by James C. Sherlock
The Acting head of the Justice Department’s Antitrust Division, Richard A. Powers, yesterday delivered a speech that described the Justice Department’s new goals, strategies and resources for criminal antitrust enforcement.
The clouds have darkened over Virginia’s healthcare monopolies.
The Commonwealth. Virginia has failed in its duty to oversee its healthcare industry. The full extent of that failure has been detailed in previous columns.
It has failed in two major ways:
- The Virginia Department of Health (VDH) has been captured by the healthcare provider industry that it regulates. Indeed VDH has been actively complicit in industry evasion of antitrust statutes through its administration of Certificate of Public Need (COPN) law.
- The Commonwealth’s regulatory structure has a strategic vulnerability. Neither the VDH that regulates providers nor the State Corporation Commission that regulates insurers can adequately oversee integrated health care delivery and insurance companies to prevent or detect what amount to internal conspiracies in restraint of trade. In the wrong hands, integrated provider monopolies and regionally powerful insurers can serve as weapons against competitors to both.
Federal antitrust authorities
The Department of Justice (DOJ) and the Federal Trade Commission (FTC) warned the General Assembly six years ago that the Commonwealth, through VDH administration of COPN, was blocking their ability to enforce federal antitrust law.
Anyone who bet that the federal government would let that situation continue appear to have lost. Both the FTC and DOJ will pursue aggressively civil remedies against abusive monopolies.
But only DOJ can bring criminal charges.
Mr. Powers has led the Justice Department’s Antitrust Division’s Criminal Program for more than three years.
DOJ leadership has felt stymied for decades by federal judicial rulings that gave deference to states to regulate healthcare monopolies that they themselves had crafted under COPN laws. Virginia may be the worst offender.
DOJ and FTC appear ready to test state action doctrine in court.
New law – new antitrust opportunity. New in 2021 is a federal law, Competitive Health Insurance Reform Act of 2020. The Act amended the McCarran-Ferguson Act to clarify that, except for certain activities that improve health insurance services for consumers, the conduct of health insurers is subject to the antitrust laws.
Both DOJ and the FTC can pursue convictions against the perpetrators of anticompetitive activities who have wielded vertically integrated combinations of healthcare delivery monopolies and healthcare insurance companies illegally to limit competition. State action did not create those combinations.
New DOJ prosecutorial resources. Historically DOJ’s Antitrust Division has suffered a shortage of prosecutorial resources. No Longer. Mr. Powers said that subsequent to the President’s EO on antitrust enforcement, additional experienced prosecutors have been transferred to the Antitrust Division from other offices in DOJ.
Health care is the focus of enforcement. Health care was clearly the industry to which the President directed the EO, and the only one to which Mr. Powers repeatedly referred in his remarks.
He discussed corporate compliance programs.
“While effective compliance programs prevent crime, they also allow early detection if a violation nonetheless occurs. A company with a robust compliance program will be more easily able to identify the misconduct and bring it to our attention, including giving us the evidence we need to make determinations about its responsible individuals. That early detection and cooperation may very well allow the company to qualify for leniency.
At this point, it is useful for us to identify the potential targets of DOJ action in Virginia. Two questions will lead us to the answer:
- Which of Virginia’s regional healthcare monopolies do not have “robust compliance programs?” And
- Which are vertically integrated healthcare delivery and health insurance corporations?
Compliance programs. The two extremes of compliance programs among Virginia’s regional monopolies appear to be Inova and Sentara.
Inova shows evidence in its corporate structure and the oversight of its holding company and two operating components by separate independent boards that it is serious about antitrust compliance.
Sentara’s governance structure begs the question of whether board oversight is a priority, or even possible. One independent board oversees the holding company. The “boards” of the operating companies are run by corporate executives.
The evidence from Sentara’s various scandals has made it clear for a long time that complexity of its structures, including its healthcare and health insurance businesses, a mix of 60 or so different companies, cannot be adequately overseen by a single board at the holding-company level.
The advice to large healthcare conglomerates on antitrust compliance comes from their legal shops. I will assume that lawyers for all of Virginia’s regional monopolies know antitrust law and provide good advice.
But corporate lawyers can only advise, not direct.
Vertically integrated health insurance and healthcare companies. Virginia has two vertically integrated healthcare provider and health insurance companies — Sentara/Optima and Centra/Piedmont Community Health Plan. The other provider monopolies have joint ventures with independent insurers.
Centra/Piedmont to my knowledge has not shown the same anticompetitive aggressiveness as Sentara and, with four hospitals, is likely not a big enough fish even if it has.
Is Sentara a target of DOJ? That leaves Sentara in the spotlight. Its recent actions give evidence that it knows it.
First, Sentara bailed out of the Cone Health merger under pressure from the North Carolina Attorney General. It would not be surprising if the new Justice Department focus on healthcare antitrust was part of that pressure.
Second, three weeks ago Virginia’s ex-Secretary of Finance Aubrey Lane stepped into the newly created role of Chief of Staff at Sentara. That could be read as a strategy to prepare a successor to the current CEO with no history with the company in case it needs to deal with the Justice Department seeking leniency.
In the meantime, I recommend Sentara restructure its board oversight to something resembling a concern for antitrust compliance.