Health Law Scan

Legal Insights and Perspectives for the Healthcare Industry

The US Department of Justice (DOJ) Antitrust Division issued a Business Review Letter (BRL) on January 15 in response to a proposal by the American Optometric Association (AOA) and AOAExcel GPO, LLC to expand their group purchasing arrangement. The AOA includes approximately 27,000 doctors of optometry (plus optometry staff and students) who compete with one another and nonmember optometrists and ophthalmologists to provide optometric services. AOA members also compete with other retail and online stores and vertically integrated providers who offer optometric products. In an effort to help their members better compete with these online and retail stores and vertically integrated manufacturers, the parties plan to expand their group purchasing arrangement to include optometric products for resale to customers. The proposed expansion would cover optometric products including eyeglass lenses and frames and contact lenses. The DOJ, in reviewing the details of the proposal, concluded that it presently does not intend to challenge the parties’ group purchasing arrangement in light of certain competitive safeguards within the structure of the expanded arrangement.

By way of background, the DOJ’s Business Review Procedure—which is similar in practice and function to the Federal Trade Commission’s (FTC’s) Advisory Opinion process—is a potentially helpful guidance opportunity that enables parties to request a written letter advising them of the DOJ’s present enforcement posture concerning certain conduct. Parties may request a BRL by submitting a written request to the assistant attorney general of the DOJ’s Antitrust Division that contains a “full and true disclosure with respect to the business conduct for which review is requested” as well as supporting documents. Antitrust Division Business Review Procedure, 28 C.F.R. § 50.6. The DOJ may also independently investigate the conduct if it sees fit. Where the DOJ chooses to respond substantively, which it is not required to do, it does so by issuing a written BRL from the assistant attorney general or his or her designee. While a BRL provides the DOJ’s enforcement posture on the issuance date, the DOJ’s enforcement position may change in the future if the actual operation of the proposed conduct is anticompetitive.

Here, the DOJ concluded that the potential for anticompetitive harm is unlikely and effectively mitigated, and that the expanded group purchasing arrangement may lead to increased competition in the market for optometric products. Notably, the DOJ concluded that the proposal was acceptable under existing healthcare guidance jointly issued in 1996 with the FTC that generally approves of group purchasing organizations (GPOs). Under that guidance, neither the DOJ nor the FTC will challenge a healthcare GPO, barring extraordinary circumstances, unless it accounts for a significant portion of the market for a product or service, or the item the GPO purchases represents so large a percentage of the total revenues from reselling the product or service that the GPO may be used to facilitate price fixing or to otherwise reduce competition. The parties represented that the proposed expanded group purchasing arrangement at issue in the BRL will account for significantly less than 35% of the market for each optometric product, so, based on that representation, the DOJ concluded that size alone was not of concern.

However, the DOJ did have concerns that the cost of many of the products would account for a large percentage of the total revenue from the resale of the products. The following three safeguards in the parties’ proposal mitigate those concerns:

  1. AOA members are not required to purchase optometric products through the GPO.
  2. The AOA uses an unaffiliated third-party GPO to negotiate optometric prices and discounts with suppliers.
  3. The GPO may discuss optometric product pricing with individual members, but cannot share the contents of those discussions with other AOA members.

In addition to these safeguards, the DOJ noted that many purchasing options already exist for these products, making standardization of costs through the GPO unlikely. Further, competition with retail and online stores and vertically integrated providers reduces the likelihood of GPO members collectively raising prices. Given these protections, the DOJ concluded the GPO’s planned expansion into optometric products was unlikely to harm competition and could lower consumer prices.

Parties should consult experienced antitrust counsel before forming or joining a GPO that may have an anticompetitive effect in any market or submitting a request for a BRL or an Advisory Opinion.