Licensing Health Care Professionals, State Action and Antitrust Policy

In this Essay, we raise some economic concerns about the wisdom of conferring antitrust immunity on professional licensing boards, which are often comprised of members of the profession and therefore apt to be motivated by self-interest rather than the public interest. In Part II, we examine the political economy of special interest legislation, which suggests that little public good results from replacing competitive market forces with self-regulation. In Part III, we employ a basic economic model to generate predictions of the economic effects of professional licensing. Part IV provides a survey of the empirical research in this area, which confirms the theoretical predictions. In Part V, we turn our attention to the requirements of the state action doctrine and, in Part VI, close with some concluding remarks and suggestions. In all of what follows, we focus on occupational licensing within health care professions

The Use of the Nonprofit Defense Under Section 7 of the Clayton Act

Since the early 1980s, for-profit and nonprofit hospitals have undergone an unprecedented number of mergers,\u27 reflecting the dramatic changes in the health care industry. The Federal Trade Commission ( FTC ) and Department of Justice ( DOJ ) have challenged mergers of both types of hospitals. Recently, however, a handful of nonprofit hospitals have offered nonprofit status as a defense to federal challenges to nonprofit hospital mergers. Although not a complete defense-nonprofit status alone does not remove the entity from antitrust scrutiny-a limited defense has evolved as nonprofit hospitals claim that a nonprofit merger is less likely to have anti- competitive effects than an equivalent for-profit merger. Under Section 7 of the Clayton Act, the FTC and DOJ review proposed mergers to determine whether the merger will have any significant anti-competitive effects. Congressional policy underlying these statutes seeks to protect consumer welfare by preserving competition in the market Consumers benefit from competition because it encourages producers to offer the best quality at the lowest price. Although the Supreme Court has established that the non- profit sector is subject to the antitrust laws and numerous appellate courts have held that nonprofit status alone cannot rebut a presumption of illegality, courts are split on the extent to which nonprofit status can be considered in predicting the competitive effects of a merger. Four district courts have recently determined that nonprofit status deserves consideration when evaluating whether a proposed merger will lessen competition. \u27 In contrast, other courts, including the Seventh and Eleventh Circuits, have rejected the view that non- profits are less likely to act anti-competively and have refused to treat nonprofits differently when determining the potential merger\u27s anti- competitive effects

Antitrust Law and Regulatory Gaming

Antitrust law promotes competition in the service of economic efficiency. Government regulation may or may not promote either competition or efficiency, depending on both the goals of the agency and the effects of industry capture. Antitrust courts have long included regulated industries within their purview, working to ensure that regulated industries could not use the limits that regulation imposes on the normal competitive process to achieve anticompetitive ends. Doing so makes sense; an antitrust law that ignored anticompetitive behavior in any regulated industry would be a law full of holes. The role of antitrust in policing regulated industries appears to be changing, however. A cluster of Supreme Court decisions in the past decade have fundamentally altered the relationship between antitrust andregulation, placing antitrust law in a subordinate relationship that, some have argued, requires it to defer not just to regulatory decisions but perhaps even to the silence of regulatory agencies in their areas of expertise. Absolute antitrust deference to regulatory agencies makes little sense as a matter either of economics or experience. Economic theory teaches that antitrust courts are better equipped than regulators to assure efficient outcomes in many circumstances. Public choice theory - and long experience - suggests that agencies that start out trying to limit problematic behavior by industries often end up condoning that behavior and even insulating those industries from market forces. And as history has shown, relying onregulatory oversight alone without the backdrop of antitrust law would leave both temporal and substantive gaps in enforcement, which unscrupulous competitors could exploit to the clear detriment of consumers. The mere existence of a competition-conscious regulatory structure cannot guarantee against abuses of that structure, or against exclusionary behavior that falls just beyond its jurisdiction. Indeed - and perhaps ironically - the very regulatory structure that exists to promote competition can create gaming opportunities for competitors bent on achieving anti-competitive goals. Such regulatory gaming undermines both theregulatory system itself and the longstanding complementary relationship between regulatory and antitrustlaw. We argue that the risk of regulatory gaming provides an important example of the need for ongoingantitrust oversight of regulated industries. We define regulatory gaming as private behavior that harnesses pro-competitive or neutral regulations and uses them for exclusionary purposes. We identify three possible instances of regulatory gaming: (1) product-hopping, in which the branded company makes repeated changes in drug formulation to prevent generic substitution, rather than to improve the efficacy of the drug product; (2) manipulation of government standard-setting organizations; and (3) claims of price squeezes by partially regulated industries. Our goal in this paper is not to persuade the reader that these particular examples of regulatory gaming do or do not violate the antitrust laws. Rather, our point is that whether or not particular acts of regulatorygaming harm competition is and should be an antitrust question, not merely one that involves interpreting statutes or agency regulations. Some level of antitrust enforcement - with appropriate deference to firm decisions about product design and affirmative regulatory decisions that affect market conditions - provides a necessary check on behavior, such as product hopping, that has no purpose but to exclude competition

Anticompetitive Patent Settlements and the Supreme Court’s Actavis Decision

Reverse payment patent litigation settlements, wherein the payments flow from plaintiff brand name drug companies to defendant generic competitors, often including agreements that the generic companies will delay market entry, have evaded consistent legal treatment and divided courts for over a decade. In December 2012, the United States Supreme Court granted the Federal Trade Commission’s petition for writ of certiorari to review FTC v. Watson Pharmaceuticals. In Watson, the Eleventh Circuit found that, absent sham litigation or fraud, reverse payment settlements are legal under antitrust law as long as the settlement agreement falls within the exclusionary scope of the patent. The Watson decision was followed mere months later by the Third Circuit’s In re K-DUR decision, concluding that reverse-payment settlements should be deemed presumptively unlawful under a quick-look rule of reason approach. Because “different courts have reached different conclusions” regarding the legality of reverse-payment settlements, the Supreme Court endeavored to resolve the circuit split in FTC v. Actavis, Inc. On June 17, 2013, with Justice Breyer writing the majority opinion in a 5-3 decision, the Supreme Court reversed the Eleventh Circuit, holding that governments and private plaintiffs have a cause of action under the antitrust laws against brand name and generic pharmaceutical companies engaging in reverse payment settlements. The Court directed lower courts reviewing such claims to apply a full rule of reason analysis to drug companies’ potentially anticompetitive conduct. In the spring of 2013, in anticipation of the Court’s decision, the Minnesota Journal of Law, Science & Technology invited scholars and practitioners who have analyzed and developed the jurisprudence of reverse payment settlements to respond to FTC v. Actavis, Inc. This article is a response piece that will digest the opinion, critique both Justice Breyer’s majority opinion and Chief Justice Roberts’ dissent, and provide direction for courts and practitioners in navigating the new legal landscape of reverse-payment settlements in the wake of FTC v. Actavis, Inc

Anticompetitive Patent Settlements and the Supreme Court\u27s \u3ci\u3eActavis\u3c/i\u3e Decision

In FTC v. Actavis the Supreme Court held that settlement of a patent infringement suit in which the patentee of a branded pharmaceutical drug pays a generic infringer to stay out of the market may be illegal under the antitrust laws. Justice Breyer\u27s majority opinion was surprisingly broad, in two critical senses. First, he spoke with a generality that reached far beyond the pharmaceutical generic drug disputes that have provoked numerous pay-for-delay settlements.Second was the aggressive approach that the Court chose. The obvious alternatives were the rule that prevailed in most Circuits, that any settlement is immune from antitrust attack if it is facially within the scope of the patent. Under this approach the court may not second guess the settlement by inquiring into the validity of the patent; the settlement itself shields this query from the court. A second alternative concludes that a very large settlement payment is a sign that something is wrong with the patent, inviting the court to look more closely at the underlying patent to determine whether the settlement is really a good faith attempt to manage litigation and business risk. A third approach is that a large settlement exclusion payment disproportionate to litigation risk can be unlawful under antitrust\u27s rule of reason, without inquiry into whether the patent is actually invalid, and even if the settlement agreement does not go beyond the scope of the patent\u27s nominal coverage. Finally, the court might apply a quick look, or truncated, antitrust analysis in which the plaintiff can enjoy presumptions about market power or anticompetitive effect. The Supreme Court chose the third, or rule of reason, option, but it made clear that the plaintiff need not make a long form rule of reason showing and suggested important shortcuts.Also significant is that both sides, without dissent agreed that consumer welfare should be the goal of antitrust law.Payments whose size correlates with risk are essential to entrepreneurial decision making, but entrepreneurial risk is usually private in the sense that the firm risks the resources of its own shareholders. In the pharmaceutical pay-for-delay setting, however, what is being placed at risk is both the investment of the pioneer and the welfare of consumers, interests that pull in opposite directions. Consumers represent an important externality. They are not participants in this dispute, but they stand to lose the benefits of competition that would otherwise have occurred. Traditional settlements reflect the risk of patent invalidity in their terms. For example, as a patent is perceived by the parties to be weaker, settlement royalties rates will be lower. The Hatch Waxman Act uniquely creates an incentive for the parties to take all risk out of the patent because for the life of the settlement no third party may challenge it. Even a very weak patent can obtain both exclusion against third parties and profits equal to the full cartel value of the patented product.While the Court did not discuss private consumer challenges, its substantial revision of the law applies equally to private actions and it is reasonable to expect that several will emerge. Purchasers seeking antitrust overcharge damages from an anticompetitive pay-for-delay settlement should be able to proceed without proving patent invalidity, although they would be subject to the same rule-of-reason constraints that the Court created for the FTC.Finally, the breadth of the Activis opinion makes it relevant for many situations outside of the Hatch-Waxman context. For example, the Court\u27s dicta severely limited its 1926 GE decision permitting price fixing among a patent and its licensees, and implicitly overruled decisions such as Bement, which permitted product price fixing among the members of a patent pool. A central question was whether the Patent Act, either explicitly or by reasonable implication, authorized the challenged conduct. If the answer is no, ordinary antitrust analysis can proceed

Whatever Did Happen to the Antitrust Movement?

This Article begins with a historical question about whatever happened to the antitrust movement. The short answer is that antitrust grew up. It ceased to be the stuff of political banners and loose rhetoric and turned into a serious discipline, applying defensible legal and empirical techniques to problems within its range of competence. The way to repair deficiencies in antitrust law today is not to resort to an undisciplined set of goals that provide no guidance and could do serious harm to the economy. Rather, it is to make ongoing adjustments in our technical rules of antitrust enforcement which reflect what research and experience have taught us. The antitrust laws can reach nearly every form of anticompetitive behavior, provided that they are interpreted flexibly, but this need not entail throwing out rational evidentiary requirements or accepting expansive theories of harm without proof. Further, antitrust tribunals need to avoid remedies that do more harm than good. Hobbling a large firm is easy; increasing output and benefitting consumers in the process may be much more difficult

Whatever \u3ci\u3eDid\u3c/i\u3e Happen to the Antitrust Movement?

Antitrust in the United States today is caught between its pursuit of technical rules designed to define and implement defensible economic goals, and increasing calls for a new antitrust “movement.” The goals of this movement have been variously defined as combating industrial concentration, limiting the economic or political power of large firms, correcting the maldistribution of wealth, control of high profits, increasing wages, or protection of small business. High output and low consumer prices are typically unmentioned. In the 1960s the great policy historian Richard Hofstadter lamented the passing of the antitrust “movement” as one of the “faded passions of American reform.” In its early history, he observed, antitrust had a powerful movement quality but very little success in the courts. Later, it ceased to be a movement just as it was attaining litigation success. As a movement, antitrust often succeeds at capturing political attention, but it fails at making effective – or even coherent – policy. The coherence problem shows up in goals that are both unmeasurable and fundamentally inconsistent, but with their contradictions rarely exposed. Among the most problematic contradictions is the one between small business protection and consumer welfare. Consumers benefit from low prices, high output and high quality and variety of products and services. But when a firm is able to offer these things it invariably injures rivals, typically smaller firms or those dedicated to older technologies. Although movement antitrust rhetoric is often opaque about specifics, its general effect is invariably to encourage higher prices or reduced output or innovation, mainly for the protection of small business or firms dedicated to older technologies. Indeed, some spokespersons for movement antitrust write as if low prices are the evil that antitrust law should be combating. This piece sets out to do three things. First it describes so-called “movement” antitrust, focusing on recent writings disparaging consumer welfare in favor of alternatives that seek to protect small business welfare, redistribute wealth, or pursue other goals. Then it describes the fundamental contours of technical antitrust, whose stated goal is the protection of low prices and high output, and explains why this approach is much more consistent with concerns about economic rationality, due process, administrability, and federalism. Finally, it examines several areas where technical antitrust rules could be improved, focusing mainly on merger policy and one particularly problematic area, which is antitrust’s historical failure to deal adequately with monopsony power in labor markets