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Legal Update
May the Best Provider Win
Lorin Patterson
Publish Date: October 10, 2007

Lorin Patterson, Esq. Healthcare needs a good swift kick in the form of more transparency, vigorous competition and state (instead of federal) reforms, says a report issued by the Federal Trade Commission and Department of Justice.

The testimony of outpatient surgery industry representatives is apparent throughout "Improving Health Care: A Dose of Competition," a 350-plus-page think piece designed to raise issue awareness. While light on a timetable, the report could profoundly affect healthcare administration.

Lorin Patterson, Esq.\

Clearing the air
The joint report calls for providers, consumers, the government and third-party payers to have access to good information about consumer preferences, service quality and price so competition can flourish. Winners and losers will be created, but the FTC and DOJ believe that higher-quality, more cost-effective healthcare will result. Without accurate, reliable information about cost, price and quality - including some form of report cards - consumers, third-party payers and the government can't make informed healthcare decisions. Expect increased pressure to compile and report on surgical outcomes.

Debating specialty hospitals and ASCs
The report highlights the shift - and likely acceleration - of cases from inpatient to outpatient, then devotes a lot of space to anti-competitive behavior by hospitals, such as lobbying for legislation that burdens specialty hospitals and ASCs, locking them out of managed care contracts and curtailing medical staff privileges.

The agencies call specialty hospitals and ASCs "beneficial," decry anti-competitive conduct and recommend eliminating "barriers to entry" to restore competition: "If there is specific evidence of anti-competitive conduct by individual hospitals or of hospitals colluding ... against efforts to open a [specialty hospital] or ASC, then the Agencies will aggressively pursue [them]."1

The agencies acknowledge a lack of success and frustration in attempts to prevent hospital mergers through antitrust litigation, having failed in seven recent attempts. The FTC and DOJ are analyzing these mergers to assess the merged hospitals' market power and whether other providers are undermined.

Questioning CONs
The report cites studies that correlate higher levels of competition with higher-quality care to dispel the notion that enhancing quality is an excuse for anti-competitive conduct. In line with this, the report criticizes state CON statutes, which restrict competition, noting that most CON laws are based on a now-repealed 1974 law. CONs are often justified as helping contain costs, but the report concludes CONs don't do that. In fact, the report finds CONs block patient access to important medical innovations (such as efficient specialty hospitals), protect the markets of underperforming providers and generally restrict patient choice. In summary, the agencies recommend states consider eliminating CONs. (See "Let's Rethink CONs" on page 96)

What the Report Recommends

A summary of "Improving Health Care: A Dose of Competition," the report issued by the Federal Trade Commission and Department of Justice:

? Give the public and the government access to accurate, reliable information about the cost, price and quality of healthcare services, including some form of report cards for providers and payers.

? Eliminate barriers to entry for freestanding outpatient facilities to restore a free, competitive healthcare marketplace.

? Eliminate state CON statutes because their anti-competitive effects outweigh their purported benefits.

Litigation and legislation
Antitrust litigation may be influenced by this report; judges could refer to it when ruling on barriers ASCs face in attempts to enter new markets. The FTC and DOJ recommend courts more narrowly interpret certain defenses to antitrust claims - a hospital that argues it's immune from scrutiny when it attempts to block an ASC's entry via CON or lobbying activities might find courts less receptive. The report implies the agencies might challenge actions where these defenses are likely. Further, providers who defend anti-competitive behavior on the basis it hampers quality care may find it harder to convince judges and juries.

Still, although the report comes from the agencies that enforce competition laws, most issues will be resolved in legislative or regulatory

bodies, not the courts. And many of these fights, such as reforming or eliminating CONs, will occur at the state level. Others will simply have to work themselves out in the marketplace.

1. "Improving Health Care: A Dose of Competition" Chapter 3, page 27.