Medicare Rules: Promoting Competition?

In this Ropes & Gray podcast, health care partner Stephanie Webster and litigation & enforcement partner Jane Willis discuss recent rulemakings by the Centers for Medicare and Medicaid Services (“CMS”) regarding Competition and Transparency in health care. They address how this rule is part of a broader effort by the Biden Administration to aggressively enforce the antitrust laws, and in particular, what hospitals, health care systems, and other health care providers might expect from this rulemaking and the broader trend it signals.

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Transcript:

Stephanie Webster: Hello, and welcome to today's podcast. My name is Stephanie Webster and I'm a partner in Ropes & Gray's health care practice group. I represent a variety of hospitals, health systems, and other health care clients before federal agencies and in federal court on health care payment and compliance issues. I also generally help clients navigate ongoing developments in federal funding and reimbursement. With me today is Jane Willis, a partner in Ropes & Gray's litigation & enforcement group. Jane focuses on antitrust matters for health care and life sciences clients, including both litigation and mergers and acquisitions.

Jane, given your expertise, I wanted to talk to you first about a request for information that CMS (or the Centers for Medicaid and Medicare Services) made this past summer that it claimed related to competition. In July, the agency issued its annual proposed rule on the hospital outpatient payment system, and as always, it covered a lot of topics, and one of them is particularly relevant to your practice.

The agency included in that proposed rule a so-called “Request for Information” (or RFI) that it said was related to enhancing “competition and transparency” in the health care system. CMS had previously released information about mergers, acquisitions, and changes of ownership relating to nursing homes and hospitals enrolled in Medicare back in April 2022. That data is gathered in CMS's PECOS system, which stands for the Provider Enrollment, Chain, and Ownership System. But now in this latest RFI, CMS asked interested third parties for feedback on how it could further use ownership data it collects to "promote competition." And in particular, CMS said it wanted to know whether releasing this ownership data for other types of health care providers could help further that goal.

Interestingly, in the final rule on that payment system issued just this last week, the agency didn't announce any decisions that it had made in response to information furnished in response to that request. It looks like many of the comments CMS received actually advocated for transparency and, in particular, price and charge transparency more generally. And then some others actually noted that it was other agencies' job to be doing this. Ultimately, CMS said that it would just take the comments into consideration down the road.

Given your experience, Jane, representing health care systems and other health care clients in antitrust matters, what do you make of CMS getting involved in the area of competition?

Jane Willis: The CMS announcement is interesting for several reasons. I see this announcement as part of a broader effort by the Biden Administration to ensure that all federal agencies are helping with the goal of “promoting competition.”

Last year, the Biden Administration issued an Executive Order that was titled “Promoting Competition in the American Economy,” and that Order instructed federal agencies across the board to issue policies that promote competition—not just the Federal Trade Commission and the Department of Justice, but all federal agencies. So, what we've seen is various agencies like CMS or even the Department of Treasury coming out with statements about how they are going to help promote competition.

The Treasury's Tax and Trade Bureau is a good example, actually. They regulate alcohol sales, and that's an area where historically, that regulatory effort has been less sensitive to the competitive impacts of their decisions. In that regard, agencies that have been regulating an industry for a long time may be hesitant to change their rules or policies in a way that benefits new entrants, because they are concerned about upsetting the apple cart, so to speak, or upsetting established policies or established players. And that can result in regulations that basically protect established companies from competition, and that's in tension with the goals of the antitrust laws. So, what you see with this CMS announcement is a further effort to get all federal agencies rowing in the same direction in an effort to promote competition.

Stephanie Webster: Interesting. So, do you see this RFI from CMS as a prelude to the Biden Administration more aggressively enforcing antitrust laws in the health care area? Or where do you think we are in the scheme of things?

Jane Willis: It's certainly consistent with the ongoing effort. We are already seeing, or have been seeing, an increase in antitrust scrutiny in the health care industry—so this CMS request is consistent with that.

It may help us to take a step back to understand where the Executive Order came from and what these changes under the Biden Administration, what they reflect. Starting in 2016 or so, a group of scholars and journalists really sparked a new public debate about antitrust enforcement. And this group of critics argued that competition in the American economy is declining and that there are higher prices and lower quality products available, not just in health care (not just concerned about health care costs), but across a range of industries. But health care was a prominent example of a place where the health care costs continue to grow in the U.S. far above the rate of inflation. These critics, who are called the New Brandeis Movement, what they want to do is reinvigorate antitrust enforcement—they want to block more mergers and bring litigation.

What's notable about the Biden Administration is that it appointed two prominent scholars from this movement to powerful positions that make antitrust policy—those two scholars are Tim Wu and Lina Khan. Lina Khan is now the Chair of the Federal Trade Commission, which is the agency that reviews most hospital and physician mergers. And Tim Wu is a Special Assistant at the White House for Technology and Competition Policy. Tim is really the architect of President Biden's Executive Order that we've been talking about.

Stephanie Webster: So it sounds like CMS could end up releasing more information to the extent that it believes that it promoted competition, but how in your view would that data affect competition, if at all, Jane, based on your experience?

Jane Willis: Probably the most significant use is that this ownership information could be used to understand how some companies have consolidated health care providers through smaller transactions. That information is often public in some way, but piecing it together can be difficult. So, by CMS making ownership readily available to the public, then stakeholders can more easily understand the impacts of consolidation and the impacts of mergers and acquisitions in the health care industry. These stakeholders may include payors, they may include employers who have self-funded plans, and they may include nurses and their advocates. And such stakeholders, particularly payors, often make their voices known to the federal antitrust agencies and state attorneys general when they are concerned about a hospital merger or a health system further consolidating.

Stephanie Webster: Do you think that these third parties looking at the newly released data would focus on all kinds of transactions, or just certain kinds?

Jane Willis: They're both small transactions and large transactions. And I should note that large transactions have always been reported to the antitrust agencies through the Hart-Scott-Rodino process, which is called the HSR process. As you probably know, the HSR Act establishes certain thresholds for when parties to deals need to make a filing—that threshold's currently $101 million. So, if the value of the transaction exceeds $101 million, then there's automatically a filing that must be made with the antitrust agencies, and then the agencies have an opportunity to investigate if they believe that transaction threatens competition. That process has allowed the FTC, which, in particular, reviews hospital mergers and acquisitions of physician groups—that has allowed the FTC to investigate matters before they close. And the FTC's had a fairly successful record of challenging and blocking some of the larger hospital deals in recent years.

Stephanie Webster: The release of this additional information could have more of an effect on smaller transactions.

Jane Willis: That's exactly right. For smaller deals, because the deal values below the threshold, they often aren't reported to the FTC. So, the parties can close their transaction without the FTC having had a chance to investigate it, and this is how hospitals have acquired physician groups or how physician groups have often grown larger in a given geography. Other types of small transactions include transactions among home health care providers or hospice providers, or even some outpatient facilities as well. And this is the type of incremental growth that's hard for the antitrust agencies to detect, especially as compared to blockbuster mergers. There's an increasing concern that health systems have grown and consolidated in ways that may be anti-competitive. So, if the FTC is able to get information from stakeholders who are carefully watching smaller acquisitions and transactions, then they get a chance to investigate where they might not otherwise have been able to do so.

Stephanie Webster: Why doesn't CMS just make this information available to the FTC or DOJ rather than making it publicly available?

Jane Willis: You're right, Stephanie—they could just make this information directly available to the federal agencies, but I think this public availability is another significant impact of this initiative. For one, I think we'll see more journalistic efforts to investigate and understand health care providers, particularly those who are owned by private investors or those who've been consolidating vertically. There are increasingly more articles being written about consolidation in the health care industry. And just by way of example, a recent article in The New Yorker used CMS nursing home ownership data as a part of an investigation into cost-cutting at a privately owned nursing home chain that resulted in a COVID-19 outbreak. So, I do think that journalists are interested in the health care area, and I do think that the publicizing by CMS of this ownership information may make these private investigations and articles like this more common.

Stephanie Webster: Do you think that the regulators are actually paying attention to those articles and other private investigations?

Jane Willis: I think they do—I think the antitrust agencies do pay attention to the press, particularly the health care press. We know, for example, that they read announcements in Modern Healthcare about new acquisitions. And as I noted, this type of information may help them decide where to focus their enforcement efforts.

Then, also in addition to news articles, this information could be used by consumer groups or other advocacy organizations to study health care competition issues. They put together industry research and make that available to the FTC, the DOJ, or the general public. So, I think the additional sources of information relating to ownership structures will aid the efforts by many stakeholders to study competition. And that, in turn, could lead them to advocate for policy changes, or complain to the antitrust agencies and encourage greater investigation or more litigation and enforcement against health care providers.

Stephanie Webster: Jane, you mentioned litigation, and I'm wondering about private litigation. Do you think that the release of this information, or potential release, would materially increase the risk of litigation to health care providers?

Jane Willis: Certainly private plaintiffs, whether they're consumers, small businesses, or rival providers, they need to get the information in order to think about bringing a private antitrust lawsuit. So, in that regard, to the extent that CMS may be making more information available, it may be encouraging—it may help private plaintiffs try to put together suits. It is the case, of course, that the majority of merger enforcement cases have been brought by the DOJ or the FTC for the last 40 years or so, especially since the HSR Act was passed. The HSR Act provides for an automatic mechanism for that type of enforcement, so the FTC and DOJ have a unique power to block mergers.

But private plaintiffs have also been able to enforce antitrust laws. There's Section 7 of the Clayton Act, which allows private plaintiffs to try to block a merger if they believe it “substantially lessens competition.” So, if CMS makes more ownership information available, that incrementally could help private plaintiffs get smart about consolidation.

Similarly, the pricing data that was recently published by CMS under the “price transparency” rule also provides plaintiffs with additional information on increases in prices and the health care costs associated with different providers. And that may incentivize plaintiffs to bring more cases.

Stephanie Webster: I'm glad you mentioned that rule, Jane. As you know, that rule that was published in 2019 required hospitals to make pricing information available, including information about standard charges—and that term, "standard charges," means more than just chargemasters. Jane, I'm wondering what you think have been the consequences of that earlier initiative by CMS?

Jane Willis: The price transparency rule is interesting for several reasons. First, traditional antitrust principles discourage companies from making their pricing public. In fact, sharing competitively sensitive information, like payor rates, arguably could constitute unlawful information sharing and violate the antitrust laws. And the reason, of course, is that by sharing sensitive information, competitors can more easily coordinate their activity or engage in price-fixing. So, for that reason, the antitrust agencies and the courts have long frowned on the sharing of competitively sensitive information. And certainly antitrust lawyers, like myself, have historically advised clients to be really careful about how such information gets shared—so this is really 180° from that.

Indeed, in recent years, the antitrust agencies have been of two minds. On the one hand, there's this traditional concern about sharing competitively sensitive information. But on the other hand, there's been an increasing recognition that the lack of price transparency in health care makes it difficult for patients to “shop” for health care services to determine where the lower cost services are being provided. The DOJ has been particularly concerned that the lack of transparency may dampen competition. So, whether this price transparency rule is effective and whether it actually is able to convey health care cost information in a way that can be reasonably understood by the public, I think that's yet to be seen.

Stephanie Webster: I agree, Jane—it remains to be seen how this will play out. In response to the latest request for comments, stakeholders, instead of talking about CMS releasing more data actually were urging CMS to enforce the transparency rule. But at the same time, I understand that providers believe that the transparency rule and its requirements really aren't going to have an effect, or a positive effect, on patients because it's such complex information. And really, the rule has had the effect of imposing a significant burden on hospitals without really helping patients. I wonder what you think about that, Jane.

Jane Willis: I agree, because health care pricing is so complicated that it's really hard for the average patient to become informed. And the burden is something I'm hearing as well, that providers find this to be a very enormous burden to collect and publish this information when there's maybe very little benefit to the public. So, many hospitals have found it difficult to comply with this rule, particularly in the face of COVID and all the other challenges they're facing.

Stephanie Webster: Jane, I've really appreciated our time today. And if those listening would like more information on this topic or our health care or antitrust groups, please don't hesitate to contact either one of us or visit our website ropesgray.com. You can also subscribe and listen to other Ropes & Gray podcasts wherever you regularly listen to your podcasts, including on Apple and Spotify. Thanks again for listening.