Relevant Markets For Health Care

• Pages: 61-108

61

CHAPTER III

RELEVANT MARKETS

FOR HEALTH CARE

In defining relevant markets for health care sector industries, it is

always important to understand the purpose of the exercise. Market

definition, although determinative in many cases, is not an end in itself but

a first step in assessing the effect on competition of particular conduct by

particular parties.1 The purpose of defining the relevant market is to identify

those sellers or buyers that constrain the ability of a firm to exercise market

power. Several factors complicate the analysis of relevant markets in some

health care industries; among other things, the parties recommending

particular health care services (physicians), the parties paying for those

services (health insurers), and the parties actually receiving the services

(patients) are different and may have different incentives.

The plaintiff always bears the burden of defining the relevant product

and geographic markets.2 That determination req uires identifying who the

customer is (in seller-side cases) and identifying the potential

anticompetitive effects from the challenged conduct. Every rel evant produc t

market has its own relevant geographic market, the breadth of which will



1.

See, e.g.

, Law v. NCAA, 134 F.3d 1010, 1020 (10th Cir. 1998)

(explaining that market definition “is not an end unto itself but rather

exists to illuminate a practice’s effect on c ompetition.”). In some case,

however, market definition may not be necessary if the plain tiff can

show direct anticompetitive effects through, for example, evid ence of

sustained higher-than-competitive prices.

See, e.g.

, Broadcom Corp. v.

Qualcomm, Inc., 501 F.3d 297, 307 (3d Cir. 2007).

2.

See, e.g.

, HDC Med. v. Minntech Corp., 474 F.3d 543, 547 (8th Cir.

2007) (“The relevant product market is a question of fact, which the

plaintiff bears the burden of proving.”); Burtch v. Milberg Factors, Inc.,

662 F.3d 212, 222 (3d Cir. 2011) (“[T]he plain tiff ‘bears the initial

burden of showing that the alleged [agreement] produced an adverse,

anticom petitive effect wi thin the relevant geographic market.”) .

Antitrust Health Care Handbook



62

vary depending on the product. For example, the relevant geographic

markets for primary care physician services and the services of open-heart

surgeons are likely to be quite different.

A. Relevant Markets for Hospitals

Relevant Product Markets for Hospital Services

Defining the relevant market (in seller-side cases) requires identifying

the reasonably interchangeable suppliers available to customers and the

extent to which customers would switch to other products or sellers as a

result of the seller raising prices. The first issue is to identify the customers.

Some cases suggest, if not hold, that patients are the customers since they

receive the services in question. However, the Federal Trade Commi ssion

(FTC) found in In re Evanston Northwestern Healthcare,

3

that health plans

are the customers because they negotiate, contract for, and pay for the

services.

4

Under one framework of analysis, both are customers—hospitals

compete to participate in health plans, primarily on the basis of price, and

then hospitals participating in health plan networks compete to provide

services to thos e health plans’ members, primarily on th e basis of perceived

quality, amenities, and composition of the medical staff.

5

But, even under

this framework, the health plans are the customers because “[i]nsured

patients are usually not sensitive to retail hospital prices, while insurers

respond to both prices and patient preferences.”

6

This distinction can be important in defining the relevant geographic

market but is probably not so important in defining the relevant product

market because patients and health plans are typically purchasing and



3. In re Evanston Nw. Healthcare,

2007 FTC LEXIS 210 (F.T.C. 2007).

4.

See

FTC v. Advocate Health Care Network, 841 F.3d 460, 475 (7th Cir.

2016) (“[I]nsurers are the most relevant buyers [of health care

services].”);

In re

ProMedica Health Sys., Inc., 2012 WL 2450574, at

*32 (F.T.C. 2012) (“In this case, the parties agree that there is a relevant

product market for GAC inpatient hospital services sold to commercial

health plans.”).

5.

See generally

Gregory Vistnes,

Hospitals, Mergers, and Two-Stage

Competition

, 67 A

NTITRUST

L.J. 671 (2000).

6.

Advocate Health Care Network

, 841 F.3d at 471.

Relevant Markets for Health Care



63

receiving the same services . Moreover, even when viewing health plans as

the customer, the needs and preferences of their members play an important

role in health plans’ choice of hospitals to include in their provider

networks and thus significantly affect the delineation of relevant markets.7

Based on demand-side analysis—the framework for defining relevant

product markets posited by the U.S. Department of Justice (DOJ) and FTC

in the 2010 Horizontal Merger Guidelines8—most of the individual

services offered by hospitals would constitute separate relevant markets

because the services are not reasonably interchangeable. For example,

brain surgery and appendectomies are not reasonable substitutes, and thus

the ability of a hospital with a monopoly in brain surgery to raise its prices

for that service would not be constrained by hospitals providing

appendectomies, but not brain surgery. Most courts, depending on the

particular conduct in question and the alleged anticompetitive effects, have

“clustered” most inpatient acute care hospital services into a single relevant

product market consisting of all inpatient acute care hospital services or

some grouping of those services, such as primary and secondary inpatient

services.9 This seems appropriate where the same sellers sell the same



7.

See, e.g.

,

Evanston Nw. Healthcare

, 2007 FTC LEXIS 210, at *146-

51 (explaining that managed care organizations cannot offer outpatient

services as alternatives to inpatient services when a pati ent needs

inpatient services);

ProMedica Health Sys

., 2012 WL 2450574, at *22.

8.

U.S.

D

EP

’

T OF

J

USTICE

&

F

ED

.

T

RADE

C

OMM

’

N

, H

ORIZONTAL

M

ERGER

G

UIDELINES

§§ 4.1.1, 4.1.3 (2010) [hereinafter 2010

M

ERGER

G

UIDELINES

].

9.

See, e.g.

,

Advocate Health Care Network

, 841 F.3d at 468 (“The market

is a cluster of medical services and procedures that require admission to

a hospital . . . .”); FTC v. OSF Healthcare Sys., 852 F. Supp. 2d 1069,

1075-77 (N.D. Ill. 2012) (stating that “cluster market” includes services

encompassing “a broad cluster of medical and surgical diagnostic and

treatment services that include an overnight ho spital stay, including, but

not limited to, many emergency services, internal medicine servic es,

and surgical procedures.”); FTC v. Tenet Health Care, 186 F.3d 1045,

1051-52 (8th Cir. 1999) (holding that the relevant product market was

“delivery of primary and secondary inpatient hospital care services”);

Evanston Nw. Healthcare

, 2007 FTC LEXIS 210, at *148-49 (“[T]he

courts have held repeatedly that acute inpatient hospital services are a

‘cluster of services’ that constitute a relevant product market.”).