Health Law Scan

Legal Insights and Perspectives for the Healthcare Industry

The US Federal Trade Commission (FTC) recently voted to withdraw its approval of the Vertical Merger Guidelines (the 2020 VMGs), which, as we covered in the past, the FTC and Department of Justice (DOJ) issued over a year ago on June 30, 2020. The vote on September 15, 2021 to rescind the policy statement broke along party lines, with the three Democratic commissioners—Chair Lina Kahn and Commissioners Rohit Chopra and Rebecca Slaughter—outweighing their two Republican colleagues—Commissioners Noah Joshua Phillips and Christine S. Wilson.

According to the majority, the 2020 VMGs—while a “substantial improvement” from their predecessor 1984 Guidelines—contained “flawed discussion of the purported procompetitive benefits (i.e., efficiencies) of vertical mergers, especially its treatment of the elimination of double marginalization (EDM).” The majority criticized the 2020 VMGs for devoting a whole section to the discussion of procompetitive effects (or efficiencies) of vertical mergers. As a result, the repealed guidelines purportedly flouted the Clayton Act by permitting “efficient mergers” even if they may lessen competition. Of particular interest, the joint statement of Chair Kahn and Commissioners Chopra and Slaughter also notes that studies of mergers between “hospitals and physician groups” suggest that these vertical mergers in particular have not achieved EDM efficiencies. Instead, the majority states that these vertical consolidations have “increased physician costs, hospital prices, and per capita medical spending, with larger effects in more concentrated markets.”

In their dissent, Commissioners Wilson and Phillips described the FTC’s withdrawal as the latest step of a “disturbing trend of pulling the rug out under from honest businesses and the lawyers who advise them” that “threatens to chill legitimate merger activity and undermine attempts to rebuild our economy in the wake of the pandemic.”

This latest agency action comports with President Joseph Biden’s recent Executive Order on Promoting Competition in the American Economy urging the FTC and DOJ (the Agencies) to enforce the antitrust laws robustly and zealously—particularly with respect to proposed mergers in the healthcare industry—including by “reviewing and revising” the Agencies’ merger guidelines. It also injects uncertainty into the regulatory review of pending vertical combinations in the healthcare space, as the FTC has not issued replacement guidelines. Rather, until new guidance is issued, the FTC will “analyze mergers in accordance with its statutory mandate, which does not presume efficiencies for any category of mergers,” and not return to the “dead-letter of the 1984 Guidelines.” DOJ’s guidelines are also in an uncertain state; the agency announced on September 15, 2021 that it is “conducting a careful review” of its horizontal and vertical merger guidelines “to ensure they are appropriately skeptical of harmful mergers.” However, the 2020 VMGs will stay in place at DOJ—at least for now.