By: Peter Nielsen, Spring 2018 HeLP Legal Services Clinic Intern
It requires an expansive collection of federal and state antitrust laws to regulate and contain the business conglomerates that are modern healthcare corporations. The framework for antitrust enforcement is over a century old now, but was not originally created and developed specifically to manage the healthcare industry. In general, corporations merge in a manner that stifles competition through two different methods: vertical or horizontal mergers. Horizontal mergers are the classic type of monopolizing merger, where corporations attempt to absorb their direct competitors within the same market type. Vertical mergers, on the other hand, pose different dangers to consumer protection because they feature corporations attempting to acquire new lines of business in order to either add new services or completely control entire customer experiences.
Recent trends in the healthcare industry feature several major reorganizations and mergers, prompted at least in part by the pressures created at first by the formation of the Affordable Care Act (“ACA”), and now by that law’s uncertain future. Market pressures have pushed the major health corporations towards both vertical and horizontal mergers and reorganization. For example, just last year four of the five largest health insurance providers agreed to “mega mergers” that would have created two massive conglomerate corporations. Aetna and Humana intended to join forces, while Anthem and Cigna agreed to become the other insurance superpower. In order to protect consumer interests and competition within the health insurance market, the Department of Justice (“DOJ”) sued to block these consolidations. The federal courts backed the DOJ and officially blocked the deals that would have left only three mammoth health insurance companies and severely limited the competition on the ACA’s public exchanges.
While the government has historically advocated for lower premiums and higher quality care, these objectives must be balanced with the realities of business. Through antitrust law enforcement, our court system must walk a fine line between allowing corporations to financially prosper while also disallowing them from employing monopolizing behavior that harms the common consumer. All the recent political turmoil surrounding the ACA has restricted the current profitability of the insurance market, but allowing massive consolations during downturns positions new conglomerates to exploit, if not monopolize, the market once it does stabilize.
Instead of purely horizontal acquisitions of direct competitors, however, the current trend appears to be shifting towards vertical mergers between health insurance and pharmacy corporations. Cigna is planning to buy Express Scripts while Aetna and CVS have also announced their own deal. By adding a new line of business into the pharmaceutical retail industry, these insurance corporations are still expanding their power within the healthcare sphere, but in a manner unlikely to conflict with any antitrust legislation.
However, it remains to be seen if government antitrust regulators will approve of this new type of merger. The pharmaceutical management industry responsible for negotiating prices with pharmaceutical manufacturers is already dominated by just three corporations. Since CVS is already one of these three, the new Aetna-CVS conglomerate would control prices negotiations with pharmaceutical manufacturers, the sales of pharmaceuticals, and the insurance plans paying for the pharmaceuticals. This level of streamlining and market control may conflict with the government’s antitrust interests, especially since this type of merger could pressure the remainder of the insurance and pharmaceutical industries into following suit with similar mergers. Such mergers likely will face an uphill battle because the agency typically charged with antitrust enforcement of the pharmaceutical industry is the Federal Trade Commission (“FTC”), rather than the DOJ (which typically oversees the insurance market). With a long history of bipartisan efforts, the FTC is predicted to enforce as rigorously, if not more so, with four new commissioners and new Republican leadership as it has in the past. In particular, the FTC is anticipated to show renewed antitrust aggressiveness in policing patent litigation settlements that impede the entry of generic, competitor pharmaceuticals into the market.
While the previous Democratic administration advocated for greater regulation and consumer protection, the current Republican one favors enabling competition and business creation. This is why, going forward, it seems likely the FTC, as well as the DOJ, will continue to operate under an emphasized mandate to focus their antitrust enforcement resources on the healthcare industry.