FTC Final Order Requires ENH to Conduct Separate Negotiations with MCOs

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The Federal Trade Commission has issued an order providing rules for how Evanston Northwestern Healthcare Corporation (ENH)—an operator of hospitals in Chicago North Shore suburbs—must negotiate with health insurance companies or managed care organizations. The order comes in light of the Commission’s 2007 determination that ENH’s acquisition of Highland Park Hospital in 2000 violated antitrust laws.

Last year, after determining that the acquisition was anticompetitive, the FTC decided not to require divestiture of Highland Park Hospital—the preferred remedy for an anticompetitive acquisition. Instead, the Commission determined that “in light of unique circumstances” a more appropriate remedy would be to require ENH to establish separate and independent negotiating teams—one for Evanston and Glenbrook Hospitals and another for Highland Park Hospital.

Attorneys for the FTC and ENH offered proposed remedial orders. On April 28, the Commission released its final order, saying that it was attempting to “replicate the competitive conditions that existed prior to ENH’s 2000 acquisition of Highland Park as much as possible, short of divestiture.”

Scope of the Order

In deciding the impact of the consummated merger on competition, the Commission had focused on the market for acute inpatient hospital services. ENH unsuccessfully argued that, based on the Commission’s analysis of competition, the scope of the order should be limited to managed care contracts for inpatient services and exclude contracts for outpatient services.

Noting its broad discretion in fashioning remedies for anticompetitive conduct, the Commission held that payors must be able to negotiate separately with the ENH teams for all hospital services, not just inpatient services. In justifying the scope of the order, the FTC also pointed to the fact that payors usually make contracting decisions based on the price of the entire set of hospital services and do not contract separately for inpatient and outpatient services. The Commission stated that “for payors, the option to negotiate separately with Highland Park solely for inpatient services would be of dubious value.”

When contacted by a payor to negotiate a managed care contract, ENH must set up separate and independent negotiating teams. A payor can decide to contract jointly for both Highland Park and Evanston after notification by ENH of the Commission’s order. Payors have the option to re-open and re-negotiate current contracts.

The Commission excluded government payors, such as Medicare and Medicaid, from the scope of the order. It noted, however, that other governmental entities, such as a municipality procuring health care coverage for its employees as a self-insured entity, would be able to negotiate separately for all hospital services.

Firewall to Prevent Information Sharing

The Commission’s order calls for firewalls to minimize the risk that competitively sensitive information will be shared by the Evanston and Highland Park negotiating teams. Under the order, the Evanston and Highland Park negotiating teams are not permitted to engage in negotiations with payors who opt to negotiate jointly for hospital services at all three ENH hospitals. Thus, ENH can negotiate jointly for services at all three hospitals with payors who opt-out of separate negotiations, but the two teams used to negotiate for Evanston and Highland Park separately may not be involved in the joint negotiations.

Rejected was an ENH proposal that the ENH negotiating team would be responsible for the negotiations with Evanston when payors elected to negotiate for Evanston separate from Highland Park, and for negotiating all services at all ENH hospitals when payors opted to negotiate for all three ENH hospitals together.

Dispute Resolution Mechanism

The order requires the negotiating teams to negotiate with payors in good faith. When the hospitals and those negotiating with them cannot reach agreement, the dispute will be sent to mediation in accordance with the Commercial Mediation Rules of the American Arbitration Association (AAA). If the dispute cannot be settled by mediation, then it will be settled by binding arbitration in accordance with the AAA’s Commercial Arbitration Rules. The Commission will retain jurisdiction over violations or possible violations of the order.

The Commission’s order also requires ENH to give prior notification to the Commission for any future acquisitions of hospitals in the Chicago area. The order terminates in 20 years.

The Commission opinion and order regarding In the Matter of Evanston Northwestern Healthcare Corporation, FTC Dkt. 9315, will be reported in CCH Trade Cases.