ACO Symposium: Tara A. Ragone to present: The Role of Competition in Integrated Delivery: ACOs, Federal and State Antitrust Law, and the State Action Doctrine

In conjunction with the Center for Health & Pharmaceutical Law & Policy, this year’s Seton Hall Law Review Symposium on October 28, 2011, will explore recent changes in the structure of health care delivery, in particular the rising popularity of Accountable Care Organizations (ACOs). For more information or to register, click here.

The keynote speaker will be Dr. Jeffrey Brenner, founder of the Camden Coalition of Healthcare Providers, and legal scholars and practitioners from around the country will present panel discussions on structural development, public health implications and lessons learned from state ACO programs. One such distinguished presenter is Tara Adams Ragone, Research Fellow & Lecturer in Law at Seton Hall Law School’s Center for Health & Pharmaceutical Law & Policy; she will take part in the panel concerned with “ACOs in Theory: Issues Raised by Integrated Delivery,” and will be presenting The Role of Competition in Integrated Delivery: ACOs, Federal and State Antitrust Law, and the State Action Doctrine.

Tara Adams Ragone joined the Center for Health & Pharmaceutical Law & Policy as a Research Fellow and Lecturer in Law in 2011. Her research and writing for the Center focus on implementation of health care reform, accountable care organizations, health care access, bioethics, and issues related to the representation of health care professionals. Ms. Ragone also advises the health law moot court team and regularly contributes here at Health Reform Watch.

Ms. Ragone came to Seton Hall Law from the State of New Jersey, Office of the Attorney General, Division of Law, where she served as Deputy Attorney General in the Professional Boards Prosecution Section. She primarily prosecuted licensing actions before the State Board of Medical Examiners and the Office of Administrative Law and represented the State in federal civil rights actions brought by licensees. Before joining the New Jersey Attorney General’s Office, Ms. Ragone served as a law clerk to the Honorable Allyne R. Ross of the U.S. District Court for the Eastern District of New York and the Honorable Robert A. Katzmann of the U.S. Court of Appeals for the Second Circuit.

Recommended Reading: Recent Scholarship with Implications for Pharmaceutical Pricing and Access

Bundles in the Pharmaceutical Industry: A Case Study of Pediatric Vaccines, by Kevin W. Caves and Hal J. Singer of Navigant Economics, provides a technical but still accessible analysis of the anticompetitive effects of vaccine manufacturers’ practice of conditioning price discounts on physician buying groups agreeing to purchase the manufacturers’ vaccines in a bundle and agreeing not to purchase other manufacturers’ products.  The article begins with an interesting overview of the characteristics of the vaccine market, an introduction to the physician buying groups that purchase vaccines and to the anti-kickback concerns they raise, and a summary of the (somewhat up in the air) legal standard for when bundled discounting becomes an antitrust violation.

The authors then present their analysis of the uphill battle Novartis (a source of funding for the article) will have to fight to induce physicians to “break the bundle” and buy its new meningitis vaccine.  The authors conclude that even if Novartis were to give away its meningitis vaccine for free, “buyers defecting from [Sanofi Pasteur's bundle of vaccines, which includes Sanofi's meningitis vaccine,] would still lose $14.05 per patient in expected value.”  They present data indicating “that buyers unencumbered by … Sanofi’s loyalty contracts are over three times as likely to purchase [Novartis' vaccine], relative to encumbered buyers…” and conclude that enough of the market is foreclosed to Novartis to establish a presumption of anticompetitive effects and concomitant harm to consumers.  Per the authors, “[i]n an industry served almost exclusively by large, multi-product incumbents, with no prospects for generic competition and extremely limited entry by competitive rivals of any kind, these findings have significant implications for public policy and antitrust enforcement.”

Somewhat less accessible (due to a plethora of equations) but still well worth reading is Tort Liability and the Market for Prescription Drugs by Eric Helland, Darius Lakdawalla, Anup Malani, and Seth Seabury.  Helland and his co-authors present the results of an empirical study of the relationship between product liability rules and drug price and utilization.  While the effect of a liability rule can often be studied by comparing a state that makes a change to the rule with one that does not, the authors had to modify this approach because drugs are sold nationally.  They determined the exposure to punitive damages caps of each of nearly 16,000 drugs by first determining each drug’s geographic distribution of sales, a figure which varies from drug to drug due to geographic variation in the prevalence of disease.  The authors found that the degree of exposure to caps was correlated with an increase in drug prices but also with an increase in drug utilization.  Tighter liability standards also correlate with a reduction in adverse drug reactions.  The authors write that their numbers “imply that if every remaining state adopted some reform, there would be a 23% increase in all [adverse] events and a 25% increase in serious [adverse] events … among branded drugs.”  They conclude that “on balance, liability improves consumer and social welfare.”

Accountable Care Organizations and Antitrust: A New PSA Test

A New PSA Test

Tim Greaney

Saint Louis University School of Law

There’s a new PSA test in health care.  Hopefully it will prove more reliable than that other one.

In conjunction with the unveiling of the long-awaited ACO regulation by HHS, the FTC and Department of Justice issued a Joint Policy Statement setting forth their standards for conducting an expedited (90-day) antitrust review of applicants for ACO certification.  The agencies explained that they will evaluate applicants’ market power based on the ACO’s share of services in each participant’s Primary Service Area (PSA) defined as the “lowest number of contiguous postal zip codes” from which the hospital or physician draws at least 75 percent of its patients for its services.   The Statement summarized the antitrust implications of ACOs formed by hospitals or physician groups with large market shares in their markets:

ACOs with high PSA shares may pose a higher risk of being anticompetitive and also may reduce quality, innovation, and choice for both Medicare and commercial patients. High PSA shares may reduce the ability of competing ACOs to form, and could allow an ACO to raise prices charged to commercial health plans above competitive levels.

The antitrust enforcers were properly concerned with the risk that ACOs could become a vehicle for increasing or entrenching provider market power.  Studies by academics, health policy experts and state governments have documented the impact of provider concentration on insurance premiums. Moreover, a post-reform merger wave may have increased the number of hospital and specialty physician markets and many areas are already served by dominant local providers.  Inasmuch as the success of the ACO concept depends on its ability to spur delivery system change, the predictable intransigence of monopolistic providers presents an important issue. In this regard, it is heartening that the extended (and apparently controversial) regulation drafting process produced a result that promises to constrain the growth and exercise of market power.

Notably, the Policy Statement also removed some uncertainty that may have existed as to the application of prior antitrust enforcement actions and advisory opinions in the ACO context.  For example, the Statement should provide some comfort to those organizing physician networks: ACOs that clear the CMS review of their integration efforts will almost certainly be regarded by FTC and DOJ as “clinically integrated” and hence not subject to the strict “per se” legal standard (More in a subsequent post on the issues raised in evaluating the competitive problems of ACOs in given circumstances).

Market power, however, remains a major sticking point in evaluating ACOs. Antitrust aficionados may question whether the PSA approach employed in the Policy Statement accurately indentifies markets or measures the market power of providers.  As the FTC and DOJ themselves have found, zip code data gives a highly imperfect measure of health care markets. Moreover, there are significant problems in obtaining the necessary data regarding the total volume of services in the providers’ markets, particularly with regard to their services provided to commercial insurers and employers.  However, it appears that the agencies will use this measure as a rough and ready starting point to identify potentially problematic ACOs and those that most obviously raise no competitive problems.

An important and, again, heartening, aspect of the Policy Statement is the agencies’ insistence that applicants with large market shares come forward with justifications and produce data and documents that would assuage competitive concerns.  This should help expedite the process. (Though, if past practice with mergers is a guide, the 90-day clock will not start running until the ACO completes its production of all required information). The agencies make it clear that they will solicit the views of payers and employers before making their determination.  Finally the CMS ACO regulation makes it clear that high PSA ACOs will not be approved unless the FTC or DOJ provides a clearance letter.

Not unlike the inexact science of medical diagnosis, the antitrust agencies are making do with the tools they have.

Accountable Care Organizations, Competition Policy and Antitrust Concerns

The Center for American Progress (CAP) recently put together a stellar panel on Accountable Care Organizations and Competition Policy. The panelists are listed below the video, and include the well esteemed Professor Tim Greaney– who taught here at Seton Hall Law last year as a Visiting Professor and has contributed a number of posts to HRW over these last few years.

CAP introduced the crux of the matter on its web page about as well as it can be expressed:

One of the most challenging questions facing ACOs is how to provide integration without sacrificing competition and the decreased cost and increased quality it produces. The Center for Medicare & Medicaid Services, the Federal Trade Commission, and the Department of Justice have already been carefully scrutinizing these issues. Will some ACOs threaten competition and eventually raise costs for consumers? To what extent can ACOs overcome the barriers set up by current antitrust regulation? How should the lessons from health care reform educate the role of antitrust enforcement and regulation? How should we approach health care antitrust issues in an era of ACOs?

Introductory remarks:
Christine Varney, Assistant Attorney General, Department of Justice

Featured panelists:
Christi Braun, Shareholder, Ober/Kaler
Tim Greaney, Co-Director, Center for Health Law Studies, Saint Louis University Law School
Melinda Hatton, Senior Vice President and General Counsel, American Hospital Association
Joe Miller, General Counsel, America’s Health Insurance Plans
Sharis Pozen, Chief of Staff of the Antitrust Division, Department of Justice

Moderated by:
David Balto, Senior Fellow, Center for American Progress

Reform Rodeo

1. The Health Care Blog has an important piece on the role of HIT in Accountable Care Organizations (ACOs) and whether they will be open networks or walled gardens.

Will ACO (accountable care organization) IT models be walled gardens or open platforms?  i.e., will ACO IT platforms focus on exchanging information within the provider network of the ACO, or will they also be able to exchange information with providers outside the ACO network?

2. Kaiser Health News  discusses rules proposed by the Obama administration that would require health insurers to justify double-digit increases in premium rates.

Under the proposal, the flagged premium increases would be subject to review by the states – or the federal government in some cases – to determine if they are unreasonable.

In following years, the Department of Health and Human Services will adjust the specific percentage threshold for each individual state. Thresholds would vary partly because medical costs vary by state.

3. The New York Times has run a piece on a new antitrust lawsuit filed against Blue Cross Blue Shield of Michigan.

Federal prosecutors contend that Blue Cross in Michigan thwarts competitors by pressuring hospitals to charge rival insurers more to provide care, a practice prosecutors say has made health care extremely expensive in a state that can’t afford it.

4.  Tim Jost provides an overview at Health Affairs of the current state of the argument over the constitutionality of the individual mandate — including the recent decision by a federal judge in Virginia ruling the mandate unconstitutional.

Virginia adopted a statute purporting to nullify the minimum essential coverage requirement even before Congress enacted the Affordable Care Act, and the lawsuit was brought to enforce this statute.  Judge Hudson had earlier this year denied a Justice Department motion to dismiss the Virginia case, holding that the Commonwealth had standing to defend its legislation.  In his earlier decision, Judge Hudson had also held that the Commonwealth had an arguable claim that the minimum coverage requirement was unconstitutional.  Subsequent briefs filed by the Justice Department and by amici (interested parties who file as “friends of the court,” or amici curiae) supporting the reform law apparently failed to change Judge Hudson’s mind.

5. The Wall Street Journal has a story outlining the tremendous pecuniary benefits that certain spine doctors are receiving for conducting spine surgeries that some question as unnecessary.

The five surgeons are also among the largest recipients nationwide of payments from medical-device giant Medtronic Inc. In the first nine months of this year alone, the surgeons—Steven Glassman, Mitchell Campbell, John Johnson, John Dimar and Rolando Puno—received more than $7 million from the Fridley, Minn., company.

Centripetal Accountability in Health Care: Accountable Care Organizations, A Legal and Practical Overview

Legal scholar Kevin Werbach once observed that the internet has been centripetal, “pull[ing] itself together as a coherent whole.” For Werbach, network formation theory both explains these centripetal tendencies, and some of “the pressures threatening to pull the Internet apart” into balkanized units. Werbach counsels that governments need to “catalyz[e] network formation, and moderat[e] the forces that push towards excessive concentration of power.” These recommendations should also govern new efforts to create “virtual networks” of care in the wake of the new health reform legislation (the ACA).

Critics of the ACA have frequently complained that the legislation does not do enough to improve quality or to cut costs. However, the act did create incentives for new alliances of hospitals and doctors, known as “Accountable Care Organizations.” Now provider lobbies are demanding some pretty dramatic changes to health care regulation in order to implement ACOs. In this post, I want to explain what ACOs are, and why they challenge traditional health care regulatory models.

What’s an ACO?

Elliott Fisher, director of the Center for Health Policy Research at Dartmouth Medical School, describes the “three key attributes” of ACOs: “organized care, performance measurement, and payment reform.” Fisher has argued that insurers are not well-positioned to improve the quality of health care because they “have largely focused on negotiating favorable prices within relatively open networks of providers” instead of trying to improve the health care their members received. (Private insurers have little incentive to keep current subscribers healthy over the long term, since at least half of subscribers on average churn into different plans within three years of signing up with a given plan.) He believes that a “virtual network” of physicians could do a better job, if they teamed up with hospitals. ACO refers to this legal alliance, which would be entitled to receive payments in exchange for cutting costs or improving quality.

In an ACO, an “extended hospital medical staff” (or “a hospital-associated multi-specialty group practice”) can join forces with a hospital and agree to be compensated via a lump sum payment. If the group manages to keep overall costs beneath the lump sum payment, it can share the gains among its members. Each part of the team also has an incentive to work together to keep those they care for healthy. In an ideal world, the ACO responds to the concerns about fragmentation discussed in last month’s symposium on the Elhauge-edited volume recently released by Oxford University Press.

ACO Skeptics

But there are skeptics. Jeff Fisher worries about shadowy new pressures on providers that patients won’t be aware of:

Consumers would not be aware that they were being treated by ACOs. Rather, they would be “attributed” to them: virtual patients of virtual organizations. Aggregate health spending for attributed patients would be tracked, and increases in that spending would be capped using a form of “shadow capitation.” ACOs that lived within the caps would get their fees increased. Those that overspent would see their fees reduced or frozen.

Gail Wilensky believes that hospitals may dominate ACOs, predicting that “if they are the only entities receiving the payment, it will have a bad imbalance between groups of physicians and the hospitals.”

Robert Pear has also reported that a “frenzy of mergers involving hospitals, clinics and doctor groups eager to share costs and savings” worries consumer advocates and antitrust scholars.

“In an environment where health care providers are financially rewarded for keeping costs down,” [a lawyer for the Consortium for Citizens with Disabilities] said, “anyone who has a disability or a chronic condition, anyone who requires specialized or complex care, needs to worry about getting access to appropriate technology, medical devices and rehabilitation. You don’t want to save money on the backs of people with disabilities and chronic conditions.”

“The new law is already encouraging a wave of mergers, joint ventures and alliances in the health care industry,” said Prof. Thomas L. Greaney, an expert on health and antitrust law at St. Louis University. “The risk that dominant providers and dominant insurers may exercise their market power, individually or jointly, has never been greater.” Lobbyists and industry groups are bearing down on the Federal Trade Commission and the Justice Department, which enforce the antitrust laws, and the inspector general’s office at the Department of Health and Human Services, which ferrets out Medicare fraud.

Those agencies are writing regulations to govern . . . accountable care organizations. They face a delicate task: balancing the potential benefits of clinical cooperation with the need to enforce fraud, abuse and antitrust laws. . . . [According to one insurer strategist,] “In some markets, the dominant hospital is like the sun at the center of the solar system. It owns physician groups, surgery centers, labs and pharmacies. Accountable care organizations bring more planets into the system and strengthen the bonds between them, making the whole entity more powerful, with a commensurate ability to raise prices.”

Why do ACOs implicate fraud, abuse and antitrust laws? At a recent government workshop on ACOs, participants addressed “circumstances under which collaboration among independent health care providers in an ACO permits ACO providers to engage in joint price negotiations with private payers without running the risk of engaging in illegal price fixing under the antitrust laws.” HHS also explored “the different ways in which the Secretary may exercise waiver authority or create new exceptions and safe-harbors related to the physician self-referral law, the Anti-kickback statute and the CMP law in order to encourage the creation and development of ACOs.” The AMA has pushed for “explicit exceptions to the antitrust laws” for participating doctors. And, as Pear reports, the president of the Federation of American Hospitals says “the fraud and abuse laws should be waived altogether.”

Evolving Fraud, Abuse, and Antitrust Laws

What is one to make of all this? Many health law scholars have been skeptical of fraud and abuse laws for some time. For a taste of the scholarship, consider this excerpt from Mark A. Hall’s 1988 article in the Journal of Health Politics, Policy, & Law:

Someone uninitiated to the intricacies of health care financing would find it startling to learn that it is potentially a felony punishable by five years imprisonment for a rural hospital to recruit a badly needed specialist to the community, for a doctor to discount his services by waiving insurance deductibles and coinsurance, or for a health care institution to pay its doctors a bonus as a reward for efficient practice. A case can be made that each of these activities falls within the literal terms of the broadly worded Medicare and Medicaid referral fee statute. Enticing a physician to join the medical staff necessarily involves implicit or explicit incentives to refer the physician’s patients to that hospital. Price discounts can be characterized as payments to refer one’s patients to one’s self for treatment. And efficiency bonuses can induce doctors to admit patients to a particular hospital or encourage them to direct patients to a particular insurance plan.

Because these and other absurd applications of the referral fee concept are within a plausible reading of the federal referral fee statute, the statute has been a constant thorn in the side of the health care industry since the 1977 enactment of its current form. However, some relief is now in sight. The Department of Health and Human Services (DHHS) has issued a series of ‘‘safe harbor’’ regulations specifying payment practices that are deemed legal despite their potential referral incentive.

Over the past 20 years, regulation of fraud and abuse has waxed and waned. In 1996, James F. Blumstein concluded that “the modern American healthcare industry is akin to a speakeasy—conduct that is illegal is rampant and countenanced by law enforcement officials because the law is so out of sync with the conventional norms and realities of the marketplace.” Nevertheless, as Joan Krause has shown, there are important public purposes behind these laws, and it’s troubling to see a hospital leader simply advocate for them to be swept away tout court in the case of ACO’s.

Antitrust issues are also complex here, and perhaps help demonstrate the wisdom of delaying the implementation of at least this part of the ACA for a few years. As Tim Greaney has demonstrated time and again, providers have had little to fear from antitrust laws over the past decade. His 2007 article on physician cartels memorably summarizes the situation for doctors:

For over thirty years the United States Department of Justice and Federal Trade Commission (“Agencies”) have confronted bands of businessmen who have steadfastly refused to pay attention to legal precedent, repeated governmental pronouncements, and administrative sanctions imposed on their colleagues. The conduct revealed in these cases evidences a willingness to blatantly disregard the law by repeatedly undertaking arrangements already deemed illegal by the enforcers or by concocting schemes that raise untested but dubious justifications.

[T]hese cases involve physicians, some grouped in associations numbering in the thousands and almost always proceeding with the advice of business consultants and counsel. The conduct challenged by the government involves the formation of loosely-structured organizations, ranging from Independent Practice Associations to Preferred Provider Organizations (PPO) to other kinds of loose “networks” that collectively bargain with employers or managed care organizations for provider contracts.

It’s hard to read Greaney’s work on the topic without concluding that a toxic mix of “doctrinal shortcomings, political pressures, and institutional constraints” have severely compromised antitrust enforcement already. Greaney’s 2004 article on antitrust in health care, Chicago’s Procrustean Bed, also suggests that health care antitrust has, for years, been biased “strongly [in] favor defendants” due to the persistent failures of Chicago-inspired doctrine to reflect “market imperfections” in health care.

Reduced Regulation Should Be Conditioned on Better Calibrated Payments

One could draw two lessons from these trends. Perhaps policymakers should be cautious about granting overly broad antitrust exemptions to ACO’s in a field where competition law’s prerogatives have already been whittled away.

Or one could call health care antitrust a largely failed project, and start regulating dominant ACO’s as veritable health care utilities, as critical to regional infrastructure as roads, electricity, or water. The logic of concentration seems inevitable in the field: insurers and providers have long been in an arms race for bargaining power. Joe White has explained the dynamic:

One might wonder why consolidation among insurers [in the US over the past 20 years] did not allow them to resist the providers’ demand for increased payments. The simple answer is that there were two concentrated parts of the market and one fragmented part. The insurers had to choose between fighting a full-pitched battle with the providers or exploiting their own market power vis-à-vis the employers. Raising premiums to employers was a lot easier.

In theory, employers could have demanded restrictive networks (at lower prices). But since everyone had agreed that employees did not like restrictive networks, and providers (especially hospitals) were not willing to discount much to get into such networks, there were not many available for purchase. Individual employers could not invent such a product; they could only shop around and find the relatively best deal by customizing other contract terms, such as cost sharing. The system left substantial room for entrepreneurship, but this entrepreneurship did not serve to improve health care values.

What can be done in a health care marketplace that’s increasingly looking like the “clash of the titans?” Perhaps inspired by the utility model, Maryland has implemented a hospital payment system where “all payers—public and private—pay the same rates.” If ACO’s deliver a coup de grace to insurers’ efforts to control provider prices, it’s only fair that the same governmental authorities behind the ACO movement condition its rewards on the responsibility to provide affordable care.

ACA stands for Affordable Care Act, not Accountable Care Organizations Above All Else. ACOs may work, but only if policymakers can replace classic instruments of health care regulation with calibrated financing decisions that reflect new industry realities.

Reform Rodeo

Medical Loss Ratio: Kaiser Health News reports on tomorrow’s vote by the National Association of Insurance Commissioners on ACA’s contentious rules dictating minimum medical loss ratios.

Cleaning the DSHs: Health Affairs cogently explains the difficulties that the ACA will face when reforming the Disproportionate Share Hospital (DSH) framework that reimburses uncompensated care under Medicaid.

ACO Antitrust: At the Health Care Blog, David Dranove discusses what he believes is a looming antitrust crisis surrounding  accountable care organizations (ACOs)

On QALYs: One of the fathers of the Quality Adjusted Life Year  (QALY) — the metric often used to measure comparative effectiveness — laments its near rejection in the ACA.

Economics: In the first of a series, Maggie Mahar provides a remarkably detailed  analysis of the economic impact of the ACA.

Revised Horizontal Merger Guidelines issued by FTC and DOJ

On August 19, the Federal Trade Commission (”FTC”) and Department of Justice (”DOJ”) issued revised Horizontal Merger Guidelines (”guidelines”).  First adopted in 1968 and revised in 1992, the guidelines are an outline of the primary “analytical techniques, practices and enforcement policies” used to evaluate mergers and acquisitions of actual or potential competitors under federal antitrust laws, including Section 7 of the Clayton Act, 15 U.S.C. § 18, Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, and Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45.

As the first major revision in 18 years, the FTC and DOJ assert that the guidelines are not a change in policy, but a clarification of the merger review process.  In 2006, both agencies issued “Commentary on the Horizontal Merger Guidelines,” the first step towards the refinement of the guidelines.  The agencies jointly announced the project in September 2009.  They posed a number of questions for public comment and conducted a series of workshops this past winter.  As a result, 51 parties provided comments for the revisions.  The agencies further considered 31 written comments to the proposed revisions issued on April 20.

According to the FTC Press Release, the guidelines are primarily aimed to “help the agencies identify and challenge competitively harmful mergers while avoiding unnecessary interference with mergers that are either competitively beneficial or likely will have no competitive impact on the marketplace.” In addition, the guidelines are intended to assist private parties, courts and antitrust practitioners.  Representatives of both agencies had the following to say:

“Because of the hard work of all involved at both agencies, private parties and judges will be better equipped to understand how the agencies evaluate deals. That improvement in clarity and predictability will benefit everyone,” said FTC Chairman Jon Leibowitz…

“The revised guidelines better reflect the agencies’ actual practices,” said Christine Varney, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. “The guidelines provide more clarity and transparency, and will provide businesses with an even greater understanding of how we review transactions.”

What Has Changed?

According to the FTC Press Release, the guidelines do the following:

• Clarify that merger analysis does not use a single methodology, but is a fact-specific process through which the agencies use a variety of tools to analyze the evidence to determine whether a merger may substantially lessen competition.
• Introduce a new section on “Evidence of Adverse Competitive Effects.” This section discusses several categories and sources of evidence that the agencies, in their experience, have found informative in predicting the likely competitive effects of mergers.
• Explain that market definition is not an end itself or a necessary starting point of merger analysis, and market concentration is a tool that is useful to the extent it illuminates the merger’s likely competitive effects.
• Provide an updated explanation of the hypothetical monopolist test used to define relevant antitrust markets and how the agencies implement that test in practice.
• Update the concentration thresholds that determine whether a transaction warrants further scrutiny by the agencies.
• Provide an expanded discussion of how the agencies evaluate unilateral competitive effects, including effects on innovation.
• Provide an updated section on coordinated effects. The guidelines clarify that coordinated effects, like unilateral effects, include conduct not otherwise condemned by the antitrust laws.
• Provide a simplified discussion of how the agencies evaluate whether entry into the relevant market is so easy that a merger is not likely to enhance market power.
• Add new sections on powerful buyers, mergers between competing buyers, and partial acquisitions.

Analysis by private parties is mixed.  Constantine Cannon LLP writes that the guidelines “reflect a more tolerant approach to mergers, stressing the need to ‘avoid unnecessary interference with . . . competitively beneficial’ mergers.”   In support, Constantine Cannon cites the increased Herfindahl-Hirschman Index (”HHI”) thresholds and statements clarifying that coordination can be legal.

On the other hand, Weil Gotshal writes that the guidelines “appear to provide the agencies with more tools… [and] offer less predictability regarding which analytical methodology will be applied.”  Of primary concern is the decreased emphasis on market definition and increased emphasis on a fact-specific process with a variety of analytical tools.  Revised definitions may create narrower relevant markets which will negate any benefits of higher HHI thresholds.  The newly enumerated categories of evidence may lead to broader document requests and longer investigations.  In providing many alternative techniques and theories, the agency has provided “few true guidelines to assist parties considering a transaction.”

Criticism From Within the Commission

Commissioner J. Thomas Rosch issued a separate concurring statement, in which he “acknowledged” flaws in the guidelines.  According to Commissioner Rosch, the following substantial changes since the 1992 revisions are not reflected in the new guidelines:

First, the Commission is increasingly challenging mergers in preliminary injunction and administrative (Part 3) proceedings…   Second, economic theories embedded in the 1992 Guidelines emphasized price effects almost exclusively. Increasingly, the Agencies and courts have considered nonprice effects, like effects on quality, variety, and innovation, to be no less important. Third, for a variety of reasons, many, if not most, courts have relied on empirical evidence instead of economic evidence, and have considered economic evidence as corroborative of that empirical evidence, if they have considered it at all…  As previously discussed, that in turn has led the staff reviewing mergers ex ante to devote more attention to the empirical evidence that can be presented and defended at trial.

As a result, Commissioner Rosch believes the guidelines do not reflect the way staff at the FTC conduct ex ante merger reviews or the information courts should be told about merger analysis.

According to Commissioner Rosch, the guidelines possess the following additional flaws:

• Stakeholder perspectives were considered unequally. As a result, the guidelines overemphasize “economic formulae and models based on price theory.” Commissioner Rosch credits the large influence of the defense bar, academics, and other kindred souls and at least one private meeting held with the leadership of the ABA Antitrust Section.
• The economic theories of the revised guidelines are improperly based wholly or partially on margins (prices minus incremental costs). Although the draft guidelines acknowledge in two footnotes that “high margins are not in themselves of antitrust concern,” Section 4.1.3 discusses the role of margins in critical loss analysis and as an indication of the sensitivity of demand to price.
• The guidelines say little about non-price competitive effects (ie., how a transaction affects quality, service innovation, and product variety). See page 2 of the guidelines, “[f]or simplicity of exposition, these Guidelines generally discuss the analysis in terms of… price effects.”
• The guidelines fail to offer a clear framework for analyzing non-price considerations. Commissioner Rosch supports this claim with four non-exhaustive illustrations of guideline deficiencies.

Commissioner Rosch’s statement raises many questions about the future of the guidelines.  Are the revised guidelines an accurate statement of current practices?  Will the issuance of the guidelines lead to a greater number of enforcement actions?  How will courts square this administrative document with prior merger and acquisition case law?  Only time will tell.