DOJ Withdraws Support for Antitrust Safety Zones in Healthcare
May 1, 2023 4 minutes read
By Greg Freeman
EXECUTIVE SUMMARY
The Department of Justice has withdrawn its support from three joint statements with the Federal Trade Commission. The statements established safety zones for antitrust issues.
- Some healthcare entities may not realize they are relying on the statements.
- Any activity that risks an antitrust violation will be judged on a case-by-case basis.
- Some mergers and other activity may be slowed or refused.
The Department of Justice’s (DOJ) Antitrust Division recently withdrew its support from three joint statements with the Federal Trade Commission (FTC) that created antitrust safety zones for the healthcare industry. Risk managers should consider how this change affects their employer’s exposure to antitrust charges. Some healthcare entities may be relying on the safety zones established in the statements without even realizing it.
The withdrawn statements are a 1993 policy statement establishing safety zones for certain types of mergers, participation in exchanges of price and cost information, and joint purchasing agreements (https://bit.ly/3ZB4pvf); 1996 statements clarifying and expanding the 1993 safety zones (https://bit.ly/3GgBCVH); and a 2011 policy creating a safety zone for accountable care organizations (https://bit.ly/432ZtlE).
The guidance was meant to notify healthcare entities about how the DOJ and FTC would address various types of transactions that were prevalent in the industry, says Katherine I. Funk, JD, shareholder with Baker Donelson in Washington, DC.
For example, one statement includes details about how the government was going to review certain types of hospital mergers, including mergers with critical access hospitals, and another addressed clinical integration. The statements also established safety zones for how healthcare providers can conduct wage benchmarking surveys.
“The statements have been used by HR professionals and companies as guidance on how they can do benchmarking surveys for wages without violating the antitrust laws. These statements covered the whole gamut, and they’ve been around for a long time,” Funk says. “It’s gotten to the point where people are using that guidance and relying on that guidance without actually knowing that they’re relying on that. It’s just become sort of an ingrained part of what’s allowable and what’s not.”
The provision in the Affordable Care Act for accountable care organizations (ACOs) raised concern among providers that ACOs created a risk from gain-sharing and other kinds of monetary compensation that providers could receive if they made quality improvements. They worried that would trigger enforcement under the Stark laws and anti-kickback laws. HHS created safety zones with respect to stock, and the DOJ and FTC issued a policy statement about how the agencies would view provider organizations that tried to create ACOs, Funk explains.
“Basically, they said they were going to wait and see, and that they would sort of give them a wide berth so that people could do what was asked of them to do under the act,” Funk says. “The FTC and DOJ said, ‘We’re going to wait and take a hands-off approach.’”
Now, DOJ is more concerned about various types of information-sharing among competitors, Funk explains. Looking back on the effects of the statements, DOJ now thinks even though some companies were adhering to the guidance, they still violated antitrust laws.
“This all goes back to the DOJ concerns about how much information competitors are sharing with one another, so they withdrew these guidance documents — basically saying that healthcare has changed, and we think that these guidance documents are too permissive,” Funk says.
From now on, DOJ will review these matters on a case-by-case basis, and people should not rely on these prior documents, Funk says. When creating joint ventures or bench wage surveys, for example, healthcare entities can no longer rely on these documents to ensure their activities are lawful.
“All this reliance that people had for the past 30 years has just been taken away. Now, when organizations do surveys on anything in this area, they are going to have to really do an evaluation of whether or not there’s the potential for antitrust harm and can’t just rely on satisfying the requirements of the safety zones,” Funk says. “This means there is a lot less certainty for organizations. Organizations and lawyers are going to have to really take a hard look at the types of arrangements that they enter into with competitors to understand whether there is the potential risk of antitrust harm.”
Recently, Funk talked to a client and realized they had never heard of the 1996 statement, but they were, in fact, relying on the safety zones for how they structured joint ventures and other types of arrangements. Funk told the client they have to look at each transaction on its own merits.
DOJ does not operate with unlimited resources, so it will not be able to investigate every joint venture or competitor collaboration. “What they’re telling people is, ‘We’re warning you and we’re putting you on alert that your transaction might be subject to review or investigation,’” Funk explains. “They’re saying you’re not going to be able to fall back on the 1996 statements, for instance, and say, ‘Well, we were just doing what we were told to do.’”
The withdrawal of the statements could create problems for some organizations. Without the protection of the safety zones, some will have to consider how much they are willing to risk a DOJ investigation, Funk says.
“It is potentially going to depend on how risk averse people are. They might decide not to even enter into those agreements, or it’s probably going to at least slow down the process,” Funk says. “How quickly hospitals and providers are willing to enter into those types of agreements might change. Those that tend to be more risk averse will want to make sure that there’s not a potential for a problem.”
SOURCE
- Katherine I. Funk, Shareholder, Baker Donelson, Washington, DC. Phone: (202) 508-3492. Email: [email protected].
The Department of Justice’s Antitrust Division recently withdrew its support from three joint statements with the Federal Trade Commission that created antitrust safety zones for the healthcare industry. Risk managers should consider how this change affects their employer’s exposure to antitrust charges.
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