Abby Normal, a Flood of Ill-Considered Withdrawals, and the FTC’s Theatre of Listening

What will become of our culture if we forget the classics? Two bits seem salient here, would that either were my own.

Dr. Frankenstein: Now, that brain you gave me. Was it Hans Delbruck’s?

Igor: … [pause] … No.

Dr. Frankenstein: Ah! Very good. Would you mind telling me whose brain I did put in?

Igor: Then you won’t be angry?

Dr. Frankenstein: I will not be angry.

Igor: … [pause] … Abby someone.

Dr. Frankenstein: … [pause] … Abby someone. Abby who?

Igor: Abby Normal

Dr. Frankenstein: …[pause] … Abby Normal?

Igor: I’m almost sure that was the name.

But first, the withdrawals, which call to mind the conclusion of the fabled “that’s no ordinary rabbit” bit from “Monty Python and the Holy Grail,” which wasn’t so much a statement of withdrawal as a cry of retreat: run away!

I fear that I date myself, but I’m not dead yet, so here goes.

Lina M. Khan was sworn in as chair of the Federal Trade Commission (FTC) on June 15, 2021. On July 9 of that year, the FTC withdrew the commission’s 2015 “Statement of Enforcement Principles Regarding ‘Unfair Methods of Competition’ Under Section 5 of the FTC Act.” That three-week lag was, in practical terms, nothing. Even ignoring the many practical/ministerial/managerial things that come with assuming the chair, there’s a certain amount of process required of policy decisions at the commission.

As many noted at the time, rescinding the 2015 statement, “absent any new guidance about how the Commission interprets its authority,” did little to signal the commission’s new view of its authority. That is, apart from the vague signal that a far more expansive statement was forthcoming and, of course, a not-so-tepid statement that:

[T]he 2015 Statement contravenes the text, structure, and history of Section 5 and largely writes the FTC’s standalone authority out of existence. In our view, the 2015 Statement abrogates the Commission’s congressionally mandated duty to use its expertise to identify and combat unfair methods of competition even if they do not violate a separate antitrust statute.

Other than that, folks, how did you like the play?

In a dissenting statement, then-Commissioners Noah Phillips and Christine Wilson said that the commission was “acting with next to no notice or public input,” which was true, if perhaps obvious, given the timing.

Less than two weeks later, the FTC rescinded its 1995 “Policy Statement on Prior Approval and Prior Notice Provisions in Merger Cases,” again by a 3-2 vote over dissents by Commissioners Phillips and Wilson.

Continuing the withdrawal kick, two months later, once again by a 3-2 vote, the commission withdrew both the vertical merger guidelines, which had been jointly issued by the FTC and U.S. Justice Department (DOJ) in June 2020, and the FTC’s “Commentary on Vertical Merger Enforcement,” which it had published in December 2020. Many at the time already picked up on a deck-clearing trend. For example, in dissenting from the withdrawal of the vertical merger guidelines, Commissioners Phillips and Wilson noted both the trend and an absence of groundwork:

Today the FTC leadership continues the disturbing trend of pulling the rug out under from honest businesses and the lawyers who advise them, with no explanation and no sound basis of which we are aware. In the past two months, the FTC has withdrawn just as many bipartisan policies.

They were hardly alone. Carl Shapiro and Herb Hovenkamp stated that the FTC’s “withdrawal of its 2020 vertical merger guidelines is flatly incorrect as a matter of microeconomic theory and is contrary to an extensive economic literature about vertical integration.” Their short essay described the majority’s asserted basis for withdrawing the guidelines as “baffling,” “reli[ant] on specious economic arguments,” “demonstrably false,” “ignor[ing] relevant expertise,” “contrary to a broad consensus among economists going back at least to. . . 1968,” “flatly inconsistent with the Horizontal Merger Guidelines,” and “likely to cause real harm.” 

Then, in January 2022, the FTC and the DOJ jointly released a request for information (RFI) on merger enforcement. The 2010 horizontal merger guidelines had not—to the best of my knowledge—been formally withdrawn. Broadly speaking, however, the writing was on the wall and, as it happens, in the announcement itself, as the RFI was introduced as a “public inquiry into merger guidelines aimed at strengthening enforcement against illegal mergers.”

An accompanying statement from Chair Khan made the administration’s position on mergers and consolidation clearer still:

This inquiry comes against the backdrop of a broader reassessment of the effects of mergers across the U.S. economy. Evidence suggests that decades of mergers have been a key driver of consolidation across industries, with this latest merger wave threatening to concentrate our markets further yet. As President Biden noted in his Executive Order on Promoting Competition, industry consolidation and weakened competition have “den[ied] Americans the benefits of an open economy,” with “workers, farmers, small businesses, and consumers paying the price.” While the current merger boom has delivered massive fees for investment banks, evidence suggests that many Americans historically have lost out, with diminished opportunity, higher prices, lower wages, and lagging innovation. A lack of competition also appears to have left segments of our economy more brittle, as consolidated supply and reduced investment in capacity can render us less resilient in the face of shocks.

Many in antitrust law and economics were sympathetic—at least, at a high level of abstraction—to the goal of strengthening antitrust enforcement. Not all, by any means, but not a few either. Still, there remained the pesky issue of how to get it right (and, not incidentally, how to avoid or minimize getting it wrong). Given the context of an RFI, her statement seemed a breezy, if not conclusory, gloss on issues that most informed members of the antitrust community recognized to be complex. Not least were issues having to do with assessments of concentration, mergers, merger law, merger enforcement, competition, and downstream consequences for consumers. Compare, for example (and for agreement, as much as difference), Carl Shapiro here, with the International Center for Law & Economics (ICLE) here.

Health policy was next on the block. On July 14, 2023, the commission voted to withdraw two of its prior statements on health-care antitrust, the 1996 “Statements of Antitrust Enforcement Policy in Health Care” and the 2011 “Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program.”

Less than a week later, the FTC issued a “Statement Withdrawing Prior PBM- (Pharmacy Benefit Manager) Related Advocacy Statements and Reports that No Longer Reflect Current Market Realities.” Specifically, they withdrew 11 advocacy documents and reports issued between 2004 and 2014. That was of interest for several reasons, and not just because I had drafted—jointly with a colleague in the FTC Bureau of Economics—most of the commission’s PBM-related advocacies from 2006 through 2014.

To be sure, the 27-year period between 1996 and 2023 saw many changes in the burgeoning health-care sector, including, but not limited to, changes in the PBM industry and the chain of distribution for prescription drugs. And the initial statement on accountable care organizations (ACO) had been designed to permit, and study, a certain novel form of non-merger integration; ACOs had changed in the interim, and both FTC and Centers for Medicare & Medicaid Services (CMS) staff had been following the changes. I don’t know that anybody denied the possibility that some of those changes might be competitively significant, and, yes, guidance documents need revisiting and revision from time to time.

But which changes had been competitively significant? What revisions were justified based on enforcement experience and new economic evidence? And how good–and univocal–was the evidence?  

With regard to PBMs, Chair Khan’s accompanying statement said this, among other things:

Shortly after I joined the Commission, we launched a public docket to gather input on unfair contractual clauses and another on the practices of PBMs. Across both we received over twenty-four thousand comments from pharmacies, doctors, and patients. Those who own competing pharmacies have shared that that PBMs impose unfair fees and clawbacks, impose byzantine contracts that often reimburse pharmacies less than their costs of acquisition, and steer patients to PBM-owned pharmacies. PBMs have also been accused of harming patients by extracting rebates and fees in exchange for refusing to cover generic and biosimilar drug products, ultimately raising the price that consumers pay for medicines. Additionally, doctors have shared that PBMs impose unnecessary and burdensome prior authorization and other administrative requirements.

Still, with regard to PBMs, it’s worth noting that FTC Bureau of Economics and Office of Policy Planning staff had conducted literature reviews during the decade singled out by the commission, and that advocacy comments had been updated on an ongoing basis, accordingly.

And, not to quibble about semantics—not more than my baseline rate of quibbling, at any rate—but launching a study under Section 6(b) of the FTC Act is not the same as completing it or reporting findings (or voting to authorize issuance of a completed study). Also, “shared that” seems decidedly unlike “alleged” or “claimed” or even “stated,” especially when what’s shared has to do with “unfair fees and clawbacks,” the imposition of “byzantine contracts,” and of “unnecessary and burdensome prior authorization and other administrative requirements.”

There are paragraph-long citations to individual statements—one from a consumer and one from a pharmacist—that seem damning. No doubt those were statements from two live persons, but they seem conspicuously one-sided and at least potentially unrepresentative. If there’d been any attempt to address diverse viewpoints or sources, it was not in evidence.

Of course, if withdrawal of the horizontal merger guidelines had been implicit in the 2022 RFI, it was shouted from the rooftops with the July 2023 publication of the new draft FTC-DOJ merger guidelines, which ranged over both horizontal and vertical mergers (and other “non-horizontal” transactions.)

I don’t know that anyone was surprised to see that the agencies swung for the fences on that one. Even so, the extent of it, and the sheer confusion of the document, were something of a revelation to many, including a good many former (indeed, recent) enforcers. I had a post about it here, and I joined several of my ICLE colleagues in filing more extensive comments here. The latter were careful, but long (you’ve been warned).

But then, so were the meticulous and critical comments filed by Greg Werden, a longtime chief counsel for antitrust at the DOJ Antitrust Division. Carl Shapiro—a former deputy assistant attorney general for economics at the division under Presidents Barack Obama and Bill Clinton and, not incidentally, a member of President Obama’s Council of Economic Advisors—was also highly critical. Not done, Shapiro joined a group of noted liberal scholars of antitrust law and economics—most with both serious academic backgrounds and substantial government experience in antitrust policy—in sharing “a broad policy concern involving the way the [draft guidelines] depict the role of market structure in merger analysis and to provide recommendations for addressing it.”

Herb Hovenkamp—perhaps the central figure in U.S. antitrust-law scholarship—was also in that group, and also disposed to comment further. Luke Froeb, a former director of the FTC’s Bureau of Economics and former chief economist at the Antitrust Division; Liad Wagman a former economic advisor to the FTC’s Office of Policy Planning; and D. Daniel Sokol, a noted antitrust scholar, added comments titled “Cost Benefit Analysis Without the Benefits or the Analysis: How Not to Draft Merger Guidelines.” I could go on but, well, at some point I have to take pity on the reader.

Some withdrawals have been all-too-temporary. For example, having lost its request for an injunction in the Microsoft/Activision matter—first in federal district court, and then at the 9th U.S. Circuit Court of Appeals, where it lost a request for a temporary injunction pending appeal—the FTC sensibly withdrew the matter from adjudication on July 20 of this year. Then the commission changed its mind, returning the matter to internal adjudication barely two months later.

Why? Your guess goes here _____.

Where am I going with all of this, besides noting the current commission’s staggering penchant for the erasure of established policies, based on . . . sometimes, not so much. Divine revelation?
In July, Sen. Ted Cruz (R-Texas) wrote to Chair Khan to note, among other things, “that the minority staff of the U.S. Senate Committee on Commerce, Science, and Transportation… is opening an investigation into allegations of mismanagement of the agency and mistreatment of staffers.”

Here comes at least a little too much information about me: I don’t think I’d use the word “mistreatment”—at least, not in my own case—although you might imagine otherwise if you recall that my first post at Truth on the Market had a title in which I called myself a “Refugee from the FTC.”

And, yes, the gag order was tremendously insulting, and having to withdraw from an excellent panel at an international (but online) conference with an hour-and-a-half notice was embarrassing. Mismanagement, sure, but it’s not as if I was the target of screaming, insults, or even criticism. Nobody made me swap to a basement office, and I wasn’t sent off to a closet to make photocopies.

My pay was not cut—perish the thought. I was given work on projects that seemed important to the new leadership. Frankly, the entrance of Elizabeth Wilkins to the Office of Policy Planning was welcome, even though she didn’t seem to have an antitrust background, but did seem committed to furthering Chair Khan’s puzzling agenda. Wilkins was downright thoughtful as a manager. So was her predecessor—the OPP’s acting director, that is, not the shadow director and not-so-shadow chief technologist, oy.

Maybe somebody was flogged, but I wasn’t. People were nice. I had a voice. It just didn’t matter.
You might say “that’s Washington” or “staff don’t run an agency,” and I suppose you’d be right. But part of what’s gratifying about public service is making a difference. At the FTC, that was, historically, making a difference to benefit American consumers. Sometimes one made more of a difference, and sometimes less; and we all knew that the particulars of briefs, reports, testimony, and advocacy comments had to be negotiated and not just written. Still, one’s work and input mattered. Until it didn’t. At all.

Like the flood of ill-considered withdrawals (not to mention the very bold regulatory proposals–see, for example, Bill MacLeod here—not to mention the gutting of the competition-advocacy program), everything seemed decided in advance. Concerns were acknowledged before being swept aside in their entirety; memoranda and reports were read before being embargoed. There was a theater of listening, but no method actors appeared there.

I’d never before encountered that at the FTC. And while I cannot speak for everyone, it wasn’t just me. Not by a long shot (see the much-publicized employee polls and the raft of departures).
That all seems a bit disheartening—not the tone I opened with, and not the one I typically have in mind—so I’m sorry about that. My bad, mea culpa, s’lach lanu, resolving to do better, etc. But the “new normal” is anything but normal—not for the FTC and not for good government—so there’s that.