Washington Law Review

Current Issue

Volume 91, Number 1 - March 2016

Title Author Citation

Hospital Mergers and Economic Efficiency


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Hospital Mergers and Economic Efficiency

March 21, 2016 | 91 Wash. L. Rev. 1

Abstract: Consolidation via merger both from hospital-to-hospital mergers and from hospital acquisitions of physician groups is changing the competitive landscape of the provision of health care delivery in the United States. This Article undertakes a legal and economic examination of a recent Ninth Circuit case examining the hospital acquisition of a physician group. This Article explores the Saint Alphonsus Medical Center-Nampa Inc. v. St. Luke’s Health SystemLtd. (St. Luke’s) decision—proposing a type of analysis that the district court and Ninth Circuit should have undertaken and that we hope future courts undertake when analyzing mergers in the health care sector. First, the Article addresses the question of how best to frame the acquisition of a physician group by a hospital—is the merger horizontal, vertical, or potentially both? In undertaking this analysis the Article examines the broader issue of the treatment of Accountable Care Organizations (ACOs) in antitrust law. ACOs are short of full integration and as such, a potential contractual alternative for hospitals and physician groups to an acquisition. A hospital acquisition of a physician practice also has implications for how to view competitive effects in the context of ACOs. Indeed, in St. Luke’s the Ninth Circuit suggests that integration short of full merger was a possible alternative. Second, the Article examines the justification for integration as a way to address countervailing power in health care, the reduction of transaction costs, and potential cost and quality efficiencies. Third, the Article applies the economics of these issues to merger case law generally and specifically to the St. Luke’s decision. Ultimately, the Article finds the economic analysis of the Ninth Circuit lacking. Finally, the Article offers policy implications of the decision and concludes with some suggestions to improve health care antitrust analysis in practice for litigated cases to make such analysis better follow economic principles.

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Roger D. Blair, Christine Piette Durrance & D. Daniel Sokol 91 Wash. L. Rev. 1

Buyers in the Baby Market: Toward a Transparent Consumerism


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Buyers in the Baby Market: Toward a Transparent Consumerism

March 21, 2016 | 91 Wash. L. Rev. 71

Abstract: This Article assesses the forces on the horizon remaking the fertility industry, including greater consolidation in the health care industry, the prospects for expanding (or contracting) insurance coverage, the likely sources of funding for future innovation in the industry, and the impact of globalization and fertility tourism. It concludes that concentration in the American market, in contrast with other medical services, may not necessarily raise prices, and price differentiation may proceed more from fertility tourism than from competition within a single geographic region. The largest challenge may be linking those who would fund innovation, whether innovation that produces new high cost products or innovations making fertility services more accessible and affordable, with the constantly shifting market niches of a globalized era.

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June Carbone & Jody Lyneé Madeira 91 Wash. L. Rev. 71

Why a “Large and Unjustified” Payment Threshold Is Not Consistent with Actavis


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Why a “Large and Unjustified” Payment Threshold Is Not Consistent with Actavis

March 21, 2016 | 91 Wash. L. Rev. 109

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Michael A. Carrier 91 Wash. L. Rev. 109

The Law, Economics, and Medicine of Off-Label Prescribing


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The Law, Economics, and Medicine of Off-Label Prescribing

March 21, 2016 | 91 Wash. L. Rev. 119

Abstract: There is a major dissonance in the current structure of regulating new drugs that have more than one medical indication. Physicians are authorized to prescribe these drugs for all indications including those beyond their approved purposes. However, product manufacturers are expressly prohibited from marketing or promoting their drugs for any purpose other than those which have been specifically indicated. While prescribing physicians are encouraged to gain medical information on any additional indications, they cannot obtain it from one of its most likely sources: the drug’s supplier.

The Second Circuit Court of Appeals’ recent opinion in United States v. Caronia has challenged this regulatory structure. For the three states in the Second Circuit, although not the rest of the country, the FDA’s regulations prohibiting promotion of non-approved indications have been restricted.

In this Article, we review the legal, economic, and medical aspects of the FDA’s current regulatory approach, and explore the likely consequences of a widespread adoption of the Caronia rule.

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William S. Comanor & Jack Needleman 91 Wash. L. Rev. 119

A Flexible Health Care Workforce Requires a Flexible Regulatory Environment: Promoting Health Care Competition Through Regulatory Reform


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A Flexible Health Care Workforce Requires a Flexible Regulatory Environment: Promoting Health Care Competition Through Regulatory Reform

March 21, 2016 | 91 Wash. L. Rev. 147

Abstract: Effective competition policy is critical to the success of U.S. health care reform, including efforts to reduce health care costs, increase quality of care, and expand access to health care services. While promoting competition is necessary at every level of the rapidly evolving health care system, it is particularly important with respect to licensed professionals who provide health care services. This Article argues that the current system of health care professional regulation, born of the last century, is in numerous respects an impediment to the kinds of changes needed to fully unleash the benefits of competition among different types of health care service providers. To the contrary, the current system of licensure and related regulations tends to artificially separate professionals in ways that not only insulate them from competition now, but also generate incentives to use regulation to perpetuate and fortify such insulation in the future. Drawing on analytic principles derived from antitrust law enforcement and other regulated industries, the Article argues that, although some regulation is necessary to protect public health and safety, the legacy regulatory system likely impedes the development of innovative, alternate service models that might facilitate enhanced competition by allowing all professionals to practice to the full extent of their education, licensure, and skill. The Article concludes by proposing a range of reforms that would re-conceptualize the core characteristics and methodology of traditional health care professional regulation.

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Andrew I. Gavil & Tara Isa Koslov 91 Wash. L. Rev. 147

Navigating Through the Fog of Vertical Merger LAW: A Guide to Counselling Hospital-Physician Consolidation under the Clayton Act


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Navigating Through the Fog of Vertical Merger LAW: A Guide to Counselling Hospital-Physician Consolidation under the Clayton Act

March 21, 2016 | 91 Wash. L. Rev. 199

Abstract: Lawyers assessing legality under the antitrust laws of hospital acquisitions of physician practices face a quandary. The case law is sparse, federal enforcement guidance outdated, and academic input conflicting. Applying these muddled standards in the rapidly-evolving health care sector only magnifies the uncertainty. While most transactions will be competitively neutral or beneficial, rapidly evolving market conditions causing integration between hospitals and physicians present opportunities for consolidations that may harm consumer interests. Indeed, given the highly concentrated structure of many hospital markets in the nation, preemptive acquisitions of physician practices may be a tempting strategy for some to undermine competition. This Article offers guidance by analyzing potential theories of competitive harm and addressing factual elements necessary to establish a violation of antitrust merger law.

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Thomas L. Greaney & Douglas Ross 91 Wash. L. Rev. 199

Buyer Power and Heathcare Prices


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Buyer Power and Heathcare Prices

March 21, 2016 | 91 Wash. L. Rev. 253

Abstract: One major reason why healthcare spending is much higher in America than in other countries is that our prices are exceptionally high. This Article addresses whether we ought to rely more heavily on buyer power to reduce those prices, as other nations do. It focuses on two sectors where greater buyer power could easily be exercised: prescription drugs covered by Medicare and hospital and physician services covered by private insurance.

The Article concludes that the biggest buyer of all, the federal government, should be allowed to negotiate Medicare prescription drug prices. This would likely reduce the prices of many branded drugs substantially without causing a large reduction in innovation. Multiple studies indicate that drug companies have been exceptionally profitable in recent years. As a result, they could lower prices on many drugs and still earn a competitive return on most research and development. Moreover, the incentive to develop important new medicines would remain high because the government would have little leverage over the prices of these drugs. Finally, if problems with innovation develop, payments for new drugs can be increased.

In contrast, encouraging large insurance companies to merge does not appear to be a promising way of lowering healthcare costs. While some large mergers may be procompetitive—lowering both excessive provider prices and insurance premiums—most would present significant competitive risks. They may allow the merged firm to exert monopsony power over small providers, they may create market power and lead to higher premiums, or they may permit the merged firm to gain a discriminatory advantage over smaller insurance companies, threatening downstream competition. Because of these dangers, it would not be wise, as a general rule, to permit large health insurers to merge.

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John B. Kirkwood 91 Wash. L. Rev. 253

Consume or Invest: What Do/Should Agency Leaders Maximize?


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Consume or Invest: What Do/Should Agency Leaders Maximize?

March 21, 2016 | 91 Wash. L. Rev. 295

Abstract: In the regulatory state, agency leaders face a fundamental choice: should they “consume,” or should they “invest”? “Consume” means launching high profile cases and rulemaking projects. “Invest” means developing and nurturing the necessary infrastructure for the agency to handle whatever the future may bring. The former brings headlines, while the latter will be completely ignored. Unsurprisingly, consumption is routinely prioritized, and investment is deferred, downgraded, or overlooked entirely. This Article outlines the incentives for agency leadership to behave in this way and explores the resulting agency costs (pun intended). The U.S. Federal Trade Commission’s health care portfolio provides a useful case study of how one agency managed and minimized these costs. Our Article concludes with several proposals that should help encourage agency leadership to strike a better balance between consumption and investment.

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William E. Kovacic & David A. Hyman 91 Wash. L. Rev. 295

“No Handicapped People Allowed”: The Need For Objective Accessibility Standards Under the Fair Housing Act


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“No Handicapped People Allowed”: The Need For Objective Accessibility Standards Under the Fair Housing Act

March 21, 2016 | 91 Wash. L. Rev. 325

Abstract: The Fair Housing Act (FHA or the Act) sets forth accessibility requirements that housing developers must meet, but the Act does not contain objective performance standards for satisfying those requirements. This omission creates substantial barriers in housing opportunities for persons with disabilities. For example, the FHA mandates that doors must be wide enough to allow passage of wheelchair users, but it does not provide measurements for door width. The United States Department of Housing and Urban Development (HUD) has attempted to use ten model building codes or “safe harbors” from its regulations as minimal objective standards for accessibility. HUD and the Department of Justice (DOJ) contend that developers must either adopt a safe harbor or show that they followed some comparable objective building standard. However, housing developers continue to build inaccessible housing, arguing that the FHA contains no performance standards and that HUD does not have the authority to proscribe such standards. Some jurisdictions have agreed with HUD’s position, holding that a developer’s failure to adopt a safe harbor establishes a prima facie case for disability discrimination that may be overcome if the developer shows that it followed some comparable objective standard. Other jurisdictions have sided with developers, holding that the FHA does not require developers to build by any objective standard but, rather, gives developers the freedom to argue that their design and construction conform with the FHA’s general accessibility requirements. In turn, developers often hire experts who—without reference to any objective standard—conclude that the units are accessible under the FHA. As a result, accessibility becomes a matter of opinion. When courts do not recognize minimal standards for accessibility in housing, persons with disabilities, developers, and the government all pay a price. Developers will continue to build housing that is inaccessible to persons with disabilities, re-litigating the same question about accessibility, which is costly to both the government and developers. This Comment argues that objective standards would safeguard the rights of persons with disabilities under the FHA, put developers on notice that they must build by an objective standard, and preserve the government’s litigation resources. Courts should recognize that HUD’s regulations establish minimal accessibility standards, deserve judicial deference under established administrative law principles, and effectuate Congress’s intent to eliminate barriers to equal housing opportunities for persons with disabilities.

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Michael J. Jeter 91 Wash. L. Rev. 325

Our corrosive Oceans: exploring regulatory Responses and a possible role for tribes


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Our corrosive Oceans: exploring regulatory Responses and a possible role for tribes

March 21, 2016 | 91 Wash. L. Rev. 361

Abstract: The world’s oceans act as a carbon sink, absorbing roughly twenty-five percent of humanity’s carbon dioxide emissions. As a result, ocean acidity has increased sixty percent since the beginning of the industrial era. Acidification is a burgeoning ocean health crisis—present levels of acidity already threaten species of oyster, plankton, and salmon. Disturbingly, the capacity of the American legal system to respond is unclear: the complexity of climate change-related harms typically precludes a remedy at common law. With respect to mitigating near-shore acidification, this Comment argues that a regulatory strategy utilizing the Clean Water Act’s Total Maximum Daily Load (TMDL) regime holds more promise than a tort response. Furthermore, in the Pacific Northwest, it may be possible to bolster TMDL regulation of non-point pollution through engagement with often-overlooked stakeholders: the Stevens Treaties tribes.

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Weston R. LeMay 91 Wash. L. Rev. 361