Cert denied, substantially anticompetitive hospital merger set to unravel

The merger between two Ohio hospitals, which was deemed to be substantially anticompetitive by the Federal Trade Commission (FTC) and later, the Sixth Circuit, must now undergo divestiture as a result of the U.S. Supreme Court’s denial of the hospital system’s petition for writ of certiorari. Despite the hospital system’s argument in ProMedica Health System, Inc. v. Federal Trade Commission that the FTC decision would have a “drastic and effectively outcome-determinative impact on countless hospital mergers,” the Court declined to hear the case.

Background

In 2010, two of the four hospital systems in Lucas County, Ohio, ProMedica Health System, Inc. and St. Luke’s Hospital, merged. As a result of the merger, ProMedica gained a market share above 50 percent in the primary and second service market, and above 80 percent in the obstetrical market. The FTC challenged the merger under Section 7 of the Clayton Act (15 U.S.C. §18) on the basis that it would adversely affect competition. The FTC then ordered ProMedica to divest St. Luke’s. ProMedica filed a petition with the Sixth Circuit Court of Appeals to review the FTC decision, which was denied.

The Sixth Circuit first determined that the relevant markets included, (1) a cluster of primary and secondary inpatient services, known as the “General Acute Care” (GAC) market, which did not include, (2) a separate market for obstetrical (OB) services. The court utilized the Herfindahl-Hirschman Index (HHI) to measure market concentration before and after the hospital merger. A merger can be presumed to be anticompetitive if it increased the HHI by over 200 points. The merger at issue increased the HHI for the GAC market by 1,078 points and the HHI for the OB market by 1,323 points, which raised a presumption of illegality. The strong correlation between market share and price, and the further concentration of markets that were already highly concentrated supported the FTC’s presumption of illegality. Finally, ProMedica did not rebut the presumption by arguing that the merger would benefit consumers. Instead, the evidence suggested that ProMedica and St. Luke’s were direct competitors, and therefore, a merger would give ProMedica the ability to raise rates. The Sixth Circuit therefore determined that the FTC properly presumed that the merger was substantially noncompetitive and that ProMedica failed to rebut that presumption (see Ohio hospital merger deemed substantially anticompetitive, ordered to divest, Health Law Daily, April 23, 2014). ProMedica then filed a petition for certiorari before the U.S. Supreme Court.

Patient Protection and Affordable Care Act

In urging the U.S. Supreme Court to grant its petition, ProMedica argued, among other things, that the implementation of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) and associated federal mandates require “economies of scale and encourage greater integration among health care providers,” which can be difficult for small hospitals because they cannot access the capital necessary to meet the ACA’s goals to improve quality and contain cost. As a result, many smaller hospitals seek to enter into mergers. ProMedica then argued that the Sixth Circuit’s decision would create a “virtual irrebuttable presumption of anticompetitive harm,” which will drastically impact many such hospital mergers and allow the FTC to have a “near veto over almost any proposed hospital merger.” ProMedica’s petition was denied, leaving the Sixth Circuit’s order of divestiture intact.

ACA’s contraceptive coverage provisions may not provide sufficient protection

Religious objections by Catholic groups in Michigan and Tennessee to the contraceptive coverage requirements of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) were fueled once again, as the Supreme Court threw out a lower court’s decision favoring the government. The High Court granted the petition for writ of certiorari filed by the Michigan Catholic Conference and the Catholic Diocese of Nashville, vacating the Sixth Circuit’s order and remanding the case for further consideration in light of the Supreme Court’s decisions in Burwell v. Hobby Lobby Stores, Inc. (Hobby Lobby) and Wheaton College v. Burwell.

The Cincinnati-based Sixth U.S. Circuit Court of Appeals must now reconsider its decision affirming two lower-court decisions that the religious organizations were not substantially burdened by the requirement that they self-certify an objection to providing contraceptive coverage (see Courts refuse injunctions in two contraceptive coverage cases, Health Reform WK-EDGE, January 8, 2014, and Religious employers lacked strong likelihood of success in contraceptive mandate challenge, Health reform WK-EDGE, June 18, 2014). Under the ACA, non-grandfathered group health plans are required to cover the full range of contraceptive methods approved by the FDA, as well as sterilization procedures. Religious employers, however, are exempt from this provision. Religious accommodations are available for group health plans of religious nonprofit organizations under which, following a certification process, employees of an eligible nonprofit may receive direct payments for contraceptive methods from the insurance company.

The Catholic groups argued in their petition that they will be substantially burdened by the requirements of the ACA, as well as the accommodation for organizations such as themselves. According to the organizations, the contraceptive mandate imposes a substantial burden on their exercise of religion because it forces the organizations to facilitate access to contraceptives and thus prevents them from bearing witness to their religious beliefs. Among other things, the religious organizations assert that while Hobby Lobby shows that the Religious Freedom Restoration Act (RFRA) (P.L. 103-141) “requires courts to assess the ‘consequences’ of noncompliance when analyzing substantial burden” (the pressure on plaintiffs to violate their beliefs), the Sixth Circuit instead focused on “the nature of the actions the Petitioners are compelled to take” (see Nonprofits ask Justices to take up question left open in Hobby Lobby, Health Reform WK-EDGE, January 7, 2015).

The order marks the third time in the last two months that the court has thrown out a ruling that favored the government’s interpretation of the contraceptive coverage portions of the ACA. In March, the high court used a similar approach in a case involving the University of Notre Dame (see Alito stymies Third Circuit, temporarily blocks enforcement of mandate, Health Reform WK-EDGE, April 16, 2015, and Notre Dame contraception battle revived, Health Reform WK-EDGE, March 11, 2015). The appeals court rulings in the University of Notre Dame and Michigan Catholic Conference cases came prior to the Supreme Court’s June 2014 ruling that closely held corporations such as family-owned Hobby Lobby Stores, Ltd., could seek a religious exemption from the contraception provision of the ACA. Courts that have ruled on the issue since the Supreme Court’s Hobby Lobby decision have all decided in favor of the government, finding the government’s compromise does not impose a substantial burden on the plaintiffs’ religious beliefs (see Contraceptive Coverage Mandate Accommodations Remain Troublesome for Religious Organizations, March 2015).

Alito stymies Third Circuit, temporarily blocks enforcement of mandate

Supreme Court Justice Samuel Alito has recalled a decision of the Third Circuit Court of Appeals, which lifted a preliminary injunction preventing the federal government from enforcing the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) contraception mandate against the Roman Catholic Diocese of Pittsburgh and an affiliate nonprofit corporation. On April 15, 2015, Alito issued an order in Zubik v. Burwell, recalling and staying the Third Circuit’s mandate pending a response from the government.

Background

The Most Reverend David A. Zubik, Bishop of the Roman Catholic Diocese of Pittsburgh, along with the Diocese and Catholic Charities of the Diocese of Pittsburgh, Inc. (collectively, the Diocese) alleged that the contraception mandate violated the organizations’ rights under the Religious Freedom Restoration Act (RFRA) (42 U.S.C. §§2000bb et seq.). In 2013, a federal district court in Pennsylvania granted them a preliminary injunction against enforcement of the mandate (see Catholic dioceses granted preliminary injunction, Health Law Daily, November 26, 2013).

The case was consolidated with others and, in February 2015, the Third Circuit reversed the injunction (see Catholics stay clean: form submission ‘washes their hands’ of involvement with contraceptive coverage, Health Reform WK-EDGE, February 18, 2015). The appellate court determined that the requirement to execute EBSA Form 700-Certification, which certifies an organization’s religious objection to the mandate, did not burden the Dioceses’ exercise of religion. The Diocese, however, maintained that completing the form, which triggers notification that a third-party administrator must assume responsibility for providing or arranging contraceptive coverage to employees, made it complicit in sin. The Diocese sought an en banc hearing before the appellate court; the court denied the request on April 6, 2015.

Impact

Religious groups view this as a positive step toward unravelling the contraception mandate. Lori Windham, Senior Counsel at the Becket Fund for Religious Liberty, has represented organizations with religious objections to the mandate in other cases. She issued a statement on Justice Alito’s order, noting “The government really needs to give up on its illegal and unnecessary mandate.” The government’s response is due no later than April 20, 2015.

The Affordable Care Act at age five: a look back and a look ahead

Somewhere near their first birthdays, children learn to walk. At three years of age, they might start pedaling a tricycle, and at age five, they are poised to enter kindergarten. March 23, 2015, marks the fifth anniversary of the enactment of President Obama’s signature health reform law, the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). Has the ACA, at five years of age, made the same amount of progress as a child?

Critics argue that the ACA has failed, but proponents say that it is moving closer to achieving its goal of quality, affordable health care for all Americans. As a law that seeks to expand health insurance coverage for Americans, improve the functioning of health insurance markets, and control the efficiency and quality of health care, the ACA has “had a major positive impact, and one that will continue to bring efficiencies over time,” said Keith Fontenot, the managing director of government relations and public policy at Hooper, Lundy & Bookman, P.C.

Regardless of whether it has met its milestones, it is clear that the ACA has already made an impact. It has had significant effects on the uninsured rate, the affordability of coverage via the provision of subsidies, the use of preventive services, and the actions of large employers and insurers. Many ACA provisions have gone into effect over the last five years; however, due to design or delay, a number of significant reforms have yet to be implemented or fully realized.

This White Paper looks at the ACA’s impact on Medicare and Medicaid issues and its impact on the private insurance market. It also looks at major ACA changes facing health care providers and employers in the coming months.

Read further, “The Affordable Care Act at age five: a look back and a look ahead.”