Antitrust & Competition Healthcare Quarterly Update Q2 2023

Key Takeaways

• In the second quarter, the US antitrust agencies continued efforts to bolster their aggressive enforcement agenda by rewriting long-standing policies and procedures, including sweeping revisions to Merger Guidelines, significant changes to the HSR filing process, and withdrawing long-established antitrust healthcare guidance.
• Pressure on PBMs continued to mount as the FTC expanded its study of the industry and withdrew previous advocacy statements and market studies related to PBMs.
• The FTC continued to challenge major healthcare mergers, including the ongoing challenge to Illumina/Grail and a new challenge to IQVIA/Propel.
• Beyond merger review, the FTC has not relented in its focus on state COPA laws, which may intensify enforcement actions in this space. Further, two states enacted notification laws for healthcare transactions that will require additional information and extend the timeline for regulatory approval.

I. Agencies drastically revise Merger Guidelines and HSR process while withdrawing long-established antitrust healthcare guidance

The Federal Trade Commission (FTC) and Antitrust Division of the Department of Justice (DOJ, and, collectively with the FTC, the Agencies) are implementing dramatic revisions to existing merger enforcement policies, withdrawing long-standing guidance and procedures, and proposing new, more aggressive standards. In making these sweeping changes, the Agencies argue that previous policies cannot adequately protect competition under current market conditions and as a result the Agencies need new tools to challenge mergers and discourage acquisitions.¹

A. FTC and DOJ propose new Merger Guidelines

On July 19, 2023, the Agencies published their long-anticipated draft Merger Guidelines.² As discussed in detail in Goodwin’s client alert, these revised Merger Guidelines reflect the Agencies’ aggressive enforcement stance and skepticism of a variety of merger activity.

While the Merger Guidelines apply to all mergers, certain of the new guidelines are particularly relevant for healthcare industry participants:

• Access to rival’s competitively sensitive information. A transaction that gives a party access to its rival’s competitively sensitive information will attract greater scrutiny from the Agencies under the draft Merger Guidelines. Guideline 5(B) alleges that rivals may be less willing to engage in procompetitive activities and therefore may rely on lower quality alternatives rather than risk giving away key commercial information to their competitors.³ The Agencies’ assertions on this point are consistent with the DOJ’s arguments in its failed attempt to block UnitedHealthcare’s acquisition of Change Healthcare, which alleged that United would have access to rival health insurers’ claims data, which in turn could be used to undermine these rivals.⁴ The DOJ was unable to prove the transaction would be anticompetitive, and a federal judge sided with the merging parties, finding the DOJ failed to show UnitedHealthcare’s incentives after the merger aligned with this theory of harm. Nonetheless, the Agencies remain focused on this theory of harm and very likely intend to continue pursuing this in the healthcare context. As a result, healthcare industry participants should be aware that transactions providing access to rivals’ competitively sensitive information may raise HSR clearance challenges.
• Increased attention to roll-ups. When a transaction is a part of a series of acquisitions, the revised Merger Guidelines now note that the Agencies will examine the current transaction along with all of the prior acquisitions, even if no single transaction would be considered anticompetitive on its own.⁵ Combined with the new HSR reporting standards described below, this will likely increase the risk of antitrust scrutiny for entities such as private equity firms that engage in multiple acquisitions in, for instance, provider practices. Healthcare industry participants should be mindful of plans to acquire multiple practices and be aware that even a small acquisition, even if not HSR reportable, could trigger an investigation of multiple prior transactions.
• Partial ownership receives additional scrutiny. The revised Merger Guidelines note that partial ownership or minority interests will be subject to the same analysis as full ownership.⁶ The Agencies suggest at least three ways that this type of minority investment can harm competition, including that (1) a partial owner can cause the acquired firm to lessen its competition or coordinate with the acquiring firm; (2) a firm that acquires a minority interest in a rival may be less willing to compete aggressively, leading to less price competition and innovation; and (3) a firm acquiring a minority interest can gain access to competitively sensitive information, which could harm competition as discussed above. While the Agencies have previously considered minority interests as part of the merger review process, the inclusion of this guideline could portend more focus on competitive overlaps in minority interests, which is especially relevant to institutional investors that possess minority stakes in competing firms. Therefore, private equity and other institutional investors should be aware that issues regarding board seats, operational control, or voting rights could be front and center in a merger review.

B. FTC joins DOJ in withdrawal of long-standing antitrust healthcare policy statements

As predicted in our Q1 update, the FTC has joined the DOJ⁷ in withdrawing its support for two joint policy statements that created antitrust safety zones in the healthcare industry — the Statements of Antitrust Enforcement Policy in Health Care (1996)⁸ and the Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program (2011).⁹

The 1996 policy statements described safety zones that exempted certain activities from antitrust review, offered hypothetical scenarios to clarify the Agencies’ application of the enumerated safety zones, and explained how the Agencies would analyze conduct falling outside of the safety zones.¹⁰ Notably, the 1996 policy statements created a safe harbor for information sharing between competitors if: (1) the information was managed by a third party; (2) shared data was more than three months old; and (3) data was assembled from at least five providers (and no single provider’s data contributed more than 25% of the “weight” of any statistic shared).¹¹ In addition, the 2011 policy statements discussed scenarios in which the Agencies would apply a “rule of reason” analysis and provided guidance regarding activities that pose a heightened risk of antitrust scrutiny.

The FTC’s withdrawal of the guidelines, and removal of its safety zones as a result, is consistent with the Agencies’ systematic revision to, or withdrawal of, previous guidance as part of its adoption of a more aggressive and skeptical posture toward mergers and certain conduct, such as data-sharing arrangements. In discussing its rationale for the withdrawal of these policy statements, the FTC remarked that “[m]uch of the statements are outdated and no longer reflect market realities in this important sector of the economy.”¹² The FTC further explained that, for guidance moving forward, the public should look to the “Commission’s extensive record of enforcement actions, policy statements, and competition advocacy in health care” for guidance.¹³ Given that these long-standing guidelines are no longer in place, healthcare industry participants should consult antitrust counsel when considering the exchange of information on prices, costs, and wages with third parties.

C. Agencies propose major overhaul of merger notification regime

As discussed in detail in Goodwin’s prior client alert, the Agencies recently proposed significant changes to the rules governing filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the HSR Act). The new rules would significantly expand the volume of information required for HSR filings, such as new disclosures relating to foreign subsidies and labor markets, as well as requiring narrative analysis of the parties’ markets and potential competitive overlaps.¹⁴

For healthcare industry participants, two changes in particular are worth emphasizing:

• Prior acquisitions. Currently, the HSR rules require that parties provide deal-related documents that discuss topics regarding market dynamics and deal synergies, but drafts of such documents typically may be excluded. Under the proposed rules, Items 4(c) and 4(d) of the HSR filing will require production of a broader range of materials, including draft documents that analyze a transaction, along with documents prepared in the ordinary course of business that discuss market shares, competition, etc. Healthcare industry participants will need to be particularly mindful that both preliminary and ordinary course assessments of markets, patient populations, and other competitive metrics may now be subject to scrutiny and review by Agency staff during the initial HSR review period (whereas, previously, such ordinary course materials would have been reviewed only as part of an in-depth investigation by the Agencies).
• Expanded Item 4(c) and 4(d) production. The current HSR rules require a buyer to provide information only on acquisitions (1) in the previous five years; (2) of companies in the same industry as the target; and (3) where those companies meet certain revenue and asset thresholds. In contrast, the proposed rules would (a) require disclosures of both buyer and target; (b) expand the look-back period to 10 years; and (c) eliminate the monetary thresholds for such disclosures. This change, coupled with the focus on roll-up acquisitions in the revised Merger Guidelines, discussed above, could result in significant additional burden for clients making small, serial acquisitions of healthcare practices.

The proposed HSR rules are open to public comment through August 28, and we anticipate that the final rules will be implemented in substantially the same form as the proposed draft. While the timing of implementation is unknown, we expect that it could be later this year or early in 2024. With these changes likely taking effect in the near future, healthcare industry participants should be prepared for the greater level of detail and greater amount of time it will take to assemble HSR filings going forward.

II. FTC increases pressure on PBM industry

Pressure on pharmacy benefit managers (PBMs) continued to mount as the FTC expanded its long-running market study of the industry. On June 8, 2023, the FTC issued a compulsory order requiring Emisar, a group purchasing organization (GPO) that negotiates rebates with drug manufacturers on behalf of OptumRx, to produce documents and business records.¹⁵ Emisar now joins the six largest PBMs (CVS Caremark; Express Scripts, Inc.; OptumRx, Inc.; Humana Pharmacy Solutions, Inc.; Prime Therapeutics LLC; and MedImpact Healthcare Systems, Inc.)¹⁶ and other GPOs (Zinc Health Services and Ascent Health Services),¹⁷ which previously received similar requests.

While the FTC has not announced any investigations into any particular PBM industry member, or that it intends to launch any enforcement actions, it is conducting the market study at a time of heightened bipartisan congressional and state-level scrutiny into the PBM industry, which may embolden the FTC to pursue its own enforcement actions.

Through this market study, the FTC intends to develop “a 360 view of the practices in this market” to understand whether they lead to higher prices for consumers and lessened competition among pharmacies.¹⁸ Specifically, the FTC is exploring practices such as: (1) charging fees and clawbacks to unaffiliated pharmacies; (2) steering patients towards PBM-owned pharmacies; (3) potentially unfair auditing of unaffiliated pharmacies; (4) the use of complicated and opaque pharmacy reimbursement methods; and (5) negotiating rebates and fees with drug manufacturers that may skew the formulary incentives and impact the costs of prescription drugs to payers and patients.¹⁹ The FTC has indicated it has authority to take action under the Clayton Act, FTC Act, and Robinson-Patman Act — which the FTC asserts forbids kickbacks and certain types of anticompetitive rebates.

In conjunction with the new study, the FTC has warned practitioners against relying on its previous advocacy statements and market studies related to PBMs, which “no longer reflect current market realities.”²⁰ This includes nine Commission advocacy letters opposing increased regulatory oversight and transparency of PBMs, the FTC’s 2005 market study on PBM ownership of mail-order pharmacies, which concluded that “PBMs’ use of owned mail-order pharmacies generally is cost-effective for plan sponsors,”²¹ and the DOJ and FTC’s 2004 joint report titled “Improving Healthcare: A Dose of Competition,” which similarly suggested that “PBMs have saved costs for consumers.”²² FTC Commissioner Slaughter justified the changes based on the “substantial costs patients may bear if policymakers, other government agencies, academics or market participants rely on outdated commission advocacy as the basis for not advancing solutions to any anti-competitive market outcomes driven by PBM compensation and fee practices.”²³ Revoking this study and prior advocacy statements suggests that the FTC intends to take a more aggressive approach to the PBM industry, and it could be an indication that the FTC will pursue enforcement action in this space.

The FTC’s expansion of its PBM market study to include GPOs, its public assertions of possible theories of harm, and its withdrawal of PBM guidance are clear signs that it is considering additional scrutiny in this space. Further, the FTC’s general willingness to take on prominent market participants combined with the emerging bipartisan consensus that PBMs are, at least in part, to blame for high drug prices only increases the probability of an enforcement action.

III. Regulators continue to take action to block and unwind major healthcare deals

A. FTC brings action to block IQVIA’s acquisition of Propel Media

On July 17, 2023, the FTC filed an administrative complaint seeking to block IQVIA’s acquisition of Propel Media. A federal judge approved an agreement between the FTC and the parties to delay closing the transaction until November 22, 2023, while the challenge proceeds. Propel operates a healthcare advertising platform called DeepIntent, a “demand-side” platform (“DSP”) focused on targeted digital marketing for healthcare professionals.²⁴ According to the FTC, DeepIntent and Lasso Marketing — IQVIA’s demand-side platform, acquired in 2022 —are two of the top three providers in this market, and the planned acquisition could result in reduced competition among DSPs. In addition, the FTC raised concerns based on the essential provider role that IQVIA’s healthcare data business plays to DSPs, alleging IQVIA would have the ability to disadvantage rival DSPs by restricting access to such data.

While the FTC’s decision to bring this action is not entirely surprising given that it views the transaction as consolidating two of the top three providers in the alleged market, it is worth noting that the case reflects the FTC’s ongoing skepticism, reflected in the new Merger Guidelines, of transactions involving tech platform buyers. Potential competitive harms under the revised Merger Guidelines include increasing barriers to entry from competing platforms by increasing network effects. As the FTC continues to expand its enforcement efforts beyond just the high-profile consumer tech platforms such as Amazon, it remains to be seen whether this strategy will result in any decisions in the FTC’s favor.

B. Illumina continues its appeals of the FTC and EC decisions to block its acquisition of Grail

Illumina continued its appeal of the full FTC Commission’s decision to unwind its $7.1 billion acquisition of cancer drug maker Grail Inc. As described in our Q1 update, in April 2023, the FTC reversed an administrative law judge’s ruling that allowed the merger to proceed, alleging that the transaction would allow Illumina to raise prices of cancer treatments. The US Circuit Court of Appeals for the Fifth Circuit granted Illumina’s motion to fast-track its appeal in a brief order. Illumina filed its brief on June 5, the FTC filed its brief on July 26, and oral argument has been scheduled for September 12, 2023. The appeal will be a test of the FTC’s ability to defend its internal decisions after a string of losses in federal court. If the FTC’s decision survives appeal, it may bolster the FTC’s willingness to continue aggressive enforcement in this space.

Meanwhile, the European Commission levied its largest ever fine of $476 million against Illumina for closing the transaction in September 2022 before receiving EU clearance.²⁵ The fine represents 10% of Illumina’s global revenue and is the maximum penalty allowed under EU merger rules. Illumina had already appealed the EU’s blocking of the deal and will appeal the fines as well. The EU court is expected to return a decision late this year or in early 2024. The final outcome will be particularly important to any parties considering a transaction that is not reportable to the EC, as it will affirm or weaken the EC’s newly asserted authority call in non-reportable transactions under Article 22.

IV. FTC challenging COPA laws

As noted in Goodwin’s Q1 update, the FTC has intensified its pushback against certificate of public advantage (COPA) laws with its challenge to Louisiana Children’s Medical Center’s (LCMC) $150 million acquisition of three hospitals from HCA Healthcare Inc. (HCA). The FTC’s contention remains that the parties met the relevant transaction- and party-based thresholds under the HSR Act but elected not to comply with the HSR filing requirements and observe the statutory waiting period prior to closing.²⁶ In response, LCMC has leaned on the doctrine of state action immunity and the protection provided by the state COPA law to complete this acquisition.²⁷ After the FTC and LCMC filed dueling complaints in April, the matter was transferred from the US District Court for the District of Columbia to the Eastern District of Louisiana on May 23.²⁸ Judge Amy Herman Jackson noted that, because the case could impact other hospitals in Louisiana and could trigger further action by the state legislature, Louisiana was a more appropriate venue for the matter. Following an initial hearing on July 6, the parties submitted motions for summary judgment on July 18.

COPA statutes are not novel — 18 states currently have such statutes in effect, including New York, Florida, and Texas. According to the FTC’s 2022 policy paper on the topic,²⁹ nine of these states have approved hospital mergers using their COPA statutes.³⁰ Generally, parties to a proposed transaction can petition the state’s healthcare regulator for a COPA, and the regulator will then conduct an inquiry into the benefits and potential harms of the proposed transaction. Often, the regulator will issue the COPA with certain conditions, such as pricing and rate controls, cost-sharing mechanisms, and contractual commitments to insurers.³¹

The FTC’s decision to bring an HSR-related challenge to the LCMC/HCA transaction and questioning the effectiveness of Louisiana’s COPA statute align with a broader policy shift from the FTC with respect to hospital mergers. Recently, the FTC issued a public comment to the North Carolina legislature regarding a proposed COPA statute, noting that it will continue to “investigate and challenge transactions that are anticompetitive, including in situations where legal defenses are asserted based on the state action doctrine and where the state fails to meet the necessary requirements.”³² Further, the FTC publicly supported the Maine legislature’s decision to repeal its COPA statute in April 2023, adding that the FTC “recommends that states minimize the harms that can result from provider consolidation and avoid the use of COPAs that attempt to shield healthcare providers from antitrust liability.”³³

Adding to the patchwork of state-level regimes, some states, including New York³⁴ and California,³⁵ have recently enacted notification requirements that could complement the HSR Act by requiring state-level notifications for transactions involving healthcare providers beyond just hospitals.³⁶ While such reviews are generally led by the state’s healthcare regulatory body, impacts on competition, prices, and quality of care are central to the review process. Most importantly, this notification could present additional timing and publicity considerations. For example, the regime in California requires notification of a transaction at least 90 days prior to closing and, if the newly created Office of Healthcare Affordability (OHCA) determines that a full review is required, the transaction may not close until 60 days after such report is issued. Furthermore, the OHCA has some discretion to include confidential information in its final report, if it is considered to be in the public interest. In contrast, the New York regime provides for a shorter, 30-day review period and maintains confidentiality of submitted materials. We expect to see a diversity of approaches from state to state as more regimes come into force.

Both the outcome of the LCMC case and the proliferation of state-level notification regimes could have significant implications for merging parties in the healthcare space. If the FTC is successful in Louisiana, hospital transactions in a number of states could face more stringent federal review (and be subject to significant risks of noncompliance) without the alternative path of seeking a COPA. Furthermore, such transactions are increasingly likely to require state-level notification, increasing burdens on merging parties.

^[1]  White House Council of Economic Advisors, "Protecting Competition through Updated Merger Guidelines” (July 19, 2023).
^[2]  US Department of Justice and Federal Trade Commission, “Draft FTC-DOJ Merger Guidelines for Public Comment” (July 19, 2023).
^[3]  US Department of Justice and Federal Trade Commission, “Draft FTC-DOJ Merger Guidelines for Public Comment”, Guideline 5(B) (July 19, 2023).
^[4]  United States. et al v. UnitedHealth Group, Inc. et al, 1:22-cv-00481, (D.D.C. 2022).
^[5]  US Department of Justice and Federal Trade Commission, “Draft FTC-DOJ Merger Guidelines for Public Comment”, Guideline 9 (July 19, 2023).
^[6]  US Department of Justice and Federal Trade Commission, “Draft FTC-DOJ Merger Guidelines for Public Comment”, Guideline 12 (July 19, 2023).
^[7]  Federal Trade Commission, “Federal Trade Commission Withdraws Health Care Enforcement Policy Statements” (July 14, 2023).
^[8]  US Department of Justice and Federal Trade Commission, “Statements of Antitrust Enforcement Policy in Health Care” (1996).
^[9]  US Department of Justice and Federal Trade Commission, “Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program” (2011). The DOJ also withdrew from additional healthcare policy statements–“Antitrust Enforcement Policy Statements in the Health Care Area” (1993). While the FTC did not explicitly withdraw these statements, practitioners should not assume that FTC will honor the safety zones established in these 1993 guidelines since they were restated and expanded upon in the 1996 guidelines, which the FTC has now withdrawn.
^[10]  US Department of Justice and Federal Trade Commission, “Statements of Antitrust Enforcement Policy in Health Care” (1996).
^[11]  US Department of Justice and Federal Trade Commission, “Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program” (2011).
^[12]  Federal Trade Commission, “Federal Trade Commission Withdraws Health Care Enforcement Policy Statements” (July 14, 2023).
^[13]  Federal Trade Commission, “Federal Trade Commission Withdraws Health Care Enforcement Policy Statements” (July 14, 2023).
^[14]  Federal Trade Commission, “FTC and DOJ Propose Changes to HSR Form for More Effective, Efficient Merger Review” (June 27, 2023).
^[15]  Federal Trade Commission, “FTC Further Expands Inquiry Into Prescription Drug Middlemen Industry Practices” (June 8, 2023).
^[16]  Federal Trade Commission, “FTC Launches Inquiry Into Prescription Drug Middlemen Industry” (June 7, 2022).
^[17]  Federal Trade Commission, “FTC Deepens Inquiry into Prescription Drug Middlemen” (May 17, 2023).
^[18]  Chairperson Lina Khan, Federal Trade Commission, Open Commission Meeting (July 20, 2023).
^[19]  Federal Trade Commission, “FTC Deepens Inquiry into Prescription Drug Middlemen” (May 17, 2023).
^[20]  Federal Trade Commission, “Federal Trade Commission Statement Concerning Reliance on Prior PBM-Related Advocacy Statements and Reports That No Longer Reflect Current Market Realities,” (July 20, 2023).
^[21]  Federal Trade Commission, “FTC Issues Report on PBM Ownership of Mail-Order Pharmacies” (September 6, 2005).
^[22]  Federal Trade Commission and Department of Justice, “Improving Healthcare: A Dose of Competition,” (July 2004).
^[23]  Commissioner Kelly Slaughter, Federal Trade Commission, Open Commission Meeting (July 20, 2023).
^[24]  Federal Trade Commission, “FTC Sues to Block IQVIA’s Acquisition of Propel Media to Prevent Increased Concentration in Health Care Programmatic Advertising” (July 17, 2023).
^[25]  European Commission, “Mergers: Commission fines Illumina and GRAIL for implementing their acquisition without prior merger control approval” (July 12, 2023).
^[26]  See Federal Trade Commission Premerger Notification Office, Introductory Guide II - To File or Not to File: When You Must File a Premerger Notification Report Form (revised Sept. 2008).
^[27]  The “state action” doctrine, first articulated by the Supreme Court in Parker v. Brown, 317 U.S. 341 (1943), holds that certain regulatory conduct is immune from federal antitrust enforcement, so long as that conduct is: (1) furthering a clearly articulated state policy; and (2) under active supervision by the state. See California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U.S. 97 (1980).
^[28]  The Times-Picayune, “In win for LCMC, federal judge says legal fight over hospital deal should be heard in New Orleans” (May 25, 2023).
^[29]  Federal Trade Commission, FTC Policy Perspectives on Certificates of Public Advantage (August 15, 2022).
^[30]  These states are Minnesota, Montana, Maine, North Carolina, South Carolina, Tennessee, Texas, Virginia, and West Virginia.
^[31]  See Texas Health and Human Services, Certificate of Public Advantage (COPA): Terms and Conditions of Compliance for Shannon Health (August 3, 2021).
^[32]  Letter from Federal Trade Commission Office of Policy Planning, Bureau of Competition, and Bureau of Economics to Representative Larry Potts, North Carolina House Health Committee (June 5, 2023).
^[33]  Federal Trade Commission, “FTC Policy Director Issues Statement Commending Maine’s Repeal of Certificate of Public Advantage Law” (June 13, 2023).
^[34]  See Goodwin client alert, “New York Enacts Requirement for Healthcare Entities to Provide Notice of ‘Material Transactions’” (May 17, 2023).
^[35]  See Goodwin client alert, “Starting in April 2024, California Joins Growing Trend of Implementing Advance Review Processes for Healthcare Transactions” (June 21, 2023).
^[36]  Other states, including Connecticut, Massachusetts, Nevada, Oregon, and Washington, have enacted similar statutes.