOJ challenged 32) and a few of those were below the thresholds for notification. Federal Trade Comm’n Staff, U.S. Department of Justice, Antitrust Division, Annual Report to Congress, Fiscal Year 2002 (2003), available at http://www.ftc.gov/os/2003/08/hsrannualreport.pdf.
SeeHealth Care Services & Products Division, Federal Trade Comm’N, Ftc Antitrust Actions In Health Care Services And Products (2003), available at http://www.ftc.gov/bc/hcupdate 031024.pdf; U.S. Dep’t of Justice Antitrust Division, Health Care Task Force: Recent Enforcement Actions, at http://www.usdoj.gov/atr/public/ health_care/2044.htm; U.S. Dep’t of Justice Antitrust Division Summary of Antitrust Division Health Care Cases Since August 25, 1983, at http://www.usdoj.gov/atr/public/health_care/0000.pdf.
Martin Gaynor & William B. Vogt, Competition Among Hospitals, 34 RAND J. ECON. 764, 764 (2003).
Id. at 764. The seven cases were: California v. Sutter Health Sys., 84 F. Supp. 2d 1057 (N.D. Cal.), aff’d mem., 2000–1 Trade Cas. (CCH) ¶ 87,665 (9th Cir. 200 0), revised, 130 F. Supp. 2d 1109 (N.D. Cal. 2001); FTC v. Tenet Healthcare Corp., 17 F. Supp. 2d 937 (E.D. Mo. 1998), rev’d 186 F.3d 1045 (8th Cir. 1999); United States v. Long Island Jewish Med. Ctr., 983 F. Supp. 12 1 (E.D.N.Y. 1997); FTC v. Butterworth Health Corp., 946 F. Supp. 1285, 1300–1301 (W.D. M ich. 1996), aff’d, 1997-2 Trade Cas. (CCH) ¶ 71,863, 71,867–68 (6th Cir. 1997); United States v. Mercy Health Services, 902 F. Supp. 968 (N.D. Iowa 1995), vacated as moot, 107 F.3d 632 (8th Cir. 1997); FTC v. Freeman Hosp., 911 F. Supp. 1213 (W.D. Mo.), aff’d, 69 F.3d 260 (8th Cir. 1995); In re Adventist Health Sys., 117 F.T.C. 224 (1994). One of the seven cases was brought by state antitrust enforcers without either Agency’s involvement. See Sutter Health Sys., 84 F. Supp. 2d 1057.
See Thomas L. Greaney, Night Landings on an Aircraft Carrier: Hospital Mergers and Antitrust Law, 23 AM. J.L.& MED. 191 (1997). As Professor Greaney notes, in Freeman Hospital, the FTC produced patient-origin data that showed a high percentage of patients stayed in the government’s proposed geographic market, as well as forward looking testimony of market participants, including competitors, buyers, and consumers. The Court placed the Commission in a “Catch 22: hard evidence like historical patient-origin data was unacceptable because it did not address future contingencies, and managed care testimony was inadequate, although it addressed future contingencies, because it lacked the specificity of hard evidence.” Id. at 207–08. Similarly, Professor Greaney noted that in Mercy Heal th Systems, the courts ignored most of DOJ’s subjective and objective evidence designed to pro vide a dynamic analysis of the market and discounted opinion testimony of the most knowledgeable market participants, including third party payors and physicians. Id. at 209–212. See also Peter Hammer & William Sage, Critical Issues in Hospital Antitrust Law, 22 Health Affairs 88, 90 (Nov./Dec. 2003) (noting merging hospitals have persuaded some courts “that nonprofit hospitals will not raise prices in the same manner as would for-profits or businesses outside of health care with comparable market share” and that relevant geographic markets include hospitals 70 to 100 miles away); William Sage et al., Why Competition Law Matters to H ealth Care Quality, 22 Health Affairs 31, 41–42 (Mar./Apr., 2003) (some courts presume nonprofit health facilities act in the public interest, and that increased revenues will be spent on quality improvements). As the current Chairman of the Federal Trade Commission recently observed, “In hospital merger cases, the government is zero for the last seven. I don’t know the specifics of every case, but what’s striking is the zero. I can certainly accept the idea that the government should not have won them all. But it seems very unlikely the government should have lost them all.” W illiam M. Sage, Protecting Competition and Consumers: A Conversation With Timothy J. Muris, 22 Health Affairs 101, 103 (Nov./Dec. 2003).
U.S. Dep’t of Justice & Federal Trade Comm’n, Horizontal Merger Guidelines § 0.1 (1992 rev. 1997, efficiencies section only) [hereinafter Merger Guidelines], available at http://www.ftc.gov/bc/docs/horizmer.htm.
Merger Guidelines, supra note 9, § 0.1.
Id. § 0.1 n.6.
Id. § 0.2. The last factor is sometimes referred to as the “failing firm defense.” As the guidelines explain: A merger is not likely to create or enhance market power or facilitate its exercise if the following circumstances are met: 1) the alleged ly failing firm wo uld be unable to meet its financial obligations in the near future; 2) it would not be able to reorganize successfully under Chapter 11 of the Bankruptcy Act [11 U.S.C. §§1101–1174 (1988)]; 3) it has made unsuccessful goodfaith efforts to elicit reasonable alternative offers of acquisition of the assets of the failing firm that would both keep its tangible and intangible assets in the relevant market and pose a less severe danger to competition than does the proposed merger; and 4) absent the acquisition, the assets of the failing firm would exit the relevant market. Id. § 5.1.
e.g., Inre Schering-Plough Corp., No. 9297 at 16–17 (Dec. 18, 2003) (discussing FTC v. Indiana Fed’n of Dentists, 476 U.S. 447, 460–61 (1986)), available at http://www.ftc.gov/os/adjpro/ t d9297/031218 commissionopinion.pdf.
Indiana Fed’n of Dentists, 476 U.S. at 460–61.
See, e.g., Todd v. Exxon Corp., 275 F.3d 191, 206 (2d Cir. 2001) (evidence of “an actual adverse effect on competition... arguably is more direct evidence of market power than calculations of elusive market share figures”); Toys R’ Us v. FTC, 221 F.3d 928, 937 (7th Cir. 2000) (market power can be proved “through direct evidence of anticompetitive effects”); United States v. Baker Hughes Inc., 908 F.2d 981, 992 (D.C. Cir. 1990) (“‘Market share is just a way of estimating market power, which is the ultimate consideration,’ and... ‘[w]hen there are better ways to estimate market power, the court should use them’” (quoting Ball Mem’l Hosp. v. Mutual Hosp. Ins., 784 F.2d 1325, 1336 (7th Cir. 1986)).).
Merger Guidelines, supra note 9, § 1.0. This test further assumes that the hypothetical profitmaximizing firm is not subject to price regulation and that the terms of sale of all other products are held constant. Id.
Id. § 1.0.
Seth Sacher & Louis Silvia, Antitrust Issues in Defining the Product Market for Hospital Services, 5 Int’l J. Econ. Bus. 181, 182–83 (1998) at http://www.ftc.gov/ogc/healthcarehearings/docs/0303 26sethbsacher.pdf.
See also supra Chapter 1.
See, e.g., Guerin-Calvert 3/26 at 125, 130 (suggests using the merger guidelines and the hypothetical monopolist test; “although there is a great deal that is unique and specific about health care and hospitals in particular, [the best approach for analyzing hospital industry competition and transactions is] the same kinds of principles and the same kinds o f fact-intensive analysis that is used in all other industries”); Margaret E. G uerin-Calvert, Defining Geographic Markets for Hospitals 6–11 (3/26) (slides) [hereinafter Guerin-Calvert Presentation], at http://www.ftc.gov/ogc/health carehearings/docs/030326guerincalvert.pdf; Vistnes 3/26 at 147–148 (stating the geographic market definition “should be driven, principally if not exclusively, by the Merger Guidelines;” the key test is whether a plan could divert enough patients to a different hospital in a different region to make the price increase unprofitable); Gregory Vistnes, Geographic Markets and Hospital Competition 5 (3/26) (slides) [hereinafter Vistnes Presentation], at http://www.ftc.gov/ogc/healthcarehearings/docs/vistn es.pdf; Werden 3/26 at 201 (noting the merger guidelines’ hypothetical monopolist paradigm is the right approach); Gregory Werden, Hospital Mergers and the Hypothetical Monopolist Test 2 (3/26) (slides) [hereinafter W erden Presentation], at http://www.ftc.gov/ogc/healthcarehearings/docs/werd en.pdf; David Argue 3/28 at 41–42.
Hammer & Sage, supra note 8, at 90, citing to United States v. Rockford Mem’l Corp., 898 F.2d 1278, 1285 (7th Cir. 1990).
See, e.g., Michael Vita & Seth Sacher, The Competitive Effects of Not-For-Profit Hospital Mergers: A Case Study, 49 J. INdus. Econ. 63 (2001) (using a control group methodology to assess competitive effects). Here, the competitive effect of the transaction is identified by comparing the change in price at the merging hospitals to the change in price (measured over the same time period) at a set of “control” hospitals. The control hospitals are hospitals in other geographic areas that are otherwise similar to the merging hospitals. Note, however, that a price increase by itself may not be sufficient to prove anticompetitive effects.
The Elzinga-Hogarty test is named for the two economists who first proposed this particular analysis. See Kenneth Elzinga & Thomas Hogarty, The Problem of Geographic Market Delineation in Antitrust Suits, 18 Antitrust Bull. 45 (1973) [hereinafter Elzinga & Hogarty, The Problem]; Kenneth Elzinga & Thomas Hogarty, The Problem of Geographic Market Delineation R evisited: The Case of Coal, 23 Antitrust Bull. 1 (1978) [hereinafter Elzinga & Hogarty, The Problem Revisited].
The term “critical loss analysis” was first used in an article: Barry Harris & Joseph Simons, Focusing Market Definition: How Much Substitution Is Necessary? 12 Res. in L. & Econ. 207 (1989).
See FTC v. Tenet Healthcare Corp., 17 F. Supp. 2d 937 (E.D. Mo. 1998), rev’d 186 F.3d 1045 (8th Cir. 1999). In this case, the Eighth Circuit relied on both an Elzinga-Hogarty test and a critical loss analysis to conclude that a broad geographic market was appropriate. Similarly, in United States v. Mercy Health Services, 902 F. Supp. 968 (N.D. Iowa 1995), vacated as moot, 107 F.3d 632 (8th Cir. 1997), the District Court relied on patient migration patterns, regional hospitals’ outreach clinics, and the lack of evidence that patients’ loyalty to their physicians would prevent them from defeating a price increase to find a broad geographic market. See also J. Jacobs 3/28 at 72–74 (noting DOJ lost the Mercy Health case on the geographic market definition for all of these reasons, but believes that the government could address successfully some of these issues today); California v. Sutter Health Sys., 84 F. Supp.2d 1057 (N.D. Cal. 2000) (insufficient evidence of a relevant geographic market); FTC v. Freeman Hosp., 911 F. Supp. 1213 (W.D. M o.), aff’d, 69 F.3d 260 (8th Cir. 1995) (ho lding the Commission had failed to identify a relevant geographic market).
See Hammer & Sage, supra note 8, at 90; Frech 3/26 at 189–191; Greaney 2/27 at 141–42; Greaney, supra note 8.
See Werden 3/26 at 248–50 (the data may provide descriptive information, but you cannot draw strong conclusions); Guerin-Calvert 3/26 at 139; Guerin-Calvert Presentation, supra note 20, at 17; Frech 3/26 at 190–91 (noting that patient flow data and the Elzinga-Hogarty ratios are useful background, but make no sense when used as a bright line to define the geographic market); Vistnes 3/26 at 251–52; Argue 3/28 at 44 (E lzinga-Hogarty is a static analysis and does not address the dynamic nature of markets).
Guerin-Calvert 3/26 at 139; Guerin-Calvert Presentation, supra note 20, at 17.
See, e.g., Harris 3/26 at 171–78, 222–24; Guerin-Calvert 3/26 at 125, 130–31; Werden 3/26 at 201–205, 212–20, 248–50; Frech 3/26 at 189–90; Daniel O’Brien & Abraham Wickelgren, A Critical Analysis of Critical Loss A nalysis, 71 Antitrust L.J. 161, 161–62 (2003); Michael Katz & Carl Shapiro, Critical Loss: Let’s Tell the Who le Story, 17 Antitrust, Spring 2003, at 49–50; James Langenfeld & Wenqing Li, Critical Loss Analysis in Evaluating Mergers, 46 Antitrust Bull. 299, 299–301 (2001); Kenneth L. Danger & H.E. Frech III, Critical Thinking About’ Critical Lo ss’ in Antitrust, 46 Antitrust Bull. 339, 340–42 (2001); David Scheffman & Joseph Simons, The State of Critical Loss Analysis: Let’s Make Sure We Understand the Whole Story, 3 The Antitrust Source, Nov. 2003, at http://www.abanet.org/antitrust/source/nov03/ scheffman.pdf.
Vistnes 3/26 at 144, 147–49; Vistnes Presentation, supra note 20, at 4–5, 11–18; Guerin-Calvert 3/26 at 131–33; Guerin-Calvert Presentation, supra note 20, at 4, 1 2. See also Leibenluft 3/28 at 8–9 (“[On] geographic market, it’s sort o f a Catch 22. The courts require — and, I think, rightfully so — that the analysis be dynamic. What will happen if the hospitals merge? As a result o f that, the plaintiff is faced with a difficult task. What they have is traditional hard evidence which relates to, for example, patient flow data, which reflects historical patient patterns, and is historical conduct. But that doesn’t reflect what might happen in the future. But when the Government tries to find what may or look to what may suggest what will happen dynamically, then that evidence could be attacked as being speculative or anecdotal.”); Feller 9/24 at 66 (discussing geographic markets for physician services and also noting that “zip code analysis, however, only presents a static and limited view of the relevant geographic market”).
Elzinga & Hogarty, supra The Problem, note 23; see also Elzinga & Hogarty, The Problem Revisited, supra note 23.
Elzinga & Hogarty, The Problem, supra note 23, at 52–64.
Id. at 72–75 & n.75 (“Where the appropriate product market is a set of heterogeneous goods, or where there is product differentiation, or where there are important physical differences among units within the product market, adding together physical units will be difficult if not impossible. In such cases, measuring output in sales instead of physical units might be necessary.”).
See, e.g., Zwanziger 3/26 at 92 (The Elzinga-Hogarty approach “is poorly suited to hospital mergers” because it does not recognize the underlying heterogeneity on the supply or demand side of hospital services.); Jack Zwanziger, Defining Hospital Markets 2 (3/26) (slides) [hereinafter Zwanziger Presentation], at http://www.ftc.gov/ogc/ healthcare hearings/docs/zwanziger.pdf.
See Gregory Vistnes, Hospitals, Mergers, and Two-Stage Competition, 67 Antitrust L.J. 671, 689 (2000); Sacher & Silvia, supra note 18, at 192–93.
See Vistnes, supra note 35, at 689; Elzinga & Hogarty, The Problem, supra note 23, at 72–76; Elzinga & Hogarty, The Problem Revisited, supra note 23, at 2–3.
See Elzinga & Hogarty, supra The Problem, note 23, at 73–75; Elzinga & Hogarty, The Problem Revisited, supra note 23, at 2. If the LIFO and LOFI are both 10 percent or less, then the geographic market satisfies the “strong” Elzinga-Hogarty test. If the LIFO and LOFI are both 25 percent or less then the geographic market satisfies the “weak” Elzinga-Hogarty test. Elzinga & Hogarty, The Problem Revisited, supra note 23, at 2.
Frech 3/26 at 190–97; Greaney 2/27 at 141–42 (noting that the courts naively interpret Elzinga-Hogarty in health care cases, and that because hospitals offer heterogeneous services and patients have highly diverse preferences, this results in “thoroughly wrong-headed precedents and subdoctrines”).
Frech 3/26 at 190–95.
Id. at 195.
Zwanziger 3/26 at 232–33. See also id. at 97–99 (noting that large markets based on patient flow data and Elzinga-Hogarty are incompatible with research knowledge: travel distance is the most important criteria for a patient in deciding which hospital to use).
Cory Capps Et Al., The Silent Majority Fallacy of the Elzinga-Hogarty Criteria: A Critique and New Approach to Analyzing Hospital Mergers 1 (Nat’l Bureau of Econ. Research, Working Paper No. w8216, 2001) [hereinafter Capps et al., Silent Majority]. See also Cory Capps et al., Geographic Market Definition in Hospital Merger Cases 4 (4/16) [hereinafter Capps et al. (stmt)], at http://www.ftc.gov/ogc/healthcare hearings/docs/030410capps2.pdf; Cory Capps, For-Profit and Non-Profit Pricing: The Empirical Evidence (4/10) (slides), at http://www.ftc.gov/opp/hc/030410corycapps.pdf [hereinafter Capps Presentation]. See also Cory Capps et al., Antitrust Policy and Hospital Mergers: Recommendations for a New Approach, 47 Antitrust Bull. 677, 713–14 (2002) [hereinafter Capps et al., Antitrust Policy].
Capps Et Al., supraSilent Majority, note 42, at 1–2.
Id.
Frech 3/26 at 195 (“[A]s you expand the area to get to a high enough percentage to call it a service area, you keep picking up more hospitals, and that keeps making it more difficult” to reach a cutoff.). Professor Frech noted that even at the 75 percent level, the defendant’s expert could not find a cut-off for the Po plar B luff geographic market area in the Tenet case. Id. at 195.
Frech 3/26 at 192 (“[R]anking zip codes by the number of patients usually gives the largest market areas.”).
Id. at 192–93. See also H.E. Frech, III et al., Elzinga-Hogarty Tests and Alternative Approaches for M arket Share Calculations in Hospital Markets, 71 Antitrust L.J. 921, 928–29, 941–47 (2004).
Frech 3/26 at 192–93.
e.g., Scheffman & Simons, supra note 27
See supra note 29.
One also can ask how much of a reduction in its sales the hypothetical monopolist would be willing to tolerate to sustain a given price increase. Only asking this alternative calculation actually implements the Horizontal Merger Guidelines’ hypothetical monopolist test, but the analysis described in the text yields roughly the same result under plausible conditions. Werden 3/26 at 202–04; Werden Presentation, supra note 20, at 4–5.
Harris 3/26 at 170–75. The formula for the critical loss for an x% price increase is x/(x + m), where m is the margin, expressed as a percentage price. For example, if the margin is 60 percent, the critical loss for a 5 percent price increase is 5/(5 + 60) =.07 7, or 7.7 percent.
Id. at 174–75.
Scheffman & Simons, supra note 29, at 2–3 (outlining a three-step process for conducting a critical loss analysis); see also Katz & Shapiro, supra note 2 9, at 49–50; O’Brien & Wickelgren, supra note 29, at 161.
Werden 3/26 at 204–05; Werden Presentation, supra note 20, at 8.
Werden 3/26 at 204–05; Werden Presentation, supra note 20, at 8, 11, 14.
Werden 3/26 at 209–17; Werden Presentation, supra note 20, at 15–19.
Werden 3/26 at 204–05; Werden Presentation, supra note 20, at 14.
Werden 3/26 at 219–20 (noting that it is important to properly calculate the margin, and that in hospital mergers it is possible that not all patients contribute the same margin — depending on which patients are likely to leave if faced with a price increase, the margin, and therefore, the critical loss, may differ). For similar critiques, see Danger & Frech, supra note 29; Langenfeld & Li, supra note 29.
Alternatively, these zip codes are identified as “at risk” or “overlapping.” Harris 3/26 at 177–78; Frech 3/26 at 189–190.
SeeCapps Et Al., supraSilent Majority, note 42; Capps et al., Antitrust Policy, supra note 42, at 679–82, 690–92, 694–704.
Frech 3/26 at 189–90 (noting that the predicted actual loss is an important part of how critical loss analysis is implemented, and as typically implemented, critical loss analysis leads to implausibly large geographic areas).
Danger & Frech, supra note 29 at 349–51; Katz & Shapiro, supra note 29, at 49–50, 52–53; Langenfeld & Li, supra note 29, at 302–03, 307–08; O’Brien & Wickelgren, supra note 29, at 161–63.
See Katz & Shapiro, supra note 29, at 50; O’Brien & Wickelgren, supra note 29, at 161–62; Scheffman & Simons, supra note 29, at 4.
See Katz & Shapiro, supra note 29, at 50–51; O’Brien & Wickelgren, supra note 29, at 162; Danger & Frech, supra note 29, at 349–51; Langenfeld & Li, supra note 29, at 308–09, 323; Michael Katz & Carl Shapiro, Further Thoughts on Critical Loss, 3 The Antitrust Source, Mar. 2004, at http://www.abanet.org/antitrust/source/march04/katzshapiro.pdf; Daniel O’Brien & Abraham Wickelgren, The State of Critical Loss Analysis: Reply to Scheffman and Simons, 3 The Antitrust Source, Mar. 2004, at http://www.abanet.org/antitrust/source/march04/obrienwickel.pdf. But see Scheffman & Simons, supra note 29, at 5 (disagreeing with critiques that attempt “to infer, with greater specificity, a value of AL [actual loss] from incremental margins and (too simple an) economic theory”).
One panelist defended critical loss at the Hearings as an appropriate mechanism for analyzing proposed hospital geographic markets. Harris 3/26 at 167, 173–74. This panelist recommended that the parties and court closely examine documents, data, and testimony to determine the elasticity of demand and how many patients are likely to leave if faced with an anticompetitive price increase. Harris 3/26 at 222–24. He did not, however, address the argument that the premerger margin itself contains substantial information about the likely switching behavior of consumers.
Katz & Shapiro advocate focusing on what they term the “aggregate diversion ratio” to indicate whether the elasticity of demand for the candidate market is sufficiently lower than the firm-level demand elasticities so that the candidate market is, in fact, a market. Suppose there are three products in the candidate market, A, B, and C, and the price of A is increased by five percent. The aggregate diversion ratio is the percentage of sales lost by A that is recaptured by B and C. Katz and Shapiro argue that the actual loss is less than the critical loss if and only if the aggregate diversion ratio exceeds the critical loss. Katz & Shapiro, supra note 29, at 53–54. See also O’Brien & Wickelgren, supra note 29, at 184 (“We have shown that the inference typically drawn from critical loss analysis — that high margins make a merger less likely to be anticompetitive — is often inconsistent with economic theory.... In our opinion, critical loss analysis has led to enormous confusion about the economic factors that govern firms’ pricing incentives. The technique has been misused so frequently that arguments that are inconsistent with basic economic theory have almost gained a measure of legitimacy in antitrust ca ses.”).
Frech 3/26 at 189, citing to Danger & Frech, supra note 29. See also Langenfeld & Li, supra note 29, at 301, 313, 323–333; O’Brien & Wickelgren, supra note 29, at 162, 168–73, 177–84; Katz & Shapiro, supra note 29, at 50–51, 54–55.
Langenfeld & Li, supra note 29, at 323–24, 332–33. Many of these same problems have been identified by other researchers. See, e.g., Danger & Frech, supra note 29, at 341–42; O’Brien & Wickelgren, supra note 29, at 162, 184; Katz & Shapiro, supra note 29, at 52–55.
Langenfeld & Li, supra note 29, at 332–333. The formula for critical loss is x/(x + m), where x is the percentage price change of interest (e.g., 5%) and m is the premerger price cost margin ((p−c)/p), expressed as a percentage. In equilibrium, m = 1/∈, where ∈ is the elasticity of demand. If ∈ is small and premerger margins are therefore high, it will also be true (by definition of elasticity) that a given price increase will induce only small changes in quantity. See O’Brien & Wickelgren, supra note 29, at 167–68; Katz & Shapiro, supra note 29, at 50–53; Danger & Frech, supra note 29, at 342–50; Langenfeld & Li, supra note 29, at 303–05, 334–337; But see Scheffman & Simons, supra note 29, at 5–8 (arguing that critiques of critical loss analysis that use the formula (m = 1/∈), or the Lerner Equation, use “the simplest economic model of pricing” to infer that actual loss would be equal or close to critical loss in equilibrium and thereby inappropriately shift the burden of proof to defendants).
Vistnes 3/26 at 145–146; Vistnes Presentation, supra note 20, at 2, 4; Vistnes, supra note 35, at 671–692.
Vistnes 3/26 at 148; Vistnes Presentation, supra note 20, at 5; Vistnes, supra note 35, at 674–81, 692. See also Town 4/9 at 60–67 (discussing simulation study that showed significant post-merger price increases to HMOs even though an Elzinga-Hogarty analysis suggested little, if any competitive harm; this suggests that it is important to focus on the price negotiations between hospitals and payors and the ability of a payor to exclude a particular hospital if they cannot reach a price agreement).
Vistnes 3/26 at 157–60; Vistnes Presentation, supra note 20, at 11–14; Vistnes, supra note 35, 671–74, 681–84, 688–92. See also Frech 3/26 at 196–98 (agreeing that with managed care, there are now two stages of competition, and that patient flow data is static and only reflects competition at the consumer or second-stage level, but not at the payor or first-stage level, because changes in payors’ hospital networks move too slowly to be captured in the patient flow data).
Vistnes 3/26 at 160; Vistnes Presentation, supra note 20, at 13–14; Vistnes, supra note 35, at 681–84.
Vistnes 3/26 at 146–47; Vistnes Presentation, supra note 20, at 13–14; Vistnes, supra note 35, at 672–74, 688.
Vistnes 3/26 at 160; Vistnes Presentation, supra note 20, at 14; Vistnes, supra note 35, at 672–73.
Guerin-Calvert 3/2 6 at 230.
Id. at 230–31. But see Vistnes 3/26 at 243 (arguing that even if all hospitals are in a plan’s network today, as long as the plan can credibly threaten to exclude the hospital, that possibility of exclusion is a constraint on pricing).
Capps et al. (stmt), supra note 42, at 5.
Id. at 5–6.
Id. at 6. The authors refer readers to another paper (Cory Capps et al., Competition and Market Power in Option Demand Markets (April 2003) (unpublished manuscript)), in which they “provide a step by step derivation and empirical implementation of a market power measure that correctly incorporates the ex-ante nature of hospital pricing.” Id. at 6–7. These authors also published another article outlining option demand analysis, as well as two other analyses. The authors suggest that the other two analytical techniques are not as accurate as the formal option demand analysis, but they are useful in defining hospital geographic markets. See Capps et al., Antitrust Policy, supra note 42, at 681.
Guerin-Calvert 3/26 at 141–43, 226, 237–39; Harris 3/26 at 223.
See, e.g., Guerin-Calvert 3/26 at 141 (stating that documents show who the hospitals see as their competitors and strategic plans of hospitals competing with merging hospitals often show strategies for taking patients from another hospital); Guerin-Calvert Presentation, supra note 20, at 12.
FTC v. Tenet Health Care Corp., 186 F.3d 1045, 1054 & n.14 (8th Cir. 1999).
Tenet Health Care, 186 F.3d at 1054 & n.14. See also Greaney 2/27 at 142 (finding it inexplicable that two circuits have “adopted an evidentiary rule of thumb that discounts the credibility of the testimony of third party payers on facts that are really central to their business... when [the testimony is] unimpeached, not impeached by a showing of bias or other defects”).
See, e.g., Leibenluft 3/28 at 15–16; Vistnes 3/26 at 147–57.
See, e.g., Vistnes 3/26 at 148–50; Eisenstadt 3/28 at 60–61.
See, e.g., Guerin-Calvert 3/26 at 140–43 (suggesting looking not only at what payors say about which hospitals are critical to their networks, but at what payors have done in the past to respond to different market behaviors, such as price increases or quality decreases); Guerin-Calvert Presentation, supra note 20, at 13, 16, 18; see also Singer 3/28 at 37–38; Toby Singer, Issues in Litigating Hospital Mergers 2–5 (3/28) (“In particular, the courts have not been willing to believe the testimony of health plans and others when it is contradicted by other evidence, such as statistical evidence on market definition,” citing to California v. Sutter Health System, 84 F. Supp. 2d 1057 (N.D. Cal.), aff’d mem., 2000–1 Trade Cas. (CCH) ¶ 87,665 (9th Cir. 2000), revised, 130 F. Supp. 2d 1109 (N.D. Cal. 2001)); United States v. Long Island Jewish Medical Center, 983 F. Sup p. 121 (E.D.N.Y. 1997); Adventist Health System/Est, 114 F.T.C. 45 8 (1991), at http://www.ftc.gov/ogc/healthcarehearings/docs/030328singertoby.pdf; Argue 3/28 at 49–51. To be sure, a court will wish to assess the consistency of a witness’s testimony with its documents and evidence of its previous actions. With respect to payor testimony, however, some judicial skepticism appears to be based, at least in part, on patient flow data. For the reasons discussed supra, patient flow data does not provide reliable information about what payors could do if faced with hospital price increases.
Guerin-Calvert 3/26 at 138–39.
Id. at 138–39. Some believe that the recent increases in insurance premiums are, at least in part, due to these demands for more choice and broader provider networks. See supra Chapter 1 and infra Chapter 5.
Guerin-Calvert 3/26 at 134, 141 (referring to cases where payors were able to move marginal patients); Vistnes 3/26 at 152–56 (listing possible strategies payors could use to divert patients: dropping a hospital from the network; adding hospitals to the network to “dilute” the patient base; creating incentives for patients to switch hospitals; creating incentives for physicians to admit elsewhere; and changing the physician panel); Vistnes Presentation, supra note 20, at 8; Harris 3/26 at 180 (stating payors use various mechanisms to shift patient choices, including different copays and deductibles, tiered plans, and cafeteria plans).
See supra Chapter 3.
See, e.g., Guerin-Calvert 3/26 at 140–43; Frech 3/26 at 186–88.
Frech 3/26 at 186–88.
Id. See also H. E. Frech III & Lee Rivers Mobley, Managed Care, Distance Traveled and Hospital Market Definition, 37 Inquiry 369–384 (2000).
Frech 3/26 at 186–88; Zwanziger 3/26 at 98–99 (describing research that suggests that travel distance is the most important criteria for a patient in deciding which hospital to use, and in California, where managed care penetration went from 20 percent to 90 percent over a specific period of time, the average travel distance changed very little over that same period).
Guerin-Calvert 3/26 at 134, 137, 141. But see Frech 3/26 at 197 (noting that turn-over among the hospitals included in a plan is sufficiently infrequent that patient flow data will often not capture the dynamics of first-stage competition).
Guerin-Calvert 3/26 at 140–41, 143; see also Guerin-Calvert 3/26 at 252 (describing documents in some markets that have included letters from plans to physicians to use one hospital more than another, and patient flow data subsequently showed the shift of enrollees from one hospital to another).
See Guerin-Calvert 3/26 at 141–43 (noting that it is rare to find a compelling coordinated-effects story in hospital markets and that the Chattanooga case is the one exception where the court accepted a coordinated effects theory of harm, referring to the Seventh Circuit opinion in Hospital Corp. of America v. FTC, 807 F.2d 1381 (7th Cir. 1986)); Guerin-Calvert Presentation, supra note 20, at 18.
Vistnes 3/26 at 150–60.
Id. at 154–56.
Vistnes 3/26 at 156; Vistnes Presentation, supra note 20, at 9. But see FTC v. Tenet Healthcare Corp., 186 F.3d 1045, 1054 & n.14 (8th Cir. 199 9), rev’g finding for plaintiff in FTC v. Tenet Health Care Corp., 17 F.Supp. 2d 937 (E.D. Mo. 1998) (finding that district court erred in rejecting more distant hospitals that were more costly because in doing so it “underestimated the impact of nonprice competitive factors, such as quality”).
See, e.g., Zwanziger 3/26 at 97–99; Zwanziger Presentation, supra note 34, at 10; Frech 3/26 at 186–88. See generally Robert Town & Gregory Vistnes, Hospital Competition in HMO Networks, 20 J. Health Econ. 733, 746–48 (2001).
See, e.g. supra, Zwanziger Presentation, note 34, at 9–10; Zwanziger 3/26 at 97–99. See generally Town & Vistnes, supra note 103, at 746–48.
Zwanziger 3/26 at 98; see also Frech 3/26 at 194 (“[C]ustomers migrate from small towns to larger cities for idiosyncratic reasons... [including h]igher quality, more sophisticated services, [and] family connections.”).
See, e.g., Capps Et Al., supraSilent Majority, note 42; Capps et al. (stmt), supra note 42, at 1–6, 9; Zwanziger 3/26 at 97–99; Frech 3/26 at 194.
Guerin-Calvert 3/26 at 252; Vistnes 3/26 at 153.
See, e.g., Vistnes 3/26 at 153–57.
See, e.g., id.
Id. at 153–54, 156–58 (suggesting looking at whether there are overlapping hospitals where physicians have or could likely have admitting privileges or determining how far physicians are willing to travel to perform daily rounds at the hospitals in which they have patients admitted).
Some steering mechanisms could implicate federal and/or state anti-kickback and physician self-referral laws. See supra Chapter 1.
In American Medical International, Inc. and Hospital Corp. of America, the FTC defined the relevant product market as a group of general acute care hospital services. Am. Med. Int’l, 104 F.T.C. 1, 107 (1984); Inre Hosp. Corp. Am., 106 F.T.C. 361 (1985), aff’d, 807 F.2d 1381 (7th Cir. 1986).
Hosp. Corp. Am., 106 F.T.C. at 466. In that case, the Commission noted that although “the types of surgical procedures which can be handled on an outpatient basis by surgicenters are increasing, this suggests only that the cluster of inpatient services offered by acute care hospitals is changing and does not indicate that hospitals are becoming head-to-head competitors with such outpatient providers.” Id.
Hosp. Corp. Am., 807 F.2d at 1388. Similarly, in United States v. Rockford Memorial Corp., 898 F.2d 1278, 1284 (7th Cir. 1990), the Seventh Circuit again affirmed the product market definition as the “provision of inpatient services by acute-care hospitals,” noting that other providers cannot compete for many acute-care hospital services. The court further explained that, although patients can choose in-patient hospital care or outpatient providers for some services, those services that can be provided on an outpatient basis are not a check on acute-care in-patient services, because the prices of the two are not linked.
See Am. Med. Int’l, 104 F.T.C. at 107.
FTC v. Univ. Health, Inc., 938 F.2d 1206, 1210–11, 1219 (11th Cir. 1991).
United States v. Carilion Health Sys., 707 F. Supp. 84 0 (W.D. Va.), aff’d, 892 F.2d 1042 (4th Cir. 1989) (unpublished o pinion).
See, e.g., Sacher 3/26 at 66–70; Zwanziger 3/26 at 95–96, 104–106.
Sacher 3/26 at 69–70; Seth Sacher, Issues in Defining the Product Market for Hospital Services 5 (3/26) (slides) [hereinafter Sacher Presentation], at http://www.ftc.gov/opp/hc/030326sethsacher.pdf; Sacher & Silvia, supra note 18, at 183–85. See also Zwanziger 3/26 at 92–98 (discussing heterogeneity on both the supply-and demand-side and suggesting that markets should be defined more narrowly to reflect the different treatments provided and requested); Zwanziger Presentation, supra note 34, at 2. See Am. Med. Int’l, 104 F.T.C. at 107 (“Although each individual service that comprises the cluster of general acute care hospital services may well have outpatient substitutes, the benefit that accrues to patient and physician is derived from their complementarity. There is no readily available substitute supplier of the benefit that this complementarity confers on patient and physician. This is consistent with record evidence that shows that those in the market only recognized other hospitals, not suppliers of individual hospital services, as their competitors.”).
Sacher 3/26 at 69–70.
Zwanziger 3/26 at 95–96; Zwanziger Presentation, supra note 34, at 6; see, e.g., Univ. Health, 938 F.2d at 1210–11; United States v. Rockford Mem’l Corp., 898 F.2d 1278, 1284 (7th Cir. 1990) (Posner, J.); Hosp. Corp. Am. v. FTC, 807 F.2d 1381, 1388 (7th Cir. 1986) (Posner, J.), aff’ing Inre Hosp. Corp. Am., 106 F.T.C. 361 (1985). One panelist stated that despite the general acceptance of this definition, both the parties and the courts have suggested subtle differences in the product market definition over the years. Sacher 3/26 at 65; Sacher Presentation, supra note 119, at 6–7; Sacher & Silvia, supra note 18, at 185–87, citing Carilion Health Sys., 707 F. Sup p. at 844–45 (noting the district court held product market included certain clinics and other providers of outpatient services, because, in a significant number of cases, “patients or their doctors can choose to have problems treated either in a hospital or in an outpatient clinic or doctor’s office”); Rockford Mem’l, 898 F.2d at 1284 (excluding outpatient services, and specifically stating that it found the district court’s discussion in Carilion “unpersuasive as well as inconsistent with [its] analysis in Hospital Corporation of America” and that the Fourth Circuit’s opinion affirming the district court was nonprecedential because the Fourth Circuit chose not to publish it); United States v. Mercy Health Services, 902 F. Supp. 968 (N.D. Iowa 1995), vacated as moot, 107 F.3d 632 (8th Cir. 1997) (excluding inpatient psychiatric care, substance abuse treatment, rehabilitation services, and open heart surgery); United States v. Long Island Jewish Med. Ctr., 983 F. Supp. 121, 138–40 (E.D.N.Y. 1997) (rejecting DOJ’s argument that the relevant product market was “the bundle of acute care inpatient services provided by anchor hospitals to managed care plans,” and found separate primary/secondary care and tertiary care product markets based on its conclusion that the geographic markets for these services differed); and FTC v. Tenet Healthcare Corp., 17 F. Supp. 2d 937, 943 (E.D. Mo. 1998), rev’d 186 F.3d 1045 (8th Cir. 1999) (product market included primary and secondary acute care inpatient services, but excluded tertiary and quaternary services). The federal district court in Carilion refused to draw a line between inpatient and outpatient services, noting that primary care provided in hospital emergency departments and specialty clinics, as well as hospital-based outpatient surgery, chemotherapy, and radiology may compete to some degree with physicians’ office-based care and other free-standing health care. Carilion Health Sys., 707 F. Supp. at 844–45. Other entities may include ambulatory surgical and imaging centers (e.g., x-ray, CT, MRI). Hosp. Corp. Am., 106 F.T.C. 361 (1985); see also Sacher 3/26 at 75.
Psychiatric and rehabilitation hospitals provide a limited scope of care and do not offer general acute care services. Children’s and VA hospitals provide inpatient acute care similar to general acute care hospitals, but are dedicated to a specific group. Although a children’s hospital might compete with a general hospital for a subset of the general hospital’s patients, non-veterans cannot substitute the VA for a general hospital. But see Eisenstadt 3/28 at 59 (discussing issues about mergers between complements generally and, specifically, a merger between the premier adult hospital system and the premier children’s hospital in the Pittsburgh, Pennsylvania area. He noted that although “there would be some modest to slight or slight to modest increase in concentration in pediatrics, that was not the principal concern; rather, the primary concern related to the proposed combination of the preferred adult system and the premium pediatric hospital. In other words, the two premier brand manufacturers were merging. There was concern expressed about post-merger bundling, denial of access to Children’s or unilateral price increases” at one or more of the merging hospitals).
See supra Chapter 3.
Id.
Sacher 3/26 at 80–83; Sacher & Silvia, supra note 18, at 184, 190–98; Zwanziger 3/26 at 95–96; Zwanziger Presentation, supra note 34, at 5–7. DRGs are a system for determining hospital compensation based on the discharge diagnosis. Similar illnesses are aggregated together, and the hospital is paid a set amount per DRG, irrespective of the actual cost associated with the provision of services. Medicare and many private insurers use this system to compensate hospitals.
Sacher 3/26 at 80–83; Sacher & Silvia, supra note 18, at 184, 190–98.
Panelists noted that payors typically categorize services and hospitals by the complexity of care; some hospitals provide primary, secondary, and tertiary levels of care, others only primary or secondary. Zwanziger 3/26 at 95. One panelist noted that many payors believe they must have at least one tertiary care center in their hospital networks in order to compete for members. Zwanziger 3/26 at 95. Another panelist also noted that properly defining the relevant product market, such as determining whether tertiary care is or is not a part of the relevant market, is a prerequisite to properly defining hospital geographic markets. For example, if tertiary care is excluded from the relevant product market, neither patient flow data or other evidence related to tertiary care is re levant to geographic market definition. See Vistnes, supra note 35, at 684, 687–88. See also Guerin-Calvert 3/26 at 128–29 (discussing differences about geographic market definition often stem from disagreements about the product market definition).
See, e.g., Sacher 3/26 at 75.
But see United States v. Long Island Jewish Med. Ctr., 983 F. Supp. 121, 138–40 (E.D.N.Y. 1997) (rejecting DOJ’s argument that the relevant product market was “the bundle of acute care inpatient services provided by anchor hospitals to managed care plans”).
Merger Guidelines, supra note 9, § 3.
The FTC has opposed state CON requirements as an unnecessary impediment to competition in health care markets. See discussion infra Chapter 8 for a more detailed discussion of CON regulations and the competitive issues surrounding them.
supraMerger Guidelines, note 9, § 4 (as revised April 8, 1997).
Id. § 4.
Merger-specific efficiencies are “only those efficiencies likely to be accomplished with the proposed merger and unlikely to be accomplished in the absence of either the proposed merger or another means having comparable anticompetitive effects.” supra Merger Guidelines, note 9, § 4. Cognizable efficiencies are assessed “net of costs produced by the merger or incurred in achieving those efficiencies.” Id.
FTC v. Tenet Healthcare Corp., 17 F. Supp. 2d 937, 948 (E.D. Mo. 1998), rev’d on other grnds, 186 F.3d 1045 (8th Cir. 1999).
Tenet Healthcare Corp., 186 F.3d at 1055, 1054.
See, e.g., Taylor 4/1 1 at 162–169; B alto 4/11 at 207–210 (noting that Blodgett/Butterworth’s claimed efficiencies were mostly in avoidance of capital expenditures, yet the hospitals have made significant capital investments and claim they have achieved $300 million in efficiencies). See also Paul Pautler, Evidence on Mergers and Acquisitions, 48 Antitrust Bull. 119, 160–64, 172–76 (2003) (reviews several studies that looked at post-merger effects on prices and efficiencies, noting one study found that the efficiencies may take a long time to appear and that some studies found cost and price reductions, and others found few efficiencies and significant price increases); David Balto & Meleah Geertsma, Why Hospital Merger Antitrust Enforcement Remains Necessary: A Retrospective on the Butterworth Merger, 34 J. Health L. 129 (2001). But see Spectrum Health, Comments Regarding Hearings on Health Care Competition Law and Policy 1 (Public Comment) (arguing that in connection with the Butterworth/Blodgett merger “[o]perational efficiencies have saved the community $373 million through 2001”) [hereinafter Spectrum (public cmt)].
Taylor 4/11 at 162–169.
Hopping 4/11 at 184–86 (she also noted mergers can be successful).
See, e.g., Balto 4/11 at 209–10 (noting failure to consolidate services at Blodgett/Butterworth because of physician resistance); Hopping 4/11 at 183–90 (noting she has been associated with hospital mergers that have realized efficiencies, but to work, the hospitals must have a specific plan and must be willing to make very hard choices).
FTC v. Butterworth Health Corp., 946 F. Supp. 1285, 1300–1301 (W.D. M ich. 1996), aff’d by an unpublished opinion, 1997–2 Trade Cas. (CCH) ? 71,863 (6th Cir. 1997) (district court also noted that the efficiencies are, “by any account, a substantial amount, and represent savings that would, in view of defendants’ nonprofit status and the Community Commitment, invariably be passed on to consumers”).
Balto 4/11 at 209–10.
Taylor 4/11 at 167.
Jeffrey A. Alexander et al., The Short-Term Effects of Merger on Hospital Operations, 30 Health Services Res. 827 (1996); Robert A. Connor et al., Which Types of Hospital Mergers Save Consumers Money? 16 Health Affairs 62 (Nov./Dec.1997); Robert A. Connor et al., The Effects of Market Concentration and Horizontal Mergers on Hospital Costs and Prices, 5 Int’l J. Econ. Bus. 159 (1998); David Dranove & Mark Shanley, Cost Reductions Versus Reputation Enhancements as Motives for Mergers: The Logic of Multihospital Systems, 16 Strategic Mgmt. J. 55 (1995); David Dranove et al., Are Multihospital Systems More Efficient? 15 Health Affairs 100 (Spring 1996); Heather Radach Spang et al., Hospital Mergers and Savings for Consumers: Exploring New Evidence, 20 Health Affairs 150 (July/Aug. 2001).
David Dranove & Richard Lindrooth, Hospital Consolidation and Costs: Another Look at the Evidence, 22 J. Health Econ. 983, 996 (2003).
Id. Another study similarly found that the impact of hospital mergers on quality differed by type of consolidation. Vivian Ho & Barton H. Hamilton, Hospital Mergers and Acquisitions: Does Market Consolidation Harm Patients? 19 J. Health Econ. 767 (2000). Although the authors found no evidence that mergers measurably affect inpatient mortality, they found that post-acquisition, independent hospitals had higher readmission rates for heart attack patients and that post-acquisition, hospital systems discharged newborn babies earlier. Id. at 788. See also Smith 4/11 at 170–183 (discussing the 1993 consolidation of a 225 bed community hospital, a 325 bed Catholic hospital, and a small Catholic hospital serving several small communities to form Susquehanna Health System. He claimed the consolidated system saved $105 million in costs and returned savings of $117 million to the community and third party payors pursuant to a community commitment. This speaker also attributed many of the cost savings to the extensive consolidation and elimination of duplicative services among the three hospitals, which required compromises by all concerned.).
supraMerger Guidelines, note 9, § 4 (“To make [a determination that a merger is not likely to be anticompetitive in any relevant market], the Agency considers whether cognizable efficiencies likely would be sufficient to reverse the merger’s potential to harm consumers in the relevant market, e.g., by preventing price increases in that market.”).
See Chapter 3.
Id.
David Dranove, The Economic Evolution of American Health Care 122 (2000).
See FTC v. Butterworth Health Corp., 946 F. Supp. 1285, 1302 (W.D. Mich. 1996), aff’d by an unpublished opinion, 1997–2 Trade Cas. (CCH) ¶ 71,863 (6th Cir. 1997); United States v. Long Island Jewish Med. Ctr., 983 F. Supp. 121, 149 (E.D.N.Y. 1997). Other states also have entered into decrees with merging hospitals that provided for some type of community commitment. See, e.g., Wisconsin v. Kenosha Hosp. & M ed. Ctr., 1997–1 Trade Cas. ¶71,669 (E.D. Wis. 1996) (consent decree); Pennsylvania v. Capital Health Sys., 1995–2 Trade Cas. ¶71,205 (M.D. Pa. 1995) (consent decree) (court ordered merged hospitals to pass at least 80 percent of the net cost savings to consumers); Pennsylvania v. Providence Health Sys., 1994–1 Trade Cas. ¶70,603 (M.D. Pa. 1994) (consent decree). See also Eisenstadt 3 /28 at 66–68 (describing economic modeling he and others conducted in connection with a Pittsburgh hospital merger that showed the component prices would increase and consumer welfare would decrease, but the community commitment did not address this issue, which in his view was one of the most troublesome aspects of the merger); E. Cooper 9/9/02 at 134 (noting State Attorneys General in Pennsylvania and Wisconsin “have crafted consent agreements that allow the transaction to proceed, but placed restrictions on the merged entity’s future conduct. Such restrictions, usually characterized as regulatory by detractors and creative by proponents, typically require the new entry to pass along to consumers cost savings from efficiencies claimed from the merger.”).
Butterworth Health, 1997–2 Trade Cas. (CCH) ¶ 71,868. See a lso Butterworth Health, 946 F. Supp. at 1304–10; Spectrum (public cmt), supra note 137, at 1–7 (noting that they have honored the community commitment they entered in connection with the Butterworth/Blodgett merger).
Long Island Jewish Med. Ctr., 983 F.Supp. at 149.
Id.
Sage et al., supra note 8, at 42–43; Kursh 10/1 at 89–91; Orlans 10/1 at 91–93. But see Donahue 10/1 at 36–44 (Chief Deputy Attorney General, Antitrust Section, Pennsylvania Office of the Attorney General, discussing the pros and cons of regulatory decrees used in connection with three separate hospital mergers in Pennsylvania); Singer 10/1 at 44–45 (suggesting structural relief or blocking the merger is an all-or-nothing solution, but the conduct or regulatory remedy allows a community to realize benefits from the merger, such as efficiencies, and still guard against potential anticompetitive effects).
Hosp. Corp. of Am. v. FTC, 807 F.2d 1381, 1390 (7th Cir. 1986).
FTC v. Univ. Health, Inc., 938 F.2d 1206, 1224 (11th Cir. 1991), citing Nat’l Collegiate Athletic Ass’n v. Board of Regents, 468 U.S. 85, 100 n.22 (1984).
United States v. Rockford Mem’l Corp., 898 F.2d 1278, 1285 (7th Cir. 1990).
FTC v. Butterworth Health Corp., 1997-2 Trade Cas. (CCH) ¶ 71,863, 71,867–68 (6th Cir. 1997) (“[T]he hospitals’ expert witness testified that there would be no economic incentive for the board members of a nonprofit hospital to raise prices above competitive levels when the board members themselves had an interest in maintaining low prices. Because the boards of these hospitals are comprised of community and business leaders whose companies pay the health care costs of their local employees, the district court found that undue price increases were unlikely.”).
United States v. Long Island Jewish Med. Ctr., 983 F. Supp. 121, 149, 146 (E.D.N.Y. 1997). See also Sage 5/29 at 149–50 (“[C]ourts may misperceive antitrust claims involving hospital mergers as calling into question the o verall trustworthiness of major community institutions....
Lynk 4/10 at 8.
Id. at 8, 19–20; William Lynk, Joint FTC/DOJ Hearings on Health Care and Competition Law and Policy 1–2 (4/10) (slides) [hereinafter Lynk Presentation], at http://www.ftc.gov/ogc /healthcarehearings/docs/030410williamjlink.p df. Lynk’s 1995 study used California data from 1989 and looked at net prices in markets with more or less concentration, specifically controlling for the hospitals’ for-profit or nonprofit status, as well as other factors. William J. Lynk, Nonprofit Hospital Mergers and the Exercise of Market Power, 38 J.L. & Econ. 437 (1995). Lynk then simulated the price effects of a merger and found that for-profit hospitals had more than an 8 percent increase in price and nonprofit hospitals had a 4.1percent decrease in price. Id. at 453. Lynk also referenced and described several other studies. Lynk Presentation, supra, at 1–2.
Lynk 4/10 at 8, 20-2121-23; Lynk 4/10 at 11 (noting that different nonprofits can have different incentives; a nonprofit hospital with local governance and control may be aligned more with local community interests than a nonprofit hospital that is part of a larger nonprofit organization that views it as a profit center to support the larger organization’s other activities). See also Touzin 4/10 at 86–87, 92 (consumer group representative stating that consumers perceive a difference between forprofit and nonprofit hospitals and that conversions of hospitals from nonprofit to for-profit status often result in boards comprised of out-of-state entities and the board’s concern is its shareholders, not the community in which it is located).
supra Lynk Presentation, note 163, at 7–10. We note also that all of the studies cited by the author are now dated; the most recent of these was published in 1991.
See, e.g., Capps 4/10 at 55–56; G. Young 4/10 at 33–37; Fay 4/10 at 24–25; Sloan 4/10 at 57, 65; Gaynor 5/27 at 77 (noting the “bulk of the evidence in my opinion, however, shows that not-forprofits do exercise market power if given the opportunity.”); Frank A. Sloan, Hospital Ownership Conversions 21 (4/10) (slides) (no evidence of upcoding studied diagnoses following conversion from non-profit to for-profit status), at http://www.ftc.gov/ogc/healthcarehearings/docs/0304 10sloan.pdf; David Dranove & Richard Ludwick, Competition and Pricing by Nonprofit Hospitals: A Reassessment of Lynk’s Analysis, 18 J. Health Econ. 87 (1998).
Capps Presentation, supra note 42, at 19, Capps 4/1 0 at 55–56.
G. Young 4/10 at 33; Gary Young, Nonprofit Ownership and Antitrust Policy 3–4 (4/10) (slides), at http://www.ftc.gov/opp/hc/030410garyyoung.pdf.
Robert Connor et al., The Effects of Market Concentration From Horizontal Mergers on Hospital Costs and Prices, 5 Int’l J. Econ. Bus. 159 (1998).
Michael Vita & Seth Sacher, The Competitive Effects of Not-For-Profit Hospital Mergers: A Case Study, 49 J. Indus. Econ. 63, 76–77 Tbls. III & IV, 80–82 (2001). An earlier study by different authors found that hospital mergers resulted, on average, in a 5 percent cost savings. Connor et al., supra note 169, at 159.
Emmett B. Keeler et al., The Changing Effects of Competition on Nonprofit and For-Profit Hospital Pricing Behavior, 18 J. Health Econ. 69 (1999). But see Lynk 4/10 at 15; Lynk Presentation, supra note 163, at 7 (discussing this study’s results, but adding that it confirmed a statistically significant differential in price effects of concentration between nonprofit and for-profit hospitals); Elaine Silverman & Jonathan Skinner, Medicare Upcoding and Hospital Ownership, 23 J. Health Econ. 369–89 (2004) (finding that between 1989 and 1996, forprofit hospitals upcoded the pneumonia and stroke DRGs for Medicare reimbursement more frequently than not-for-profit and government hospitals).
Capps 4/10 at 50–51; Capps Presentation, supra note 42, at 12.
See Town & Vistnes, supra note 103, at 749–50 (estimating hospital leverage in negotiations with managed care organizations and finding no statistically significant differences between non-profit and for-profit hospitals’ pricing behavior); Capps et al., Competition and Market Power in Option Demand Markets (2003) (unpublished manuscript, on file with Commission) (estimating consumers’ willingness to pay for the inclusion of specific hospitals in their health plan network, and using price regressions, predicted that leverage effects price and that there is no difference between the behavior of non-profits and for-pro fits). See also Capps 4/10 at 51–56; Capps Presentation, supra note 42, at 13–18.
Jacobson 4/10 at 70; Peter D. Jacobson, Who Owns the Health Care Enterprise: Is the Notfor-Profit Form Obsolete? 3 (4/10) (slides) [hereinafter Jacobson Presentation], at http://www.ftc.gov/ogc/healthcarehearings/docs/jacob son0304.pdf.
Jacobson 4/10 at 71–73; Jacobson Presentation, supra note 174, at 4.
See generally Jill R. Horwitz, Why We Need the Independent Sector: The Behavior, Law, and Economics of Not-For-Profit Hospitals, 50 Ucla L. Rev. 1345 (2003).
Jacobson 4/10 at 81–82; Jacobson Presentation, supra note 174, at 12 (suggesting that directors of a for-profit entity have a fiduciary duty to maximize shareholder value, while directors of a nonprofit entity have a fiduciary duty to both the facility and to the community, requiring them to balance their margin against their missio n). See also Roger G. Parise au, Comments (Public Comment) (recommending that all en tities involved in health care market should be nonprofit).
Fay 4/10 at 24–25; Anthony Fay, FTC/DOJ Hearings on Health Care and Competition Law and Policy Statement of the Federation of American Hospitals — Hospital’s Nonprofit Status 3 (4/10), at http://www.ftc.gov/ogc/healthcarehearings/docs/030410fay.pdf. See also Sofaer 5/30 at 201–202 (noting that references to a “managed care revolution” are misnomers, because there has been no managed care, only managed cost, and that although there was concern at one time about for-profit medicine, that really has not been a concern, “primarily because... ‘non-profit’ facilities in health care often behave so much like for-profit facilities in health care.”).
Vogt 9/9/0 2 at 52 (“[T]he literature is reasonably clear that the not for-profits don’t provide very much more charity care, if more charity care at all. In fact, what small difference there is in charity care is accounted for by the location of the not-forprofit hospitals.”); see also Sloan 4/10 at 57; David A. Hyman, Hospital Conversions: Fact, Fantasy, and Regulatory Follies, 23 J. Corp. L. 741 (1998); David Blumenthal & Nigel Edwards, The Tale of Two Systems: The Changing Academic Health Center, 19 Health Affairs 86 (May/June 2000); Gabriel Picone et al., Are For-Profit Hospital Conversions Harmful to Pa tients and to Medicare?, 33 Rand J. Econ. 507 (2002).
See, e.g., Hospital Group Purchasing: Has the Market Become More Open to Competition?: Hearing Before the Subcomm. on Antitrust, Competition Policy and Consumer Rights of the S. Comm. on the Judiciary, GAO-03-998T, 108th Cong. (2003); Hospital Group Purchasing: Lowering Costs at the Expense of Patient Health and Medical Innovations?: Hearing Before the Subcomm. on Antitrust, Competition P olicy and Consumer Rights of the S. Comm. on the Judiciary, GAO-02-690T, 107th Cong. (2002); Group Purchasing Organizations: Use of Contracting Processes and Strategies to Award Contracts for Medical-Surgical Products: Before the Subcomm. on Antitrust, Competition Policy and Consumer Rights of the S. Comm. on the Judiciary, 108th Cong. (2003) (testimony of U.S. General Accounting Office) [hereinafter GAO Senate Testimony, Contracting]; Group Purchasing Organization: Pilot Study Suggests Large Buying Groups Do Not Always Offer Hospitals Lower Prices: Before the Subcomm. on Antitrust, Competition P olicy and Consumer Rights of the S. Comm. on the Judiciary, 107th Cong. (2002) (testimony of U.S. General Accounting Office) [hereinafter GAO Senate Testimony, Pilot Study].
See Transcript of Health Care Hearings 9/26 at 114–226; Transcript of Health Care Workshop 9/10/02 at 48–140.
See discussion infra Section E.
See Health Industry Group Purchasing Ass’n (HIGPA), Group Purchasing Organizations 6 (Public Comment) (submitted by Robert Betz) [hereinafter HIGPA (public cmt)]; Herbert Hovenkamp, Competitive Effects of Group Purchasing Organizations’(GPO) Purchasing and Product Selection Practices tn the Health Care Industry 1 (2002) (prepared on behalf of Health Industry Group Purchasing Association). See also American Bar Ass’n, Section of Antitrust Law, Comments Regarding The Federal Trade Commission’s Workshop on Health Care and Competition Law and Policy (Oct. 2002) 27–34 (Public Comment).
HIGPA (public cmt), supra note 183, at 6 (discussing SMG Marketing Group, 2002 SMG MHS/GPO Market Report1 (2002)). See also Robert Bloch et al., An Analysis of Group Purchasing Organizations’ Contracting Practices Under the Antitrust Laws: Myth and Reality 1 (9/2 6) (virtually every hospital belongs to at least one GPO) [hereinafter Bloch (stmt)], at http://www.ftc.gov/ogc/healthcarehearings/docs/030926bloch.pdf; GAO Senate Testimony, Pilot Study, supra note 180, at 5 (reporting that according to survey data from the American Hospital Association, 68 percent of hospitals belonged to GPOs in 2000; according to HIGPA, 96–98 percent of hospitals belonged to a GPO); B ailey 9/10/02 at 48–56 (d iscussing GAO’s pilot study).
HIGPA (public cmt), supra note 183, at 6; Bloch (stmt), supra note 184, at 1 (citing Muse & Associates, The Role of Group Purchasing Organizations in the U.S. Health Care System, at 3 (March 2000)).
GAO Senate Testimony, supra Contracting, note 180, at 3.
Id. at 3–4. According to HIGPA, other products and services purchased through GPOs include pharmaceuticals, dietary resources, telecommunication services, and janitorial supp lies. HIGPA (public cmt), supra note 183, at 6.
See Bloch (stmt) supra, note 184, at 7; HIGPA (public cmt), supra note 183, at 6 (“GPOs do not purchase products or force the purchase of a particular product. Their value is based solely on offering providers access to desired products at reduced prices. Because most hospitals belong to multiple GPOs, each with a unique set of contracts, hospitals have choices — either choosing among GPO contracts or going directly to the supplier to purchase a particular product.”).
GAO Senate Testimony, supra Pilot Study, note 180, at 7; Bloch (stmt), supra note 184, at 8.
Bloch (stmt), supra note 184, at 7–8.
GAO Senate Testimony, supra Pilot Study, note 180, at 7.
Bloch (stmt), supra note 184, at 8. See also Herbert Hovenkamp, Group Purchasing Organization (GPO) Purchasing Agreements and Antitrust Law 2 (2004) (prepared for the Health Industry Group Purchasing Association) (agreements typically offer buyers a discount in exchange for the buyers’ commitment to purchase a minimum percentage of its needs from a specific vendor); GAO Senate Testimony, Pilot Study, supra note 180, at 5.
Hovenkamp, supra note 192, at 2.
Bloch (stmt), supra note 184, at 3.
Id. at 4–5 (also claiming there were approximately 900 GPOs in 2003, although many of these are subsidiaries of “parent” GPOs, and work regionally to recruit hospitals to participate in the contracts negotiated by the parent GPO).
Hovenkamp, supra note 192, at 6. In another paper, Hovenkamp, supra note 183, Professor Hovenkamp reported “the following market shares for the ten largest GPOs, based on 2001 data:” Novation, 14.6%; Premier, 12.5%; AmeriNet, 4.6%; MedAssets, 4.5%; Managed Health, 3.3%; Consort, 2.2%; HealthCare Purchasing Partners, 1.1%; National Purchasing Alliance, 0.7%; AllHealth, 0.6%; and Innovatix, 0.6%. Hovenkamp, supra note 192, at 9–10 & n.7. See also Bloch (stmt), supra note 184, at 19 (even largest GPO accounts for only 15 percent of total purchase volume of hospital purchases of supplies and equipment).
GAO Senate Testimony, supra Contracting, note 180, at 4.
Id. But seeMuse & Associates, The Role of Group Purchasing Organizations in the U.S. Health Care System 3 (2000) (prepared for HIGPA) and Bloch (stmt), supra note 184, at 1 (GAO’s figures are in contrast to their estimates suggesting GPO contracts cover purchases with an annual value of approximately $150 billion).
Bloch 9/26 at 126–27.
Id.
GAO Senate Testimony, supra Pilot Study, note 180, at 6.
Id.
Id. at 8. According to the GAO, the “Social Security Act, as amended in 1986 allows these fees, which would otherwise be considered “kickbacks” or other illegal payments to the GPO.” Id. See also 42 U.S.C. § 1320a-7b(b)(3)(C); 42 C.F.R. 1001.952 (j) (setting forth safe harbor under the Federal anti-kickback statute for certain GPO fees).
GAO Senate Testimony, supra Contracting, note 180, at 5.
Id. at 5 n.5.
See, e.g., Strong 9/26 at 153–54; Bloch 9/26 at 127–30, 134–35; Clark 9/10/02 at 64, 118; Manley 9/10/02 at 69 (all suggesting GPOs are the buyers agent) but see Weatherman 9/26 at 180–81; Everard 9/26 at 170; Einer Elhauge, the Exclusion of Competition for Hospital Sales Through Group Purchasing Organizations 29–31 (2002); Hilal 9/26 at 143; Nova BioMedical, Comments Regarding Hearings on Health Care Competition and Policy (Nov. 7, 2003) 3–5 (Public Comment) (all suggesting concerns that GPOs may be more concerned about suppliers’ interests) [hereinafter Nova (public cmt)].
Hovenkamp, supra note 183, at 5.
Strong 9/26 at 154.
Clark 9/10/02 at 64, 118; see also Manley 9/10/02 at 69 (noting existence of product “evaluation committees”).
Weatherman 9/26 at 180–81; see also Nova (public cmt), supra note 206, at 3–5.
Everard 9/26 at 170.
Elhauge, supra note 206, at 29. See also Einer Elhauge, Antitrust Analysis of GPO Exclusionary Agreements (Sept. 26, 2003) 19 (Public Comment) (prepared on behalf of the Medical Device Manufacturer’s Association) [hereinafter Elhauge (public cmt)].
See, e.g., Strong 9/26 at 156 (do not bundle disparate products, but do bundle branded prescription drugs with generics to get discount on branded); id. at 157 (generally, five year contracts only used if significant amount of time and money involved in product evaluation); Bloch 9/26 at 127–38 (noting GPOs under attack for various contracting practices and provided his antitrust analysis of these practices); Everard 9/26 at 166 (bundling); id. at 168 (even if contract not technically sole-source, hospitals are not really free to purchase elsewhere because they will lose significant discounts); Hilal 9/26 at 143–46 (discussing problems with bundling and large percent of market his company is sometimes locked out of as result of GPO contracting practices); Elhauge (public cmt), supra note 212, at 12–13, 20–21 (discussing problems with bundled and loyalty discounts and rebates). See also GAO Senate Testimony, Contracting, supra note 180, at 5–6; Novation, Comment Regarding Competition Law and Policy & Health Care (Sept. 30, 2002) 2–4 (Public Comment).
See, e.g., Everard 9/26 at 168 (stating that “manufacturers with market power are able to exclude competitors, in some cases with the GPO support and in some cases without”); Hilal 9/26 at 141 (arguing that GPOs “defend[] market share of existing dominant suppliers” by blocking entrants from serving the medical market); Elhauge (public cmt), supra note 212, at 29–31.
See, e.g., GAO Senate Testimony supra, Pilot Study, note 180, at 1 (noting that “[s]ome manufacturers — especially small manufacturers of medical devices — allege that contracting practices of some large GPOs have blocked their access to hospitals’ purchasing decisionmakers [and that this] den[ies] patients access to innovative or superior medical devices”).
See, e.g., GAO Senate Testimony supra, Contracting, note 180 at 6. A sole-source contract, according to the GAO, is one that “give[s] one of several manufacturers of comparable products an exclusive right to sell a particular product through a GPO.” Id. at 5. See also Nova (public cmt), supra note 206, at 4–5 (GPOs impede companies such as Nova from introducing new and innovative products into the GPO’s member hospitals).
See GAO Senate Testimony supra, Contracting, note 180, at 5.
See Holden 9/10/02 at 100–04; see also Elhauge (public cmt), supra note 212, at 34.
See GAO Senate Testimony supra, Contracting, note 180, at 6; see also Everard 9/26 at 166 (citing “some of the GPO practices that block innovation and... lower costs,” such as “supplier paid fees, sole source contracts, high commitment levels, bundling of both products and companies.); Sing 9/26 at 118–25 (summarizing GAO report on GPOs and noting that certain GPO “contracting strategies have the potential to reduce competition” if the GPO or vendor has “a large market share”).
See, e.g., Keith N. Hylton & Michael Salinger, Tying Law and Policy: A Decision-Theoretic Approach, 69 Antitrust L.J. 469 (2001). But see Elhauge (public cmt), supra note 212, at 1–46 (arguing why GPO contracting practices can be anticompetitive).
See, e.g., Richard A. Posner, Antitrust Law, at 229–32 (exclusive dealing), 251–56 (exclusive dealing), 197–207 (tying), and 234–36 (bundling) (2nd ed. 2001).
Antitrust Law Developments at 179 & n.998 (citing cases) (5th ed. 2002). The law of bundled discounts is both unsettled and beyond the scope of this report. Only one court of appeals has squarely addressed bundled discounts, most recently in LePage’s, Inc. v. 3M, 324 F. 3d 141 (3rd Cir. 2003) (en banc), cert denied, 2004 U.S. LEXIS 4768 (2004). The Supreme Court denied review after the United States suggested that LeP age’s was not “a suitable vehicle for providing... guidance” in this area. Brief for the United States as Amicus Curiae, 2004 WL 1205191, 8 (May. 28, 2004). In its brief, the United States stated that “the Third Circuit was unclear as to what aspect of bundled rebates constituted exclusionary conduct” and “provided few useful landmarks on how Section 2 should apply as a general matter in future cases involving bundled rebates.” Id. at 16. Although the Third Circuit “cited the general principles” set out in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 202 (1993) and other cases, it “failed to explain precisely why the evidence supported a jury verdict of liability in this case, including what precisely rendered 3M’s conduct unlawful.” Id. The brief further noted that “the court of appeals’ failure to identify the specific factors that made 3M’s bundled discount anticompetitive may lead to challenges to procompetitive programs and prospectively chill the adoption of such programs.” Id.
FTC Staff Report, Eentering The 21stCentury: Competition Policy In The World Of B2b Eelectronic Marketplaces § 3, at 26 (2000) (citations omitted) at www.ftc.gov/os/2000/10/b2breport.pdf. As four Justices stated in a concurring opinion in Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 329 (1961), courts are to weigh “the probable effect of the [exclusive dealing] contract on the relevant area of effective competition, taking into account the relative strength of the parties, the proportionate volume of commerce involved in relation to the total volume of commerce in the relevant market area and the probable immediate and future effects which preemption of that share of the market might have on effective competition therein.” See also Jefferson Parish Hosp. District v. Hyde, 466 U.S. 2, 45 (1984) (O’Connor, J. concurring) (advocating an analysis focused on “the number of sellers and buyers in the market, the volume of their business, and the ease with which buyer and sellers can redirect their purchases or sales to others”).
Bloch 9/26 at 132, 129–130; see also Strong 9/26 at 160 (noting that, given the lack of “noncompliance” penalties, GPO Consorta’s member health care systems “decide who they want to deal with. It’s not us that’s out calling those shots.”). Another panelist questioned the degree of freedom actually offered, see Everard 9/26 at 168–69. For a response to that point, see Hovenkamp, supra note 183, at 12 (conceding that “purchases made outside of the GPO contracting process will not necessarily enjoy the quantity-generated cost reductions” of GPO purchasing, but “[i]f that were not the case, then the GPO would have no reason for existence”). See generally id. at 24–29, for further argument that GPO contract arrangements do not amount to anticompetitive exclusive dealing.
SeeHovenkamp, supra note 192, at 8–10.
Bloch 9/26 at 132; see also Strong 9/26 at 157 (GPO Consorta has “included new technology provisions in all our contracts on a go-forward basis since the inception of our Code of Conduct. It allows us to gooutside a contract with a manufacturer for new technology. In virtually all of our contracts, with perhaps one or two exceptions, we have a 90-day termination provision. That allows us to cancel a contract if we can’t come to terms and move forward and contract for that new technology.”).
Strong 9/26 at 156–57.
GAO Senate Testimony, supra Contracting, note 180, at 5.
HIGPA (public cmt), supra note 183, at 7; Muse & Associates, supra note 198.
Hovenkamp, supra note 183, at 22.
Strong 9/26 at 160; see also Hovenkamp, supra note 183, at 18 (noting importance of “scale economies”); Strong 9/26 at 153 (arguing that the administrative fees that suppliers pay to GPOs are not to buy monopoly power but to “allow[] the supplier to have one contract in the market [and not] hundreds [to make with] individual health care facilities... [and to generate] marketing and contract visibility... contract implementation support [and] contract evaluation”).
Strong 9/26 at 158–59.
Id. at 163.
Strong 9/26 at 164; but see Weatherman 9/26 at 182 (challenging such assertions and noting that “the influence of supplier fees running directly from medical product’s vendors to the manager of the GPO buyers completely confounds any such analysis and creates such an appearance of unfairness and corruption as to deter many venture capitalists from funding new innovators in these markets”).
See, e.g., Hilal 9/26 at 139 (questioning GPOs’ claimed efficiencies); GAO Senate Testimony, Pilot Study, supra note 180, at 3; Everard 9/26 at 173.
GAO Senate Testimony, supra Pilot Study, note 180, at 3 (concluding that some hospitals saved as much as 26 percent by purchasing via a GPO contract, and others paid prices as much as 39 percent higher using the GPO contract. The GAO pilot study also found that hospitals with more than 500 beds often obtained better prices on their own, but “small and medium-sized hospitals were more likely to obtain price savings using a GPO contract.” Id. See also Lynn James Everard, Health Policy Statement Number Seven And Marketplace Competition In the Health Care Supply Chain: A Market-Based Analysis 4 (9/26) (“There is no valid proof of the cost savings claims of GPOs.”), at http://www.ftc.gov/ogc/healthcarehearings/docs/030926everardadd.pdf. But see Bloch (stmt), supra note 184, at 6 (asserting that the GAO looked at only two products in one city and broad conclusions about cost savings cannot be drawn from such a small sample and that GAO study “failed to consider the fact that hospitals that obtain better pricing outside their GPO often use the GPO contract as a starting point for their negotiations with vendors”).
See GAO Senate Testimony, supra Pilot Study, note 180, at 6–7 (citing to GPO officials and a GPO trade organization).
Strong 9/26 at 151–52; see also GAO Senate Testimony, Contracting, supra note 180, at 1 (“By pooling the purchases of these products for their hospital customers, GPOs may negotiate lower prices from vendors (manufacturers, distributors, and other suppliers), which can benefit hospitals and, ultimately, consumers and payers of hospital care (such as insurers and employers).”).
Bloch 9/26 at 127; see also Heiman 9/26 at 189–92 (citing variety of efficiencies offered by GPOs); Hovenkamp, supra note 183, at 1–2 (noting savings due to GPOs).
Hovenkamp, supra note 183, at 3.
Eugene S. Schneller, The Value of Group Purchasing in the Health Care Supply Chain 6 (2000), at http://wpcarey.asu.edu/hap/hap_novation.cfm; See also Bloch (stmt), supra note 184, at 7 and n.24. See also Novation (public cmt), supra note 213, at 2 (“[S]tudies show that if GPOs did not exist, the average hospital would pay $353,000 to replicate those purchasing functions.”).
See, e.g., Clamp-All Corp. v. Cast Iron Soil Pipe Inst., 851 F.2d 478, 487–88 (1st Cir. 1988) (Breyer, J.) (noting lack of evidence that a standard-setting organization misled “reasonably sophisticated” buyers).
Bloch 9/26 at 134–35; see also id. at 129 (distinguishing between “contracts and bundling programs” that buyers initiate, and those that sellers initiate, and noting that the former pose fewer competitive concerns because they are “driven by the economic interest of GPO member hospitals in obtaining lower prices and quality products”).
Id. at 134–35.
Strong 9/26 at 157–58 (questioning manufacturers’ claims that their excluded products are innovative, and trusting “the clinicians and the other product users” to decide that question for themselves); see also Goodman 9/10/02 at 85 (noting GPOs’ “evidence-based decision making” with respect to new technologies).
See, e.g., Elhauge, supra note 206, at 30 n. 86 (challenging assumption that because GPOs are buyers’ agents, they act as “an ordinary” buyer would, citing literature on agency costs showing that “agents generally always have some incentive to deviate from the interests of their principals”). The buyers themselves also may have an incentive to reach such agreements with suppliers, in exchange for “side payments that sp lit the seller’s supracompetitive profits, or special discounts that give the participating buyers market advantages over other buyers and thus enhance the participating buyers’ downstream market power.” Elhauge, supra note 206, at 28; see also Hilal 9/26 at 147–48 (“GPOs are not really collective bargainers... [T]hey are, rather, franchisers... Why would hospitals allow franchisers... [to] make [their] li[ves] harder? Well, perhaps if they”re part-owners of the franchising operation, or if the income is excluded from reimbursement computation....”).
See, e.g., Elhauge, supra note 206, at 9–10; Hilal 9/26 at 143 (arguing that once a GPO grants monopoly power to a supplier, a “newcomer” supplier has difficulty entering because “for the new [product] to be offered... the customers would have to be familiar with that product. For them to be familiar with that product, that newcomer must have access to the market,” which he argues is impossible because of the GPOs).
Elhauge, supra note 206, at 1.
See Everard 9/26 at 168–69 (“For example, a multi-line supplier might be able to go to a hospital who is considering buying a product from a small company like Applied and say, you know, you might be able to buy that product and you’re right, you’re free to do it. However, if you choose to buy from that supplier, you’re going to lose significant discounts on all the other products that we sell to you. So... the hospital is not really as free as one might think.”).
See Weatherman 9/26 at 181–82 (“[T]he existence of GPOs makes anticompetitive contracting incredibly easy and efficient for these large manufacturers who would have to negotiate separate contracts with thousands of individual hospitals instead of with three or four large GPOs. So, the GPOs provide a very efficient vehicle for the large manufacturers to throw their weight around in the market.”).
SeeElhauge, supra note 206, at 36–42.
Hovenkamp, supra note 183, at 23 (arguing that GPOs lack incentives to accept such a “bribe” from suppliers, in part because it risks having GPO members defect to other means of purchasing supplies).
Clark 9/10/02 at 63; see also Burns 9/10/02 at 74 (noting existence of competition among GPOs for hospitals’ business); Betz 9/10/02 at 108 (same).
254 See, e.g., Everard 9/26 at 165–66 (stating that Health Care Statement 7 does not “protect patients and caregivers” and that “it must be revised to address the economic realities of the current medical product marketplace”); GAO Senate Testimony, Pilot Study, supra note 180, at 1 (noting that new concerns “have spurred calls for reexamining federal antitrust guidelines regarding GPOs” and stating that the antitrust guidelines “afford[] GPOs considerable latitude to merge and grow [and] has permitted the creation and growth of the largest GPOs”). But see Bloch 9/26 at 219–23. (defending Health Care Statement 7).
One panelist noted this point and “urg[ed] the FTC to revisit the structure of the guidelines” to make the point clear. Latham 9/10/02 at 93. It is hardly atypical for Agency guidelines to address only a certain class of competitive issues. The Competitor Collaboration Guidelines also address only a limited set of anticompetitive concerns; they were not designed to address all possible anticompetitive conduct associated with competitor collaborations. See Antitrust Guidelines for Collaborations Among Competitors, 2 n.5 (2000) at http://www.ftc.gov/os/2000/04/ftcdojguidelines.pd f.
See supra Chapters 1 & 3.
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(2005). Competition Law: Hospitals. In: Hyman, D. (eds) Improving Healthcare. Developments in Health Economics and Public Policy, vol 9. Springer, Boston, MA. https://doi.org/10.1007/0-387-25752-7_5
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