Law & Medicine

Antitrust issues in health care (Part I)


This article introduces United States antitrust laws and discusses their application in health care. Part 2 will summarize major court decisions covering that subject.

Question: Antitrust laws:

A. Are based in part on the physician-patient trust relationship.

B. Prohibit anticompetitive behavior.

C. Regulate business activities but not professional services.

D. A, B, and C are correct.

E. B and C are correct.

Answer: B. Economic interests are best served in a freely competitive marketplace. Trade restraints such as price fixing and monopolization tend to promote inefficiency and increase profit for the perpetrators, at the expense of consumer welfare.

Accordingly, Congress enacted the Sherman Antitrust Act way back in 1890 to promote competition and outlaw unreasonable restraint of trade. Additional laws prohibit mergers that substantially lessen competition, price discrimination, and unfair trade practices. Collectively, these are known as the antitrust laws, the term reflecting their initial purpose to prevent commercial traders from forming anticompetitive groups or "trusts."

The Department of Justice (DOJ), the Federal Trade Commission (FTC), and their state counterparts enforce these laws, which have nothing whatsoever to do with the doctor-patient trust relationship.

Section I of the Sherman Act, the paramount antitrust statute, declares that "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal." Section II stipulates, "Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony."

Other important laws are Sections 4 and 7 of the Clayton Antitrust Act and Section 5(a)(1) of the Federal Trade Commission Act, which outlaws "unfair methods of competition in or affecting commerce ... " Additionally, all states have their own antitrust statutes, which in some cases may be more restrictive than the federal laws are.

These laws initially targeted anticompetitive business practices. In 1975, the U.S. Supreme Court declared that there was to be no "learned profession" exemption, although special considerations may apply.1 However, activities of state government officials and employees are exempt from antitrust scrutiny under the so-called "state action doctrine," which confers immunity if an exemption is clearly articulated and affirmatively expressed as state policy, and there is active state supervision of the conduct in question.

Antitrust issues are ubiquitous in health care, and fall into seven major categories: 1) price fixing; 2) boycotts; 3) market division; 4) monopolization; 5) joint ventures; 6) exclusive contracts, and 7) peer review.

1. Price fixing. An agreement to fix prices is the most egregious example of anticompetitive conduct, so much so that the courts will use a per se analysis, i.e., without need to consider other factors, to arrive at its decision. Price fixing does not require any party to show market dominance or power, and its presence can be inferred from circumstances and agreements, which can be either oral or written.

For example, physician fee schedules or guidelines by a medical association would constitute price fixing. Even an agreement to fix maximum prices, as opposed to minimum prices, has been ruled illegal. At a practical level, physicians should avoid sharing pricing information with anyone, especially with colleagues, unless strict FTC "safety zone" criteria are satisfied.

2. Boycotts. Group boycotts are usually per se illegal, but in the health care industry, a rule of reason analysis is frequently used. Courts will look at the circumstances and purpose of the boycott, its pro- and anti-competitive effects, and whether there are other less restrictive ways to achieve the purported goal.

Affiliating physicians face this risk when forming alliances, as boycott questions may arise when a doctor is inappropriately excluded, which deprives him/her from earning a living in the relevant market.

A related controversial issue is the unionization of doctors. Unionization protects labor rights, especially those of medical residents, and offers greater parity in collective bargaining. On the other hand, the danger is in tying a physician’s obligations to the interests of other workers who may not share the same ethical commitment to patients.2

Strikes by doctors are likely to interfere with patient care, raise serious ethical questions, and may also be in violation of antitrust laws although boycotts for sociopolitical and noncommercial reasons are not specifically prohibited.

3. Market division. Agreements to restrict competition by dividing or allocating territories or patients are illegal per se under the Sherman Act.

4. Monopolization. Section 2 of the Sherman Act prohibits monopolization and attempts to monopolize. Examples are predatory pricing, long-term exclusive contracts, and refusal to deal. Mergers and acquisitions may substantially lessen competition with the tendency to create a monopoly, and they are subject to Section 7 of the Clayton Act. Proof of monopolization requires an inquiry into the relevant product and geographic markets (usually greater than 50%-60% market share), and regularly requires an economist’s expertise at trial.

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