FTC Staff Comment to the Hon. Elliot Naishtat Concerning Texas S.B. 8 to Exempt Certified Health Care Collaboratives From the Antitrust Laws

UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
Office of Policy Planning
Bureau of Economics
Bureau of Competition
May 18, 2011
Representative Elliott Naishtat
Texas House of Representatives
P.O. Box 2910
Austin, TX 78768-2910
Dear Representative Naishtat:
The staffs of the Federal Trade Commission=s Office of Policy Planning, Bureau
of Competition, and Bureau of Economics1 are pleased to respond to your request for
comments on the antitrust provisions of Texas Senate Bill 8 (“S.B. 8” or “the Bill”). The
Bill, among other things, apparently intends to exempt certified “health care
collaboratives” from state and federal antitrust laws. The exemption is aimed at
immunizing a collaborative’s contract negotiations with payors but appears to extend to a
broad range of other activities as well. We are concerned that the antitrust provisions of
the Bill, if enacted as passed by the Texas State Senate, are likely to lead to dramatically
increased costs and decreased access to health care for Texas consumers. The review
provisions in the Bill appear unlikely to prevent these harmful effects.
The Bill is not needed to allow procompetitive cooperative activities by health
care providers, because antitrust law already permits collaboration that benefits
consumers. To the extent that S.B. 8 is designed to authorize conduct not already
permitted under the antitrust laws, it threatens to deprive health care consumers of the
benefits of competition. In addition, the regulatory regime contemplated by the Bill may
be insufficient to meet the rigorous standards required to confer state action immunity
from the federal antitrust laws.
Interest and Experience of the Federal Trade Commission
Congress has charged the Federal Trade Commission (“FTC” or “Commission”)
with enforcing the Federal Trade Commission Act, which prohibits unfair methods of
competition and unfair or deceptive acts or practices in commerce.2 Pursuant to its
statutory mandate, the FTC seeks to identify business practices and governmental
1 This letter expresses the views of the Federal Trade Commission’s Office of Policy Planning, Bureau of
Competition, and Bureau of Economics. The letter does not necessarily represent the views of the Federal
Trade Commission (Commission) or of any individual Commissioner. The Commission has, however,
voted to authorize staff to submit these comments.
2 Federal Trade Commission Act, 15 U.S.C. ' 45.

regulations that may impede competition without also offering countervailing benefits to
consumers.
Health care competition is critically important to the economy and consumer
welfare. For this reason, anticompetitive conduct in health care markets has long been a
key focus of FTC activity. The agency has brought numerous antitrust enforcement
actions involving the health care industry.3 In addition, the Commission and its staff
have given testimony,4 issued reports5 and engaged in advocacy to state legislatures
regarding various aspects of competition in the health care industry. Of particular
relevance, the Commission and its staff have long advocated against federal and state
legislative proposals that would create antitrust exemptions for collective negotiations by
health care providers when such exemptions are likely to harm consumers.6
3 See Federal Trade Commission, Overview of FTC Antitrust Actions in Health Care Services and
Products, Sept. 2010, available at: http://www.ftc.gov/bc/110120hcupdate.pdf.
4 See Prepared Statement of the Fed. Trade Comm’n Before the H. Comm. on the Judiciary, Subcomm. On
Courts and Competition Policy, On “Antitrust Enforcement in the Health Care Industry,” Dec. 1, 2010;
Prepared Statement of the Fed. Trade Comm’n Before the Subcomm. On Consumer Protection, Product
Safety, and Insurance, Comm. on Commerce, Science & Transportation, On “The Importance of
Competition and Antitrust Enforcement to Lower-Cost, Higher-Quality Health Care,” July 16, 2009 (all
testimonies available at: http://www ftc.gov/ocr/testimony/index.shtml).
5 See F ED. TRADE C OMM’ N, EMERGING H EALTH CARE I SSUES : F OLLOW-O N BIOLOGIC D RUG COMPETITION
(Jun. 2009); F ED. TRADE COMM’ N, P HARMACY BENEFIT M ANAGERS : O WNERSHIP OF M AIL-O RDER
P HARMACIES (Aug. 2005); FED. TRADE COMM’ N AND D EP ’ T OF J USTICE, I MPROVING H EALTH CARE: A
D OSE OF C OMPETITION (Jul. 2004) (all reports available at: http://www.ftc.gov/reports/index.shtm).
6 See FTC Staff Comment to Rep. Tom Emmer of the Minnesota House of Representatives Concerning
Minnesota H.F. No. 120 and Senate Bill S.F. No. 203 on Health Care Cooperatives (Mar. 2009); FTC Staff
Comment to the Hon. William J. Seitz Concerning Ohio Executive Order 2007-23S to Establish Collective
Bargaining for Home Health Care Workers (Feb. 2008); FTC Staff Comment Before the Puerto Rico
House of Representatives Concerning S.B. 2190 to Permit Collective Bargaining by Health Care Providers
(Jan. 2008) (all advocacies available at: http://www.ftc.gov/opp/advocacy date.shtm); also Letter to Hon.
Rene O. Oliveira, Concerning Texas Physician Collective Bargaining (May 1999) (available at:
http://www ftc.gov/be/v990009.shtm); also Prepared Statement of the Fed. Trade Comm’n Before the H.
Comm. on the Judiciary, Concerning H.R. 1304, the “Quality Health-Care Coalition Act of 1999,” June 22,
1999, available at: http://www ftc.gov/os/1999/06/healthcaretestimony htm.
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The Texas Bill
S.B. 8 allows establishment of “health care collaboratives” -- organizations that
may consist of physicians and other health care providers, including hospitals -- and is
apparently intended to provide them with an exemption from the antitrust laws. That
immunity would extend to a collaborative’s negotiations of all contracts with payors,
both governmental and private.7 According to the Bill’s preamble, the antitrust
exemption is considered necessary to “explore innovative health care delivery and
payment models [and] to give health care providers the flexibility to collaborate and
innovate to improve the quality and efficiency of health care.”8 The preamble also states
that the Bill is not intended to authorize what would otherwise be per se violations of the
antitrust law.9
To qualify as a health care collaborative, an organization must be certified by the
Commissioner of the Texas Department of Insurance.10 To be certified, a collaborative
must be able to demonstrate that it has processes in place to contain costs and evaluate
health care quality. It must also show:
the willingness and potential ability to ensure that the
health care services be provided in a manner that: (i)
increases collaboration among health care providers and
integrates health care services; (ii) promotes quality-based
health care outcomes, patient engagement, and coordination
of services; and (iii) reduces the occurrence of potentially
preventable events.11
7 S.B. 8, § 1.01(c) (Tex. 2011).
8 S.B. 8, § 1.01(a)(1) and (3) (Tex. 2011).
9 S.B. 8, § 1.01(c) (Tex. 2011).
10 S.B. 8, § 848.054 (Tex. 2011).
11 S.B. 8, § 848.057 (Tex. 2011).
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Under the Bill, the Department of Insurance must approve a health care
collaborative upon finding that: (1) it is “not likely to reduce competition in any market
for physician, hospital, or ancillary health care services” due either to the size of the
health care collaborative or its composition; and (2) it is “not likely to possess market
power.”12 Within six months of approval, a health care collaborative must seek renewal
of its certification based, among other factors, on a review of financial statements and an
evaluation of the quality and cost of its health care services.13 The Bill appears not to
require certification renewals after that point. The Department of Insurance, however,
will be authorized to revoke a certification when there have been changes in market
conditions or in a collaborative’s composition that are likely to reduce competition. The
Attorney General must review the adequacy of the Department’s findings within 60 days,
although the bill provides no standards for conducting the review.14
The Likely Effects of S.B. 8
The antitrust exemption in the Bill is unnecessary to promote health care benefits
to consumers through collaboratives. 	This is because the antitrust laws already allow
procompetitive collaborations among competitors. 	To the extent that the Bill goes
beyond that and would allow coordinated activity among health care competitors beyond
that permitted by the antitrust laws, it poses a substantial risk of consumer harm, by
increasing costs and decreasing access to health care. Even with some oversight by the
Department of Insurance and the Attorney General, that consumer harm may be difficult
to prevent once a collaborative is certified.
(a) The Bill Is Unnecessary to Promote Arrangements That Will Benefit
Consumers
Federal antitrust law already permits joint activity by health care collaboratives
that is reasonably necessary to create efficiencies, improve quality of and access to health
care, and have an overall procompetitive effect. Antitrust standards distinguish between
effective clinical integration among health care providers that has the potential to achieve
cost savings and improve health outcomes and anticompetitive collaboration and price
fixing by health care providers, which is likely to increase health care costs. In fact, in
order to promote such activity, the FTC and its staff and the Department of Justice
(“DOJ”) have provided substantial guidance regarding how health care providers can
integrate their clinical operations in such a way as to achieve cost savings and improve
health care outcomes. 15 We therefore see no need for new legislation to authorize
12 Id.
13 S.B. 8, § 848.060 (Tex. 2011).
14 S.B. 8, § 848.059 (Tex. 2011).
15 Dep’t of Justice & Fed. Trade Comm’n, Statements of Antitrust Enforcement Policy In Health Care
(1996), available at: http://www.ftc.gov/bc/healthcare/industryguide/policy/index htm; TriState Health
Partners, Inc., Letter from Markus Meier, FTC to Christi Braun, Ober, Kaler, Grimes & Shriver, April 13,
2009; Greater Rochester Independent Practice Association, Inc., Letter from Markus Meier, FTC to Christi
Braun & John J. Miles, Ober, Kaler, Grimes & Shriver, September 17, 2007, letters available at:
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collaboratives and collective negotiations.
(b) The Bill Poses a Substantial Risk of Consumer Harm
The Bill as written goes beyond the current law and appears intended to extend
broad antitrust immunity to health care collaboratives. Regardless of any stated intent by
a collaborative to improve health care quality and control costs, the practical effect of the
Bill will be to exempt anticompetitive conduct from antitrust scrutiny. We think this
would pose an unnecessary and substantial risk of consumer harm.
It is well-recognized that antitrust exemptions routinely threaten broad consumer
harm for the benefit of a few. 	The bipartisan Antitrust Modernization Committee
observed “[t]ypically, antitrust exemptions create economic benefits that flow to small,
concentrated interest groups, while the costs of the exemption are widely dispersed,
usually passed on to a large population of consumers through higher prices, reduced
output, lower quality and reduced innovation.”16 Although the Bill would not exempt
conduct that amounts to a “per se” violation of the antitrust laws, the Bill appears
intended to shield a broad range of anticompetitive conduct from antitrust challenge.
This may cover anticompetitive mergers and acquisitions as well as a range of
agreements among competitors that, although not strictly speaking per se illegal, are so
inherently likely to injure competition that they are condemned under the rule of reason
absent any plausible procompetitive justification.17
In addition, it is not likely that the Department of Insurance’s consideration of
competition concerns and the Attorney General’s review will protect consumers from the
harmful effects of this legislation, for a number of reasons. The initial review of a health
care collaborative is limited in scope, and even the more detailed review that may occur
upon certificate renewal may not be sufficient. Further, it is not clear that the Department
of Insurance has the necessary expertise to conduct the type of fact-intensive, time-
consuming analysis of competition and market power needed to protect consumers. Even
if the Department does find a problem, the grounds for revocation are limited. Indeed, if a
health care collaborative uses its market power to increase prices for consumers, there is
http://www ftc.gov/bc/healthcare/industryguide/advisory.htm; also Fed. Trade Comm’n & U.S. Dep’t of
Justice, Antitrust Guidelines for Collaborations Among Competitors, April 2000, available at:
http://www ftc.gov/os/2000/04/ftcdojguidelines.pdf. Most recently, the FTC and DOJ released a joint
statement explaining how the reviewing antitrust agency will enforce U.S. antitrust laws against the new
Accountable Care Organizations – groups of health care providers that, if they are likely to lower costs and
cause improvements in the availability of health care, will be permitted under the Affordable Care Act of
2010 to operate. (Fed. Trade Comm’n and the Antitrust Division of the Department of Justice: Proposed
Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating In the
Medicare Shared Savings Program, available at: http://www ftc.gov/os/fedreg/2011/03/110331acofrn.pdf.).
16 Antitrust Modernization Commission, Report and Recommendations (April 2007) at 335, available at:
http://govinfo.library.unt.edu/amc/report recommendation/amc final report.pdf.
17 Many such agreements are considered to be “inherently suspect” because they are very likely to harm
consumers, and thus receive summary condemnation. See North Texas Specialty Physicians v. FTC, 528
F.3d 352 (5 th Cir. 2008); Polygram Holding, Inc. v. FTC, 416 F.3d 29 (D.C. Cir. 2005);
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no provision for remedying this harm. Moreover, there is no mandatory review of a
collaborative’s status after the first year. Finally, the extent of and time allotted for the
Attorney General’s review are limited and the standards under which the Attorney
General can find a determination inadequate are unclear. Thus, the review provisions are
not adequate to protect consumers from the likely harm created by the Bill.
The Bill May Not Create State Action Immunity
The antitrust immunity that the Bill purports to confer on private health care
collaboratives is effective only if the State of Texas has clearly articulated an intention to
replace competition in this area with a regulatory scheme, and actively supervises this
private conduct.18 The active supervision test seeks to determine “whether the State has
exercised sufficient independent judgment and control so that the details [of the restraint]
have been established as a product of deliberate state intervention, not simply by
agreement among private parties.”19 As explained by the Supreme Court in Patrick v.
Burget, state officials must “have and exercise power to review particular anticompetitive
acts of private parties and disapprove those that fail to accord with state policy.”20
Here, the State’s review proposed under the Bill does not appear sufficient to
protect consumers from the potential anticompetitive effects of collaborations that do not
further the goals of the legislation. Notably, the Bill does not appear to mandate any
ongoing state supervision of health care collaboratives after the initial approval and one-
time renewal processes. 	The State, for example, under the Bill as written, would not
require that its officials review contracts and fee arrangements between collaboratives
and payors to assess whether they in fact comport with State policy goals, and to remedy
situations that may violate those goals. 	Parties claiming antitrust immunity under the
state action doctrine bear the burden of establishing that they are entitled to such
immunity. As the Supreme Court has made clear, this is a high bar. The regulatory
program proposed by the Bill appears not to meet that bar.
Conclusion
Our analysis of S.B. 8 suggests that its passage poses a significant risk of
increased health care costs and decreased access to care for Texas consumers. The
antitrust immunity provisions in this legislation are unnecessary and will allow private
health care collaboratives to engage in unsupervised anticompetitive conduct. In
summary, FTC staff is concerned that this legislation is likely to foster anticompetitive
conduct that is inconsistent with federal antitrust law and policy, and that such conduct
could work to the detriment of Texas health care consumers.
18 Parker v. Brown, 317 U.S. 341, 351 (1943); Cal. Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc.,
445 U.S. 97, 105 (1980).
19 Federal Trade Commission v. Ticor Title Insurance Co., 504 U.S. 621, 634 (1992).
20 486 U.S. 94, 101 (1988).
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We appreciate your consideration of these issues.
Respectfully submitted,
Susan S. DeSanti, Director
Office of Policy Planning
Joseph Farrell, Director
Bureau of Economics
Richard A. Feinstein, Director
Bureau of Competition