Antitrust Considerations Relating to Provider Joint Ventures

Transcription

1 Antitrust Considerations Relating to Provider Joint Ventures Howard Feller McGuireWoods LLP 901 E. Cary Street, Richmond, VA Lawyers 19 Offices

2 Joint Ventures: A. Formation of joint ventures to provide new services or operate facilities 1. Possible joint venture participants: a. A hospital and a physician group b. Two or more hospitals McGuireWoods 2

3 Joint Ventures: c. A hospital and an ambulatory surgery center d. Multiple physician groups 2. Variety of possible activities for example, open a new cancer care center, ambulatory surgery center or children s hospital McGuireWoods 3

4 Joint Ventures: B. Antitrust issues covered: 1. Will joint venture be treated as a single entity or several independent competitors? 2. Is joint venture legitimate for antitrust purposes? 3. What information can be shared during due diligence and evaluation period? McGuireWoods 4

5 C. Single entity v. collective action by competitors: 1. Assume participants have not fully merged and retain independence 2. If joint venture is treated as single entity, actions not subject to scrutiny under antitrust conspiracy laws a. Possibly subject to merger review if joint venture formation results in a single entity McGuireWoods 5

6 b. If not a single entity, actions of joint venture subject to review under antitrust conspiracy laws 3. Analysis for determining single entity issue percentage ownership and actual control a. 50/50 joint venture b. 50.1% ownership McGuireWoods 6

7 c. Substantial majority ownership 66% or more d. Analyze facts regarding control even where there is majority ownership (1) Examine voting provisions regarding management and control any veto rights over important decisions i.e., strategic plans, operating budgets, capital expenditures, substantial contracts McGuireWoods 7

8 D. Legitimate joint venture analysis 1. Assume joint venture participants have not merged into a single entity and are competitors 2. Participants want to engage in collaborative activity 3. Normally competitors cannot act together if it involves setting prices or allocating services McGuireWoods 8

9 4. Limited exception for competitors engaging in joint activities involving setting prices and arranging services a. Legitimate joint venture passes muster under antitrust laws McGuireWoods 9

10 5. How to qualify as legitimate joint venture a. Threshold question what is reason for joint venture? b. Arrangement generates pro-competitive efficiencies McGuireWoods 10

11 c. Arrangement is reasonably necessary to achieve those efficiencies (1) Basic questions why do participants need to do this jointly, could they do the same thing themselves? d. Analyze overall effect on competition weigh benefits against possible anticompetitive effects McGuireWoods 11

12 6. What are recognized pro-competitive efficiencies? a. Efficiencies produced by arrangement allow participants to provide new services, increase output, provide services more efficiently, reduce costs and/or improve quality b. Must be verifiable - not vague or speculative c. Cannot reduce output or be based on reason that competition is inefficient McGuireWoods 12

13 E. Exchange of Information During Due Diligence/ Evaluation Period 1. Competitors can exchange certain information that is reasonably necessary to evaluate and accomplish transaction a. But parties are still competitors before joint venture is formed McGuireWoods 13

14 2. Competitors should attempt to avoid exchange of competitively sensitive information a. Current or future charges and payment rates from payors b. Business plans or strategies c. Detailed cost information McGuireWoods 14

15 3. Where evaluation of competitively sensitive information is required for due diligence purposes a. Reduce sensitivity by aggregating, redacting or limiting its competitive usefulness (1) i.e., total revenues received from a payor, not revenues per procedure McGuireWoods 15

16 b. Set up firewalls to restrict disclosure to and use of sensitive information by persons who would find it useful; or c. Use independent third parties to evaluate competitively-sensitive information d. In general, limit information exchange to what is necessary to evaluate transaction McGuireWoods 16

17 F. Permissible Pre-Closing Activities 1. Personnel plan for post-closing headcount issues and identify personnel redundancies 2. Advertising plan for post-closing announcements and marketing McGuireWoods 17

18 3. Systems Consolidation explore systems to determine if compatible and examine vendor agreements 4. Rationalization of service offerings analyze how current offerings can fit together to achieve efficiencies McGuireWoods 18

19 G. Pre-Closing Activities That May Raise Serious Antitrust Concerns 1. Development of new services to be offered can create risks because normally entails exchanging price, cost and marketing strategies 2. Exchange of pricing information i.e., fees, charges, payment rates and costs which are not aggregated McGuireWoods 19

20 3. Current or future service and marketing plans 4. Exchange of specific information regarding payor contracts 5. Premature consolidation or implementation of business plans avoid any agreements not to compete or actual consolidation before closing McGuireWoods 20

21 H. Practical Suggestions for Limiting Antitrust Risks Pre-Closing 1. Exchange less sensitive information use the least sensitive and aggregated information that still allows due diligence team to do its work 2. Execute confidentiality agreement limit access to sensitive information to personnel who need to analyze the transaction and confirm confidentiality commitment McGuireWoods 21

22 3. Utilize firewalls for particularly sensitive information, consider separating persons who would find it competitively useful from due diligence team or use independent third-party 4. Recognize that documents may be disclosed to antitrust or regulatory agencies consider this when documents are prepared and avoid overstatements, hype, speculation and ambiguous statements McGuireWoods 22

23 5. Operate independently continue to operate independently and behave as competitors until closing McGuireWoods 23

24 Questions or Comments? McGuireWoods 24