When antitrust fails: Public health, public hospitals, and public values

Washington Law Review

Volumn 71, Issue 4, 1996, Pages 899-916

  Jacobs, Michael S ^a  

^a DEPAUL UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 0345986805     PISSN: 00430617     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (99)

1. See, e.g., Kevin Sack, Hard Cases at the Hospital Door, N.Y. Times, Sept. 17, 1995, § 4, at 5;
2. see also Katherine Eban Finkelstein, Bellevue's Emergency, N.Y. Times, Feb. 11, 1996, § 6, at 45.
3. See Jennifer Preston, As Revenues Drop, Hospitals Talk of Forsaking Charity Care, N.Y. Times, Apr. 14, 1996, § 1, at 1.
4. The latest estimates reckon the number of uninsured Americans at "greater than 41 million, and . . . increasing by 100,000 per month." Jerome P. Kassirer, Our Ailing Public Hospitals - Cure Them or Close Them?, 333 New Eng. J. Med. 1348, 1349 (1995).
5. For a description of the new tuberculosis and some of the distinctive public health problems that it creates, see Lawrence O. Gostin, The Resurgent Tuberculosis Epidemic in the Era of AIDS: Reflections on Public Health, Law, and Society, 54 Md. L. Rev. 1 (1995).
6. See Peter E. Sokolove et al., Exposure of Emergency Department Personnel to Tuberculosis: PPD Testing During an Epidemic in the Community, 24 Annals Emergency Med. 418, 419 (1994) ("There is a higher incidence of tuberculosis in patients who are foreign born, homeless, recently incarcerated, or chronically debilitated . . . .").
7. Id; see also, e.g., Fewer MDR-TB Cases Seen in Inner City Than Expected, AIDS Wkly., Oct. 30, 1995 ("The incidence of tuberculosis has increased in urban areas in the late 1980s and early 1990s and many patients are cared for in public hospitals.").
8. Kevin Sack, Hard Cases at the Hospital Door, N.Y. Times, Sept. 17, 1995, § 4, at 5.
9. In the early 1980s there were almost 1800 public hospitals in the United States, but the latest figures show that as of 1993 only 1390 remained. American Hosp. Ass'n, Hospital Statistics: The AHA Profile of United States Hospitals 7 (1994).
10. Kassirer, supra note 2, at 1348.
11. Id.
12. Id.
13. Id. at 1349.
14. Robert J. Samuelson, Managed Care Revolution, Wash. Post, Oct. 25, 1995, at A19.
15. See, e.g., Michael Abramowitz, Health War Intensifies in Annapolis, Wash. Post, Mar. 26, 1996, at B1 (reporting that number of ambulatory surgery centers has doubled in five years due, in part, to their cost-effectiveness).
16. See, e.g., Edward B. Hirshfeld, The Health Care Industry's Transformation and the Antitrust Laws, in Antitrust and Evolving Health Care Markets 18-21 (Edward B. Hirshfeld et al. eds., 1995)
17. (stating that managed care companies cap provider costs "by employing professionals and acquiring hospitals and other institutions, or by contracting with independent providers on a capitation basis," and that "[t]he largest percentage of cost savings achieved by managed care is due to reduced use of hospital services").
18. See infra notes 25-31 and accompanying text.
19. See, e.g., Finkelstein, supra note 1.
20. See, e.g., Laurie McGinley, Acute Pain: Retooling of Medicare, Medicaid Will Increase Pressure on Hospitals, Wall St. J., Oct. 2, 1995, at A1.
21. See, e.g., Preston, supra note 2 ("With managed care driving down their revenues, many hospitals around the country say they can no longer afford to provide free medical care to the growing number of uninsured who have come through their doors seeking treatment for everything from the flu to heart disease."); see also California Hospital Under Fire for Seeking Healthier Patients, Mod. Healthcare, Aug. 21, 1995, at 172 (describing report that University of California Irvine Medical Center, having experienced "a dramatic increase in patients . . . with recently diagnosed serious conditions that require expensive treatments," had informed its medical staff that it could "no longer tolerate patients with complex and expensive-to-treat conditions").
22. Karen Donelan et al., Whatever Happened to the Health Insurance Crisis in the United States? Voices from a National Survey, 276 JAMA 1346, 1348 (1996).
23. This is an arguably unintentional and non-conspiratorial variant of the "raising rivals' costs" theory. See Thomas G. Krattenmaker & Steven C. Salop, Anticompetitive Exclusion: Raising Rivals' Costs to Achieve Power Over Price, 96 Yale L.J. 209 (1986).
24. See, e.g., McGinley, supra note 17, at Al. ("Almost every U.S. metropolitan area is 'overbedded.' The Denver area, for example, is glutted with more than 30 hospitals, many operating at just 40% of capacity. In Philadelphia, more than 40% of the beds aren't needed . . . .").
25. Victor Tabbush & Gerald Swanson, Changing Paradigms in Medical Payment, 156 Archives Internal Med. 357 (1996).
26. See, e.g., Michael S. Jacobs, An Essay on the Normative Foundations of Antitrust Economics, 74 N.C. L. Rev. 219, 229-30 (1995).
27. For a discussion of the basic tenets of the Chicago School's antitrust philosophy, see Richard A. Posner, The Chicago School of Antitrust Analysis, 127 U. Pa. L. Rev. 925 (1979).
28. See, e.g., FTC v. University Health, Inc., 938 F.2d 1206, 1213 (11th Cir. 1991); Hospital Corp. of Am. v. FTC, 807 F.2d 1381, 1391 (7th Cir. 1986).
29. Sandy Lutz, Let's Make a Deal, Mod. Healthcare, Dec. 19, 1994.
30. McGinley, supra note 17, at A1.
31. Lutz, supra note 25.
32. Id.
33. Sandy Lutz, Mergers and Acquisitions Report, 1995: A Record Year for Hospital Deals, Mod. Healthcare, Dec. 18, 1995, at 43.
34. Id.
35. Lutz, supra note 25.
36. See, e.g., Hearings on Global and Innovation-Based Competition Before the Fed. Trade Comm'n, Nov. 14, 1995 (statement of Joe Sims, of Jones, Day, Reavis & Pogue);
37. Hearings on Global and Innovation-Based Competition Before the Fed. Trade Comm'n, Nov. 7, 1995 (statement of Richard L. Scott, Pres. & CEO of Colurabia/HCA Healthcare Corp.).
38. Samuelson, supra note 12, at A19.
39. See George Anders, Money Machines: HMOs Pile Up Billions in Cash, Try to Decide What to Do With It, Wall St. J., Dec. 21, 1994, at A1.
40. Milt Freudenheim, A.A.R.P. Will License Its Name to Managed Health Care Plans, N.Y. Times, Apr. 29, 1996, at A1.
41. See, e.g., Robert Tomsho, Blue Cross Plans in Texas, Illinois Intend to Merge, Wall St. J., Jan. 31, 1996, at B3 (reporting that in response to "increasing pressure from for-profit insurers and health-maintenance organizations in the tumultuous race to land managed-care contracts," Blue Cross/Blue Shield (BC/BS) programs around country are merging with one another; since 1985, number of BC/BS plans has decreased from 86 to 66).
42. See, e.g., Ron Winslow & Leslie Scism, Aetna Agrees to Acquire U.S. Healthcare, Wall St. J., Apr. 2, 1996, at A2 (reporting that merger will create nation's largest managed-healthcare company, serving 23 million people).
43. Ron Winslow, Kaiser Permanente Unit, Group Health Enter Talks That Could Lead To Merger, Wall St. J., Sept. 16, 1996, at B6.
44. 15 U.S.C. § 18 (1994).
45. See, e.g., United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 355-56 (1963) (considering proposed bank merger).
46. Id.
47. Id. at 363.
48. Hospital Corp. of Am. v. FTC, 807 F.2d 1381, 1391 (7th Cir. 1986), cert. denied, 481 U.S. 1038 (1987).
49. See, e.g., FTC v. Butterworth Health Corp., No. 1:96-CV-49, 1996 WL 570479, at *4 (W.D. Mich. Sept. 26, 1996).
50. Tampa Elec. v. Nashville Coal, 365 U.S. 320, 327 (1960).
51. See United States v. Carilion Health Sys., 707 F. Supp. 840 (W.D. Va.) (finding that patients in Roanoke, Virginia would travel to Richmond, 165 miles away, for many kinds of hospital services), aff'd, 892 F.2d 1042 (4th Cir. 1989).
52. See, e.g., United States v. Rockford Memorial Corp., 898 F.2d 1278, 1285 (7th Cir.), cert. denied, 498 U.S. 920 (1990).
53. Id.; see also FTC v. University Health, Inc., 938 F.2d 1205 (11th Cir. 1991); Hospital Corp. of Am. v. FTC, 807 F.2d 1381 (7th Cir. 1986), cert. denied, 481 U.S. 1038 (1987).
54. 902 F. Supp. 968 (N.D. Iowa 1995), appeal docketed, No. 95-4253 (8th Cir. 1995).
55. Id. at 971.
56. Id. at 976.
57. Id.
58. Id.
59. Id. at 978.
60. Id.
61. Id.
62. Id. at 978, 989.
63. Id. at 973 (noting, however, that competition for Medicare, Medicaid, and traditional indemnity patients still occurs on basis of amenities and patients' perceptions about quality).
64. Id. at 974.
65. Id. at 973-74.
66. Id.
67. Id. at 972-73.
68. Id. at 974.
69. Id. at 975.
70. Id. at 972-73.
71. Id. at 987
72. Government's Opening Brief at 17-30, United States v. Mercy Health Servs. (8th Cir. Mar. 1, 1996) (No. 95-4253; Cross-Appeal No. 96-1051).
73. Id.
74. An unwelcome view, and one apparently shared by Melvin H. Orlans, senior litigation attorney in the FTC's Office of General Counsel, is that "[i]f enough courts keep saying that broader markets are appropriate, . . . it will prevent us from challenging hospital merger cases." Jeannine Mjoseth, Hospital Mergers: FTC Needs Success in Grand Rapids Case to Bolster Ability to Challenge Mergers, 5 Health L. Rep. (BNA) 20 (May 16, 1996).
75. 69 F.3d 260 (8th Cir. 1995).
76. Id. at 262.
77. Id. at 265.
78. Id. at 269.
79. Id. at 265.
80. Id. at 270.
81. See Scott, supra note 32.
82. Lucette Lagnado, Top New York Medical Centers to Merge, Wall St. J., July 25, 1996, at B12;
83. David R. Olmos, Tenet to Buy Rival OrNda for $3.2 Billion, L.A. Times, Oct. 18, 1996, at D1.
84. 65 F.3d 1406 (7th Cir. 1995), cert. denied, 116 S. Ct. 1288 (1996).
85. Id. at 1408.
86. Section 2 of the Sherman Act provides that "[e]very person who shall monopolize, or attempt to monopolize . . . any part of the trade or commerce among the several States . . . shall be deemed guilty of a felony . . . ." 15 U.S.C. § 2 (1994). Section 4 of the Clayton Act creates a private right of action for "any person . . . injured in his business or property by reason of anything forbidden in the antitrust laws" and directs the award to successful private plaintiffs of treble damages costs of suit, including reasonable attorney's fees. 15 U.S.C. § 15 (1994).
87. Marshfield, 65 F.3d at 1408.
88. In technical terms, the relevant product market in an antitrust inquiry is defined by the cross-elasticity of demand between a given product and its substitutes. 2 Phillip E. Areeda & Donald F. Turner, Antitrust Law ¶ 519a (1978).
89. The cross-elasticity of demand for substitutes measures consumers' propensity to switch from one product to another, similar product when relative prices change. See William J. Baumol & Alan S. Blinder, Economics: Principles and Policy 387 (1985). Products similar enough that a small relative price change causes consumers to substitute one for another are in the same product market. Areeda & Turner, supra, ¶ 525a.
90. Marshfield, 65 F.3d at 1412.
91. Id. at 1410.
92. Id.
93. Id. at 1411.
94. See, e.g., U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 596-97 (1st Cir. 1993) (affirming magistrate's finding that, in relevant geographic market (New Hampshire), HMOs compete as sellers in market that includes "all health financing" and as buyers in market for "doctor services," both of which are too broad to permit easy monopolization); see also Ball Memorial Hosp. v. Mutual Hosp. Ins., 784 F.2d 1325, 1331 (7th Cir. 1986) (affirming lower court holding that traditional health insurance, PPOs, HMOs, and self-insuring employers all offer "methods of financing health care" that compete against one another in "health care financing" market).
95. Because market definition is highly fact-intensive one court's determination in this regard is not strictly binding on another. Nevertheless, the courts' factual determinations respecting HMOs all have been premised on a shared understanding of how those markets function. Later opinions also have borrowed the language and reasoning of the earlier ones.
96. Antitrust law also appears to offer very little discouragement to the continued growth of physician groups offering certain specialties. See, e.g., Morgenstern v. Wilson, 29 F.3d 1291, 1296 (8th Cir. 1994) (reversing jury finding limiting relevant geographic market for Lincoln, Nebraska-based cardiac surgeon to Lincoln and 26 surrounding counties; ruling that Omaha also should have been included in market definition because it was place to which purchasers "can practicably turn"), cert. denied, 115 S. Ct. 1100 (1995).
97. See, e.g., David L. Meyer & Charles F. Rule, Health Care Collaboration Does Not Require Substantive Antitrust Reform, 29 Wake Forest L. Rev. 169 (1994).
98. See, e.g., Fredric J. Entin et al., Hospital Collaboration: The Need For An Appropriate Antitrust Policy, 29 Wake Forest L. Rev. 107, 123 (1994) ("Hospital markets do not strictly follow the competitive paradigm.").
99. See William J. Lynk, Nonprofit Hospital Mergers and the Exercise of Market Power, 38 J.L. & Econ. 437 (1995).