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Show Kleit (1993) argues that the weight of evidence indicates that the Reagan and Bush Administrations were increasingly leaning towards applying a "welfare of consumers" standard. For example, in 1988, then FTC Chairman Oliver endorsed a "price test" by which the goal of the FTC was to prevent combinations which increased price or reduced output. This is equivalent to the goal of maximizing the welfare of consumers. Indeed, antitrust cases in the 1980's involving hospital mergers and the formation of physicians' groups addressed primarily the question of whether or not the combination created market power. In contrast, Lewis F. Parker, the FTC's chief administrative law judge, in dismissing an FTC challenge to the merger of Ukiah Adventist and Ukiah General hospital, noted that the facts indicate that competition among health care providers does not generate the same benefits as competition in other industries (WSJ, Dec. 18, 1992).8 Does this signal a significant change in the attitude of our antitrust officials toward the health care industry?9 In recognition of both a change of administration and a growing frustration by health care providers over what they see as constraints on their efforts to contain costs, the FTC and DOJ jointly issued a proposed set of antitrust guidelines for the health care industry (BNA Antitrust & Trade Regulation Report 1993). These guidelines cover six collaborative arrangements: (1) hospital mergers; (2) hospital joint ventures involving expensive medical equipment; (3) physician's provision of information to purchasers of health Flynn correctly notes that the direction of the redistribution of income often has a tremendous impact on the political and social acceptability of the collaborative agreement. For example, compare the social/political acceptability of the market power of the Standard Oil Trust which developed in the 1890's to the social/political acceptability of the market power of labor unions. 7 We owe this point to the comments of an anonymous reference. 8 The FTC later dismissed its challenge of the Ukiah General Hospital acquisition by Adventist Health System/West because the evidence submitted did not support a finding of increased market power in the alleged relevant geographic market (Federal Trade Commission, 1994). 9 The American Hospital Association argues that excess capacity, under utilization of facilities and duplication of management and marketing efforts could be avoided if hospitals and providers could combine and coordinate patients, purchasing and other efforts. As supporting evidence, the AHA offers a 1992 study by the Department of Health and Human Services for the Inspector General which found that merged hospitals reduced the costs of treatments and other services by 10.4% while the same costs at a control goup of hospitals increased by 29.7%. care services; (4) hospital participation in exchanges of cost and price information; (5) joint purchasing arrangements among health care providers; and (6) physician network joint ventures. In the next sections we review and analyze the recent DOJ and FTC antitrust guidelines. The new proposed guidelines for antitrust enforcement are a result of the experience of the DOJ and the FTC in evaluating the costs and benefits of collaborative agreements specific to the health care industry over the last 15 years. Most scholars and practitioners do not view the proposed guidelines to be a major change in policy. Yet, in subtle ways they may signal more willingness on the part of the antitrust authorities to look at the impact of proposed collaborative agreements in a more positive light, especially with respect to their potential for economic efficiencies, and to help shape collaborative agreements in ways that will make them more acceptable under the antitrust laws. A word of caution before we proceed. Health care providers must understand that these new guidelines do not have the force of law. Rather, they represent rules of thumb the DOJ and FTC will follow when reviewing collaborative agreements. Health care providers should understand that anti-trust challenges can be initiated by private parties as well as by government agencies. The ultimate applications of antitrust laws are decided in the court. Safety Zones The antitrust guidelines for the health care industry issued by the DOJ and FTC in 1993 establish six "antitrust safety zones," that shelter certain types of collaborative arrangements from prosecution. In general, the guidelines permit collaboration in situations where changes in market share (market power) are not likely to have significant (negative) impact on consumer welfare. Some of the guidelines appear to acknowledge the possibility for economic efficiency resulting from certain types of collaborative agreements. Hospital Mergers: The new guidelines for hospital mergers appear to be more concerned with facilitating the survival of hospitals experiencing weak performance (low occupancy) than with facilitating the attainment of efficiencies realizable through the merger. The guidelines refer to standards of both size and occupancy level as indicators of the likelihood of a merger leading to the concentration of market power requisite to the ability to raise prices. For example, a proposed 106 REVOLUTION, EVOLUTON, OR BUSINESS AS USUAL? |