FTC Staff Comment to Senators Coleman and Kissel and Representatives Fox and Hetherington Concerning Connecticut H.B. 6343, Intended To Exempt Members of Certified Cooperative Arrangements From the Antitrust Laws

UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
Office of Policy Planning
Bureau of Economics
Bureau of Competition
June 8, 2011
Senators Eric D. Coleman and John A. Kissel
Representatives Gerald Fox and John W. Hetherington
Connecticut General Assembly
Room 2500 L.O.B.
300 Capitol Avenue
Hartford, CT 06106-1591
Dear Senators Coleman and Kissel and Representatives Fox and Hetherington:
The staffs of the Federal Trade Commission=s Office of Policy Planning, Bureau
of Competition, and Bureau of Economics1 are pleased to respond to your request for
comments on the antitrust provisions of House Bill No. 6343 (“H.B. 6343” or “the Bill”).
The Bill, among other things, intends to exempt health care provider-members of
certified “cooperative arrangements” from state and federal antitrust laws.2 The
exemption is aimed at immunizing a cooperative’s contract negotiations with managed
care organizations, but appears to extend to a broad range of other activities as well. We
are very concerned that the antitrust provisions of the Bill, if enacted, are likely to lead to
dramatically increased costs and decreased access to health care for Connecticut
consumers. The review provisions in the Bill appear unlikely to prevent these harmful
effects.
The Bill is not needed to allow procompetitive cooperative activities by health
care providers because antitrust law already permits collaborations that benefit
consumers. To the extent that H.B. 6343 is designed to authorize conduct not already
permitted under the antitrust laws, it threatens to deprive health care consumers of the
benefits of competition. In addition, the regulatory regime contemplated by the Bill may
be insufficient to meet the rigorous standards required to confer state action immunity
from the federal antitrust laws if that is indeed the intent of the Bill.
1 This letter expresses the views of the Federal Trade Commission’s Office of Policy Planning, Bureau of
Competition, and Bureau of Economics. The letter does not necessarily represent the views of the Federal
Trade Commission (Commission) or of any individual Commissioner. The Commission has, however,
voted to authorize staff to submit these comments.
2 Although the Bill explicitly grants antitrust immunity only under Connecticut law, for purposes of this
letter we assume that the immunity is intended to extend to federal antitrust law as well. See Town of
Hallie v. City of Eau Claire, 471 US 34, 42 (1985) (state legislature’s explicit statement recognizing
anticompetitive conduct and expectation of antitrust immunity is not necessary for state action doctrine
immunity to apply).

Interest and Experience of the Federal Trade Commission
Congress has charged the Federal Trade Commission (“FTC” or “Commission”)
with enforcing the Federal Trade Commission Act, which prohibits unfair methods of
competition and unfair or deceptive acts or practices in commerce.3 Pursuant to its
statutory mandate, the FTC seeks to identify business practices and governmental
regulations that may impede competition without also offering countervailing benefits to
consumers.
Health care competition is critically important to the economy and consumer
welfare. For this reason, anticompetitive conduct in health care markets has long been a
key focus of FTC activity. The agency has brought numerous antitrust enforcement
actions involving the health care industry.4 In addition, the Commission and its staff
have given testimony,5 issued reports,6 and engaged in advocacy to state legislatures
regarding various aspects of competition in the health care industry. Of particular
relevance, the Commission and its staff have long advocated against federal and state
legislative proposals that would create antitrust exemptions for collective negotiations by
health care providers when such exemptions are likely to harm consumers.7
3 Federal Trade Commission Act, 15 U.S.C. ' 45.
4 See Federal Trade Commission, Overview of FTC Antitrust Actions in Health Care Services and
Products, Sept. 2010, available at: http://www.ftc.gov/bc/110120hcupdate.pdf.
5 See Prepared Statement of the Fed. Trade Comm’n Before the H. Comm. on the Judiciary, Subcomm. On
Courts and Competition Policy, On “Antitrust Enforcement in the Health Care Industry,” Dec. 1, 2010;
Prepared Statement of the Fed. Trade Comm’n Before the Subcomm. On Consumer Protection, Product
Safety, and Insurance, Comm. on Commerce, Science & Transportation, On “The Importance of
Competition and Antitrust Enforcement to Lower-Cost, Higher-Quality Health Care,” July 16, 2009 (all
testimonies available at: http://www ftc.gov/ocr/testimony/index.shtml).
6 See F ED. TRADE C OMM’ N, EMERGING H EALTH CARE I SSUES : F OLLOW-O N BIOLOGIC D RUG COMPETITION
(Jun. 2009); F ED. TRADE COMM’ N, P HARMACY BENEFIT M ANAGERS : O WNERSHIP OF M AIL-O RDER
P HARMACIES (Aug. 2005); FED. TRADE COMM’ N AND D EP ’ T OF J USTICE, I MPROVING H EALTH CARE: A
D OSE OF C OMPETITION (Jul. 2004) (all reports available at: http://www.ftc.gov/reports/index.shtm).
7 See FTC Staff Comment to the Hon. Elliott Naishtat Concerning Texas S.B. 8 to Exempt Certified Health
Care Collaboratives From the Antitrust Laws (May 2011); FTC Staff Comment to Rep. Tom Emmer of the
Minnesota House of Representatives Concerning Minnesota H.F. No. 120 and Senate Bill S.F. No. 203 on
Health Care Cooperatives (Mar. 2009); FTC Staff Comment to the Hon. William J. Seitz Concerning Ohio
Executive Order 2007-23S to Establish Collective Bargaining for Home Health Care Workers (Feb. 2008);
FTC Staff Comment Before the Puerto Rico House of Representatives Concerning S.B. 2190 to Permit
Collective Bargaining by Health Care Providers (Jan. 2008) (all advocacies available at:
http://www ftc.gov/opp/advocacy date.shtm). See also Letter to Hon. Rene O. Oliveira, Concerning Texas
Physician Collective Bargaining (May 1999) (available at: http://www ftc.gov/be/v990009.shtm); Prepared
Statement of the Fed. Trade Comm’n Before the H. Comm. on the Judiciary, Concerning H.R. 1304, the
“Quality Health-Care Coalition Act of 1999,” June 22, 1999, available at:
http://www ftc.gov/os/1999/06/healthcaretestimony htm.
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The Connecticut Bill
H.B. 6343 allows the establishment of “cooperative arrangements” – agreements
among health care providers – and apparently intends to provide them with an exemption
from the antitrust laws upon approval by the Connecticut Attorney General. That
immunity would extend to “sharing, allocating or referring patients, personnel,
instructional programs, support services or facilities or medical, diagnostic or laboratory
facilities or procedures, or negotiating fees, prices or rates with managed care
organizations, and includes, but is not limited to, a merger, acquisition or joint venture.”8
The Bill also prohibits managed care organizations from refusing to negotiate “in good
faith” with parties in a certified cooperative arrangement. A managed care organization
that violates this prohibition is subject to a penalty of up to $25,000 per day.9
To qualify as a cooperative arrangement under the Bill, the health care providers
must apply for and receive a “certificate of public advantage” from the Connecticut
Attorney General.10 The Attorney General’s review of an application must consider the
benefits of the arrangement, including “enhancement of the quality of health services to
consumers; gains in cost efficiency of providing health services; improvement in
utilization of and access to health services and equipment; and avoidance of duplication
of health resources.”11 The Attorney General must compare these benefits against any
disadvantages, including “the potential reduction in competition; the adverse impact on
quality, access or price of health care services to consumers; and the availability of
arrangements that achieve the same benefits with less restriction on competition.”12 The
Attorney General must then determine whether the “benefits outweigh the disadvantages”
and approve or deny the application within ninety days of receiving it.13
The Attorney General is also responsible for overseeing the cooperative
arrangements by reviewing annual progress reports.14 If, through this review, the
Attorney General determines that the benefits of the cooperative arrangement no longer
outweigh the disadvantages, he must hold a hearing to determine whether to revoke or
modify the certificate.15 The Attorney General, however, may not “modify or revoke a
certificate of public advantage more than three years after the initial issuance” of the
certificate.16
8 H.B. 6343 § 1(a)(1) (Conn. 2011).
9 H.B. 6343 § 1(e) (Conn. 2011).
10 H.B. 6343 § 1(b) (Conn. 2011).
11 H.B. 6343 § 1(c)(2) (Conn. 2011).
12 Id.
13 H.B. 6343 § 1(c)(1) (Conn. 2011).
14 H.B. 6343 § 1(c)(4) (Conn. 2011).
15 H.B. 6343 § 1(c)(5) (Conn. 2011).
16 Id.
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The Likely Effects of H.B. 6343
The antitrust exemption in the Bill is unnecessary to promote health care benefits
to consumers through cooperative arrangements. This is because the antitrust laws
already allow procompetitive collaborations among competitors. The Bill, which is
designed to allow coordinated activity among health care competitors beyond that
permitted by the antitrust laws, poses a substantial risk of consumer harm by increasing
costs, impeding innovation, and decreasing access to health care. Even with oversight by
the Attorney General, that consumer harm may be difficult to prevent once a cooperative
is certified.
(a) The Bill Is Unnecessary to Promote Arrangements That Will Benefit
Consumers
Federal antitrust law already permits joint activity by health care providers that
benefits consumers. First, even providers’ price agreements are lawful when reasonably
necessary to create efficiencies (such as reducing the cost or improving the quality of
health care provided to patients), and have an overall procompetitive effect. For
example, antitrust standards distinguish between effective clinical integration among
health care providers that has the potential to achieve cost savings and improve health
outcomes and those provider arrangements that exist merely to give the providers greater
bargaining leverage with health plans. Both the FTC and its staff and the U. S.
Department of Justice have provided substantial guidance to providers to make clear that
the antitrust laws do not prevent health care providers from engaging in beneficial
collaborations. 17 The antitrust laws are designed to stop actions that raise prices or
inhibit new forms of competition; they do not block activities that benefit consumers.
We therefore not only see no need for legislation to authorize collective fee negotiations
that would arguably benefit consumers, we are also concerned that any new legislation
may instead have the effect of immunizing agreements among providers, and potentially
harm consumers.
Second, no antitrust exemption is needed to permit health care providers to
17 See, e.g., Dep’t of Justice & Fed. Trade Comm’n, Statements of Antitrust Enforcement Policy In Health
Care (1996), available at: http://www ftc.gov/bc/healthcare/industryguide/policy/index htm; TriState
Health Partners, Inc., Letter from Markus Meier, FTC to Christi Braun, Ober, Kaler, Grimes & Shriver,
April 13, 2009; Greater Rochester Independent Practice Association, Inc., Letter from Markus Meier, FTC
to Christi Braun & John J. Miles, Ober, Kaler, Grimes & Shriver, September 17, 2007, letters available at:
http://www ftc.gov/bc/healthcare/industryguide/advisory.htm. See also Fed. Trade Comm’n & U.S. Dep’t
of Justice, Antitrust Guidelines for Collaborations Among Competitors, April 2000, available at:
http://www ftc.gov/os/2000/04/ftcdojguidelines.pdf. Most recently, the FTC and DOJ released a joint
statement explaining how the reviewing antitrust agency will enforce U.S. antitrust laws against the new
Accountable Care Organizations – groups of health care providers that, if they are likely to lower costs and
cause improvements in the availability of health care, will be permitted under the Affordable Care Act of
2010 to operate. Fed. Trade Comm’n and the Antitrust Division of the Department of Justice: Proposed
Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating In the
Medicare Shared Savings Program, available at: http://www ftc.gov/os/fedreg/2011/03/110331acofrn.pdf..
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discuss their concerns regarding health plan practices, whether among themselves or with
health plans. We understand that some supporters of the Bill may be under the
impression that any such discussions would violate the antitrust laws. But that is not the
case. Health care professionals may, under existing antitrust law, engage in collective
advocacy, both to promote the interests of their patients and to express their opinions
about other issues, such as payment delays, dispute resolution procedures, and other
matters.18
(b) The Bill Poses a Substantial Risk of Consumer Harm
The Bill is intended to extend antitrust immunity to a broad range of agreements
among health care providers to eliminate competition. Regardless of any stated intent by
a health care provider to improve health care quality and control costs, the practical effect
of the Bill will be to exempt anticompetitive conduct from antitrust scrutiny. We think
this would pose an unnecessary and substantial risk of consumer harm.
It is well-recognized that antitrust exemptions routinely threaten broad consumer
harm for the benefit of a few. The bipartisan Antitrust Modernization Committee
observed “[t]ypically, antitrust exemptions create economic benefits that flow to small,
concentrated interest groups, while the costs of the exemption are widely dispersed,
usually passed on to a large population of consumers through higher prices, reduced
output, lower quality and reduced innovation.”19 The Bill appears intended to shield a
broad range of potentially anticompetitive conduct from antitrust challenge. Such
anticompetitive conduct may include cooperative agreements not to compete with regard
to patients, procedures, personnel, or support services, agreements on the fees providers
will accept from health plans, and agreements that will have the effect of eliminating
beneficial competition through merger.
In addition, the Bill’s requirement that managed care organizations negotiate with
parties to a cooperative agreement – backed up with a potential civil penalty of $25,000
per day for a failure to negotiate “in good faith” – compounds the likely consumer
harm.20 This requirement not only will decrease the incentives of cooperatives to
18 The 1996 Statements of Antitrust Enforcement Policy In Health Care issued by the Commission and the
Department of Justice explain the ways in which antitrust law permits health care providers to collectively
provide both fee and non-fee related information to health plans. (Dep’t of Justice & Fed. Trade Comm’n,
Statements of Antitrust Enforcement Policy In Health Care (1996), available at:
http://www ftc.gov/bc/healthcare/industryguide/policy/index htm) See also Letter to Gregory G. Binford
(February 6, 2003) (advisory opinion explaining that physicians’ proposed formation of advocacy group to
collect and disseminate information about health plan policies and procedures, including fees paid to local
physicians compared to fees paid in other areas, did not appear likely to have anticompetitive effects). See
also American Medical Assn, Model Managed Care Contract (4th Ed. 2005), available at http://www.ama-
assn.org/ama1/pub/upload/mm/368/mmcc 4th ed.pdf.
19 Antitrust Modernization Commission, Report and Recommendations (April 2007) at 335, available at:
http://govinfo.library.unt.edu/amc/report recommendation/amc final report.pdf.
20 Antitrust jurisprudence recognizes a party’s long-established right to exercise its discretion over with
whom it deals. See United States v. Colgate & Co., 250 U.S. 300, 307 (1919).
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compete on price and quality, but also threatens the ability of health plans to effectively
use selective contracting, a key mechanism for promoting quality and cost-containment
goals. Furthermore, the lack of clarity surrounding what constitutes “good faith”
negotiation in this context may discourage plans from actively pursuing programs and
contract terms that would benefit consumers. Moreover, determining liability based on a
failure to negotiate in “good faith” could require courts to assess the reasonableness of
prices and other terms of dealing, a role for which they are ill-suited.21
It will be difficult, if not impossible, for the Attorney General’s review to protect
consumers from the harmful effects of this legislation. First, it is not clear that the
Attorney General has the necessary funds or available resources to conduct the type of
fact-intensive, time-consuming market analysis needed to evaluate the competitive effects
of a health care cooperative during the certification process. The time allotted for the
Attorney General’s review is limited to ninety days and the standards under which the
Attorney General may assess the cooperatives are unclear. Second, the Attorney
General’s ability to remedy the harm caused by an anticompetitive cooperative, once
formed, is limited. The Attorney General’s oversight relies solely on his or her review of
a cooperative’s annual “progress report.” Moreover, even if the Attorney General finds a
cooperative arrangement has caused consumer harm, the power to address such problems
is circumscribed by the limited remedy (revocation or modification of certification) as
well as the limited grounds for exercising that remedy. Thus, if a cooperative has used its
market power to increase prices without countervailing benefit, there is no means to
remedy that harm. Third, once three years have passed since a cooperative’s
certification, the Attorney General has no power to modify or revoke the purported
antitrust immunity conveyed by the certification, regardless of the circumstances. Thus,
the review provisions will not protect consumers from the likely harm created by the Bill.
The Bill Likely Will Not Create State Action Immunity
The federal antitrust immunity that the Bill apparently purports to confer on
cooperative arrangements is effective only if the State of Connecticut has clearly
articulated an intention to replace competition in this area with a regulatory scheme, and
actively supervises this private conduct.22 The active supervision test seeks to determine
“whether the State has exercised sufficient independent judgment and control so that the
details [of the restraint] have been established as a product of deliberate state
intervention, not simply by agreement among private parties.”23 As explained by the
Supreme Court in Patrick v. Burget, state officials must “have and exercise power to
review particular anticompetitive acts of private parties and disapprove those that fail to
accord with state policy.”24
21 Verizon Commc’ns. Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 408 (2004).
22 Parker v. Brown, 317 U.S. 341, 351 (1943); see also Cal. Retail Liquor Dealers Ass’n v. Midcal
Aluminum, Inc., 445 U.S. 97, 105 (1980).
23 Federal Trade Commission v. Ticor Title Insurance Co., 504 U.S. 621, 634 (1992).
24 486 U.S. 94, 101 (1988).
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Here, the State’s review proposed under the Bill does not appear sufficient to
meet the requirements of the state action doctrine. Notwithstanding the requirement that
annual progress reports be filed by the health care providers during the initial three-year
period, the Bill seemingly would not require State officials to review particular contracts
and fee arrangements between groups of providers and payers to assess whether they
comport with State policy goals (including but not limited to the goals stated under
section 1(c)(2) of the Bill), and to remedy on an ongoing basis situations that may violate
those goals. 	Notably also, the Bill does not appear to mandate any state monitoring and
review of cooperative arrangements three years after the initial issuance of a certificate.
As the Supreme Court has made clear, parties claiming state action immunity face a high
bar. The regulatory program proposed by the Bill appears not to clear that bar.
Conclusion
Our analysis of H.B. 6343 suggests that its passage would pose a significant risk
of increased health care costs and decreased access to care for Connecticut consumers.
The antitrust immunity provisions in this legislation are unnecessary and would allow
groups of private health care providers to engage in unsupervised anticompetitive
conduct. In summary, FTC staff is concerned that this legislation is likely to foster
anticompetitive conduct that is inconsistent with federal antitrust law and policy, and that
such conduct could work to the detriment of Connecticut health care consumers.
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We appreciate your consideration of these issues.
Respectfully submitted,
Susan S. DeSanti, Director
Office of Policy Planning
Joseph Farrell, Director
Bureau of Economics
Richard A. Feinstein, Director
Bureau of Competition