Health Care Antitrust Update Part I: Key Developments in Antitrust Litigation Involving Health Care Acquisitions and Mergers

Over the past several months, antitrust enforcement activity in the healthcare provider sector has continued to steadily increase.

In the litigation context, this has involved, in addition to new lawsuits filed by the Federal Trade Commission (“FTC”) seeking to block proposed healthcare system mergers and acquisitions, additional challenges to the purchase by private equity firms of physician practices, along with lawsuits brought by aggrieved competitors and by purchasers of healthcare services alleging that healthcare system mergers and acquisitions violated federal and state antitrust laws.

Outside of litigation, the FTC, along with the U.S. Department of Justice (“DOJ”) and the Department of Health and Human Services (the “Agencies”), has launched a major public inquiry into merger and acquisition transactions involving private equity firms, healthcare systems and private payers.

There have also been initiatives at the state level and activity at the federal level relating to the ongoing challenges to the constitutional authority of the FTC (which were discussed in prior posts).

A detailed discussion of these developments is helpful in identifying the specific types of conduct that may give rise to lawsuits alleging antitrust violations by private equity firms and health care systems generally, and also what is likely on the horizon with respect to federal and state initiatives.

What follows is a two-part discussion. This Part I discusses the recent lawsuits involving private equity firms, the lawsuits filed by the FTC and those filed by health care system competitors and purchasers of health care services.

Part II will discuss the public inquiry opened up by the Agencies, along with some state initiatives, and the continuing constitutional challenges to the FTC’s enforcement authority.

Recent Lawsuits Involving Private Equity Firms

State of Colorado v. U.S. Anesthesia Partners of Colorado

In addition to the FTC’s suit against U.S. Anesthesia Partners, Inc. (“USAP”) and the private equity firm Welsh, Carson, Anderson & Stowe (“Welsh Carson”) (discussed in our posts dated September 22, 2023 and November 30, 2023), concerning USAP’s purchase and operation of anesthesia practices in Texas, the Colorado Attorney General (“Colorado AG”) recently sued USAP-Colorado, a wholly-owned subsidiary of USAP, under Colorado’s antitrust law making allegations similar to those made by the FTC in Texas.

In this case, the Colorado AG laid out a detailed fact-pattern under which private equity purchases of physician practices may result in antitrust challenges. The AG alleged that:

  • Welsh Carson identified the Denver-Lakewood-Aurora Metropolitan Statistical Area (“Denver MSA”) as an attractive area to grow its anesthesia business and from its introduction into Colorado, USAP-Colorado charted a course of action intending to become the dominant surgical anesthesia provider group in Colorado, and particularly in the Denver MSA.
  • USAP’s plan was for USAP-Colorado to acquire surgical anesthesia practices and maximize its penetration in the Denver MSA hospital market and then leverage its market size and scale to obtain hospital exclusive contracts which would then allow it to maintain or increase its reimbursement rates from health plans above its competitors in that MSA and elsewhere in Colorado.
  • USAP-Colorado blocked the potential for new lower cost and higher quality competition from its ex-employees by imposing overly onerous noncompete and nonsolicitation burdens on those employees.
  • By 2021, USAP-Colorado had acquired its primary rivals and controlled the two largest hospital systems in Denver and accounted for more than 70% of health plan reimbursements for surgical anesthesia in the Denver MSA.
  • The relevant product market is surgical anesthesia services provided in open-staffing hospitals for inpatient surgical procedures. This product market recognizes the “unique and non-substitutable nature of these procedures compared to anesthesia needs in an office/clinical setting or even in an ASC setting.”
  • Upon USAP-Colorado’s last acquisition, the HHI index for hospital inpatient surgical anesthesia services had risen to 3,000, an increase of nearly 500 points, resulting in the acquisition being presumptively anticompetitive in violation of Colorado antitrust law.
  • There was no valid pro-competitive justification for USAP-Colorado’s exclusionary conduct in the market for hospital inpatient surgical anesthesia services in the Denver MSA.
  • This dominant position allowed USAP-Colorado to successfully retain reimbursement rates from health plans at levels between 30% and 40% higher than any other independent surgical anesthesia group in Denver and statewide.
  • USAP-Colorado’s dominance of the hospital inpatient surgical anesthesia market in the Denver MSA resulted in higher costs to hospitals and higher reimbursement rates from commercial and employer-funded health plans.
  • USAP-Colorado undertook a course of conduct intentionally designed to create and maintain a monopoly in the hospital inpatient surgical anesthesia market in the Denver MSA.

On February 27, 2024, the parties announced that they had settled the case with USAP-Colorado agreeing to relinquish its facility agreements at five hospitals in the Denver-Boulder area and in Durango, Colorado.

In addition, USAP-Colorado agreed that:

  • Clinicians serving those five facilities will be allowed to leave USAP-Colorado and continue to service those hospitals;
  • For clinicians servicing hospitals in Denver where facility agreements are not being relinquished, their noncompetes will automatically terminate under certain circumstances;
  • All existing clinicians and any new clinician hires will have noncompete provisions that are narrowly tailored to include only those facilities where the clinician has provided anesthesia services (this will involve modifying agreements with existing clinicians); and
  • USAP-Colorado will completely end its noncompete agreement practice within 18 months of the settlement agreement taking effect.

St. Joseph’s Hospital/North American Partners in Anesthesia

In addition to federal and state enforcement efforts involving private equity companies and their purchase of physician practices, a health care system in Upstate New York recently filed suit against an anesthesia group and certain affiliates that are ultimately owned by private equity firms.

The health system alleges violations of federal and state antitrust laws on account of the group’s including in its contracts with employed physicians and certified registered nurse anesthetists (“CRNAs”) unreasonable noncompete and nonsolicitation provisions resulting in the group’s ability to force the system to pay “exorbitant” and “unreasonable” amounts for its services and making it practically impossible for the system to hire any other anesthesiologists, thereby resulting in a physician shortage.

Specifically, on February 26, 2024, Syracuse-based St. Joseph’s Hospital sued American Anesthesiology of Syracuse, P.C. (“American Anesthesia”), American Anesthesiology, Inc. and North American Partners in Anesthesia, LLP (“NAPA”) (collectively, “Defendants”). NAPA is the ultimate parent of American Anesthesia and is owned by two private equity firms. NAPA acquired American Anesthesia in 2020.

In its complaint, the Hospital alleges that the Defendants violated Sections 1 and 2 of the Sherman Act and New York’s Donnelly Act because the Defendants are the exclusive providers of professional anesthesia services at St. Joseph’s and are using noncompete and nonsolicitation clauses in their agreements with their employed anesthesiologists and CRNAs “to maintain a virtual monopoly and to demand exorbitant payments for critical and understaffed patient services.”

According to the Hospital, the Defendants seek to compel it to “retain them at its hospital, no matter what terms they demand, by prohibiting their providers from freely choosing to work as employees of St. Joseph’s or any provider other than Defendants, thereby cutting off any other sources of anesthesia care. Alternatively, Defendants have demanded an exorbitant multi-million dollar payment to waive the noncompetes.”

In addition to a demand for damages, the Hospital requests that the court require Defendants to release their employees practicing at St. Joseph’s from any restrictions on their employment by St. Joseph’s and issue a declaratory judgment finding that the noncompetition and nonsolicitation provisions in the Defendants’ agreements with their physicians and CRNAs violate federal and New York antitrust laws to the extent that they are utilized to prevent the anesthesiologists and CRNAs from becoming employed by St. Joseph’s.

On March 7, 2024, the Defendants filed an answer to the Hospital’s complaint in which they denied the allegations of antitrust violations and asserted various affirmative defenses.

At the same time, the Defendants brought a counterclaim against the Hospital alleging that it had been damaged on account of the Hospital having materially breached their agreement which “clearly and unequivocally prohibits [the Hospital] from directly or indirectly taking any action to induce any employee to cease his or her employment with the [Defendants].” In particular, the Defendants assert that the Hospital sent written email offers of employment to all of American Anesthesia’s anesthesiologists and CRNAs.

On March 28, a mediation and settlement conference produced no settlement.

Lawsuits Recently Filed by the FTC

The FTC remains “squarely focused” on antitrust enforcement in the health care provider sector. FTC Chair Lina M. Khan addressing the American Medical Association in February stated that a “key pillar of our health care work is tackling unlawful consolidation and roll-ups. Empirical research shows that hospital consolidation routinely results in higher costs and reduced service, and the FTC has long been active in tackling these illegal deals.”  She went on to note that the FTC had successfully blocked seven health care mergers in the last two years.

Consistent with this focus, the FTC recently challenged two health care system mergers, one of which has now been called off and the other of which is in active litigation.

John Muir Health’s Proposed Acquisition of San Ramon Regional Medical Center from Tenet Healthcare Corporation

Last November, the FTC sued to block California-based John Muir Health’s proposed acquisition of San Ramon Regional Medical Center from its then current majority owner Tenant Healthcare Corporation.  At that time, Tenet owned a 51% operating interest in San Ramon and John Muir owned a 49% nonoperating interest.

According to the FTC, the proposed acquisition would eliminate head-to-head competition between John Muir and nearby San Ramon. The California Attorney General’s Office joined in the suit.

The FTC alleged that the acquisition would allow John Muir to demand higher rates at its two hospitals as well as at San Ramon for inpatient general acute care services.

The complaint further alleged that the acquisition would allow John Muir to control more than 50% of the geographic market (California’s I-680 corridor) for such services sold to commercial insurers and their enrollees thereby eliminating competition between them. That geographic market was based on the FTC’s application of the hypothetical monopolist test as a tool for purposes of market definition.[1]

The FTC asserted that:

  • San Ramon is a lower-priced competitor;
  • John Muir’s hospitals are close competitors to San Ramon in terms of both patient preference and geographic location; and
  • The proposed acquisition would lead to higher insurance premiums, copays, deductibles, and other out-of-pocket costs, or reduced benefits for commercial health insurers and their enrollees.

One month after the suit was filed, John Muir announced it was terminating the proposed transaction.

Novant Health’s Proposed Acquisition of Two North Carolina Hospitals from Community Health Systems

On January 25, 2024, the FTC sued to block Novant Health’s acquisition of two North Carolina hospitals from Community Health Systems (“CHS”).

The FTC alleges that the proposed transaction would result in Novant’s acquiring Lake Norman Regional Medical Center and Davis Regional Medical Center threatening to raise prices and reduce incentives to invest in quality and innovative care.

The FTC further alleges that the proposed transaction would allow Novant to control nearly 65% of the market for inpatient general acute care services in the Eastern Lake Norman area, which primarily includes two counties and which the FTC alleges is the proper geographic market.

According to the FTC, with fewer alternatives for inpatient  general acute care services, Novant would be able to demand higher rates for its services, and the proposed acquisition would likely significantly increase annual health care costs which would be passed on to patients.

In addition, the transaction would “reduce Novant’s incentive to compete to attract patients by improving its facilities, service offerings, and quality of care.”

Note: With respect to the always important question of proper geographic market, the FTC, in asserting that the relevant market is the Eastern Norman Lake area and that the merged entity would control 65% of that market, applied the standard hypothetical monopolist test, but also considered other indicators.

These included:

  • Patients in the Eastern Lake Norman area prefer to receive inpatient general acute care services close to their home and many patients do not view hospitals outside the Eastern Lake Norman area as viable alternatives; most patients from that area stay within the area to receive inpatient general acute care service services.
  • Employers contracting for commercial insurance seek health plans with a provider network that is satisfactory for a broad set of their employees.
  • An insurer would incur significant financial harm if it could not offer a marketable provider network to employers with workers who reside in the Eastern Lake Norman a
  • Novant and CHS both assess competitive dynamics in the Eastern Lake Norman area and execute strategic initiatives tailored to the area, and also focus competitive intelligence on hospitals in that area.
  • Both Novant and CHS track market shares in geographies that closely correspond to the Eastern Lake Norman area, and that is evidence of existing intense head-to-head competition further demonstrating that the Eastern Lake Norman area is a relevant geographic market.

On February 8, 2024, Novant and CHS answered the FTC’s complaint        denying that there have been any antitrust law violations and asserting affirmative defenses.

As more fully explained in Part II, the District Court on April 4, 2024 denied the FTC’s request to strike Novant’s and CHS’ affirmative defense relating to the constitutionality of the FTC’s structure, operations and authority.

Lawsuits Recently Filed by Private Parties

In addition to the lawsuits brought by the FTC, there have been a number of suits recently filed by private parties against health care systems. While these suits are in their infancy, they too provide useful examples of the types of activities that may give rise to lawsuits alleging antitrust law violations.

CarePoint Health Systems – RWJBarnabas Health

There is ongoing litigation in U.S. District Court in which New Jersey-based CarePoint Health Systems (“CarePoint”) alleges that RWJBarnabas Health (“RWJ”), a competing health system, engaged in a years-long conspiracy with Horizon Blue Cross and various entities who own the land under CarePoint’s hospitals to monopolize the market for general acute care hospital services in Hudson County, New Jersey in violation of the Sherman Act and New Jersey’s Antitrust Act

Most recently, RWJ moved to dismiss CarePoint’s complaint arguing that CarePoint had not adequately alleged a conspiracy or attempted monopoly, or adequately alleged antitrust injury.  RWJ’s motion was denied.

The conduct alleged by CarePoint involved an “intertwined web of schemes … involving serial acquisitions of competing hospitals and health care providers, as well as of the real estate necessary to operate competing hospitals,” all with the intent of putting CarePoint’s hospitals out-of-business.

Among other things, CarePoint alleges that RWJ entered the Hudson County acute care market by opening a satellite emergency medical service in Bayonne, New Jersey with the aid of enhanced reimbursement from Horizon Blue Cross and then steered patients and physicians away from CarePoint with the intent of putting CarePoint out-of-business. Prior to the opening of that emergency service, CarePoint operated the sole emergency service in the area.

The complaint further alleges that RWJ engaged in bad faith when it entered into certain letter of intent discussions with CarePoint for the possible sale of Christ Hospital and Hoboken Medical all with the intent of obtaining certain confidential and proprietary information.

Shaw et. al. v. Advocate Aurora Health, Inc. and Advocate Health Care, Inc.

A class action lawsuit was filed on February 5, 2024 on behalf of a purported class of commercial health plan purchasers (“Plaintiffs”) against Wisconsin-based Aurora Health Care, Inc. and Advocate Aurora Health, Inc. (collectively “AAH”) alleging that AAH has engaged in anticompetitive methods to restrain trade and abuse its market dominance for the purpose of foreclosing competition and extracting unreasonably high prices from Wisconsin commercial health plans and their members.

The Plaintiffs allege that AHA’s activities and operations constitute unlawful monopolization and attempted monopolization in violation of Sections 1 and 2 of the Sherman Act and monopolization, attempted monopolization and restraint of trade under Wisconsin antitrust laws.

According to the complaint, these abuses include unlawfully forcing commercial health plans to include in their networks all of AAH’s “overpriced facilities” even if they would rather include only some (illegal tying), and aggressively blocking commercial health plans from directing their members to higher value care at non-AAH facilities (illegal anti-tiering).

According to the Plaintiffs, (i) AAH is the largest hospital system in Wisconsin and the dominant hospital system in Eastern Wisconsin; (ii) AAH built its substantial market power through acquisitions, aggressive contracting and negotiating, and other anticompetitive tactics; and (iii) AAH’s market power is manifested in its ownership of specific “must-have” facilities, its ownership of specialty facilities, its overall market share, and its ability to control prices.

The complaint alleges that AAH has gone to “extraordinary lengths” to suppress innovative insurance products such as tiered plans that would reduce costs for commercial health plans and their members. It also alleges that AAH has used a combination of acquisitions, referral restraints, noncompetes and “gag” clauses to suppress competition from other health care providers and expand its monopoly over acute inpatient hospital services into other separate markets where it has less market share thereby enabling it to charge supra-competitive prices.

The Plaintiffs assert that the supra-competitive prices AAH extracts from Wisconsin commercial health plans are in turn passed on to their members in the form of higher premium payments, and members directly pay AAH higher deductible, copay, and coinsurance amounts, resulting in rising health care costs.

AAH filed an answer to the complaint on March 21  in which it, among other things, denied that there has been any violation of federal or state antitrust laws and asserted affirmative defenses.

Next up:  Part II discussing the public inquiry recently opened up by the Agencies, along with some state initiatives, and the continuing constitutional challenges to the FTC’s enforcement authority.

[1] The hypothetical monopolist test asks whether a hypothetical monopolist of a proposed geographic market likely could impose a small but significant, non-transitory increase in price, generally defined to mean at least five percent.