Antitrust & Certificates Of Public Advantage

by Tim Size, June 1995


Competition and cooperation have never been seen as mutually exclusive concepts in the development of rural health systems, and these issues are becoming increasingly important on a number of fronts. First, a recent court case in Wisconsin, in which Blue Cross of Wisconsin sued the Marshfield Clinic for anti-trust violations in connection with its network of providers throughout northern Wisconsin, has helped to focus attention on these issues

While Marshfield lost in the lower court decision, the case is likely to go through an appeal's process. Regardless of the ultimate outcome of the case, the issue of whether or not a rural area such as northern Wisconsin can, or should, be encouraged to sustain fully competitive markets is a separate, and ultimately more important, one which requires fuller discussion outside of the courtroom

Secondly, the Rural Wisconsin Health Cooperative is currently asking the Federal Department of Justice to review a proposal to negotiate with large managed care systems on behalf of our hospital members, without being accused of violating antitrust law. We have received some guidance in this regard, in the Statements of Enforcement Policy and Analytical Principles Relating to Health Care and Antitrust issued by the U.S. Department of Justice and the Federal Trade Commission on September 27, 1994. In this statement, the agencies described the principles to be applied in addressing issues commonly raised in connection with the formation and operation of multiprovider networks: integration, joint pricing and joint marketing, market definition, competitive effects, exclusivity, exclusion of providers, and efficiencies

The agencies' statement also, however, pointed up the existing ambiguities in applying these principles to health care systems and networks: "Because multiprovider networks are relatively new to the healthcare industry, the Agencies do not yet have sufficient experience evaluating them to issue a formal statement of antitrust enforcement policy or to set out a safety zone. The Agencies recognize, however, that guidance on antitrust issues raised by multiprovider networks is of vital importance to the health care industry."

Thirdly, the state of Wisconsin has legislated the ability to forestall antitrust legislation through the use of a Certificate of Public Advantage (CPA) statute. The legal doctrine embodied in this statute - state action immunity - is widely seen as a potential rural health policy alternative, or supplement, to antitrust enforcement. Wisconsin's CPA statute has not yet been implemented. At the present time, however, several state legislators are beginning to draft amendments to the existing statute.

There are remaining policy concerns over this statute. For example, its not yet clear to what extent the CPA statute could forestall antitrust action. According to the legislation, immunity can only apply to activities that are subject to "active, substantive state supervision." It is also not clear what "activities" might fall under this supervision, or what the supervision might entail

I believe that the challenge surrounding these various inter-related policy issues reflects deeply held, but conflicting, values. We seek unduplicated use of scarce resources and the "integrated", "seamless" delivery of health care, but we also prize consumer choice and competitive markets

The rural perspective on these policy issues is complex. On one hand, the benefits of strong antitrust enforcement are likely to be seen as a benefit, as rural providers and service networks have become increasingly concerned about potential "predatory" practices of large health care and insurance systems. On the other hand, antitrust laws are seen as a possible limitation to the development of rural health systems. Thus, depending upon which perspective one chooses, either a positive or negative "spin" can be put on network formation, as in the following examples:

• Formation of regional integrated service networks - or is it the development of monopolies and the sanctioning of monopolistic practices?
• Integration of local physician-hospital services - or is it acquiring control over providers to obtain and maintain market dominance?
• Elimination of local duplication and fragmentation - or is it creating an exclusive facility and impeding entry of new competition?
• Buying local medical practices as a response to an increasingly competitive market - or is it intimidating existing independent physicians to affiliate or refer?

We need to focus on these broad policy issues. In addition, we need to focus discussion on the more specific issues related to the potential use of the CPA statute to address issues of competition vs. cooperation in rural health systems in Wisconsin. Some of these specific questions would include:

• How do we weigh the relative value of enforcing antitrust laws vs. granting a partial exemption through the state's exercise of sovereign immunity?
• What situations would be eligible for a CPA?
• Who would have standing to apply?
• What is the role for the Attorney General's Office to be able to challenge a decision by any other arm of government to give a CPA?
• What review criteria would be used and how would it compare with the major criteria used in antitrust reviews?
• Who is assigned the burden of proof regarding approval or denial of an application?
• How do we operationalize "substantive" state supervision? What is the source of state staff and funding for this supervision?