Anti-trust laws prevent monopolization of healthcare

The federal antitrust laws prohibit three categories of conduct that undermines competition:

agreements by two or more businesses not to compete, or to limit competition;

efforts by one or more companies to undercut competition by others in order to secure a monopoly; and

mergers (or acquisitions of business assets) that would significantly reduce competition.

Each of these categories has specific requirements and limitations as the law has been interpreted by the courts.

Agreements Not to Compete

The first category—agreements not to compete, or to limit competition—is prohibited by section 1 of the Sherman Act. Some of these agreements—specifically, agreements to coordinate pricing, or agreements to divide territories or groups of customers—are prohibited “per se;” they are always prohibited, if proven. Per se violations can even result in criminal fines and imprisonment.

Other kinds of agreements are evaluated under the “rule of reason,” and may or may not be prohibited, depending on how they actually affect competition. Proving a “rule of reason” case is generally more uncertain and expensive, as it requires a more detailed economic analysis of the effects. Many healthcare provider arrangements are evaluated under the rule of reason. For example, an agreement by a group of dentists to tell patients to withhold x-rays from insurance companies evaluating claims was ruled to be an unreasonable restraint of trade under the rule of reason.1

Undercutting Competition to Create or Keep Monopoly Power

The second category, referred to as monopolization or attempt to monopolize, is prohibited by section 2 of the Sherman Act. It does not require proving an agreement among competing businesses. One business can commit this kind of violation on its own. But it does require proving either that the business already has what amounts to a monopoly, or that the attempt to get a monopoly has “a dangerous probability of success.” And it is also not enough that the business has a monopoly; there must also be proof of conduct to unjustly secure or keep the monopoly by sabotaging the efforts of other companies to compete. In the healthcare arena, the U.S. Department of Justice brought a case against a hospital for using exclusive contracts with health insurers to exclude competing hospitals from being able to participate in the local area, thereby monopolizing hospital services in the area. The case was settled when the hospital agreed to stop entering into the exclusive contracts and to cancel the ones it had entered into.2

Mergers that Significantly Reduce Competition

The third category, merger that would harm competition, is prohibited by section 7 of the Clayton Act. Unlike the other two kinds of violations, anticompetitive mergers can be stopped before they take place, so before harm to competition and consumers results. The law requires proof that the merger would “substantially lessen competition,” so the fact that there will be one fewer business competing after the merger is not sufficient grounds to prohibit unless the competition being eliminated is significant enough. Sometimes the only solution to an anticompetitive merger is to block it entirely; but other times the aspect of the merger that harms competition can be separated out, and taken care of by selling off, or “divesting,” that part of the business to another independent business, so that the competition it has been providing can be preserved. A merger between an integrated healthcare system and the area’s largest primary care physician group, which resulted in the combined system having more than 75% of all primary care physicians in the area was ruled to violate section 7 of the Clayton Act because, among other problems, it gave the combined system too much power to force increased reimbursement rates on insurers, pushing up the cost of healthcare and health insurance.3