Merger guideline review could affect insurer consolidation

Washington -- A potential revision of federal business merger guidelines could impact how health insurance mergers are approved, though observers say at this early stage in the process that it remains uncertain how much the pace of such deals might be affected.

The Federal Trade Commission and the Justice Dept. announced Sept. 22 that they will solicit public comments and hold joint public workshops to explore the possible update of the horizontal merger guidelines, which cover acquisitions between firms operating in the same market. Both agencies use these guidelines to evaluate the potential competitive effects of mergers and acquisitions and to decide which should be allowed to proceed.

"The bulk of the merger guidelines is over 17 years old," said FTC Chair Jon Leibowitz. "The 1992 guidelines explicitly stated that they would be revised from time to time. We think the time has come to do that."

Updated guidelines that offer more clarity and better reflect current economic conditions should produce a more competitive marketplace that benefits consumers, said Christine A. Varney, assistant attorney general in charge of the Dept. of Justice's Antitrust Division. "In light of legal and economic developments that have occurred since the last major revision of the guidelines, it is an appropriate time for the antitrust agencies to conduct a review of the guidelines to determine whether any revisions should be made to better protect American consumers and businesses from anticompetitive mergers," she said.

After receiving public comments, the agencies plan to host five workshops to discuss merger guideline revisions. Workshops will be in December 2009 and January 2010, with the first set for Dec. 3 in Washington, D.C.

The American Medical Association plans to submit comments and will ask to participate in the workshops. The AMA, which has been active in tracking the consolidation of health insurers, sent a July letter to Varney and later met with her to implore the Justice Dept. to follow up on a promise by President Obama that his administration would conduct more rigorous antitrust enforcement in health insurance markets.

For the past eight years, the AMA has conducted in-depth studies of commercial health insurance markets in the U.S. The Association has determined that high levels of consolidations in the industry have led to an exercise of monopsony power, leading to plan premiums being raised and maintained above competitive levels.

Doctors also face challenges in attempting to bargain with consolidated health insurers because physician practices generally are too small to have leverage, the AMA concluded in a 2008 report on the health insurance market. "Physicians in many areas around the country have no bargaining power with health insurers," the report stated.

AMA President-elect Cecil B. Wilson, MD, applauded the FTC-Justice announcement.

"AMA data consistently show that current health insurance markets are highly consolidated, which is not in the best interests of patients or physicians," Dr. Wilson said. "The AMA supports competition and choice in the health insurance market, and we hope that this review leads to vigorous enforcement of antitrust laws for health insurance mergers."

Revisions likely

Merger guideline topics that will be discussed at the workshops include market definition, market shares and concentration, geographic market definition, price discrimination, unilateral effects, and the relevance of large buyers.

It's very likely that revisions to the merger guidelines will come out of the review of these topics, said Jeff Miles, an attorney with Ober, Kaler, Grimes & Shriver in Washington, D.C.

"The guidelines are not indicative of what really goes on in the markets," Miles said. "There has been a lot of new economic learning since 1992 that needs to be incorporated in the guidelines. I think we'll definitely see updates in geographic market definition, as well as unilateral effects analysis."

Thomas L. Greaney, a former health care antitrust lawyer with the Justice Dept., agreed that guideline changes are coming down the road. The Obama administration has given signs that it will scrutinize mergers more closely than previous administrations did.

"It's been talked about for some time now, and the fact that the two agencies are putting out this notice means it's likely something will be done," said Greaney, who is now director for health law studies at Saint Louis University School of Law. "There's certainly some room for clarification."

The guidelines cover a wide range of health care and other business entities. But while insurer and hospital mergers likely will be impacted by revisions, physician practice consolidations probably will not be affected too much, Miles said. "There hasn't been interest in enforcing physician practice mergers, because they're smaller in scope, and physician markets tend to be less concentrated than other health care markets."

If guideline changes are implemented, markets likely won't begin to see the effects until sometime near the beginning of 2011, Miles said.