July 13, 2021

A Reinvigorated FTC: Key Updates on Antitrust Enforcement in the Health Care Sector

As we approach the six-month mark of the Biden administration, one thing is clear: improving competition and reducing consolidation is one of the administration’s top priorities. While much ink has been spilled on Big Tech, the health care sector has also come under increased antitrust scrutiny from Congress, the agencies and now the Biden administration. In the last two weeks alone, the FTC and the Biden administration took several major steps to broaden the FTC’s enforcement authority, strengthen the FTC’s purview over proposed and consummated transactions and eliminate restrictive employment agreements. These far-reaching measures will have a significant impact on the health care sector in the years to come and affect how health care companies do business moving forward.

FTC Reaffirms Focus on Health Care Sector

Health care has long been an enforcement priority for the agencies and the FTC commissioners. For example, former FTC Chair Joseph Simons and current Commissioner Rebecca Kelly Slaughter have both prioritized health care merger enforcement, advocated for an aggressive approach that uses “the full panoply of the agency’s powers,” and called for more funding and resources to hire additional staff and economic experts.1 In the last few years, the FTC has actively focused on hospital-physician integration, including subpoenaing major insurers to investigate the effects of consummated physician group and health system mergers, and has investigated or challenged numerous mergers of health care systems, health care tech companies and medical device manufacturers.2 In 2020 alone, almost 50% of FTC enforcement actions were in the health care sector.3

On June 15, 2021, Lina Khan was sworn in as chair of the FTC, bringing with her a progressive, pro-enforcement policy towards Big Tech, health care and other sectors of the economy. Prior to becoming chair, Khan called for the agencies to eschew the traditional consumer welfare standard and update the antitrust toolkit to reflect current technologies. All signs indicate that Khan will bring this same approach to her new role and initiate significant changes at the FTC.

FTC Passes Resolutions to Expand Investigative Powers

On July 1, 2021, the FTC held its first open meeting with its new chair and announced its enforcement priorities for the next decade.

Among other things, the FTC voted 3-2, along party lines, to pass a resolution directing agency staff to use compulsory process (like subpoenas and Civil Investigative Demands) to investigate seven priority targets, including hospitals, pharmaceutical companies and other health care businesses. Rather than requiring approval from the full Commission, the resolution allows the Chair or any single commissioner to approve the use of compulsory process and initiate an investigation. The resolution also calls for increased enforcement against purportedly unlawful mergers—both proposed and consummated. These measures faced opposition from the FTC’s two Republican Commissioners, Christine Wilson and Noah Phillips. They expressed concern that the resolution weakens the Commission’s oversight over investigations, may lead to more costly and lengthy investigations for parties and FTC staff, and imposes unnecessary burdens on third parties that are not targets of investigation. Moving forward, health care providers and other companies should anticipate an uptick in subpoenas from the FTC, both as targets and non-target third parties, to gather information and investigate both mergers and anticompetitive practices.

At the same meeting, the FTC further broadened its powers by streamlining its rulemaking procedures and giving the Commission — rather than an administrative law judge — control over the rulemaking process, and expanding the interpretation of its authority to challenge “unfair methods of competition” as discussed by our Faegre Drinker colleague here.

Executive Order on Promoting Competition in the American Economy

The FTC Commissioners were not alone in recently broadening the direction of antitrust enforcement. On July 9, 2021, President Biden signed a sweeping Executive Order aimed at improving competition across various sectors of the U.S. economy. The Order includes more than 70 initiatives that aim to reduce corporate consolidation, lower prices, increase wages, and promote innovation and economic growth. One of the Order’s primary areas of focus is the health care sector, which includes insurance, hospital and prescription drug markets. The Order also establishes a White House Competition Council tasked with monitoring progress on and coordinating the government’s activities in pursuit of these initiatives.

Hospital Consolidation & Price Transparency

With respect to health care mergers and acquisitions, the Order notes that hospital consolidation “has left many areas, particularly rural communities, with inadequate or more expensive health care options” and calls on the heads of regulatory agencies to “enforce the antitrust laws fairly and vigorously.” A White House Fact Sheet issued on the same day explains that the ten largest health care systems control a quarter of the health care market and cites to research that shows hospitals in consolidated markets charging higher prices than hospitals in competitive markets. In recent years, the FTC has vigorously challenged proposed hospital mergers. Since the beginning of 2020, the FTC has been active, challenging hospital mergers in federal court in Pennsylvania (Thomas Jefferson University/Einstein Healthcare Network), New Jersey (Hackensack Meridian Health/Englewood Healthcare Foundation), Tennessee (Methodist Le Bonheur Healthcare/Tenet Healthcare Corporation), and closing an investigation in Central Georgia (Atrium Health Navicent, Inc./Houston Healthcare System, Inc.) after the parties announced they were abandoning their proposed merger in the face of FTC scrutiny.

Notably, the Order reaffirms the government’s authority to challenge already consummated transactions that are found to be anticompetitive. As noted above, this comes on the heels of the FTC’s focus on physician group and health care facility mergers as part of its revamped merger retrospective program. The FTC has already shown its willingness to challenge consummated transactions, including consummated physician acquisitions such as St. Luke’s/Saltzer Medical Group in Idaho, which it successfully obtained a court order for a divestiture. The FTC is currently reviewing the impact of two consummated mergers, Mountain States Health Alliance/Wellmont Health System (Northeast Tennessee and Southwest Virginia) and Cabell Huntington Hospital/St. Mary’s Medical Center (Huntington, West Virginia), on prices, quality, innovation, access to care and labor markets.4

The Order also encourages the United States attorney general and the FTC chair to review both their Horizontal Merger Guidelines (August 2010) and recently issued Vertical Merger Guidelines (June 2020) and consider whether revisions to those guidelines are needed. Shortly after the issuance of the Executive Order, FTC Chair Lina Khan and Acting Assistant Attorney General of the Justice Department Antitrust Division Richard Powers issued a statement that the agencies' merger guidelines “deserve a hard look to determine whether they are overly permissive” and that the agencies plan to jointly review and update the merger guidelines currently applicable to many health care transactions “with the goal of updating them to reflect a rigorous analytical approach consistent with applicable law.” While these merger guidelines are intentionally general in nature and not industry-specific, the FTC often relies heavily on the analytical framework outlined in the Horizontal Merger Guidelines when challenging health care provider transactions. With a new administration and new leadership at the FTC, the agencies could either embark on a wholesale revision to the guidelines or modify them in a manner that encourages the agencies to investigate more mergers, such as lowering the thresholds for what constitutes highly- or moderately-concentrated markets (i.e., "HHI" concentration). The FTC could also seek to further lower the reporting thresholds under the HSR Act (currently only capturing transactions valued at $92 million) to require more parties to make an HSR filing and provide the FTC with an opportunity to investigate those mergers before they are consummated.

In another effort to reduce hospital consolidation and prices, the Order also directs the Department of Health and Human Services to strengthen existing hospital price transparency rules and implement legislation to address surprise hospital billing. The Hospital Price Transparency Rule (as described by our Faegre Drinker colleagues here) went into effect under the Trump administration on January 1, 2021, but reports indicate that compliance has been patchy across the country. Congress — and now the White House — is pushing for more stringent enforcement, and health systems should expect increased auditing and greater scrutiny from HHS moving forward. Price transparency has antitrust implications, and health care providers must be vigilant about what information they share publicly to ensure information is disclosed in a compliant manner and does not “spillover” to other areas that may create antitrust risk.

Non-Competes

The Executive Order also targets the use of non-compete agreements against employees as an undue limit on those workers’ ability to change jobs. The Order “encourages” the FTC to exercise its statutory rulemaking authority under Section 18 of the Federal Trade Commission Act to curtail the usage of such restrictions on worker mobility. The Fact Sheet estimates that such clauses are utilized by roughly half of all private-sector businesses, affecting 36 to 60 million U.S. workers.

In conjunction with its recent easing of rulemaking requirements, the Commission could initiate proposed new rules on non-compete provisions, subject to existing notice and comment periods. A nationwide standard for non-compete provisions promulgated by the FTC could conflict with decades of state law precedent on the issue. Among the state standards, there are varying degrees of permission with respect to non-competes — from those that generally enforce them so long as there is some legitimate business purpose (such as protecting and encouraging business investment) to those that will not enforce those provisions under most circumstances, notably California. It is unclear whether any such new FTC rule would attempt to preempt state law on this issue. While Congress has the ability, in authorizing legislation, to empower FTC rulemaking to preempt inconsistent state law, an Executive Order lacks such authority, and the recent Executive Order is indeed silent on the issue.

Also left unaddressed in the Order is the scope of the administration’s intended action against non-compete clauses and whether their common usage in contracts with highly skilled workers, such as physicians, would be further allowed under this framework. Non-compete clauses are a common area of inquiry and litigation for the antitrust agencies, including FTC workshops in 2015 and 2020, in which the Commission seemingly expressed concern over their increasing use as an unreasonable restraint of the labor market. Proponents of non-compete clauses note their benefits in certain needed circumstances, which have been upheld by courts as valid business justifications, such as for the protection of trade secrets and the sharing of customer (e.g., patient) information; to encourage and protect an entity’s investment (e.g., such as part of a joint venture with another entity, creation of a new service, or expansion into new geography); and to encourage training of employees. Yet the FTC and Biden administration’s recent actions and comments suggest that they may weigh the potential suppression of wages caused by non-competes more heavily than any positive rationales put forward by supporters of non-compete clauses. Close scrutiny of further FTC activity on this front is warranted.

In sum, these recent actions by President Biden and the FTC are strong indicators that heightened antitrust enforcement in health care is here to stay. Health care systems and other business operating in the health care sector should anticipate increased antitrust scrutiny of all types of mergers and transactions, including consummated deals, stronger efforts to eliminate non-compete agreements for physicians and other employees, and a greater willingness by the agencies to take enforcement action.

  1. Statement of the Federal Trade Commission before the Senate Committee on the Judiciary, Oversight of the Enforcement of the Antitrust Laws 4 (Sept. 17, 2019); see also, e.g., Remarks of Commissioner Rebecca Kelly Slaughter, Antitrust and Health Care Providers: Policies to Promote Competition and Protect Patients (May 4, 2019)
  2. See FTC, Physician Group and Healthcare Facility Merger Study; FTC, Annual Highlights – 2020
  3. FTC, Annual Highlights – 2020
  4. Overview of the Merger Retrospective Program in the Bureau of Economics
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