june 2017 editor’s report - squire patton boggs/media/files/insights/... · 2017. 6. 21. · june...

June 2017 Vol. 31 / No. 3

Editor’s ReportWelcome to the third issue of the Chronicle for the ABA 2016-17 term. In this issue, we are pleased to present three original articles, all of which relate to the recent health insurance merger cases: Aetna/Humana and Anthem/Cigna.

Value Based Contracting – Could it be a Procompetitive Efficiency in the Antitrust Analysis of Healthcare markets? by Jody Boudreault, a Senior Associate at Squire Patton Boggs (US) LLP.

The Importance of Innovation in Healthcare: Lower Reimbursement Rates to Providers Do Not Mean Lower Healthcare Costs, by Joe Whatley, Edith Kallas, and Henry Quillen, Partners at WhatleyKallas, LLP.

Reduced-Form versus Structural Econometric Methods in Market Definition: Lessons from Aetna-Humana, by Paul Wong and Subramaniam Ramanarayanan, Economists at NERA Economic Consulting.

We are always interested in hearing from our Committee members. If there is a topic that you would like to see covered in a Committee program or if you have any other suggestions, please contact the Committee Co-Chairs, Seth Silber ([email protected]) or Leigh Oliver ([email protected]).

If you would like to submit an article for the Chronicle, please contact Amanda Lewis ([email protected]) or Anthony Swisher ([email protected]). Executive Editors:

Amanda G. Lewis Federal Trade Commission Washington, D.C. Editors:

Lauren Battaglia Hogan Lovells Washington, D.C.

Anthony W. Swisher Squire Patton Boggs Washington, D.C.

Amanda Hamilton Haug Partners LLP Washington, D.C.

James Moore, III Skadden, Arps, Slate, Meagher & Flom Washington, D.C.

A Publication of the Health Care and Pharmaceuticals Committee of the Antitrust Section of the American Bar Association

Co-Chairs:

Seth Silber Wilson Sonsini Goodrich & Rosati Washington, D.C.

Leigh Oliver Hogan Lovells Washington, D.C.

Executive Editors:

Amanda G. Lewis Federal Trade Commission Washington, D.C.

Anthony W. Swisher Squire Patton Boggs Washington, D.C.

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Antitrust Health Care Chronicle June 2017

Introduction The U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) both recently evaluated the impact of value based contracting in determining the overall effects of two proposed healthcare mergers. In one merger, Federal Trade Commission v. Advocate Health Care,3 the FTC dismissed value based contracting as ineffective in leading to better health, and thus it could not save the merger from its anticompetitive effects. In the other, United States v. Anthem, Inc.,4 the DOJ lauded Cigna’s value based contracting (plus consumer-facing wellness programs) as bending the cost curve for patient health, but the defendants did not argue that this was the primary efficiency from the deal. While the Anthem court’s opinion did not reach a conclusion on whether value based contracting could overcome the loss of a competitor in evaluating a merger, the DOJ planted a seed that may develop in a future merger. When taken to its logical conclusion, it may be that value based contracting is either restricted to a tiny parcel out on the margins, or is a real and significant procompetitive benefit of many mergers.

2 The author would like to thank Mark Botti and Anthony Swisher for their invaluable contributions to this article.

3 2016 U.S. Dist. LEXIS 79645 (N.D. Ill. June 20, 2016).

4 2017 U.S. Dist. LEXIS 23613 (D.D.C. Feb. 8, 2017).

Value Based Contracting Background Over the past decade or more, the U.S. healthcare system has shifted a percentage of its payments to providers from a “fee for service” arrangement that pays physicians for each procedure, to a different approach with nicknames such as “value based contracting” (VBC), “value based care,” “collaborative care,” or “risk based care,” among others. One goal of value based contracting is to reduce the total number of healthcare procedures performed, by encouraging doctors to increase higher value care and keep people healthier. This kind of contracting attempts to integrate services, and shifts at least some of the risk for the total cost of care from plans to providers. The ultimate objective is global capitation (a fixed payment on a per member per month basis) to bring about a healthier population. Efficiencies and the Merger Analysis Framework The antitrust agencies regularly analyze hospital and health plan mergers. The agencies’ goal is to prevent mergers that would enhance market power.5 A merger enhances market power if it is likely to cause a firm “to raise price, reduce output, [or] diminish innovation.”6 Higher prices, lower output, and 5 U.S. Dep’t of Justice & Fed. Trade Comm’n, Horizontal Merger Guidelines, 2 (2010).

6 Id.

Value Based Contracting – Could it be A

Procompetitive Efficiency in the Antitrust Analysis Of Healthcare Markets?

Jody Boudreault 2

Squire Patton Boggs (US) LLP

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reduced innovation are potential anticompetitive effects of a merger. If these were the only effects, a merger would shrink consumer welfare, and the agencies would seek to enjoin it. But a merger may also have procompetitive effects, called efficiencies. Efficiencies might result in improved product quality, lead to lower prices or costs for consumers, or lead to innovative new products.7 Efficiencies are part of the overall assessment of competitive effects.8 The agencies routinely predict a firm’s post-merger incentives and decide whether they are more likely to lead to anticompetitive effects or procompetitive efficiencies.9 The ambiguity in what may count as an efficiency is clarified in the Horizontal Merger Guidelines. There, the agencies insist that efficiencies are to be substantiated in three ways. First, efficiencies must be “merger specific” – both a likely consequence of the merger and unlikely to result through contracting.10 A company’s post-merger plan to create better products, reduce product costs, or increase innovation, and a business assessment of contracts as an infeasible way to achieve these results is evidence of a merger specific efficiency. Second, efficiencies must be “cognizable” – not a savings that stems from anticompetitive output reductions but from something which makes the merged firm a better competitor.11 And third, efficiencies must be “verifiable,” through an evaluation of the merging parties’ analytical methods, data, and assumptions.12 7 Id. at 29.

8 U.S. Dep’t of Justice & Fed. Trade Comm’n, Commentary on the Horizontal Merger Guidelines, 49 (2006).

9 See Carl Shapiro, The 2010 Horizontal Merger Guidelines: From Hedgehog to Fox in Forty Years 77 Antitrust L.J. 727-28, 752-53 (2010).

10 Horizontal Merger Guidelines, supra note 4, § 10.

11 Id.

12 Id.

The FTC in Advocate analyzed the parties’ value based care efficiencies claims, but did not recognize them as procompetitive, that is, “cognizable.” Significantly, however, the DOJ in Anthem explained Cigna’s value based care products as output-enhancing. Output-enhancing indicates procompetitive. As will be discussed below, this theory of value based care as procompetitive supports the claim that Anthem marks a more profound cultivating of efficiencies doctrine than may initially be evident. Agency Analysis of Two Recent Healthcare Mergers

Federal Trade Commission v. Advocate Health Care13: VBC Is Not Merger-Specific or Cognizable If a merger efficiency requires something which will make the combined firm more competitive post-merger, would value based care qualify? Specifically, can a hospital that has a substantial amount of value based contracting merge with one that has very little value based contracting and claim the extension of VBC expertise from one to the other as procompetitive? Advocate, with 11 hospitals in its system and more than two-thirds of its commercial revenues from some form of value based contracts, attempted to merge with NorthShore, with 4 hospitals and just ten percent of its commercial revenues from value based contracts.14 NorthShore had no full risk capitated contracts.15 NorthShore argued that it needed the merger to “engage in large-scale full risk contracting” because it could not expand its risk

13 2016 U.S. Dist. LEXIS 79645 (N.D. Ill. June 20, 2016).

14 Id. at *4, *8 (N.D. Ill. 2016).

15 Defs.’ Proposed Findings of Fact & Conclusions of Law at ¶ 50, Advocate, No. 15-cv-11473 (N.D. Ill. filed May 27, 2016) (Dkt No. 467).

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contracting without broader geographic coverage and the appropriate tools and experience.16

Advocate’s Arguments

Advocate’s proprietary clinical practices

called AdvocateCare helped it “emerge as a leader in [population health management] and value-based health care.”17

Advocate’s total cost of care is lower than NorthShore’s.18

Advocate is better than NorthShore at keeping people healthy.19

NorthShore’s efforts to improve total health have not been successful.20

The merger “will improve the quality of care while reducing total costs as NorthShore incorporates and applies the [population health management] expertise and clinical integration quality measures that Advocate has developed.”21

16 Advocate, 2016 U.S. Dist. LEXIS 79645, at *8.

17 Defs.’ Proposed Findings of Fact & Conclusions of Law at ¶ 59, Advocate, (Dkt No. 467).

18 Id. ¶ 327.

19 Id. ¶ 332 (“Advocate’s belief in its ability to help lower utilization at NorthShore is not inconsistent with NorthShore’s belief that it is not providing unnecessary care; Advocate’s focus ‘is more longitudinal and population-based’ with the added focus of preventing patients from needing in-patient hospital care in the first place.”).

20 Id. ¶ 57.

21 Defs.’ Post-Hr’g Mem. in Opp’n to Pls.’ Mot. for Prelim. Inj. at 27, Advocate, No. 15-cv-11473 (N.D. Ill. filed May 20, 2016) (Dkt No. 463).

NorthShore Could Implement Value Based Care On Its Own: VBC Not Merger Specific

The FTC disputed that NorthShore needed to merge to expand into risk-based contracting. First, NorthShore already was involved in risk-based care and could continue without the merger.22 Even the hospitals did not deny that NorthShore could and would expand its value based contracting and population health management capabilities without the merger.23 Second, a number of third parties help hospitals manage risk, improve quality, and improve population health, and can achieve results within a year.24 And third, NorthShore did not measure the time and expense to achieve risk-based care goals independently as opposed to achieving them through the merger.25 Additionally, the FTC maintained that providers do not even need to engage in risk-based care to improve patients’ health because incentives to improve health also exist under fee for service arrangements.26 Rather, the FTC said, improved health results from how a provider performs on disease management, mortality, and readmissions.27

Advocate’s Value Based Care Model Does Not Lead to Better Health: VBC Not Cognizable

NorthShore already performed as well as or better than Advocate in quality, utilization, efficiency, and

22 Pls.’ Proposed Findings of Fact and Conclusions of Law at ¶¶ 133-38, Advocate, No. 15-cv-11473 (N.D. Ill. filed May 31, 2016) (Dkt. No. 468) (23% of NorthShore’s patient population treated under some form of risk-based contracting).

23 Pls.’ Post-Hr’g Br. at 29, Advocate, No. 15-cv-11473 (N.D. Ill. filed May 24, 2016) (Dkt. No. 464).

24 Id.

25 Id.

26 Pls.’ Proposed Findings of Fact and Conclusions of Law at ¶ 141, (Dkt. No. 468).

27 Id. at ¶ 140.

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population health outcomes.28 The FTC noted that “NorthShore is a well-respected and award-winning healthcare system that offers an exceptionally high quality of care.”29 “There is no empirical evidence that Advocate’s model leads to better outcomes for patients who use its healthcare system or better outreach to those who do not.”30 Because NorthShore’s quality is equal to or better than Advocate’s quality, the FTC predicted that the merger “may have no impact, or may even reduce NorthShore’s clinical care quality and efficiency.”31

The District Court Does Not Reach the Efficiencies Arguments

The district court denied the plaintiffs’ motion for a preliminary injunction based on an analysis of the relevant geographic market, and did not analyze claims related to population health or value based contracting.

28 Pls.’ Proposed Findings of Fact and Conclusions of Law at ¶¶ 127-32, (Dkt. No. 468).

29 Pls.’ Post-Hr’g Br. at 34, (Dkt. 464).

30 Id. at 35. The FTC’s view that capitation is not always synonymous with better health has additional evidentiary support. For example, LA Care, a Medicaid managed care provider in California, capitates payments for nearly all of its two million members. Jeff Goldsmith, California’s Coverage Expansion: Fiscal and Political Risks, Health Affairs Blog (May 30, 2017), http://healthaffairs.org/blog/2017/05/30/californias-coverage-expansion-fiscal-and-political-risks/. And yet, LA Care’s network “is plagued by . . . dramatic variation in quality performance.” Id.

31 Pls.’ Proposed Findings of Fact & Conclusions of Law at ¶ 152, (Dkt. No. 468); id. at ¶ 157 (“The significant variation in quality and population health outcomes across Advocate’s hospitals, and the fact that several Advocate hospitals perform below the national average on these metrics, raises serious doubts as to whether implementing the AdvocateCare model at NorthShore will actually lower costs or improve quality.”).

United States v. Anthem, Inc.32: VBC Is Output-Enhancing If a firm does not need value based care to improve population health, and does not need a merger to gain the expertise to implement value based care (either because it is already using value based contracting or because other firms can help it to successfully improve the health of its enrollees), is there any way that value based care could be a procompetitive efficiency? Anthem, a firm with high market shares and generally with the lowest provider rates, attempted to merge with Cigna, a much smaller firm offering products with integrated customer wellness programs and value based contracting. Anthem’s primary argument in favor of the merger was that it would be able to reduce rates to providers post-merger and pass those savings on to the employers who purchase administrative services from Anthem (known as ASO services).33

DOJ Says Output in a Healthcare Market Is Better Health

During the trial, Plaintiffs’ economic expert, Dr. Dranove, testified that the correct measure of output for antitrust analysis in this merger of two health plans is the health of a population, not the number of healthcare procedures undertaken:

And I just want to take a time out here to repeat something I said earlier about this concept of reductions in output . . . . In a

32 2017 U.S. Dist. LEXIS 23613 (D.D.C. Feb. 8, 2017).

33 Anthem’s Post-Trial Proposed Findings of Fact Phase I: “National Accounts” at ¶¶ 245-63, Anthem, No. 16-1493 (D.D.C. filed Dec. 20, 2016) (Dkt No. 417). Some employers self-insure, directly paying the cost of their employees’ medical expenses and bearing the risk that those costs may be higher than anticipated. These self-insured employers typically purchase ASO services. Firms such as Anthem sell ASO services, which include pre-negotiated rates in a designated provider network and health benefits claims administration.

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textbook economics market, say the market for widgets, in that market, the starting point is everybody loves widgets, and the more widgets we get, the happier we are. And if anything happens in the market to reduce the number of widgets that we get, that's harmful to consumers. Health economists understand that this is the wrong way to think about healthcare markets. Nobody goes into the healthcare marketplace wanting more healthcare services. I don’t go to my doctor and say, ‘That surgery was great. Give me another one’; and when they refuse to do it, I say, ‘You're restricting output. That’s bad for me.’ We understand that the right measure of output, if we can conceptualize it, is the health that the system is producing. And greater health is what we want. So people want more widgets. They also want more health. Greater health is often associated with less output, not more, and so I don’t want to use quantity as a standard for identifying whether this market is working or not. I really want to do it in terms of, say, quality of care, or ideally, if the data permitted, the health of a population.34

DOJ asserted that competition increases the health of a population and decreases the number of healthcare services used.35

34 Tr. of R. at 1008:22 – 1009:21, Anthem, (Nov. 28, 2016 PM session) (Dranove). 35 Pls.’ Proposed Findings of Fact: Phase I at ¶ 399, Anthem, No. 16-1493 (D.D.C. filed Dec. 20, 2016) (Dkt No. 416) (“Less competition in healthcare markets is not beneficial simply because it increases quantity. More

Anthem’s Arguments

At trial, Anthem argued that it has more and better collaborative care arrangements than Cigna:

Anthem currently has incentive programs for 50 percent of its spending, and more than 85 percent of its commercial hospital contracts.36

Anthem also argued that it “‘lead[s] the competition’ for value-based programming” and “has more value-based contracting than Cigna despite Anthem’s smaller geographic footprint.”37

The merger would provide more membership to make collaborative care more effective:

The merger would allow the company to expand Cigna’s provider collaborations and make them more effective by increasing membership density, in part through growth and in part through rebranding AmeriGroup Medicaid membership to Cigna outside Anthem’s Blue states.38

The merger would create a new product with some Cigna features mated to Anthem discounts:

Anthem argued that the merger would result in “a coupling of improved provider discounts with the features that make Cigna’s current offerings unique . . . . [M]uch of what makes Cigna’s offerings unique today are customer-facing features,

competition in the market is beneficial because it increases quality and decreases quantity.”) (internal citation omitted).

36 Anthem’s Post-Trial Proposed Findings of Fact Phase I: “National Accounts” ¶ 294, Anthem, No. 16-1493 (Dkt. 417).

37 Id. ¶ 295 (alteration in original).

38 Id. ¶¶ 296-97.

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such as wellness programs, specialty products, and international products.”39

And, Anthem would continue to have incentives to innovate:

It would “speed adoption of incentive-aligned collaborations across a global network[.]”40

“[T]he combined company would have incentives to innovate in its collaborative care arrangements with healthcare providers.”41

Cigna’s Integrated Value Based Care Products Keep its Enrollees Healthier And Lower the Cost of Better Health: VBC Cognizable

A focus throughout the trial was Cigna’s business model (the “benefit leader strategy”). DOJ described Cigna as integrating customer-facing wellness programs along with strong provider collaborations to reduce consumers’ need for expensive healthcare. The provider collaborations are built on value based care contracting, which “pays providers for achieving certain targets of health outcomes.”42 Cigna aligns “the incentives of insurers, providers, employers, and customers[,]” resulting in “improve[d] health outcomes,” which “lower total medical costs by reducing the number of unhealthy employees needing treatment.”43 Cigna’s strategy is successful: “78 percent of [Cigna’s provider collaborations] showed improvements in quality under a pay-for-value model.”44 “Cigna’s clients

39 Id. ¶ 4 (original emphasis deleted).

40 Id. ¶ 40.

41 United States v. Anthem, Inc., 2017 U.S. App. LEXIS 7521, *13 (D.C. Cir. Apr. 28, 2017).

42 Pls. Proposed Findings of Fact: Phase I at ¶ 50, Anthem, No. 16-1493 (D.D.C. filed Dec. 20, 2016) (Dkt No. 416).

43 Id. ¶ 47.

44 Id. ¶ 229 (alteration in original).

have achieved the lowest medical-cost trend among the four national insurers.”45 Thus, the evidence showed that even though Cigna’s input costs (provider rates) are higher than Anthem’s, Cigna is able to lower healthcare expenses to consumers through wellness programs and value based contracting that makes its enrollees healthier. Cigna costs consumers less for better health than Anthem does.

DOJ Predicts the Anthem/Cigna Merger May Make the Combined Firm Less Innovative

DOJ then assessed the effects of the merger due to changed incentives to innovate around value based care. DOJ first argued that “Cigna is innovating because of its distinct position in the marketplace as a firm that can’t compete in the old-fashioned way of getting discounts.”46 Next, DOJ argued that Anthem currently has less incentive to innovate than Cigna because Anthem’s competitive strength is based on having the lowest provider discounts.47 Post-merger, Cigna will have less incentive to innovate because it will “occup[y] a very different position in the marketplace”.48 But because Anthem’s current innovations are, “to a large extent” in response to competition from Cigna, the elimination of Cigna means that after the merger Anthem (and other rivals) will also have less incentive to innovate.49

45 Id. ¶ 223.

46 Tr. of R. at 968:20-22, Anthem, (Nov. 28, 2016 PM session) (Dranove).

47 Pls.’ Ex. PDX005 at 53, Anthem, available at https://www.justice.gov/atr/page/file/914606/download.

48 Tr. of R. at 968:23-25, Anthem, (Nov. 28, 2016 PM session) (Dranove).

49 Pls.’ Ex. PDX005 at 55, Anthem; Tr. of R. at 983:11-15, Anthem, (Nov. 28, 2016 PM session) (Dranove).

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Moreover, DOJ argued, the larger scale of the combined company would not lead to more value based care because both already have sufficient scale to innovate and to capture the benefits of innovation, as demonstrated by their current innovations.50

The District Court’s Analysis

The district court did not believe that Anthem’s value based care is better than Cigna’s, suggesting that Cigna’s approach adds value to the consumer while Anthem’s approach simply uses incentives to reduce the number of procedures.51 The district court also did not believe that Anthem would be able to create a new product marrying Cigna’s benefit leader strategy with Anthem’s discount leader strategy.52 Because of Anthem’s size, the district court believed that Anthem could have created a new product on its own.53 As for Cigna, the judge found that Cigna’s products improve health.54 In the end, the court

50 Pls.’ Ex. PDX005 at 56, Anthem.

51 Anthem, 2017 U.S. Dist. LEXIS 23613, at *25-26 (D.D.C. Feb. 8, 2017) (“While Anthem has also moved to incorporate quality and cost savings incentives into its provider contracts, Cigna has sought to differentiate itself with its approach towards reducing costs by increasing health.”).

52 Id. at *176 (“[T]he Cigna model depends upon collaboration, and . . . it takes a higher level of compensation to encourage and enable physicians and hospitals to participate in the arrangements that are aimed at lowering utilization and are central to the value based approach and medical cost trend guarantees that Cigna is selling.”).

53 Id. at *19 (“[T]here is nothing stopping Anthem from improving its wellness programs, or any other offerings that Cigna now does better, on its own.”).

54 Id. at *26 (“Cigna has sought to differentiate itself with its approach towards reducing costs by increasing health. . . . [A]nd there was some testimony from medical personnel that the approach is working.”).

concluded that the effect of the merger would be to lose the Cigna innovation that leads to improved health.55 To sum up,

The correct measure of output in healthcare markets is the health of the population;

Cigna’s value based care strategy today results in healthier enrollees, and therefore greater output;

Implied is that value based care that results in healthier people is likely a cognizable efficiency;

The market share leader with the lowest input costs has fewer incentives to do value based contracting well, especially after it acquires the most successful value based contractor;

Anthem does not need the merger to increase its value based contracting because it is already involved; and

This merger would lead to reduced health of the population, that is, reduced output.

After Anthem: Value Based Contracting Becomes a Potential Efficiency One possible bright line rule that may have emerged from DOJ’s advocacy in Anthem is that if evidence shows that value based care improves population health, than it is a cognizable efficiency. Based on Advocate and Anthem, what generalizations are possible regarding competitive effects? To address this question, consider the following hypothetical. Firm A is a large health insurer with a significant amount of value based contracting experience, as well as the IT and data analysis expertise that is necessary for successful value based care. Evidence shows that Firm A’s value based contracts have improved population health. Firm C 55 Id.

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is a much smaller health insurer with no fully capitated provider contracts, but high quality care nonetheless. Firms A and C decide to merge, and argue that the merger will improve the total health of the population, reducing costs for all of its consumers. What does Anthem tell us about how the DOJ might approach the competitive effects analysis of this merger? Anthem forces us to analyze the value based care as a procompetitive efficiency because it is linked to better health outcomes, and therefore greater output and lower costs for consumers. Once it is established that one party’s value based care is procompetitive (i.e., cognizable), leading to better health and lower costs, the analysis is more complicated. At this point, the parties would have to articulate why the extension of value based care (and the data analytics and IT expertise) from Firm A to Firm C is a merger specific efficiency. Perhaps the merger is the fastest and least expensive way to extend better health to Firm C’s enrollees through value based care. Perhaps the combined company, with its greater resources and market share would have a greater incentive to keep consumers healthier by being better able to capture the profits from high quality risk-based care. Or perhaps the combined firm’s expertise or size would allow it to implement high quality value based care in a new, innovative way. Consider a slightly different hypothetical. What if Firm A is the largest health insurer in the relevant market with a significant amount of value based contracting experience. Firm C is a smaller health insurer with all fully capitated provider contracts, and high quality care. Evidence shows that Firm C’s products have improved population health, and that Firm C’s enrollees have the lowest medical-cost trend among the largest insurers. Firms A and C decide to merge, and argue that the merger will improve the total health of the population, reducing costs for all of its consumers by taking Firm C’s successful value based care and distributing it to all of Firm A’s enrollees.56 What does Anthem tell us

56 In the related litigation of Anthem, Inc. v. Cigna Corp., C.A. No. 2017-0114-JTL (Del. Ch. 2017), Cigna said it had advocated for this approach: “[T]he kind of pro-competitive efficiencies that might have assuaged the DOJ’s concerns about the merger” included “efficiencies

about how the DOJ might approach the competitive effects analysis of this merger? Again, Anthem would force us to analyze Firm C’s value based care as a procompetitive, cognizable efficiency because it is linked to greater output of better health and lower total healthcare costs for consumers. The parties then would have to show evidence that post-merger they would have incentives and a plan to roll out Firm C’s approach to Firm A’s customers. As in the actual Anthem case, it may be very difficult to show that the much larger firm with some market power would now have a different incentive to improve its products and also would be unable to improve its products without the merger. Of course, perhaps Firm C has spent a decade or more developing its high-quality products with the associated IT and analytics capabilities, and it would be very unlikely for another firm to be able to copy those products within a two-year timeframe. And, perhaps another firm with a value based care business model similar to Firm C’s model remains in the market post-merger and provides the competitive incentive for the merged firm to roll out Firm C’s value based care to all of Firm A’s enrollees.

Conclusion The well-counseled merging healthcare firms that can show that their value based care improves population health will have an efficiencies argument to make to the antitrust agencies. Next, they will have to provide evidence that the transfer of value based care expertise from one firm to another is merger-specific. If they can do this, it is possible that future merging parties may be able to show that the procompetitive benefits of value based care are large enough to counteract the loss of a competitor.

from expanding Cigna’s value-based care programs over a larger [Anthem] network[.]” Cigna Corp.’s Br. in Opp’n to Anthem, Inc.’s Mot. for a Prelim. Inj. at 22-23, Anthem, Inc. v. Cigna Corp., C.A. No. 2017-0114-JTL (Del. Ch. filed May 8, 2017) (Dkt No. 360).

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The authors of this article submitted an amicus brief for the American Medical Association in support of the Appellees in the appeal of the Anthem merger case.1 Much of this article comes from that Amicus Brief. The cites will be to the record in that case. The authors are also lead counsel for the Providers in the Blue Cross & Blue Shield Antitrust Litigation.2

Introduction An important lesson from the recent Anthem–Cigna merger trial is that innovation in healthcare is extremely important and that using market power to pay healthcare providers lower reimbursement rates stifles innovation. As a result, those lower reimbursement rates diminish consumer welfare. Anthem and the other Blue Crosses and Blue Shields have followed a strategy of paying lower reimbursement prices to healthcare providers than other health insurance companies. To Anthem, the most important financial consequence of a merger with Cigna was the ability to reduce payments to healthcare providers by billions of dollars largely by applying its low reimbursement rates to Cigna’s members. Anthem described these savings, to the extent they are passed onto employers and patients, 1 United States of America v. Anthem, Inc., ___ F.3d ___, No. 17-5024 (D.C. Cir. Apr. 28, 2017), affirming 2017 WL 685563 (D.D.C. Feb. 21, 2017).

2 MDL No. 2406, Case No. 2:13-cv-20000-RDP (N.D. Ala.).

as an increase in “consumer welfare” that outweighed the distortions to the health insurance market that the merger would have caused. But paying providers less comes with significant costs: it will damage patient care, stifle innovation, and cause patients to use more healthcare services. Anthem’s claim that the merger would have enabled it to offer a new product—Cigna’s products at Anthem’s prices—was contradicted by the evidence at trial and the experience of the market. As the D.C. Circuit has now held, the district court was right to reject Anthem’s “efficiencies” as neither verifiable nor merger-specific and to enjoin the merger.3

How Health Insurers Can Reduce Costs While Paying Higher Rates To Providers Imagine two health insurers. Both have contracts with large national employers to administer those employers’ health plans and provide access to the insurers’ networks of healthcare providers. One insurer, Insurer A, tries to keep costs low by using its market power to drive down the prices it pays for providers’ services. Insurer C tries to keep costs low through programs designed to keep its plan members healthy. Even though Insurer C typically pays providers at a higher rate to compensate for the investment of time and money these programs

3 Anthem filed a petition for certiorari, but since the merger efforts have now been terminated, the petition is now moot.

The Importance of Innovation in Healthcare: Lower Reimbursement Rates To

Providers Do Not Mean Lower Healthcare Costs

Joe Whatley, Edith Kallas, and Henry Quillen

WhatleyKallas, LLP

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require, it remains competitive because its members stay healthier and require less healthcare. Now imagine two employers, X and Y, who are both self-insured. Employer X, attracted by Insurer A’s low prices, contracts with Insurer A to administer its health plan. Thus, Employer X pays the costs of its employees’ healthcare, and it also pays Insurer A for the costs of processing claims and other administrative tasks. The employees of Employer X do not have access to extensive wellness programs. Employer X’s employees receive favorable pricing for healthcare services, but they are less healthy and use more of those services. Employer Y, attracted by Insurer C’s extensive wellness programs, contracts with Insurer C, even though it pays more for the individual healthcare services its employees use. Employer Y values the programs Insurer C offers, which improve the health of its workforce. Although Employer Y pays more for any given healthcare service, it pays less than Employer X in the long run because its employers need fewer services. Who is better off, Employer X and its employees, or Employer Y and its employees? Employer X’s employees are sicker, visit the doctor more often, and spend more on healthcare. Employer Y’s employees are healthier, visit the doctor less often, and spend less on healthcare. The illogical assumption at the heart of Anthem’s position was that Employer X is better off solely because it gets better prices for the services its employees use. Looking only at the fees that Anthem and Cigna paid for various services, Anthem claimed that the difference between its generally lower fees and Cigna’s generally higher fees represents “consumer welfare” that the district court improperly ignored.4 This argument ignores extensive record evidence that Anthem and Cigna buy different services from providers.5 Thus, the court properly found that Anthem’s promised transformation of Cigna plans was not akin to bulk purchasing discounts or similar efficiency enhancements. Indeed, it found that, rather than causing an increase in output or quality,

4 Anthem Br. at 10–19.

5 GSA111 (Government’s Supplemental Appendix).

Anthem’s reimbursement cuts could cause quality to degrade and patients to be deprived of choice.6 But even if Anthem could lower Cigna’s fees after a merger, Anthem never explained how or why healthcare providers, having lost significant revenue, would continue to invest in the programs they and Cigna use to keep patients healthy. Anthem’s assertion that “a change in a provider’s contracted rates does not result in changes to the customer-facing programs the insurer offers pursuant to customer contracts, and vice versa,”7 was unsupported and was extensively contradicted at trial. It also ran counter to the experience of healthcare providers, who are on the front lines of the development of new strategies for delivering healthcare, and to a basic purpose of the antitrust laws, which is to set prices through competition. The Court of Appeals rejected Anthem’s argument, referring to “the abrasion problem” that results when the lower Anthem rates will result in providers “offering customers less in the way of Cigna high-touch service.”8 Therefore, the district court correctly refused to save an otherwise anticompetitive merger on the basis of Anthem’s proposed pay cuts. New Models of Collaborative Care Like Cigna’s Improve Consumer Welfare by Focusing on the Health Of The Patient Population Spending on healthcare in the United States is large and growing, and it has been for decades. In 2015, healthcare spending totaled almost $10,000 per person, representing 17.8% of the nation’s gross

6 GSA125–26 (citing testimony of Cigna’s Chief Executive Officer that substituting Anthem for Cigna would “dramatically unwind” Cigna’s collaborative relationships with providers and “rapidly destroy the Cigna value proposition”).

7 Anthem Br. at 33.

8 Slip Opinion at 26-27.

12


domestic product.9 Needless to say, it is vital that spending on healthcare be as efficient and effective as possible. An important trend in controlling healthcare spending is the shift from traditional “fee-for-service” medicine,10 in which insurers reimburse healthcare providers for their services without respect to the quality of those services, to “value-based” purchasing, which adjusts payments to account for the quality of services and providers’ ability to keep their patients healthy.11 The idea behind this shift is that reducing the amount of healthcare services that patients require (“reducing utilization,” in industry parlance) will reduce overall medical costs. With the adoption of the Medicare Access and CHIP Reauthorization Act of 2015, Congress created strong incentives to move the

9 Centers for Medicare and Medicaid Services, National Health Expenditures 2015 Highlights, https://www.cms.gov/Research-Statistics-Data-and-Systems/ Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/ highlights.pdf.

10 One of the most recent issues of Health Affairs addresses innovation in healthcare. “Organizations seeking to create innovative environments need to address a number of factors. These include making available sufficient resources – especially money and space . . ..” D. Bates, A. Sheikh, D. Asch, “Innovative Environments in Health Care: Where and How New Approaches to Care Are Succeeding,” Health Affairs, Mar. 2017, 400, 401. When health insurance companies pay healthcare providers low rates, the providers are deprived of the resources to be able to innovate. One example of the cost of innovation is that tracking patients to make sure they are receiving the best healthcare possible requires expensive IT systems. The authors in this article further recognized that: “part of the slow pace of innovation stems from the health care payment system.” The evidence from Cigna demonstrated that it is extremely difficult to reform the payment system while reducing reimbursement rates.

11 GSA119–21. See also Centers for Medicare and Medicaid Services, Better Care. Smarter Spending. Healthier People: Paying Providers for Value, Not Volume, https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2015-Fact-sheets-items/2015-01-26-3.html.

nation to value-based, coordinated care.12 That movement is reverberating in the commercial insurance sector.13

Although value-based purchasing may reduce overall medical costs, providing healthcare services under a value-based contract requires greater investments of time and money than a fee-for-service arrangement does. At trial, Cigna’s Chief Executive Officer gave the example of using a nurse or health coach to sit down with a patient for thirty minutes or more to help the patient understand his pharmaceuticals and dietary needs—longer than a physician can typically give for these topics.14 Evidence at trial also showed the importance of collaboration between insurers and providers in developing value-based programs, as opposed to a “one size fits all” or “take it or leave it” approach like Anthem’s.15 For instance, the Chief Executive Officer of Granite Health, a partnership of New Hampshire hospitals, described how Granite Health and Cigna worked together to identify the best metrics for evaluating the quality of patient care, and how Cigna pays a “care coordination fee” that has allowed Granite Health to save money while maintaining its quality.16 In short, finding innovative ways to improve patients’ health and reduce costs requires collaboration and investments that Cigna has been more willing to undertake than Anthem. Accepting Anthem’s claims would have turned the efficiencies defense on its head, rewarding Anthem for playing

12 See 42 U.S.C. § 1395w-4(q).

13 For a general discussion of the expansion of value-based reimbursement for healthcare providers, see Bruce Merlin Fried and Jeremy David Sherer, Value-Based Reimbursement: The Rock Thrown Into The Health Care Pond, Health Affairs Blog (July 8, 2016), http://healthaffairs.org/blog/2016/07/08/value-based-reimbursement-the-rock-thrown-into-the-health-care-pond/.

14 Tr. 418:15–24 (Trial Transcript).

15 GSA111, 120 n.50, 121 n.51.

16 JA549:2–553:13 (Joint Appendix).

13


catch-up through an acquisition instead of developing its own products as a result of competition.

Anthem’s “Best-of-Best” Strategy for Reducing Provider Reimbursement Would Damage Patient Care and Consumer Welfare The foundation of Anthem’s appeal was the idea that a merged company would supply Cigna-quality products at Anthem’s lower prices.17 The “billions of dollars in lower healthcare costs” that Anthem touted18 come from a so-called “best-of-best” methodology developed by Anthem’s expert Dr. Mark Israel. He “calculated what the savings would be if the lowest provider rates already negotiated by Anthem were made available to existing Cigna customers, and if the prevailing Cigna rates were made available to existing Anthem customers in the few instances where the Cigna rates were lower.”19 20

Even if Anthem were to give its customers all the savings from “best-of-best” pricing,21 the resulting social harm from lower quantity and quality in the market for healthcare services would undermine the benefit of these savings. Anthem never explained at trial how the merged company could force Anthem’s providers to participate in Cigna’s resource-intensive

17 Anthem Br. at 5, 17, 34.

18 Id. at 8.

19 GSA95–96.

20 While Anthem’s rates are usually lower, there was testimony that some providers agree to contract with Cigna at lower rates “to help it sustain its collaborative model and compete against the more dominant Anthem and United.” GSA115. This incentive to offer lower rates to Cigna will be lost if Anthem and Cigna merge.

21 It is doubtful that the merged company would pass on all its savings, for the reasons described in the district court’s opinion and the government’s brief. GSA126–27; Appellees’ Br. 58.

programs without an increase in compensation, or how it could force Cigna’s providers to continue to offer those programs for less compensation. Dr. Israel admitted that he had not analyzed the issue in any detail.22 Even in its own appeal brief, Anthem’s citation for the proposition that “[t]he merger will allow the combined firm to offer those lower discount rates to Cigna customers” was testimony by the government’s expert, Dr. David Dranove, that the merger might make it more difficult for the combined company to implement Cigna’s innovative models of care.23 Thus, the record in this case demonstrated the exact opposite of Anthem’s argument.

Further, the evidence showed that imposing “best-of-best” rates on providers would destroy consumer welfare by undermining the collaborative relationships with providers for which Cigna is known.24 Cigna’s Chief Executive Officer discussed concerns that trying to combine Anthem’s and Cigna’s offerings would cause Cigna’s clients to “have an erosion [of] value so their costs will go up because discounts would erode or collaboratives become dismantled.”25 And the government’s expert, Dr. Dranove, testified that “trying to push [Anthem’s] rates on to Cigna’s existing providers . . . could interfere with collaborative relationships that have currently been established and ultimately reduce the quality of the product.”26 The evidence at trial echoed what state medical associations learned when they canvassed their members about the likely effects of an Anthem–Cigna merger. Of the nearly one thousand physicians who responded to a survey by the California Medical Association, 89% said that it was very likely or somewhat likely that “[r]eimbursement rates for physicians will decrease such that there would be a

22 GSA105.

23 Anthem Br. 17 (citing JA324:16–325:9).

24 GSA119.

25 Tr. 493:22–494:4.

26 Tr. 2313:5–9.

14


reduction in the quality and quantity of the services that physicians are able to offer patients.”27 Eighty-two percent reported that they would be very likely or somewhat likely to feel pressured not to engage in aggressive patient advocacy as a result of the merger.28 Surveys in other states found similar results.29 In addition to the immediate effect of Anthem’s single-minded drive to pay healthcare providers less, there are concerns about the long-term effect on the medical profession and consumers. The district court found no evidence that the rates charged by providers within Anthem’s service area are “inflated due to the providers’ market power.”30 Therefore, reducing reimbursement to providers will likely reduce patient care and access by motivating physicians to retire early or seek opportunities

27 California Medical Association, CMA Survey Shows Strong Physician Opposition to Health Insurer Market Consolidation (Mar. 28, 2016) at 14 (California Medical Association Survey), https://www.cmanet.org/files/assets/ news/2016/03/merger-survey-results-032816.pdf.

28 Id.

29 Medical Association of Georgia, Summary of the Medical Association of Georgia’s Survey Concerning Proposed Mega-Health Insurance Mergers, http://www.mag.org/sites/default/files/downloads/SUMMARYOFMAGSURVEYONPROPOSEDMEGA-HEALTHINSURANCEMERGERS.pdf; Memorandum to Colorado Medical Society (Feb. 16, 2016), https://drive.google.com/file/d/ 0B6oiUaUvJzHbdDNCd05reklrSzQ/view; Missouri State Medical Association, Summary of the Missouri State Medical Association’s Survey Concerning Proposed Mega-Health Insurance Mergers, http://www.msma.org/uploads/ 6/2/5/3/62530417/msma_physician_survey_on_insurance_mergers.pdf; Medical Society of Virginia, Medical Society of Virginia Merger Survey Summary, https://goo.gl/6O4goC; Statement of the American Medical Association to the Indiana Department of Insurance Re: Anthem Application for the Proposed Acquisition of Cigna (Apr. 26, 2016), https://www.ismanet.org/pdf/news/ AMAStatementtotheIDOI4266.pdf.

30 GSA128.

outside of medicine that are more rewarding, financially or otherwise. A recent survey by the Physicians Foundation showed that 48% of physicians plan to cut back on hours, retire, take a non-clinical job, switch to “concierge” medicine, or take other steps limiting patient access to their practices.31 According to a study released by the Association of American Medical Colleges, the U.S. will face a shortage of between 61,700 and 94,700 physicians by 2025.32 An Anthem–Cigna merger threatened to swell these figures; the California Medical Association found that 15% of California physicians believed that were they not able to contract with a merged Anthem and Cigna, they would have had to close their practice.33 Given that there are already too few physicians, it would not enhance consumer welfare to drive down reimbursements so far that physicians are driven from the practice of medicine.

These findings are consistent with the conclusions of academics and consumer advocates who examined the merger while it was pending. Professor Leemore Dafny, a Harvard economist who focuses on the healthcare industry, testified to the United States Senate:

[E]ven if price reductions [for healthcare services] are in fact realized and passed through [to consumers], if they are achieved as a result of monopsonization of healthcare service markets then consumers may experience an offsetting harm. Monopsony is the mirror image of monopoly; lower input prices are achieved by reducing the quantity or

31 The Physicians Foundation, 2016 Survey of America’s Physicians: Practice Patterns and Perspectives at 7, http://www.physiciansfoundation.org/uploads/ default/Biennial_Physician_Survey_2016.pdf.

32 American Association of Medical Colleges, 2016 Update: The Complexities of Physician Supply and Demand: Projections from 2014 to 2025 (Apr. 5, 2016), https://www.aamc.org/download/458082/data/2016_complexities_of_supply_and_demand_projections.pdf.

33 California Medical Association Survey, supra note 6, at 12.

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quality of services below the level that is socially optimal.34

At the same hearing, the Senior Policy Counsel of Consumers Union testified that “a dominant insurer could force doctors and hospitals to go beyond trimming costs, to cut costs so far that it begins to degrade the care and service they provide below what consumers value and need.”35

In fact, the California Department of Insurance cited this very concern when it recommended that the United States challenge the merger: “Allowing Anthem to increase its already enormous bargaining power will further limit network size and excessively squeeze reimbursement rates, thereby discouraging provider contracting and unacceptably reducing consumer choice and quality of care.”36 The Department of Insurance also pointed out that it had discovered that Anthem violated laws regarding claims handling 16,000 times, and that the California Department of Managed Health Care ranked Anthem third worst among ten companies on “coordination of care.”37 Describing a merger between United Healthcare and PacifiCare in 2005, the Department of Insurance noted that while the combined company

34 Testimony of Leemore S. Dafny, Ph.D before the Senate Committee on the Judiciary, Subcommittee on Antitrust, Competition Policy, and Consumer Rights (Sept. 22, 2015) at 10, https://www.judiciary.senate.gov/imo/media/doc/09-22-15%20Dafny%20Testimony%20Updated.pdf.

35 Statement of George Slover before the Senate Committee on the Judiciary, Subcommittee on Antitrust, Competition Policy, and Consumer Rights (Sept. 22, 2015) at 3, https://www.judiciary.senate.gov/imo/media/doc/09-22-15%20Slover% 20Testimony.pdf.

36 Letter from Dave Jones, California Insurance Commissioner, to Loretta E. Lynch, United States Attorney General, and Renata B. Hesse, Principal Deputy Assistant Attorney General (June 16, 2016) at 13, http://www.insurance.ca.gov/ 0400-news/0100-press-releases/2016/upload/LetterUSDOJAnthem-Cigna06-16-16.pdf.

37 Id. at 11.

met its cost-cutting goals, it did so at the expense of quality and service; after the merger, PacifiCare violated the California insurance laws more than 900,000 times.38

On this point of monopsony power, it should be recognized that even Judge Kavanaugh’s dissenting opinion would not have resulted in a victory for Anthem. As he stated: “Notably, even Anthem-Cigna concedes that the merger would be unlawful if the merger would give Anthem-Cigna monopsony power in the upstream market.”39 His dissenting opinion would have resulted in a remand for the District Court to decide: “Would Anthem-Cigna obtain lower provider rates from hospitals and doctors because of its exercise of unlawful monopsony power in the upstream market where it negotiates rates with healthcare providers?”

In the end, Anthem’s proposed “efficiencies” from reducing payments to healthcare providers are a chimerical free lunch—a way to get something for nothing. “There ain’t no such thing as a free lunch, even in the insurance business.”40

Agreements Between Purchasers to Depress Provider Prices Are Manifestly Anticompetitive While the district court did not categorically decide whether implementing “best-of-best” pricing would always violate the antitrust laws, it rightly questioned whether an agreement to depress prices for healthcare services is a cognizable efficiency.41 The court concluded:

[S]ince [Anthem’s] efficiencies defense is based not on any economies of scale, reduced transaction costs, or production

38 Id. at 13–14.

39 Slip Opinion at 13.

40 Great Lakes Dredge & Dock Co. v. City of Chicago, 260 F.3d 789, 794 (7th Cir. 2001).

41 GSA123–26, GSA130.

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efficiencies that will be achieved by either the carriers or the providers due to the combination of the two enterprises, but rather on Anthem’s ability to exercise the muscle it has already obtained by virtue of its size, with no corresponding increase in value or output, the scenario seems better characterized as an application of market power rather than a cognizable beneficial effect of the merger.42

It is absurd to suggest that an agreement between purchasers to lower their purchase prices solely through an exercise of buyer-side market power should be seen in the merger context as a procompetitive efficiency powerful enough to offset other anticompetitive effects of the merger. Mergers whose effect may be to lessen competition substantially among buyers have been found to violate Section 7 of the Clayton Act.43 As in those cases, the plaintiffs here challenged the merger between buyers of provider services as a Section 7 violation. Further, cases decided under Section 1 of the Sherman Act show why an agreement to depress purchase prices cannot be treated as a procompetitive efficiency. For example, in Mandeville Island Farms v. Am. Crystal Sugar Co., the Supreme Court concluded that an agreement among purchasers to lower their purchase prices is no less serious than that of a price-fixing agreement by sellers and is unlawful per se, without regard for any potential benefit to consumers.44 Because

42 GSA130.

43 See United States v. Rice Growers Ass’n of Cal., No. S-84-1066, 1986 WL 12562, at *12 (E.D. Cal. Jan. 31, 1986) (acquisition would substantially lessen competition in the purchase of paddy rice in California); United States v. Pennzoil Co., 252 F. Supp. 962, 985 (W.D. Pa. 1965) (merger would substantially lessen competition in the purchase of Penn grade crude).

44 334 U.S. 219, 235, 242 (1948). Other cases include Knevelbaard Dairies v. Kraft Foods Inc, 232 F.3d 979, 988 (9th Cir. 2000) (“[T]he central purpose of the antitrust laws, state and federal, is to preserve competition[,]” and cases discussing competition causing low prices for consumers “do not mean that conspiracies

agreements between purchasers to depress input prices are manifestly anticompetitive, the district court was justified in doubting Anthem’s contention that its otherwise anticompetitive merger was redeemed by using its newly acquired market power to depress prices. Other Lessons from the Merger-Related Litigation Because of related litigation, the Anthem merger presents unique insight into considerations for any merger in the health insurance industry. In an effort to keep the merger alive, Anthem brought an action in the Court of Chancery in Delaware.45 Anthem obtained a temporary restraining order preventing Cigna from terminating the merger agreement and on May 11, 2017, lost its motion for a preliminary injunction to keep the merger agreement in effect. The next day, Anthem announced that it was terminating the merger.

Cigna’s Brief in Opposition to Anthem’s Motion for a Preliminary Injunction, filed on May 8, 2017 (“Cigna Opp.”), contains a detailed but at times highly redacted description of the process through which Anthem and Cigna agreed to merge and under which the Department of Justice was considering the

among buyers to depress acquisition prices are tolerated”); Khan v. State Oil Co., 93 F.3d 1358, 1361 (7th Cir. 1996) (Posner, J.), vacated on other grounds, 522 U.S. 3 (1997), cited with approval in Weyerhaeuser Co. v Ross-Simmons Hardware Lumber Company Inc., 549 U.S. 312, 322 (2007) (monopsony price fixing “is analytically the same as monopoly or cartel pricing and so treated by the law”); see also W. Penn Allegheny Health Sys. Inc. v. UPMC, 627 F.3d 85, 105 (3d Cir. 2010) (holding that an alleged agreement between a hospital system and a health insurer to reduce the plaintiff hospital’s reimbursement rates “was anticompetitive and cannot be defended on the sole ground that it enabled [the insurer] to set lower premiums on its insurance plans”); Todd v. Exxon Corp, 275 F.3d 191, 214 (2d Cir. 2001) (Sotomayor, J.) (holding that an agreement to exchange salary information violated Section 1 where the effect was to depress salaries).

45 Anthem v. Cigna, C.A. No. 2017-0114-JTL.

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proposed merger. Anthem is the largest licensee of the Blue Cross & Blue Shield Association, and along with the other thirty-five licensees, it has agreed to operate under the Association rules.46 Those other licensees include some of the largest health insurance companies in the country, including the fourth largest, and two additional health insurance companies in the top ten. Fifteen of the largest twenty-five health insurance companies in the country are Blues. Because of the Association rules on territorial restrictions, these Blue health insurance companies cannot compete as Blues in any way. Because of what the Blues and the Association call “best efforts” rules, the thirty-five licensees are also restricted in the amount of non-Blue competition they can have, an issue that was central in the Anthem–Cigna merger litigation. Because of the BlueCard program that the Blues have developed, every Blue gets to pay the same price to providers for their services. For example, although Illinois is not in one of Anthem’s exclusive service areas, it has members in Illinois whose employers are located in those areas. HCSC, which operates as Blue Cross & Blue Shield of Illinois, is the only Blue with which a provider may contract if it wants to treat these patients. When one of these patients sees an Illinois provider, the Blues’ rules entitle Anthem to pay the provider at HCSC’s contracted rate. When it became clear that the Department of Justice was going to sue to block the Anthem-Cigna merger, Anthem made last-minute efforts of divestiture to get the merger approved. The problem is that those efforts were with other Blues and because of the inter-connections and anti-competitive restrictions, the Department of Justice would not approve a divestiture from one Blue to another.47

As it relates to this article, if Blue One were to divest members to Blue Two, thereby increasing Blue Two’s market power in dealing with providers, the result would be reduced payments to those providers and lower consumer welfare in the manner discussed above. As Cigna described the issue: “Two of Anthem’s proposed divestiture partners were also Blues members. As Cigna noted, the DOJ would not

46 Cigna Opp. at 4.

47 Cigna Opp. at 24.

view other Blues member as viable divestees – the whole anticompetitive trouble with the deal was concentrating market power in the Blues network and so divesting to another Blue achieved nothing.”48 Also, Blue One would benefit because it has other members in Blue Two’s service area. When 15 of the 25 largest health insurance companies in the country are taken out of the divestiture consideration, divestiture opportunities are limited.

Through the Anthem-Cigna merger consideration process, the regulators learned a great deal about the Blues system. Any future mergers among Blues will now be considered against this backdrop.

Finally, the House of Representatives has now passed Trumpcare (formally named the “American Health Care Act of 2017”), and if anything like the House Bill becomes law, it would greatly increase the numbers of uninsured patients and greatly decrease the amount of Medicaid payments. Given the possible shock of Trumpcare to healthcare providers, any merger that would also reduce payments to healthcare providers would cause many of them to go out of business or at least to reduce services significantly. The negative consumer welfare effect would be enormous.

Conclusion

The record and findings in the Anthem merger case demonstrate that the strategy of Anthem and the other Blues to pay the lowest reimbursement rates to healthcare providers does not increase consumer welfare. At this point in the development of our healthcare industry, innovation is essential to providing high quality healthcare while combatting increases in costs. Cigna’s success in innovating to achieve high quality healthcare while paying higher reimbursement rates demonstrates that the Blues, including Anthem, should consider a different pricing strategy in order to increase consumer welfare.

48 Id.

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Introduction Market definition has been a central point of contention in many of the healthcare merger cases that were challenged and litigated by the Federal Trade Commission (FTC) and U.S. Department of Justice (DOJ) in the last few years. In hospital merger challenges, the primary dispute has been over the definition of the relevant geographic market, including in Advocate-NorthShore (whether hospitals in downtown Chicago represent network alternatives for commercial insurers in lieu of hospitals in the northern suburbs of Chicago) and Hershey-Pinnacle (whether commercial insurers could market a health plan network to Harrisburg-area residents that excluded Harrisburg-area hospitals).2 In health insurance merger challenges, the dispute over market definition has focused on, alternately, the relevant product market in Aetna-Humana, and both the relevant

1 Paul Wong, Ph.D., is an economist and Senior Consultant in the Los Angeles office of NERA Economic Consulting. Subramaniam (“Subbu”) Ramanarayanan, Ph.D., is an economist and Associate Director in the New York City office of NERA Economic Consulting. Both authors participated in the DOJ’s investigation of the Aetna-Humana merger, and contributed to analyses presented on behalf of Aetna, Inc. The views expressed in this article represent those of the authors alone and do not represent the views of Aetna, Inc. or Humana, Inc. 2 FTC v. Advocate Health Care Network, et al., No. 1:15-cv-11473, 2016 WL 3387163 (N.D. Ill. Jun. 20, 2016); Federal Trade Commission, et al., v. Penn State Hershey Medical Center, et al., No. 16-2365, 2016 WL 5389289 (M.D. Pa. Sept. 27, 2016).

product and geographic markets in Anthem-Cigna.3 This focus on market definition by the federal antitrust agencies and courts has persisted in spite of the relative de-emphasis on market definition in the 2010 Horizontal Merger Guidelines,4 which further promoted the analysis of direct competitive effects compared to earlier versions.5 The Guidelines prescribe the use of the “Hypothetical Monopolist Test” to define the relevant product and geographic markets, and all of these recent merger cases exhibited at least some reference to this test. As explained in the Guidelines, the Hypothetical Monopolist Test seeks to answer the following question: What is the set of products and geographic regions such that a single firm

3 United States of America, et al. v. Aetna Inc., et al., No. 16-1494, 2017 WL 325189 (D.D.C. 2017); United States of America, et al. v. Anthem Inc., et al., No. 16-1493, 2017 WL 527923 (D.D.C. 2017). We discuss Aetna-Humana below. In Anthem-Cigna, the DOJ and the insurers debated the definition of “national accounts” and the geographic scope of those accounts and of other large employers.

4 U.S. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines, 2010 (“Guidelines”).

5 Roush, Corey and Lawrence Wu, “Market Definition and Implications for Merger Review,” July 11, 2011, Law360 Expert Analysis (available at https://www.law360.com/articles/257021/market-definition-and-implications-for-merger-review?article_related_content=1, accessed April 28, 2017).

Reduced-Form versus Structural Econometric Methods in Market Definition:

Lessons from Aetna-Humana

Paul Wong and Subramaniam Ramanarayanan1

NERA Economic Consulting

19


owning (or controlling) this set would likely raise price(s) by a small but significant and non-transitory amount (a “SSNIP”)?6 The Guidelines further explain that, while the set of products (and/or geographic regions) that passes the Hypothetical Monopolist Test is not predefined and might vary from case to case, the set may necessarily exclude some competitors. The Guidelines are, furthermore, careful to describe the Hypothetical Monopolist Test as a thought experiment, and they do not prescribe a specific method or algorithm for implementing the test. Ordinary course documents from the merging parties and deposition testimony from customers are often used as supporting evidence to demonstrate that a candidate market passes the Hypothetical Monopolist Test. In addition, econometric analysis and modeling, both of consumer demand and firm behavior, are often central to demonstrating that a candidate market passes the Hypothetical Monopolist Test. Typically, this takes the form of a “critical loss analysis,” which attempts to assess the extent to which “a SSNIP on one or more products in a candidate market would raise or lower the hypothetical monopolist’s profits.”7 The economic 6 While the agencies typically define a SSNIP to be 5 percent, the Guidelines acknowledge that in certain situations, it might be appropriate to use a threshold larger or smaller than 5 percent. Guidelines § 4.1.2. For example, in Federal Trade Commission v. Whole Foods, both the FTC and the experts for the defense agreed that a SSNIP as low as 1 percent may be appropriate. FTC v. Whole Foods Market, Inc., 502 F. Supp. 2d 1, 28 (D.D.C.2007) at 28 and note 9.

7 Guidelines, §4.1.3. While the original formulation of the critical loss analysis assumed a single prevailing premerger price, such an assumption would be too restrictive if the candidate market includes differentiated products. The Guidelines, therefore, allow for some flexibility on whether the SSNIP threshold must be passed by a single product or by all products in the candidate market, and whether all products must be subject to the same or differing price increases. For a discussion on how to implement the critical loss analysis under these different scenarios, see Meyer, Christine and Yijia Wang, “A Comprehensive Look at the Critical Loss Analysis in a Differentiated Products Market,” Journal of Competition Law and Economics, vol. 8, no. 4, 2012, 863-879.

modeling might also inform market definition through the assessment of the competitive effects of the merger, since by performing the competitive effects analysis, one might identify the set of relevant competitors outside of the candidate market with the ability to exercise sufficient competitive constraint and defeat an attempted SSNIP by the Hypothetical Monopolist.8 The econometric analysis supporting definition of the relevant product market in Aetna-Humana brought to the fore a debate over what is considered appropriate proof for establishing that a candidate market passes the Hypothetical Monopolist Test. Specifically, the analysis undertaken by both sides in implementation of the Hypothetical Monopolist Test pitted “structural” econometric methods (relied on by the DOJ’s expert) against “reduced-form” econometric methods (relied on by Aetna-Humana’s expert).9 Structural modeling outlines a theoretical model of how competition works, uses data to estimate the parameters of the model, and employs these estimates in a simulation to predict a different state of the world.10 In this particular case, the structural approach involved simulating the actions of the

8 Guidelines, §4 (“evidence that a reduction in the number of significant rivals offering a group of products causes prices for those products to rise significantly can itself establish that those products form a relevant market”).

9 To be clear, the econometric analysis discussed here was just one of multiple types of data-driven evidence proffered by both sides to support their respective claims concerning the relevant product market. Specifically, the DOJ’s expert examined data on customer switching patterns and conducted an analysis of consumer plan choice, in addition to estimating a “structural” implementation of the critical loss test and a merger simulation model. Aetna-Humana’s expert also conducted an analysis of consumer plan choice and switching, in addition to the “reduced-form” methods discussed in this article.

10 Nevo, Aviv and Michael D. Whinston, "Taking the Dogma Out of Econometrics: Structural Modeling and Credible Inference," Journal of Economic Perspectives, vol. 24, no. 2, 2010, 69-82.

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Hypothetical Monopolist to test whether a profit-maximizing Hypothetical Monopolist is likely to impose a SSNIP. Reduced-form methods can encompass analyzing a “natural experiment” that has occurred in the past,11 or examining variation in competitive conditions and outcomes across markets. Based on the patterns in the data and the analysis that is implemented, one can either directly assess whether a candidate market passes the Hypothetical Monopolist Test (e.g., by analysis of a natural experiment), or one can use direct evidence on market outcomes to make inferences about the scope of the relevant market. In this article, we use the setting of the Aetna-Humana merger litigation to examine the issues surrounding the use of structural versus reduced-form methods, particularly when it comes to informing relevant market definition. We believe each approach has its merits and flaws, and if implemented appropriately, each can serve as a valuable and insightful input to the market definition exercise. While structural econometric analysis might better lend itself to a literal implementation of the thought experiment underlying the Hypothetical Monopolist Test specified in the Guidelines, it also might run the risk of being driven by non-transparent assumptions about consumer demand or firm behavior that are out of line with market realities. In such instances, reduced-form studies of market outcomes could provide an additional, and possibly complementary, approach toward understanding the nature of competitive interaction and what that implies for market definition. This is particularly true in the healthcare setting, where the substantial degree of variation in market conditions, outcomes across time and across the country (driven by differences in regulation, technology, demographics, etc.), and the availability of detailed data make it an environment that is ripe for such study. We expand on these arguments below.

11 Coate, Malcolm B., "The Use of Natural Experiments in Merger Analysis," Journal of Antitrust Enforcement, vol. 1, no. 2, 2013, 437-467.

Market Definition in the Aetna-Humana Merger Litigation

The key question pertaining to relevant market definition that was under debate in Aetna-Humana was: Do Medicare Advantage plans sold to individuals constitute a relevant product market, or should Original Medicare options also be included as part of the market?12 While each side presented evidence from ordinary course documents and deposition testimony to support their respective positions, the econometric evidence presented by the experts in the case illustrated the different econometric approaches summarized earlier. On the one hand, the DOJ’s expert implemented the Hypothetical Monopolist Test based on structural econometric methods, arguing that results from these methods showed that a profit-maximizing Hypothetical Monopolist of only Medicare Advantage products in each county would likely impose a SSNIP.13 This formed the basis of the DOJ’s contention that Original Medicare should be excluded from the relevant product market. On the other hand, Aetna-Humana’s expert proposed reduced-form evidence on market outcomes to rebut the DOJ’s implementation of the Hypothetical Monopolist Test, arguing that across the country, there was no positive relationship between

12 Opinion by the Honorable John D. Bates, United States District Judge, United States v. Aetna, supra note 2 (the “Aetna-Humana Opinion”) at 6 (“Together, Medicare Parts A and B are often called `Original Medicare.’”), at 8 (“Rather than enrolling in Original Medicare (with or without a MedSupp or Part D plan), a senior may choose to enroll in a Medicare Advantage plan sold by a private insurer.”), and at 22 (“The central market definition question in this case is about the nature and extent of any competition between Original Medicare options and Medicare Advantage. Phrased in terms of the hypothetical monopolist test, the question is whether a hypothetical monopolist of all the Medicare Advantage plans in a particular county could profitably impose a small but significant non-transitory increase in price on those plans-or whether substitution by seniors to Original Medicare options would make any attempted price increase unprofitable.”).

13 Id. at 46.

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concentrated Medicare Advantage markets (e.g., markets with only one Medicare Advantage insurer) and prices for Medicare Advantage products in those markets. Aetna-Humana argued on this basis that there was empirical evidence based on “real-world” market outcomes that a Hypothetical Monopolist of only Medicare Advantage plans in each county could not actually raise prices, and as a result, the candidate product market proposed by the DOJ failed to pass muster.14 The DOJ expert’s economic model implemented the Hypothetical Monopolist Test in two ways: first, following a “critical loss” framework15 to evaluate whether a Hypothetical Monopolist “could increase profits by imposing a SSNIP on at least one Aetna or Humana plan,”16 and second, implementing a merger simulation model to assess whether the Hypothetical Monopolist would likely impose a SSNIP on at least one plan if allowed to increase prices on all plans.17 This critical loss and merger simulation model required three parameters: (a) the number of customers that would substitute away from the Hypothetical Monopolist’s product(s) in response to a change in price (the “own-price elasticity”); (b) the 14 Id. at 55.

15 Harris, Barry C. and Joseph J. Simons, “Focusing Market Definition: How Much Substitution Is Necessary?” Research in Law and Economics, vol. 12, 1989, 212-215; Katz, Michael L. and Carl Shapiro, "Critical Loss: Let's Tell the Whole Story," Antitrust, vol. 17, no. 2, 2003, 49-56. The intuition from the critical loss analysis is the basis for the Generalized Upward Pricing Pressure Index (GUPPI) theory, and most merger simulation (“merger sim”) models also rely on what is essentially a critical loss analysis, albeit with potentially richer models of demand than were used in the original critical loss literature. See, e.g., Farrell, Joseph and Carl Shapiro, "Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition," The B.E. Journal of Theoretical Economics, vol. 10, no. 1, art. 9, 2010; Epstein, Roy J. and Daniel L. Rubinfeld, "Merger Simulation: A Simplified Approach with New Applications," Antitrust Law Journal, vol. 69, no. 3, 2002, 883-919.

16 Aetna-Humana Opinion at 46.

17 Ibid.

number of customers that would substitute toward the Hypothetical Monopolist’s other co-owned product(s) (the “cross-price elasticity”); and (c) the profit that the Hypothetical Monopolist stood to recapture in customers that substituted back toward co-owned products, as well as the profit that it stood to forgo in losing whatever customers ultimately substituted out of the market (the “price-cost markup”).18 While each parameter can be derived from a variety of data sources, in this case, all three were estimated using the same econometric model of insurance demand.19 Putting the three parameters together in a fairly standard critical loss calculus, the DOJ argued that the Hypothetical Monopolist could profitably increase the price of at least one of Aetna-Humana’s Medicare Advantage products in essentially all of the markets at issue.20 Aetna-Humana countered the DOJ’s proposed market with direct evidence of market outcomes that was based on an empirical study of Medicare Advantage markets across the country.21 This approach reasoned that there are a variety of market structures already observed across the country—there are some markets with only one or two Medicare Advantage insurers, just as there are some markets with many Medicare Advantage insurers. In observing a wide range of market structures, one could use established econometric methods to estimate the “real world” relationship between market structure and prices in Medicare

18 Id. at 45-46.

19 Id. at 44, 47-48. The opinion discusses in more detail the “nested logit” demand model and the key parameters from the model. Both sides offered versions of the nested logit demand model, with the main debate over the correct magnitude and proper use of the “nesting parameter” that governed substitution between Original Medicare and Medicare Advantage.

20 Demonstrative slides for Dr. Aviv Nevo, United States of America, et al. v. Aetna Inc., et al., No. 16-cv-01494 (D.D.C. 2017) (available at https://www.justice.gov/atr/page/file/918706/download, accessed April 28, 2017) at 44.

21 Aetna-Humana Opinion at 55.

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Advantage.22 Aetna-Humana’s expert’s implementation of this analysis showed, in fact, that there was no statistical relationship between price and market structure—concentrated markets did not actually have higher prices. Given this finding, Aetna-Humana argued that a Hypothetical Monopolist of Medicare Advantage plans, which by definition would inhabit a concentrated market, could not actually impose a SSNIP. Rather, the insurers argued that it was competition from Original Medicare that constrained pricing in all markets, and hence, Original Medicare should be included as part of the relevant product market.23 To be clear, in this case, there are well-reasoned merits and flaws to each side’s approach, and it was not obvious at the outset that either approach was superior. Furthermore, these merits and flaws are very much in line with the broader strengths and weaknesses of the structural and reduced-form econometric methods, respectively. The DOJ’s structural approach offers a detailed analysis at the level of the firm—if the Hypothetical Monopolist were to come into existence and to re-optimize its prices in light of its newfound position in the market, it would follow—almost precisely—the critical loss calculus in order to maximize its profits. Moreover, the workings of the model, which are summarized by the three main parameters, provide an accessible and intuitive machinery that a court can use to navigate the Hypothetical Monopolist Test. To this end, this approach provides a direct way to simulate the Hypothetical

22 Ibid.

23 While this was the primary analysis that related to the Hypothetical Monopolist Test, this was not the only argument that Aetna-Humana offered as evidence that Original Medicare should be included in the relevant product market. The insurers also argued that, irrespective of the outcome of the Hypothetical Monopolist Test, Original Medicare should be included because, by the “circle principle” in Example 6 of the Guidelines, Original Medicare was the nearest and best substitute product for the merging parties. The court reasoned, however, that counting Original Medicare as one product was unfairly grouping a wide basket of products. Aetna-Humana Opinion at 50-51.

Monopolist Test—begin with a set of products (i.e., the candidate market) and continue adding products until the SSNIP threshold (i.e., the critical loss threshold) is achieved. Yet this structural econometric approach may create a risk of false precision. The model used for estimation of the key parameters and the model (if different) used to make the critical loss calculus are only as good as their underlying assumptions and data. It may be difficult for courts to properly understand these assumptions or verify issues with the underlying data, and it may be difficult to diagnose which parameters or logic are properly (or improperly) applied and sensibly used. Even for experts in the field, it may be difficult to see which assumptions or features of the data are driving the key results. For example, the substitution patterns in the actual market may not easily reduce to just two elasticity parameters, but capturing the proper nuance may make estimation next to impossible due to the “curse of dimensionality.”24 Likewise, the price-cost markups (i.e., profit margins) may be hard to estimate, or they may not properly reflect market power for the case at hand.25 24 Simple logit models may suffer from “independence of irrelevant alternatives.” Debreu, Gerard, "Review of Individual Choice Behavior by R. Luce," American Economic Review, vol. 50, 1960, 186-188; Hausman, Jerry and Daniel McFadden, "Specification Tests for the Multinomial Logit Model," Econometrica, vol. 52, no. 5, 1984, 1219-40. Econometrically rich demand models (such as a highly specified multinomial logit model) can suffer from a “curse of dimensionality” that can make estimation difficult or impossible. Rust, John, "Using Randomization to Break the Curse of Dimensionality," Econometrica, vol. 65, no. 3, 1997, 487-516.

25 This issue was raised by Aetna-Humana, which contended that the DOJ’s preferred model used profit margins that were inconsistent with market realities given Medicare Advantage plans are subject to medical-loss-ratio regulation. Aetna-Humana Opinion at 47-48. Similarly, in Advocate-NorthShore, another recently decided healthcare merger litigation, there was a debate between the experts over whether contribution margins were an appropriate measure of market power to use in a merger simulation model in an industry with high fixed-costs. FTC v. Advocate, supra note 1 at 19-20.

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Aetna-Humana’s reduced-form approach offers a different but attractive simplicity. The rationale underlying this approach is: Why resort to complicated modeling and a host of “identifying assumptions” to make one’s inference, when one can simply observe market outcomes or other historical events that speak to the likely constraints faced by the Hypothetical Monopolist? A reduced-form study can provide an empirically grounded answer without the need for extensive theory and a complicated estimation process. Furthermore, simply observing what history has already taught may be more holistic and account for many factors at once, as opposed to forcing things through a narrow lens imposed by a structural econometric model. A reduced-form approach may lead to a richer, fuller answer than can be had by structural estimation and modeling, which must necessarily reduce the analysis and simulation down to a few key parameters. And, yet, with reduced-form econometric analyses, in the benefit lies the rub. Without credible empirical “identification strategies” that can help establish a causal effect, there is the danger of spuriously ascribing causal interpretations to correlations that merely exist in the data. For example, there is voluminous literature on the struggles in isolating the causal effect of market structure on prices.26 The richness in factors that might be captured in a comparison of markets across the country makes it difficult to disentangle the likely effect of the Hypothetical Monopolist on prices from other confounding factors. If concentrated (monopoly) markets, for example, have very different patient populations or different healthcare providers, we may not be able to simply compare prices in those markets to other markets for the purposes of informing insurance product market definition.27

26 See, e.g., Bresnahan, Timothy F., "Empirical Studies of Industries with Market Power," Handbook of Industrial Organization, vol. 2, 1989, 1011-1057; Evans, William N., Luke M. Froeb, and Gregory J. Werden, "Endogeneity in the Concentration-Price Relationship: Causes, Consequences, and Cures," Journal of Industrial Economics, vol. 41, no. 4, 1993, 431-38.

27 We also note that, to the extent that estimates from reduced-form approaches might incorporate the effect of supply-side factors, they may not directly comport with

How did the court rule in this case after all? The court reasoned that the DOJ’s arguments carried the day on two fronts. First, although the court found that Aetna-Humana raised legitimate concerns with the structural econometric approach, such as the correct magnitude of the diversion ratios (i.e., the substitution to Original Medicare), the proper use of instrumental variables, and plausibly overstated profit margins, the DOJ was able to demonstrate that its conclusions were robust to a variety of specification checks that tested the weaknesses of the model and its assumptions.28 Second, while the reduced-form approach had the potential to speak to the “real-world” effects, the court concurred with the DOJ expert’s critique of the analysis offered by Aetna-Humana—specifically, that in attempting to isolate the causal effect of market structure, the reduced-form study in this case suffered from econometric flaws and moreover, that the bulk of the economic literature outside of the case supported the opposite conclusion.29

A Debate for the Future?

Even in light of the opinion in the case, the debate over market definition raised in the Aetna-Humana merger trial is one that rages on. In many merger litigations, structural econometric methods have been used, and economists on both sides have used tools such as critical loss, GUPPI, and merger the prescriptions in the Guidelines, which call for determination of relevant antitrust markets based “solely on demand substitution factors.” Guidelines, §4. However, we do not believe this automatically invalidates the use of reduced-form approaches in market definition. Rather, we believe these approaches can help to assess the extent of possible competitive effects, which, in turn, can be helpful in making inferences about market definition.

28 Aetna-Humana Opinion at 43-49 (discussion of the econometric critiques) and at 49 (“No matter which set of estimates…the candidate market – Medicare Advantage – passed the hypothetical monopolist test for the majority – and usually for the overwhelming majority – of the complaint counties.”).

29 Aetna-Humana Opinion at 55-56.

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simulation to follow the intuition laid out in the Horizontal Merger Guidelines. But this does not mean reduced-form econometric methods are dead, or that efforts to use reduced-form evidence to conduct (or inform) the Hypothetical Monopolist Test should be cast aside completely. To the contrary, even federal antitrust agencies have looked to reduced-form evidence to support market definition and to conduct the Hypothetical Monopolist Test, including the DOJ in the same Aetna-Humana case30 and the FTC in Hershey-Pinnacle.31 Rather, the challenge for practitioners on both sides lies in identifying, implementing, and explaining reduced-form approaches and demonstrating to the courts how these efforts aid in market definition. One must carefully explain how the variation being studied—be it different markets across the country or different events over time—is relevant, how the research design properly isolates the effect of market structure, and how analysis of such variation informs market definition. Moving forward, reduced-form approaches present an avenue ripe for study and opportunity for merger litigations in the future, particularly in healthcare. This will be, perhaps, doubly true as the techniques for market definition in healthcare evolve. For one, the reduced-form econometric approaches present an important counterbalance to the structural econometric approaches that are often espoused as part of the Horizontal Merger Guidelines, such as critical loss analysis and merger simulation. If the main challenge with these structural approaches is that they require diagnosing and digesting a complicated economic model, a simple, intuitive reduced-form approach may offer a needed alternative perspective and guard against overreliance on any one assumption or on a narrow set of data. And the basic premise is attractive: use real-world data and historical events to learn how markets function, and use findings from that inquiry to make inferences about the extent of the relevant market. This intuition is approachable for the courts and can lend itself to rich insights. Finally, the healthcare field presents opportunities that many

30 Demonstrative slides for Dr. Nevo, supra note 20 at 119-120.

31 FTC v. Penn State Hershey, supra note 1 at 29-30.

other industries do not afford. Healthcare regulation and technology are evolving rapidly; healthcare data and information systems have expanded exponentially; and health outcomes, firms, and patient populations vary enormously across the country and even throughout the world. Embedded in these variations are thousands of natural experiments and studies waiting to be uncovered. If “the devil is in the details,” then our objective as antitrust practitioners should be to uncover those details by whatever methods we have at our disposal, be they structural or reduced-form. While it seems clear that structural econometric methods are here to stay, particularly when it comes to market definition and evaluating the Hypothetical Monopolist Test, they are not the only way to answer the questions at hand. There is still an ample future for “real-world” analyses in healthcare antitrust, and they will most certainly inform market definition in cases to come.

Antitrust Health Care Chronicle September 2010 Antitrust Health Care Chronicle January 2016

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