Repealing Insurers’ Antitrust Exemption Under McCarran-Ferguson: Less There Than Meets the Eye?

Posted on: October 23, 2009  |   Author: Thomas L. Greaney
Filed Under: Antitrust, Insurers/Payors, Legislation   |   Leave a Comment

The House Judiciary Committee’svote (20-9) to send H.R. 3596 , to the floor has been heralded by proponents as providing a significant spur to competition in health insurance. Sorry to rain on this parade, but there is less here than meets the eye.

The bill  would repeal, but only in part,  the McCarran-Ferguson Act’s limited exemption from antitrust law for health and malpractice insurers. The bill narrows McCarran’s reach, providing that “nothing in that act shall be construed to permit  insurers “to engage in any form of price fixing, bid rigging, or market allocations in connection with the conduct of the business of providing health insurance coverage or coverage for medical malpractice claims or actions.” A Senate bill with broader effect was the subject of hearings by the Senate Judiciary Committee last week.

Although, as I’ve argued elsewhere, competition in health insurance markets has been less than robust, the case law reveals only a handful of instances in which the exemption protected anti-competitive conduct in the health care sector. The most prominent example,Ocean State Physicians Health Plan, Inc. v. Blue Cross & Blue Shield of Rhode Island, 883 F.2d 1101 (1st Cir. 1989), involved an HMO’s challenge to the exclusionary effect of the dominant insurer’s pricing policy and its offering a rival HMO product. Ironically, this conduct would not appear to be covered by H.R. 3596 and hence would remain immune from antitrust scrutiny.  In addition, the Supreme Court has narrowly interpreted McCarran-Ferguson requirement that only the “business of insurance” is exempt; hence insurers’ actions vis a vis providers is not exempt.  Moreover, it appears that health insurers do not engage in the kind of activities that are most clearly protected by McCarran-Ferguson, viz. joint forecasts of future medical costs and cooperative ratemaking.

Despite these reservations, repeal is not altogether a bad idea.  Most antitrust authorities agree McCarran-Ferguson is not needed to protect pro-competitive conduct, which already is well-insulated under modern antitrust doctrine.  For example, the Antitrust Modernization Commission (a blue ribbon –and very mainstream– panel that examined antitrust policy a few years ago) concluded that McCarran-Ferguson immunity was unnecessary to accomplish the Act’s goal of allowing insurers to collect, aggregate, and review data on losses so that they can better set their rates to cover their likely costs. Insurance companies, it found, “would bear no greater risk than companies in other industries engaged in data sharing and other collaborative undertakings.” When insurers engage in anti-competitive collusion “they appropriately [should] be subject to antitrust liability.” Moreover in insurance lines other than health, such as property/casualty, the exemption may protect collective price fixing with few offsetting benefits for consumers.

It is also noteworthy that the Department of Justice stopped short of endorsing repeal.

Assistant Attorney General Varney testified as follows:

In sum, the Department of Justice generally supports the idea of repealing antitrust exemptions. However, we take no position as to how and when Congress should address this issue. In conjunction with the Administration’s efforts to strengthen insurance regulation and states’ role in setting and enforcing policies, the Department supports efforts to bring more competition to the health insurance marketplace that lower costs, expand choice, and improve quality for families, businesses, and government.

This carefully-worded statement (”in conjunction with …efforts to strengthen insurance regulation and states role in setting and enforcing policies“) seems to signal that the Justice Department is worried about hamstringing state regulatory efforts by allowing parallel antitrust scrutiny of insurance industry practices.  But I would have expected the Antitrust Division to take precisely the opposite position.  Perhaps the strongest argument for repeal of McCarran-Ferguson (and also redefining the state action doctrine) is that a system that relies on extensive state-based insurance regulation (and perhaps state-run exchanges) risks undermining the consumer benefits of competition should regulators become beholden to insurer or provider interests. If history is a guide, this is a legitimate concern.

Department of Justice and Federal Trade Commission criticize Illinois Certificate-of-Need Law

Posted on: September 18, 2008  |   Author: Michelle
Filed Under: Antitrust, Hospitals & Health Systems, Other   |   Leave a Comment

The Chicago Tribune (9/13, Bruce Japsen) reported that the Department of Justice (DOJ) and the Federal Trade Commission (FTC) told “an Illinois task force evaluating the merits of the state’s certificate-of-need law” that the law, which is “designed to regulate hospital construction and other health-facility expansions, undercuts consumer choice and weakens ‘markets’ ability to contain healthcare costs.’”

Illinois Health Facilities Planning Board has been in place for a number of years and has been subject to controversy, namely that it favors “projects pushed by influential lobbyists.” Critics also contend that its rules thwart “potential competition and innovation should hospitals want to build specialized facilities.” Proponents of the board, however, say “hospitals that are allowed to build unregulated tend to expand in affluent areas to tap wealthy patients with health insurance.”

According to the article, “the FTC and Justice Department said certificate-of-need laws create opportunities for ‘existing competitors to exploit’ the process or delay new competition.” The two federal agencies weighed in ahead of a hearing today. The federal regulators’ opinions are likely to “be part of a report the task force will submit to the Illinois legislature this year for possible changes.”
Illinois lawmakers are currently examining whether the Health Facilities Planning Board and its rules are necessary. The agencies’ input likely will be part of a report the task force will submit to the Illinois legislature this year for possible changes.

http://www.chicagotribune.com/business/chi-sat-con-law-hospitals-sep13,0,4597093.story

FTC MedSouth Follow-up Letter and Clinical Integration: Selling a Product No One Wants to Buy?

Posted on: August 21, 2007  |   Author: Kristen
Filed Under: Antitrust   |   Leave a Comment

Clinical integration was first added to the U.S. Department of Justice’s and Federal Trade Commission’s Antitrust Health Care Guidelines in 1996. Still a relatively new concept, clinical integration occurs when provider networks collaborate with other provider participants in the provision of medical services to achieve cost efficiencies and quality improvements. Clinical integration is highly attractive to provider networks as a tool to use in collectively bargaining, as the activities of a “sufficiently integrated” network may escape per se scrutiny and instead be evaluated under the more forgiving antitrust rule of reason.

One benchmark in the evaluation of clinical integration provider networks was the FTC’s 2002 staff advisory opinion in MedSouth, Inc. At that time, although the FTC determined that MedSouth’s clinical integration program did not violate the antitrust prohibition on collective bargaining, the Advisory Opinion indicated that the FTC reserved the right to come back and monitor MedSouth’s activities in practice. The staff has now done so, and on June 18, 2007 issued a follow-up letter to MedSouth that indicated that the staff had no reason to rescind or modify the views it expressed in 2002.

Two areas that are highly scrutinized for anticompetitive effects in analyzing the competitive effects of a provider network under the rule of reason include the potential misuse of collected price information to facilitate unjustified and unlawful price agreements by the network participants when doing business outside the joint venture and the exercise of market power by the joint venture itself, due to its size or methods of doing business. In it’s follow-up letter, the FTC focused on the following aspects of MedSouth’s clinically integrated provider network: 1) integrative activities by the MedSouth physicians through MedSouth’s operations and programs; 2) the extent to which potential efficiencies had resulted from, and were continuing to be attained, as a result of that integration; and 3) aspects of MedSouth’s network structure and operation that were relevant to ascertaining its ability to exercise market power or otherwise adversely affect competition in the market.

In analyzing aspects of MedSouth’s network structure and ability to exercise market power in it’s Denver market, the FTC noted in its follow-up letter that the MedSouth program has had trouble gaining physician and provider support. MedSouth now has substantially fewer participating physicians than at its inception in both the primary care and specialty physician categories. At the time of the FTC’s 2002 letter, MedSouth had 415 participating physicians, 100 of whom were primary care physicians and 315 of whom were specialists. In response to the FTC’s 2007 follow-up inquiries, MedSouth reported only 280 total physician members- 75 primary care physicians and 205 specialists. While the FTC noted that these gaps could theoretically adversely affect the program’s ability to monitor and coordinate patients’ care, the staff was satisfied that these gaps would not have detrimental effects upon the program’s efficiency and quality improvement goals as most of its practice guidelines focused upon chronic conditions and diseases, which did not require the participation of specialists in the network.

However, although a program like MedSouth’s may operate with a limited number of participating physicians, the question remains whether a clinical integration provider network can achieve its goal of cost efficiency while doing so. In it’s follow up letter, the FTC noted that this reduction “may well be indicative that a program of clinical integration requires very serious commitment and effort by physicians to engage in the activities that are necessary to achieve the beneficial objectives of such a program, as well as physician’ weighing of the economic costs and benefits of participating in such a program. This may be instructive for other provider networks, particularly one involving large numbers of physicians, regarding the practical realities and potential difficulties inherent in coordinating and clinically integrating the care provided to numerous enrollees through a network comprising many independent physician practices.” Although not passing judgment on the merits of a clinical integration program, the FTC acknowledges that this type of program may be a difficult sell to physicians as a result of the enormous commitment.

The question remains: who’s buying into clinical integration and is it really a viable option for collective bargaining?

For a copy of the 2002 FTC Staff Advisory opinion, go to http://www.ftc.gov/bc/adops/medsouth.shtm. For a copy of the FTC’s follow-up letter, go to http://www.ftc.gov/bc/adops/070618medsouth.pdf.

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