[Federal Register Volume 76, Number 115 (Wednesday, June 15, 2011)]
[Notices]
[Pages 35017-35022]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-14628]


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DEPARTMENT OF JUSTICE

Antitrust Division


United States et al. v. United Regional Health Care System; 
Public Comments and Response on Proposed Final Judgment

    Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 
16(b)-(h), the United States hereby publishes below the comment 
received on the proposed Final Judgment in United States and State of 
Texas v. United Regional Health Care System, Civil Action No. 7:11-cv-
00030-0, which was filed in the United States District Court for the 
Northern District of Texas, Wichita Falls Division, on June 6, 2011, 
together with the response of the United States to the comment.
    Copies of the comment and the response are available for inspection 
at the U.S. Department of Justice, Antitrust Division, Antitrust 
Documents Group, 450 Fifth Street, NW., Suite 1010, Washington, DC 
20530 (telephone: 202-514-2481); on the Department of Justice's Web 
site at http://www.usdoj.gov/atr; and at the Office of the Clerk of the 
United States District Court for the Northern District of Texas, 
Wichita Falls Division. Copies of any of these materials may be 
obtained upon request and payment of a copying fee.

Patricia A. Brink,
Director of Civil Enforcement.

In The United States District Court for the Northern District of Texas, 
Wichita Falls Division

United States Of America And State Of Texas, (RCO) Plaintiffs, V. 
United Regional Health Care System, Defendant.
Case No.: 7:11-cv-00030
Response Of Plaintiff United States To Public Comment On The Proposed 
Final Judgment
    Pursuant to the requirements of the Antitrust Procedures and 
Penalties Act, 15 U.S.C. Sec.  16(b)-(h) (``APPA7 or ``Tunney Act''), 
the United States hereby responds to the public comment received 
regarding the proposed Final Judgment in this case. The single comment 
received agrees that the proposed Final Judgment will provide an 
effective and appropriate remedy for the antitrust violations alleged 
in the Complaint. The United States will move the Court for entry of 
the proposed Final Judgment after the public comment and this response 
have been published in the Federal Register, pursuant to 15 U.S.C. 
Sec.  16(d).
    On February 25, 2011, the United States and the State of Texas 
filed a civil antitrust lawsuit against Defendant United Regional 
Health Care System (``United Regional'') challenging United Regional's 
contracts with commercial health insurers that effectively prevented 
insurers from contracting with United Regional's competitors 
(``exclusionary contracts''). The Complaint alleged that United 
Regional had unlawfully used those contracts to maintain its monopoly 
for hospital services, in violation of Section 2 of the Sherman Act, 15 
U.S.C. Sec.  2. By effectively preventing most commercial health 
insurers from including in their networks other inpatient and 
outpatient facilities, the Complaint alleged that United Regional (1) 
delayed and prevented the expansion and entry of its competitors, 
likely leading to higher health-care costs and higher health insurance 
premiums; (2) limited price competition for price-sensitive patients, 
likely leading to higher health-care costs for those patients; and (3) 
reduced quality competition between United Regional and its 
competitors. The Complaint sought to enjoin United Regional from 
entering exclusionary contracts with insurers.
    Simultaneously with the filing of the Complaint, the United States 
and the State of Texas filed a proposed Final Judgment and Stipulation 
signed by the plaintiffs and United Regional consenting to entry of the 
proposed Final Judgment after compliance with the requirements of the 
Tunney Act, 15 U.S.C. Sec.  16. Pursuant to those requirements, the 
United States also filed its Competitive Impact Statement (``CIS'') 
with the Court on February 25, 2011; published the proposed Final 
Judgment and CIS in the Federal Register on March 10, 2011, see 76 Fed. 
Reg. 13209; and had summaries of the terms of the proposed Final 
Judgment and CIS, together with directions for the submission of 
written comments relating to the proposed Final Judgment, published in 
The Washington Post and Times Record News for seven days beginning on 
March 9, 2011, and ending on March 15, 2011. The sixty-day period for 
public comment ended on May 14, 2011. One comment was received, as 
described below and attached hereto.
I. THE INVESTIGATION AND PROPOSED RESOLUTION
    The proposed Final Judgment is the culmination of an investigation 
by the Antitrust Division of the United States Department of Justice 
(``Department'') of United Regional's contracting practices with 
commercial insurers. As part of its investigation, the Department 
issued more than fifteen Civil Investigative Demands for documents. The 
Department reviewed the documents and other materials received, 
conducted more than 80 interviews, and took oral testimony of United 
Regional personnel. The Department carefully analyzed the information 
obtained and thoroughly considered all of the issues presented.
    The Department found that beginning in 1998, United Regional 
responded to the competitive threat posed by the entry of a competing 
hospital, Kell West; and other outpatient-surgery facilities by 
systematically entering into exclusionary contracts with commercial 
health insurers. The precise terms of these contracts varied, but all 
shared the same anticompetitive feature: a significant pricing penalty 
if an insurer contracts with competing facilities within a region that 
is no larger than Wichita County. In general, the contracts offered a 
substantially larger discount off billed charges (e.g., 25%) if United 
Regional was the only local hospital or outpatient surgical provider in 
the insurer's network; and the contracts provided for a much smaller 
discount (e.g., 5% off billed charges) if the insurer contracted with 
one of United Regional's rivals.
    Within three months after Kell West opened in January 1999, United 
Regional had entered into exclusionary contracts with five commercial 
health insurers, and by 2010, it had exclusionary contracts with eight 
insurers. In each instance, United Regional-not the insurer-required 
the exclusionary provisions in the contract. The only major insurer 
that did not sign an exclusionary contract with United Regional was 
Blue Cross Blue Shield of Texas (``Blue Cross''), by far the largest 
insurer in Wichita Falls and Texas.
    Because United Regional is a ``must have'' hospital for any insurer 
that wants to sell health insurance in the Wichita Falls area, and 
because the penalty for contracting with United Regional's rivals was 
so significant, most insurers entered into exclusionary contracts with 
United Regional.

[[Page 35018]]

Consequently, United Regional's rivals could not obtain contracts with 
most insurers, except Blue Cross, which substantially hindered their 
ability to compete and helped United Regional maintain its monopoly in 
the relevant markets, to the detriment of consumers.
    After reviewing the investigative materials, the Department 
determined that United Regional's conduct violated Section 2 of the 
Sherman Act, 15 U.S.C. Sec.  2, as alleged in the Complaint. The 
proposed Final Judgment is designed to restore competition between 
health-care providers in the Wichita Falls MSA. Section IV of the 
proposed Final Judgment prohibits United Regional from using 
exclusivity terms in its contracts with commercial health insurers. In 
particular, United Regional is prohibited from (1) conditioning the 
prices or discounts that it offers to commercial health insurers on 
whether those insurers contract with other health-care providers, such 
as Kell West; and (2) preventing insurers from entering into agreements 
with United Regional's rivals. United Regional is also prohibited from 
taking any retaliatory actions against an insurer that enters (or seeks 
to enter) into an agreement with a rival health-care provider.
    In addition, the proposed Final Judgment prohibits United Regional 
from offering other types of ``conditional volume discounts'' that 
could have the same anticompetitive effects as the challenged conduct. 
``Conditional volume discounts'' are prices, discounts, or rebates 
offered to a commercial health insurer on condition that the volume of 
that insurer's purchases from United Regional meets or exceeds a 
specified threshold. Similarly, United Regional may not offer market-
share discounts, e.g., discounts conditioned on an insurer's purchases 
at United Regional meeting a specified percentage of that insurer's 
total purchases, whether they apply retroactively or not, because such 
discounts can also be a form of anticompetitive pricing. Finally, 
United Regional may not use provisions in its insurance contracts that 
discourage insurers from offering products that encourage members to 
use other in-network providers (besides United Regional).
    The proposed Final Judgment does, however, allow price discounts 
that are likely to be procompetitive. Section V of the proposed Final 
Judgment permits United Regional to offer above-cost incremental volume 
discounts. By permitting such discounts, the proposed Final Judgment 
ensures that United Regional can engage in procompetitiye efforts to 
compete for additional patient volume, while preventing United Regional 
from offering `discounts that have the potential to exclude an equally 
efficient competitor.
II. STANDARD OF JUDICIAL REVIEW
    The APPA requires that proposed consent judgments in antitrust 
cases brought by the United States be subject to a sixty-day comment 
period, after which the court shall determine whether entry of the 
proposed Final Judgment ``is in the public interest.'' 15 U.S.C. Sec.  
16(e)(1). In making that determination, the court, in accordance with 
the statute as amended in 2004, is required to consider:
    (A) the competitive impact of such judgment, including termination 
of alleged violations, provisions for enforcement and modification, 
duration of relief sought, anticipated effects of alternative remedies 
actually considered, whether its terms are ambiguous, and any other 
competitive considerations bearing upon the adequacy of such judgment 
that the court deems necessary to a determination of whether the 
consent judgment is in the public interest; and
    (B) the impact of entry of such judgment upon competition in the 
relevant market or markets, upon the public generally and individuals 
alleging specific injury from the violations set forth in the complaint 
including consideration of the public benefit, if any, to be derived 
from a determination of the issues at trial.

15 U.S.C. Sec.  16(e)(1)(A) & (B). In considering these statutory 
factors, the court's inquiry is necessarily a limited one as the 
government is entitled to ``broad discretion to settle with the 
defendant within the reaches of the public interest.'' United States v. 
Microsoft Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995); see also United 
States v. SBC Commc'ns, Inc., 489 F. Supp. 2d 1 (D.D.C. 2007) 
(assessing public-interest standard under the Tunney Act); United 
States v. InBev N.V./S.A., No. 08-1965 (JR), 2009 U.S. Dist. LEXIS 
84787, at *3 (D.D.C. Aug. 11, 2009) (noting that the court's review of 
a consent judgment is limited and only inquires ``into whether the 
government's determination that the proposed remedies will cure the 
antitrust violations alleged in the complaint was reasonable, and 
whether the mechanisms to enforce the final judgment are clear and 
manageable.'').
    As the United States Court of Appeals for the District of Columbia 
Circuit has held, a court considers under the APPA, among other things, 
the relationship between the remedy secured and the specific 
allegations set forth in the United States' complaint, whether the 
decree is sufficiently clear, whether enforcement mechanisms are 
sufficient, and whether the decree may positively harm third parties. 
See Microsoft, 56 F.3d at 1458-62. With respect to the adequacy of the 
relief secured by the decree, a court may not ``engage in an 
unrestricted evaluation of what relief would best serve the public.'' 
United States v. BNS Inc., 858 F.2d 456, 462 (9th Cir. 1988) (citing 
United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir. 1981)); see 
also Microsoft, 56 F.3d at 1460-62; InBev, 2009 U.S. Dist. LEXIS 84787, 
at *3; United States v. Alcoa, Inc., 152 F. Supp. 2d 37, 40 (D.D.C. 
2001). Courts have held that:

[t]he balancing of competing social and political interests affected by 
a proposed antitrust consent decree must be left, in the first 
instance, to the discretion of the Attorney General. The court's role 
in protecting the public interest is one of insuring that the 
government has not breached its duty to the public in consenting to the 
decree. The court is required to determine not whether a particular 
decree is the one that will best serve society, but whether the 
settlement is ``within the reaches of the public interest.'' More 
elaborate requirements might undermine the effectiveness of antitrust 
enforcement by consent decree.

Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted).\1\ In 
determining whether a proposed settlement is in the public interest, a 
district court ``must accord deference to the government's predictions 
about the efficacy of its remedies, and may not require that the 
remedies perfectly match the alleged violations.'' SBC Commc'ns, 489 F. 
Supp. 2d at 17; see also Microsoft, 56 F.3d at 1461 (noting the need 
for courts to be ``deferential to the government's predictions as to 
the effect of the proposed remedies''); United States v. Archer-
Daniels-Midland Co., 272 F. Supp. 2d I, 6 (D.D.C. 2003) (noting that 
the court should grant due respect to the United States' ``prediction 
as to the effect of proposed remedies, its perception of the

[[Page 35019]]

market structure, and its views of the nature of the case'').
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    \1\ Cf BNS, 858 F.2d at 464 (holding that the court's ``ultimate 
authority under the [APPA] is limited to approving or disapproving 
the consent decree''); United States v. Gillette Co., 406 F. Supp. 
713, 716 (D. Mass. 1975) (noting that, in this way, the court is 
constrained to ``look at the overall picture not hypercritically, 
nor with a microscope, but with an artist's reducing glass''); see 
generally Microsoft, 56 F.3d at 1461 (discussing whether ``the 
remedies [obtained in the decree are] so inconsonant with the 
allegations charged as to fall outside of the `reaches of the public 
interest' '').

    Courts have greater flexibility in approving proposed consent 
decrees than in crafting their own decrees following a finding of 
liability in a litigated matter. ``[A] proposed decree must be approved 
even if it falls short of the remedy the court would impose on its own, 
as long as it falls within the range of acceptability or is `within the 
reaches of public interest.''' United States v. Am. Tel. & Tel. Co., 
552 F. Supp. 131, 151 (D.D.C. 1982) (citations omitted) (quoting United 
States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975)), aff'd 
sub nom. Maryland v. United States, 460 U.S. 1001 (1983); see also 
United States v. Akan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 
1985) (approving the consent decree even though the court would have 
imposed a greater remedy). To meet this standard, the United States 
``need only provide a factual basis for concluding that the settlements 
are reasonably adequate remedies for the alleged harms.'' SBC Commc'ns, 
489 F. Supp. 2d at 17.
    Moreover, the court's role under the APPA is limited to reviewing 
the remedy in relationship to the violations that the United States has 
alleged in its complaint, and does not authorize the court to 
``construct [its] own hypothetical case and then evaluate the decree 
against that case.'' Microsoft, 56 F.3d at 1459; see also InBev, 2009 
U.S. Dist. LEXIS 84787, at *20 (``the `public interest' is not to be 
measured by comparing the violations alleged in the complaint against 
those the court believes could have, or even should have, been 
alleged''). Because the ``court's authority to review the decree 
depends entirely on the government's exercising its prosecutorial 
discretion by bringing a case in the first place,'' it follows that 
``the court is only authorized to review the decree itself,'' and not 
to ``effectively redraft the complaint'' to inquire into other matters 
that the United States did not pursue. Microsoft, 56 F.3d at 1459-60. 
As the United States District Court for the District of Columbia 
confirmed in SBC Communications, courts ``cannot look beyond the 
complaint in making the public interest determination unless the 
complaint is drafted so narrowly as to make a mockery of judicial 
power.'' SBC Commc'ns, 489 F. Supp. 2d at 15.
    In its 2004 amendments to the Tunney Act,\2\ Congress made clear 
its intent to preserve the practical benefits of using consent decrees 
in antitrust enforcement, adding the unambiguous instruction that 
``[n]othing in this section shall be construed to require the court to 
conduct an evidentiary hearing or to require the court to permit anyone 
to intervene.'' 15 U.S.C. Sec.  16(e)(2). This language effectuates 
what Congress intended when it enacted the Tunney Act in 1974. As 
Senator Tunney explained: ``Mlle court is nowhere compelled to go to 
trial or to engage in extended proceedings which might have the effect 
of vitiating the benefits of prompt and less costly settlement through 
the consent decree process.'' 119 Cong. Rec. 24,598 (1973) (statement 
of Senator Tunney). Rather, the procedure for the public-interest 
determination is left to the discretion of the court, with the 
recognition that the court's ``scope of review remains sharply 
proscribed by precedent and the nature of Tunney Act proceedings.'' SBC 
Commc'ns, 489 F. Supp. 2d at 11.\3\
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    \2\ The 2004 amendments substituted ``shall'' for ``may'' in 
directing relevant factors for courts to consider and amended the 
list of factors to focus on competitive considerations and to 
address potentially ambiguous judgment terms. Compare 15 U.S.C. 
Sec.  16(e) (2004), with 15 U.S.C. Sec.  16(e)(1) (2006); see also 
SBC Commc'ns, 489 F. Supp. 2d at 11 (concluding that the 2004 
amendments ``effected minimal changes'' to Tunney Act review).
    \3\ See United States v. Enova Corp., 107 F. Supp. 2d 10, 17 
(D.D.C. 2000) (noting that the ``Tunney Act expressly allows the 
court to make its public interest determination on the basis of the 
competitive impact statement and response to comments alone''); 
United States v. Mid-Am. Dairymen, Inc., 1977-1 Trade Cas. (CCH)11 
61,508, at 71,980 (W.D. Mo. 1977) (``Absent a showing of corrupt 
failure of the government to discharge its duty, the Court, in 
making its public interest finding, should * * * carefully consider 
the explanations of the government in the competitive impact 
statement and its responses to comments in order to determine 
whether those explanations are reasonable under the 
circumstances.''); S. Rep. No. 93-298 at 6 (1973) (``Where the 
public interest can be meaningfully evaluated simply on the basis of 
briefs and oral arguments, that is the approach that should be 
utilized.'').
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III. SUMMARY OF PUBLIC COMMENT AND THE UNITED STATES' RESPONSE
    During the sixty-day comment period, the United States received 
only one comment, submitted by the American Medical Association 
(``AMA''), which is attached to this Response. In its comment, the AMA 
expressed its support for the United States' and the State of Texas's 
analysis as well as the remedy articulated in the proposed Final 
Judgment, stating that the action, against United Regional ``represents 
an important step towards [reining] in hospitals that use their 
monopoly power to force exclusive dealing arrangements onto health 
insurers.'' AMA Comment at 1. The United States has carefully reviewed 
the comment and has determined that the proposed Final Judgment remains 
in the public interest.
    The AMA is the largest association of physicians and medical 
students in the United States. The AMA's comment states that it concurs 
with several central points made in the Complaint and CIS. First, the 
AMA agreed with the Department's conclusion that the relevant product 
markets should be limited to inpatient hospital and outpatient surgical 
services sold to commercial health insurers. Although hospitals serve 
patients covered by both commercial health insurers and the government 
plans (Medicare, Medicaid, and TRICARE), the AMA agreed that a market 
limited to hospital services sold to commercial health insurers is well 
defined because ``[i]ndividuals who have commercial health insurance 
cannot switch over to Medicare or Medicaid because of price increases 
or output reductions in the commercial market.'' AMA Comment at 3. 
Thus, health-care providers can target a price increase to commercial 
health insurers because the insurers cannot shift to government rates.
    Second, the AMA agreed that while the relevant product markets are 
limited to hospital services sold to commercial health insurers, the 
competitive-effects analysis should account for the ability of health-
care providers to serve patients covered by other sources of payments--
including the government plans. The AMA agreed that Medicare and 
Medicaid pay providers substantially less than commercial health 
insurers in the Wichita Falls MSA. Thus, as the Complaint and CIS make 
clear, the appropriate method to assess the contracts' effect on 
competition is to assess the degree to which the contracts have 
foreclosed access to payments for commercially insured patients and 
account for the foreclosed percentage of profits from all payers.
    Third, the AMA agreed with the method used by the Department to 
determine whether United Regional's discounts tied to exclusivity were 
procompetitive or anticompetitive. According to the AMA, in this case 
``the Antitrust Division correctly looked at United Regional's costs, 
as opposed to its rivals' costs.'' AMA Comment at 5. In this case, the 
Department applied the total discount United Regional offered to health 
insurers to the patient volume that United Regional would actually be 
at risk of losing if an insurer were to choose non-exclusivity (the 
``contestable volume''). In applying this ``price-cost'' test, which 
was similar to the ``discount-attribution'' test adopted in Cascade 
Health Solutions v. PeaceHealth, 515

[[Page 35020]]

F.3d 883, 906-909 (9th Cir. 2008), the Department determined that the 
prices charged by United Regional in exchange for exclusivity were 
below any plausible measure of United Regional's incremental costs.
    Finally, the AMA endorsed the proposed Final Judgment, noting that 
it strikes the right balance between preventing United Regional from 
engaging in anticompetitive conduct while assuring that United 
Regional's rivals must still provide their services in an efficient 
manner in order to compete.
IV. CONCLUSION
    After reviewing the AMA's public comment, the United States 
continues to believe that the proposed Final Judgment, as drafted, 
provides an effective and appropriate remedy for the antitrust 
violations alleged in the Complaint, and is therefore in the public 
interest. The United States will move this Court to enter the proposed 
Final Judgment after the AMA's comment and this response are published 
in the Federal Register.
    Dated: June 6, 2011.

    Respectfully submitted,
s/Scott I. Fitzgerald
Scott I. Fitzgerald (WA Bar 39716)
Amy R. Fitzpatrick (DC Bar 458680)

Attorneys for the United States, U.S. Department of Justice, Antitrust 
Division, Litigation I, 450 Fifth Street, NW., Suite 4100, Washington, 
DC 20530, (202) 353-3863, [email protected]

CERTIFICATE OF SERVICE

    On June 6, 2011, I, Scott I. Fitzgerald, electronically submitted a 
copy of the foregoing document with the clerk of court for the U.S. 
District Court, Northern District of Texas, using the electronic case 
filing system for the court. I hereby certify that I caused a copy of 
the foregoing document to be served upon Defendant United Regional 
Health Care System electronically or by another means authorized by the 
Court or the Federal Rules of Civil Procedure.

s/Scott I. Fitzgerald
Scott I. Fitzgerald (WA Bar 39716)

Attorney for the United States, U.S. Department of Justice, Antitrust 
Division, Litigation I, 450 Fifth Street, NW., Suite 4100, Washington, 
DC 20530
April 20, 2011.

BY E-MAIL
Mr. Joshua H. Soven, Chief of the Litigation I Section, Antitrust 
Division, United States Department of Justice, 450 5th Street, N.W., 
Suite 4700, Washington, D.C. 20001.

Re: Comments to Proposed Consent Judgment in U.S. v. United Regional 
Health Care System

    Dear Mr. Soven:
    The action by the Antitrust Division of the Department of Justice 
(``Antitrust Division'') against United Regional Health Care System 
(``United Regional'') represents an important step towards reigning in 
hospitals that use their monopoly power to force exclusive dealing 
arrangements onto health insurers in order to prevent entry by firms 
that would compete against the monopoly hospital.\1\ In United States, 
et al., v. United Regional Health Care System, 7:11-cv-00030 the 
Antitrust Division alleged that United Regional offered discriminatory 
bundled price discounts to health insurers in order to obtain exclusive 
dealing arrangements that prevented or delayed entry into the market. 
Specifically, health insurers agreeing to an exclusive arrangement with 
United Regional would received a large discount on all of the services 
purchased from United Regional. Health insurers that did not agree to 
an exclusive arrangement would receive a significantly smaller discount 
from United Regional. Not surprisingly, every commercial health insurer 
operating in United Regional's market (except for Blue Cross Blue 
Shield of Texas (``Blue Cross'') chose an exclusive dealing arrangement 
with United Regional. The Antitrust Division alleged that these 
exclusive dealing arrangements played an important role in maintaining 
United Regional's monopoly power.
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    \1\ The American Medical Association understands that no hearing 
or trial has occurred in United Regional, and that United Regional 
has not admitted the truth of the allegations contained in the 
Antitrust Divisions' Complaint or Competitive Impact Statement. 
Indeed, the AMA understands that United Regional denies many of the 
facts alleged by the Antitrust Division. The AMA is not taking a 
position, one way or the other, concerning the truth of the 
allegations made by the Antitrust Division against United Regional. 
The AMA's comments are based on and limited to the allegations made 
by the Antitrust Division.
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    On February 25, 2011 the Antitrust Division filed a Proposed Final 
Judgment that is designed to end United Regional's use of 
discriminatory bundled price discounts. The American Medical 
Association (``AMA'') supports the Proposed Final Judgment and the 
Antitrust Division's efforts to prevent hospitals with monopoly power 
from foreclosing entry through the use of the discriminatory bundled 
price discounts.
    The United Regional matter highlights how hospitals with monopoly 
power can use certain types of price discounts to make it impossible 
for physicians to compete on a level playing field. The Antitrust 
Division's action against United Regional shows how this lack of 
competition ultimately hurts consumers by locking in place high prices 
and lower quality.
A. The Structure of Competition In Health Care Markets
    Throughout the country, physicians play a crucial role in 
facilitating the entry of new facilities that compete against hospitals 
with entrenched monopoly power. In order to compete against an 
entrenched monopolist, however, physicians need access to commercial 
health insurers that control access to patients.
    Providers of medical services compete for contracts with health 
insurers. Because patients either cannot or will not use out-of-network 
providers, competition between providers for patients is significantly 
affected by the outcome of competition between providers for health 
insurance contracts. Health care markets cannot function in a 
competitive manner if either form of competition is monopolized or 
distorted by anticompetitive agreements.
    Competition for health insurance contracts is particularly 
susceptible to anticompetitive conduct because commercial health 
insurance markets and hospital markets have experienced significant 
consolidation over the last 20 years. The consolidation by hospital and 
health insurance markets has given each side opportunities to limit the 
competition they face. Throughout the country, there are bilateral 
monopolies in which hospitals and health insurers jointly agree not to 
contract with each other's rivals in order to prevent entry into either 
the hospital or the health insurer market. Such arrangements are 
becoming more common and have the effect of mutually reinforcing the 
market power wielded by hospitals and health insurers.
    The exclusive dealing arrangements challenged in United Regional 
were one-sided, in that they protected the hospital from entry, but 
were not designed to also prevent entry into the health insurance 
market. The anticompetitive effects created by United Regional's 
actions were still significant, and the Antitrust Division's 
enforcement action represents a definite step in the right direction.
B. Provider Access to Medicare and Medicaid Is Not a Substitute for 
Access to Commercial Health Insurance
    An important issue raised by the Antitrust Division's action 
against United Regional is the relevance of Medicare and Medicaid in 
the antitrust analysis of health care markets. The Antitrust Division 
correctly concluded

[[Page 35021]]

that the existence of Medicare and Medicaid did not prevent United 
Regional from possessing monopoly power. Further, access to those 
government programs by providers did not prevent United Regional's 
exclusive dealing arrangements from barring entry, and, thus, from 
limiting the provider choices available to consumers.
    The Antitrust Division defined the relevant product markets 
affected by United Regional's anticompetitive practices as (a) 
``general acute-care inpatient services * * * sold to commercial health 
insurers,'' and (b) ``the market for outpatient surgical services sold 
to commercial health insurers.'' The Antitrust Division correctly 
concluded that the existence of Medicare and Medicaid do not prevent 
the exercise of monopoly power by a hospital against commercial health 
insurers or patients.
    Individuals who have commercial health insurance cannot switch over 
to Medicare or Medicaid because of price increases or output reductions 
in the commercial market. Thus, if a health insurer excludes various 
providers from its provider panel, patients cannot defeat those 
limitations by switching to Medicare or Medicaid. Access to the 
Medicare and Medicaid programs is defined by federal law, and does not 
turn on the quality, price or comprehensiveness of commercial health 
insurance products.
    Defining a relevant product market, however, is only part of the 
analysis. While Medicare and Medicaid will not prevent a hospital from 
imposing onerous terms on health insurers that adversely affect patient 
choice, the Antitrust Division was correct in asking the next question 
as to whether this conduct actually could prevent rival hospital and 
outpatient centers from entering the market. One could argue that 
programs such as Medicare and Medicaid provide a large source of 
patients upon which a new potential rival hospital or outpatient center 
could base a business plan. Such an argument, however, is fallacious 
because Medicare and Medicaid cannot fund new entry given the way those 
programs are currently structured.
    Medicare and Medicaid pay providers substantially less than 
commercial health insurers, and in many instances, pay providers less 
than the actual cost of providing a medical service. It is commonly 
recognized that hospitals and outpatient centers have to cross-
subsidize their Medicare and Medicaid services with the profits earned 
from patients covered by commercial health insurance. Medicare and 
Medicaid, therefore, cannot function as facilitators of new entry into 
the market.
    The Antitrust Division was correct in concluding that ``foreclosure 
analysis properly focuses on the profitability of the various payment 
sources available to health-care providers.'' Without access to the 
profitable sources of business in the health care market, potential or 
actual competitors cannot expand into new markets or grow to a level 
where they can seriously challenge the incumbent monopolist. The 
Antitrust Division was equally correctly when it concluded that access 
to Medicare and Medicaid by United Regional's actual or potential 
rivals was not an adequate substitute to the private commercial health 
insurers that United Regional locked up with exclusive contracts.
    The Antitrust Division stated, for example, that the insurers with 
whom United Regional had exclusive contracts ``account for 
approximately 30% to 35% of the profits that United Regional earns from 
all payer-including the government payers-even though they account for 
only about 8% of United Regional's total patient volume.'' Without 
access to the most profitable segment of the health care market, United 
Regional's primary rival, Kell West, could not hope to develop into an 
effective competitor:

* * * without the exclusionary contracts, Kell West likely would have 
used the profits that it obtained from contracts with the excluded 
commercial health insurers to expand sooner, and would also likely have 
added more beds and additional services, such as additional intensive-
care capabilities, cardiology services, and obstetric services. Kell 
West has considered expansion into additional services on numerous 
occasions, but has been limited in its ability to expand due to its 
lack of access to commercially insured patients.
C. United Regional's Bundled Discounts Were Anticompetitive
    The Antitrust Division alleged that United Regional used its market 
power to make it ``one of the most expensive hospitals in Texas.'' 
United Regional understood that its monopoly pricing would attract new 
entry, and it took steps to maintain its monopoly position by creating 
barriers to entry by using discriminatory bundled price discounts to 
obtain exclusive dealing arrangements from commercial health insurers.
    According to the Antitrust Division, United Regional established a 
dual track pricing structure for health insurers. If a health insurer 
agreed to exclusivity, the health insurer received a premium discount 
on all of the services provided by United Regional. If a health insurer 
did not agree to exclusivity, the health insurer would receive a 
significantly smaller discount on all of the services it paid for on 
behalf of its policyholders. United Regional's bundled discount 
arrangement led to exclusive dealing arrangements with health insurers 
because United Regional's rivals did not and could not offer the full 
line of services that United Regional provided. United Regional's 
rivals could not match the total value of the discount United Regional 
offered. While the health insurer would get a comparable price discount 
on the services on which United Regional and its rival competed, the 
health insurer would lose the United Regional discount on all of United 
Regional's services if the health insurer abandoned exclusivity. As a 
result, a rival would have to offer a health insurer a discount 
substantially higher than the discount offered by United Regional. Only 
in this manner could a rival compete against the total value of the 
discount offered by United Regional. None of United Regional's actual 
or potential rivals could offer health insurers a discount large enough 
to make the health insurer abandon its exclusive dealing arrangement 
with United Regional. In fact, the total value of the discount United 
Regional offered was so large that its rivals would have to offer 
health insurers prices that would almost certainly be substantially 
below cost, and therefore would be unsustainable.
    The Antitrust Division claims that United Regional's exclusive 
dealing-dependent pricing structure largely succeeded in foreclosing 
competition. All of the commercial health insurers in the area entered 
into exclusive arrangements, except for Blue Cross. Blue Cross was 
apparently large enough that it could off-set United Regional's market 
power and negotiated discounts without having to agree to an exclusive 
arrangement. The ability of United Regional's rivals to contract with 
Blue Cross apparently allowed them to survive in the market, but did 
not give them the ability to effectively compete against United 
Regional.
    There is nothing inherently wrong with offering attractive price 
discounts to customers, and in many cases price discounts are 
procompetitive. Courts and economists, however, have recognized that 
price discounts are sometimes anticompetitive. The Antitrust Division 
correctly distinguished United Regional's anticompetitive bundled price 
discounts from procompetitive price discounts. To do this, the 
Antitrust Division correctly looked at United Regional's costs, as

[[Page 35022]]

opposed to its rivals' costs. Specifically, the Antitrust Division 
determined the patient volume for which United Regional and its rivals 
actually competed, and then applied the total discount United Regional 
offered to health insurers to that ``contestable volume.'' If the total 
discount, when applied to the contestable volume, results in the 
contestable volume being sold at a loss, a portion of the discount is 
then equivalent to a market control premium. The Antitrust Division was 
correct in concluding that United Regional was offering health 
insurance companies a market control premium in order to maintain its 
monopoly.
    Finally, the AMA supports the narrowly tailored limitations the 
Antitrust Division set forth in the Proposed Final Judgment. Overall, 
the Proposed Final Judgment will prevent United Regional from ceding 
back to commercial health insurers a portion of its monopoly profits in 
order to maintain its monopoly power. The Proposed Final Judgment, 
however, does not prevent United Regional from offering incremental 
price discounts that allow it to offer discounted prices that are in 
line with its cost structure. Thus, potential rivals to United Regional 
will have to provide their services in an efficient manner in order to 
compete against United Regional on price when trying to strike deals 
with commercial health insurers. United Regional will also have to 
compete on the basis of the efficiencies it can offer, rather than on 
the raw use of its market power.
    Overall, the Proposed Final Judgment will not have the effect of 
propping up inefficient firms that can only survive in the market 
because United Regional is unable to freely reduce its prices. Instead, 
the pricing restraints placed on United Regional should prevent it from 
using bundled discounts in order to limit the competition it faces from 
truly efficient firms.
    Sincerely,

    Henry S. Allen, Jr.
Senior Attorney, Advocacy

[FR Doc. 2011-14628 Filed 6-14-11; 8:45 am]
BILLING CODE 4410-11-M