DOJ’s Withdrawal of Policy Statements Relating to Antitrust Enforcement in Healthcare Markets
In this third installment of Ropes & Gray’s podcast series exploring regulatory and antitrust issues for healthcare industry participants, healthcare partner Stephanie Webster and litigation & enforcement partner Jane Willis discuss the U.S. Department of Justice’s (“DOJ”) recent withdrawal of three healthcare enforcement policy statements and its implications for hospital systems, physician practices, and private equity-backed healthcare firms.
Stephanie Webster: Hello, and welcome to today’s podcast, which is the third that we’ve done exploring antitrust issues in the healthcare industry. I am Stephanie Webster and I am a partner in Ropes & Gray’s healthcare practice group. I represent healthcare clients before federal agencies and in federal court on healthcare payment and compliance issues, and help clients navigate ongoing developments in federal funding and reimbursement. With me today is Jane Willis, a partner in Ropes & Gray's litigation & enforcement practice group who focuses on antitrust matters for healthcare and life sciences clients.
Jane, I wanted to talk to you today about the Department of Justice’s Antitrust Division decision last month to withdraw three policy statements on antitrust enforcement in healthcare markets. Could you briefly describe what these so-called “Health Care Statements” were and what they meant, Jane?
Jane Willis: Thanks, Stephanie. By way of background, starting in the 1990s, the DOJ and the FTC issued these joint “policy statements” about basically how they would enforce the antitrust laws in the healthcare markets. So, two of the withdrawn statements dated to the mid-90s, and one was issued in 2011 in connection with the accountable care organization developments by CMS at that time.
Broadly speaking, the policy statements explained how the Agencies would view the legality of certain collaborative activities in the healthcare industry, in particular, with respect to healthcare providers engaging in healthcare mergers, joint ventures, and various physician arrangements.
Stephanie Webster: I know that the statements included exceptions called “safe harbors” or “safety zones.” What were those?
Jane Willis: So, the “safe harbors” or “safety zones” were defined conditions under which the Agencies would not challenge conduct unless it was some really extraordinary circumstance. There were “safe harbors” for physician networks, for hospital joint ventures to acquire technology, for acquisitions of rural hospitals, and also joint purchasing, among other things.
I would say the two most notable “safe harbors” concerned physician networks and information exchanges, and I’ll talk about both of those.
With respect to physician networks, providers could form a network of otherwise independent physicians, and that network could be exclusive so long as they had less than 20% of physicians in each specialty. And if a non-exclusive network was formed, the threshold was 30%—the network could have up to 30% of the physicians in each specialty.
Regarding information exchanges, the Agencies said that they would not challenge activities involving information sharing between competitors, for example, a survey, or a price or wage data, so long as the information exchange was managed by a third party (like a consultant or a trade association). The other requirements to meet the “safe harbor” was that the data exchange had to be at least three months old, so it wasn’t stale, and at least five participants or competitors provided the data, so that it would be sufficiently aggregated. So, if you had five different companies, five different healthcare systems providing the data, then that was viewed as it would be sufficiently aggregated. And that standard’s always been a good rule of thumb that we’ve used when advising clients—not only in healthcare, but in other industries, as well.
Stephanie Webster: Thanks, Jane. So, why do you think DOJ would withdraw these statements now?
Jane Willis: Interestingly, the DOJ’s announcement called the policy statements “outdated,” and the DOJ suggested that the policy statements were no longer reflective of “modern market realities.” It’s clear to me that they viewed the statements as being “overly permissive,” especially with respect to information exchanges, where I think it’s fair to say that there are new, sophisticated techniques for aggregating data, and there’s new forms of analysis. And the DOJ seems to understand or have a concern that historical data may be more relevant than previously thought because of the way data can now be managed and interpreted.
But, the withdrawal of the policy statements is part of the broader effort by the Biden Administration to step up antitrust enforcement—and that’s the effort we’ve been talking about in this podcast series. And we’ve seen a few key moves over the last two years, including President Biden’s Executive Order from the summer of 2021 about “promoting competition,” and including the Agencies’ decision to withdraw what we call the “Vertical Merger Guidelines”—that’s really similar to what they’ve done here with withdrawing the healthcare statements.
So, I think the withdrawal of these guidelines reflect the Agencies’ preference to engage in a case-by-case analysis rather than having “safe harbors,” because that will give them more prosecutorial discretion and flexibility. But, of course, they still have to build a case and they still have to show that there’s an antitrust violation.
We know that they’re really focused on the healthcare industry, and so, it’s not all that surprising that they decided to withdraw these statements to give themselves some more flexibility.
Stephanie Webster: So, with this withdrawal, Jane, what can healthcare clients expect? Will there be more challenges to transactions or activity that would previously have fallen within a “safe harbor?”
Jane Willis: I can certainly see how some may say that the withdrawal is a signal that there’s going to be more enforcement. That being said, some of the “safe harbors” were really so low—for example, the 20% “safe harbor” for physician networks—that many physician networks were not relying on that “safe harbor” to begin with. Rather, I would say the “safe harbors” were touchstones that were used by antitrust lawyers and others to analyze a situation and determine whether the physician network presented undue antitrust risk. And I think in that regard, these touchstones will still continue to be used when advising clients.
So, the way I’ve been thinking about it is using the colors of a traffic stoplight—red light, yellow light, green light. Areas or conduct that was always prohibited, that was red light conduct. Of course, that’s still going to be red light conduct—don’t do it. For yellow light conduct, that’s still the case that you want to proceed with caution, and want to do an analysis. The “safe harbors” were the green lights. And by withdrawing the statements, the DOJ is just taking away the pure green lights—it means that you need to analyze the situation to analyze antitrust risk based on the facts. That isn’t going change what most healthcare providers are doing now, but it does mean that healthcare providers need to proceed with caution and seek legal advice when appropriate, such as when doing a transaction or adding a significant number of physicians to a network.
Stephanie Webster: So, with the policy statements gone, where can participants in the healthcare market look for guidance in structuring their transactions or agreements, or just deciding how to conduct their businesses?
Jane Willis: That’s a good question, but before I answer that question, I do want to note one point that I’d be remiss if I didn’t point out, which is that one of the sources of guidance that has not been withdrawn are the FTC’s advisory opinions and business review letters—those have always been a very helpful source of guidance on topics such as clinically integrated networks, which are very important to some healthcare providers. So, those are still out there, and we can still rely on those or use those to provide advice.
The big picture, I think, it’s important to remember that the withdrawal of these statements doesn’t mean the antitrust law has changed—in fact, the antitrust law has not changed. The Sherman Act and the Clayton Act statutes haven’t changed in decades. Antitrust law, of course, has developed through the courts and case law, and there have been no changes there. And as many of you probably know, the two categories of antitrust review continue to be the same—those two categories are the “per se” rule and the rule of reason. Some conduct is so egregious as to be per se illegal, while the rule of reason applies to everything else.
So, similarly, the law hasn’t changed, and, therefore, the advice that antitrust lawyers are going to give to clients isn’t really going to change either. The key message from the withdrawal of these statements is that the Agencies want to review and assess risk on a facts-and-circumstances basis. That really means that they’ll be employing the “rule of reason” rather than allowing a categorical “safe harbor,” and that’s what we’ll do, as well, when we’re advising our clients.
Stephanie Webster: Thank you very much, Jane, for this discussion, and thank you to our listeners. Please visit our website at www.ropesgray.com, or feel free, of course, to reach out to any of us at Ropes & Gray via email or phone for more information on topics of interest in the healthcare industry. You can also subscribe to this Ropes & Gray series wherever you typically listen to podcasts, including on Apple, Google and Spotify. Thanks again for listening.