This transcript was auto-generated using Adobe Premiere Pro.
00;00;05;01 - 00;00;38;13
Meg Pekarske
Hello and welcome to Hospice Insights: The Law and Beyond, where we connect you to what matters in the ever changing world of hospice and palliative care. A Significant Departure: Unpacking What the New Antitrust Guidelines Mean for Healthcare Providers. Wendy, we've been planning this this podcast for a while now. This was big news when this came out. These new guidelines which are in draft, but but nonetheless, real significant. So were you surprised?
00;00;39;04 - 00;01;51;20
Wendy Arends
I was not surprised. Primarily because we in the antitrust bar have been hearing about the the proposed new guidelines coming down the pike for for a while now when DOJ and the Federal Trade Commission withdrew the 2010 version of the merger guidelines. You know, there was just a lot of buildup. When will the new guidelines be released? So I was not surprised by the by the sort of departure from the 2010 guidelines. But that said, I think delving into the substance of the guidelines, there is a lot to unpack there, especially for those in the health care industry. And I will say May, this is perfect timing for this podcast, because not only have we in the antitrust bar had a chance to review the guidelines in depth, we've also had a chance to hear from the U.S. Department of Justice and the Federal Trade Commission as to their views about why they issued the new guidelines and what the guidelines mean in practice. So I can't wait to get it to you.
00;01;51;29 - 00;03;16;03
Meg Pekarske
Well, you know, back to law school days, which is now like 25 years ago, taking antitrust was one of the most dance and hard of all classes because there's a lot of concepts there. So we're not going to do antitrust one on one here. But, you know, that's just sort of talk. Very high level about, you know what? And these guidelines really focus on mergers. And I think while it doesn't just apply to health care, it seems like health care is a driver. And perhaps why they felt a need to change some of the the structure around there. So. So tell me a little bit about you know, what these guidelines are doing. And and I have so many questions around like there's like in our world of hospice regulatory stuff, we focus a lot on rulemaking. Right. What does the statute say? What, you know, authority does the agency have in terms of rule making and then the rulemaking process, which has, you know, notice and comment and all this. And so this is not a law change. Right. This is just guidelines. But what does that mean? Right. So the Sherman Act and all that stuff has stayed the same. Right.
00;03;16;12 - 00;05;14;19
Wendy Arends
Current act isn't going anywhere. It has been in place since 1890. And our friend the Sherman Act is not actually while it's important and it can guide merger review section one of the Sherman Act in particular, Section one of the Sherman Act and Section seven of the Clayton Act are really the two statutes that could prohibit what the antitrust enforcers believe to be an illegal merger or acquisition or even a joint venture. And so that's the core sort of statutory regime with which we're dealing. And then as part of Section seven and Section one and the analysis under Section seven of the Clayton Act and Section one of the Sherman Act is the same according to prior judicial precedent. This analysis is of whether a merger violates Section seven of the Clayton Act is driven by these merger guidelines as well as judicial precedent. And so obviously, the merger guidelines haven't been in place forever. But, you know, since the 1960s or so, various iterations of the merger guidelines have been released by DOJ and the Federal Trade Commission, the two antitrust enforcers who are responsible for evaluating whether a merger may may violate the law. And these various iterations of the merger guidelines are what we're talking about today. And essentially they are the agency's roadmap for analyzing whether a merger, acquisition or joint venture could number one, substantially lessen competition or number two, tend to create a monopoly. And that's really what the crux of Section seven of the Clayton Act says. But of course, the merger guidelines are full of a whole lot of detail and analysis that isn't present in the statute.
00;05;15;10 - 00;06;07;13
Meg Pekarske
So maybe just to to pause there for a second. So the notice comment structure we have for when we deal with CRM assets like do we as a public have an opportunity to comment on these and have like the government has to take that into account and respond to comments or it sounds like all of this stuff is fought in court and you talk about judicial precedent, which obviously in in hospice regulatory stuff there could be, but not there just isn't as much because we have a lot of administrative procedure. But it sounds like here it's a very different kind of structure. They can put out these guidelines and say this is how we're going to do things. And we as an industry don't really have a lot of say.
00;06;07;26 - 00;07;22;22
Wendy Arends
Yes, exactly. So the agencies are seeking comments on the proposed draft of the merger guidelines. Okay. And through September 18, 2023, the public has a chance to to submit comments by a regulation is the back of that said, the merger guidelines are not considered binding on court, so courts don't have to follow them, although courts have and can use them as persuasive evidence. And many courts most courts have accepted the 2010 version of the merger guidelines and cite to them in their decisions. So they they are quite persuasive, it seems the courts will see of this latest iteration remains in its current form or whether the agencies take into account probably a good number of comments that are going to be submitted and have been submitted. And we'll just have to wait and see what the final what the final merger guidelines look like. Sort of the ultimate question is whether courts decide to use them as persuasive evidence or whether they continue to rely on the 2010 guidelines because that's what they've been using previously.
00;07;23;03 - 00;07;44;03
Meg Pekarske
So what generated this? So you have 2010 hour and 2023. What's change? What made then? Is this just a reflection of the current administration solely or has there been a drumbeat for a while over the last 13 years?
00;07;44;03 - 00;08;44;23
Wendy Arends
Well, that's a great question. So taking that 50,000 foot view level, you know, since the Biden administration issued an executive order on promoting competition in the American economy in the summer of 2021, and this drumbeat has really been building by the by administration to review the guidelines and determine whether there's sort of a better way to ensure that, you know, they achieve their goal, which is to reduce or prevent further consolidation in a variety of industries, including in health care. So the Biden administration and their review of these guidelines is really a way to make good on their promise to increase scrutiny of mergers and acquisitions that might be lessening competition and harming, you know, consumers or the competitive process in general.
00;08;45;09 - 00;09;23;03
Meg Pekarske
And we'll be posting a link to the article you wrote one day on this in the podcast out so people can can read that. But in terms of health care, what kinds of things were they citing to that that was of concern to them? I mean, we have a lot of payers who are now becoming providers and, you know, and it seemed like perhaps there was concerns about how big some of these companies are becoming and maybe that they're doing so many things across the continuum. Or was that not part of it?
00;09;24;01 - 00;13;23;12
Wendy Arends
Oh, no, absolutely. You're right. Made that that was definitely a part of their thinking. I mean, prior to the Biden administration, other administrations have challenged mergers and acquisitions in the health care industry. It's just that the Biden administration really put its foot down and said, hey, you know, we view consolidation in a variety of industries, including in health care, as problematic. And we're going to take these extra steps which included the executive order and then telling DOJ and the FTC to go forth and use all of the available tools that they have to to step up scrutiny in a variety of industries with respect to mergers and acquisitions. So, you know, the Biden administration, even prior to the merger guidelines being issued, hasn't shied away from from bringing challenges to major health care and pharmaceutical deals that they view as anti-competitive. They have faced some uphill battles recently with respect to in particular, their challenge to what are called vertical transactions. So transactions where you've got, you know, a supplier who's acquiring a manufacturer or someone in a different level of the supply chain where the acquisition is occurring. And in particular, DOJ challenged UnitedHealth Group's acquisition of Change Health Care, which is now part of Optum that was challenged by DOJ in court. DOJ argued that that combination, which was a vertical transaction, would give UnitedHealth Group access to certain trade secrets and competitively sensitive information from its competitors in the insurance industry that it could use to bolster its health plan. ARM Even though, you know, change was was not sort of in that same space. So ultimately the court decided that this transaction could proceed, that it did not violate Section seven of the Clayton Act. And there was a condition to that. But in any event, that challenged by DOJ within the health care space was not successful. And, you know, part of that might be because the 2010 merger guidelines that it had been operating under and that the court was reviewing the deal under, didn't really speak to the issues that DOJ was was trying to assert would result in anticompetitive harm. And so these new merger guidelines might help DOJ in the future when it tries to bring these more novel challenges to transactions that are occurring in the health care industry that are both maybe horizontal but also vertical in nature. And so we'll just have to see. I know we've seen in the home health care sector recently a good number of of large transactions where it's been public or publicly reported that DOJ or the FTC is is reviewing the transaction. And one of those is a medicines and, you know, we read in a SEC filing that was recently released that there was a second request for information that was issued in the transaction involving a medicines. So we'll just have to see, you know, that one goes through or if it gets challenged in court. But we do know that DOJ is is certainly it's taking a closer look at these types of transactions that may not present horizontal overlap, sort of the traditional theory of antitrust harm, but present other issues that are that are not traditional under antitrust law, but that are being kind of discussed in these new merger guidelines.
00;13;23;25 - 00;14;14;17
Meg Pekarske
In terms of as an antitrust lawyer, which I've always so, so grateful when I can call you, because this is such a nuanced area. And when you're advising a client, it's it could be challenged. And then do you sort of pre prepare your thinking about how you would defend that or like, do you is there a lot of stuff you do on the front end in terms of structuring and and proactively sort of addressing these things like how does this actually work? So, you know, we're working on a transaction and you know, we're concerned it might get, you know, reviewed like how how do you do your job? Like what's involved in that and what is that going to change in light of this?
00;14;15;19 - 00;16;37;12
Wendy Arends
Our recommendation to clients is is to be proactive and to help help us help them by allowing us to do an analysis of whether, you know, a proposed acquisition or merger or joint venture presents any possible anti-competitive harm under the merger guidelines. So we take a look at the merger guidelines, we take a look at the facts of the transaction, what is the rationale for the transaction? And we look at the various potential markets involved to determine if DOJ or the FTC or a state attorney general might be interested in investigating the transaction further. And so we kind of come up with an initial gut reaction. And then depending on the client's desire and or appetite, we could do further analysis. We can hire an economist to do some upfront work because both agencies, DOJ and the FTC have their own economists on staff. So we always like to be as prepared as possible if we think there's a significant, substantial possibility that one or more that agencies or state AGs might open an investigation into a proposed transaction. So another thing that we stress to clients is, is good document hygiene with respect to when they're when they're considering a transaction. So that essentially means, you know, make sure that the business folks are articulating, you know, what are the what are the rationale for the deal, Why is this not only good for the company, but good for patients and the community? And, you know, to to really kind of set that forth in documents early on is helpful because a lot of times folks maybe don't think about putting that in a presentation to the board, but at the end of the day, that is their reason for doing a deal, is to, for example, increase quality of care or increase access to services or increase innovation and or technological capability. And those points are really helpful if they're articulated early on and consistently buy by organizations considering a proposed transaction.
00;16;38;14 - 00;18;07;22
Meg Pekarske
That's really helpful. And I think, you know, one thing, and you and I have worked on a number of projects where we've done sort of just that at the very beginning, where people are exploring staff, bringing you in to have some conversations around anti trust issues because I think I don't want our listeners to think, well, I'm not a giant company, so I don't need to worry about antitrust. Right? So I think everyone needs to be aware of that. And you know, you talked about how you define the market, right? It doesn't need to be national. It can be, you know, very localized and, you know, geographic. And so that's important. And I think something you said, too, is joint ventures. And and we're doing more and more of those and working on establishing clinically integrated networks and clinically integrated networks are somewhat a function of antitrust law. Right. And like and so a number of the things that you're talking about need to go into that analysis. If you're trying to create a clinically integrated network, which as I'm thinking about this, we need to do a podcast on clinically integrated networks and how, you know, you think that might change in light of these new guidelines as well. But that's another podcast we could do. Like, you know, 14 hours of antitrust stuff.
00;18;07;22 - 00;18;16;08
Wendy Arends
But I personally would I would love that. Let's do that. I don't know if you're your listeners would enjoy that, but I.
00;18;16;08 - 00;18;22;28
Meg Pekarske
Would well I, I love learning from from you and but you were going to say something.
00;18;23;14 - 00;20;42;05
Wendy Arends
Well one thing in addition to what I just said about your question, these smaller transactions, even though you know the they might not be what are called reporta BLE transactions to the Department of Justice or Federal Trade Commission under the HART-SCOTT-RODINO Act. So that's a that's a whole separate podcast probably. But they still might catch the eye of DOJ, FTC or state A.G. number one, because, you know, there might be media reports about a transaction or number two, you know, a competitor or a third party might decide to complain to DOJ or State AG about a transaction, even though it's it's a smaller transaction. And I actually helped to litigate a case that was not reportable under the HART-SCOTT-RODINO Act. It was a smaller transaction involving an acquisition by St Luke's of salts or medical group, and that transaction ended up being investigated by both the Federal Trade Commission and the Idaho State Attorney General. And then ultimately went on to be litigated up to the ninth Circuit and the court ordered that that transaction be unwound. It was a consummated transaction. So just another note to your listeners that smaller transactions are on the FTC and DOJ radar and in particular, these new guidelines talk about the need to review what are called serial acquisitions. So most likely by a private equity firm, but also could be by a larger company that engages in a sequence of transactions that the agencies may view as kind of accumulating, you know, some sort of anti-competitive harm. So there's a guideline in in these draft merger guidelines that explicitly discusses that that the series of smaller transactions can be reviewed. And, you know, of course the agencies have always had that authority to review transactions after they close. But it just underscores that, you know, they are planning on reviewing a series of smaller acquisitions if they view it as as anti-competitive in some manner.
00;20;42;05 - 00;21;41;02
Meg Pekarske
And maybe last thing here, because we'll have to I was just thinking of hard core history, which is a podcast that goes on for hours about like things and we'll do our hard core antitrust here. But I guess last thing maybe for today's podcast was about, you know, that there was some litigation around anti-competitive things related to staff staffing agencies and or, you know, how agencies might be, you know, limiting people's ability to to move out or whatever. And maybe you can talk briefly about that, because that came up a bit in the merger guidelines, too, is how does this impact staffing, right, or employees ability to, you know, freely get a new job or whatever?
00;21;41;02 - 00;23;54;29
Wendy Arends
Another great point. I mean, again, this scrutiny by the Biden administration on the effects of consolidation as to the labor market is something that we're seeing being borne out in these merger guidelines. So not only is DOJ criminally prosecuted in alleged no poach and wage fixing agreements that are and it has been focused on health care industry, in particular, the staffing agencies, as you mentioned, and alleged agreements not to solicit, not to poach and then to fix wages or suppress wages for these temporary staff workers in the health care industry. In addition to that, the new merger guidelines have a guideline that explicitly discusses the the fact that the agencies will not only request labor market information as part of a merger investigation can do that, will do that. But also could, you know, challenge a merger that they view as as harming a relevant labor market. And so all of this, you know, suggests that the Biden administration continues to be focused on its goal of ensuring that workers mobility is not somehow limited and that workers or their wages aren't suppressed. And it's trying to get at this issue in a number of ways, including through the new merger guidelines. So a proposed health care merger, you know, if it's reviewed by the DOJ or the FTC, you can bet that one of the questions that they will ask is, hey, send us, you know, information about your employees, the wages they're earning. You know, are there any documents that discuss the impact of the transaction on, you know, your employees? And in addition, this is of particular interest to the enforcers in the health care industry because of the industry's specialized skills and training and licensure. So certainly the Biden administration is laser focused on on labor market issues in the health care industry.
00;23;55;21 - 00;25;20;18
Meg Pekarske
Yeah. Oh, my goodness. There's so much here. And I think maybe, you know, my reflection and in hearing all of your insights here is I think being able to an issue spot is like, oh, I'm a CEO. I need to like have a deep understanding of antitrust. But I think you need to be sensitive to this from the beginning. And it doesn't really matter how big or small you are because as you said, like states can get active in this area and as we know, there is 50 different, you know, approaches maybe to how aggressive people are going to be. So I think it's worth putting on your radar screen as you begin thinking about this and use the phrase document hygiene. But I mean, I think that, you know, very helpful to get some training on what that means. And because trying to after the fact demonstrate your intent as opposed to have contemporaneous documentation about your intent. I mean, you'd rather start with the contemporaneous documentation of intent, like when we started talking about this two years ago, this is why we were doing it right instead of like later trying to say, Well, no, of course we were trying to do those things. And so.
00;25;21;11 - 00;26;50;13
Wendy Arends
Absolutely. And I think another takeaway is just that, you know, if your transaction is reviewed for some reason by a state or DOJ or the FTC, you're going to go through a longer investigation period. It is going to be more expensive and more burdensome generally speaking, for the parties involved. Unfortunately, the new merger guidelines might actually have I mean, and they're intended to have a deterrent effect on all parties looking to merge. You know, the underlying kind of tenor of these guidelines is that, you know, the Biden administration seems to prefer organic growth, right? So build versus buy now. But this is going to potentially hurt smaller companies, smaller organizations who for one reason or another, feel that they can only achieve certain efficiencies or benefits, pro-competitive benefits from a merger versus, you know, having to raise capital to to build or to, you know, organically grow or expand in the health care industry. So you know, my my concern is that it will have a deterrent effect on the wrong types of organizations and companies, the smaller ones. And it won't necessarily affect the behemoths as much because they have the resources to go out and defend a litigated merger challenge. So that's one addition.
00;26;50;13 - 00;27;45;01
Meg Pekarske
But yeah, and I think at least in in the hospice space right now, among smaller providers is coming together more to create efficiencies, which is something that is okay. Right. Not to do, but because a lot of those combinations are I just can't get the scale to reduce my overhead and become more cost effective in my delivery of care, which, you know, is a very valid point anyway. I think that it's not that people shouldn't be thinking about doing those kinds of mergers or whatnot, but I think, yeah, you got to get sensitive to these issues and make sure you're thinking about them from the get go. So but anyway well fun topic.
00;27;45;28 - 00;28;04;28
Wendy Arends
And absolutely agree on all lbs with you you know the earlier folks can start thinking about these issues. You know the more guidance we can we can give and hopefully help reduce the risk that a transaction is investigated, let alone challenged and let.
00;28;04;28 - 00;28;09;03
Meg Pekarske
Alone and unravel that a lot here on unwound.
00;28;10;06 - 00;28;12;12
Wendy Arends
Unscrambling the eggs is not fun.
00;28;12;28 - 00;28;43;13
Meg Pekarske
Yeah, that sounds like a headache, but. Well, thank you so much. This has been really, really interesting I think great for for our listeners. So thank you for taking the time. And then again, we'll post your article too. That's a bit more detailed than some of these areas. And then obviously folks can feel free to reach out too. So my guess is this won't be the last article one day you'll write either on this topic. So more to come.
00;28;43;22 - 00;28;57;20
Wendy Arends
There is definitely more to come. Once these are finalized, we will certainly have a follow up article and then, you know, if there are breaking developments in between. Absolutely. Please continue to watch our our blog post.
00;28;58;23 - 00;29;08;20
Meg Pekarske
For the breaking antitrust news. Yes. Right. And we all live in our little worlds of like intrigue, right? Exactly.
00;29;08;24 - 00;29;09;26
Wendy Arends
The antitrust nerd.
00;29;09;26 - 00;29;14;09
Meg Pekarske
Bubble. Yeah, exactly right. Yeah.
00;29;14;20 - 00;29;17;15
Wendy Arends
Well, thank you so much for having me. I really appreciate it.
00;29;17;16 - 00;29;18;01
Meg Pekarske
Yeah.
00;29;18;25 - 00;29;22;28
Wendy Arends
Thank you. We'll look forward to talking further at some point in the future.
00;29;22;28 - 00;29;50;16
Meg Pekarske
Right. Well, that's it for today's episode of Hospice Insights, The Law and Beyond. Thank you for joining the conversation. To subscribe to our podcast, visit our website at HuschBlackwell.com or sign up wherever you get your podcasts. Till next time, may the wind be at your back.