In the headline to a Dec. 7 press release, the Federal Trade Commission (FTC) announced that it, in concert with the U.S. Justice Department (DOJ) and U.S. Department of Health and Human Services (HHS), had managed to “Lower Health Care and Drug Costs, Promote Competition to Benefit Patients, Health Care Workers.” According to the subhead: “Recent agency actions have helped lower costs, increase care quality for consumers and promote competition across the health care market.”
The headline sounds great. One wonders about the extent to which the subhead is true.
It was true for years—at least, at the FTC. The FTC has a very solid tradition of pro-consumer, research-based enforcement in the health-care sector, both in conduct matters and, especially since the early aughts of this century, in hospital-merger matters (here, here, and here). Significant contributions to the economic literature by FTC Bureau of Economics staff and management have helped to undergird and refine provider-merger scrutiny. (for just a few examples, see, e.g., here, here, here, here, here, and here).
Under present leadership, it has continued to do well, if not uniformly so, when it has brought complaints under established theories and evidence (here and here). Hospital-merger enforcement can be especially challenging, given the opportunities for regulatory rentseeking via both certificate of need (CON) (see, e.g., here, here, and here) regimes and certificate of public advantage (COPA) legislation at the state level (here). With regard to COPA (if not CON), we’ve seen a few bright spots, where the commission has permitted its long-running and highly successful competition-advocacy program to continue (here).
What’s less clear is the payoff from some of the more innovative matters brought under present FTC leadership. The press release describes more than 30 initiatives across the three agencies—enforcement matters, regulation, and policy statements. A comprehensive review would be the longest Truth on the Market post ever, by a long shot. Hoping to keep at least a few readers, I’ll focus on just a few.
First, I’ll note in passing that some of the DOJ matters appear to be straightforward anti-price-fixing cases, brought under long-established precedent condemning price- and wage-fixing agreements and market-allocation agreements (see here and here) (and not creative applications of 40- and 50-year-old precedents).
Turning to FTC matters, the commission touts its proposed noncompete rule, which doesn’t specifically address health care but would sweep across all occupations economywide, including those in the health-care sector. According to the FTC:
By stopping this practice, the agency estimates that the new proposed rule could increase wages by nearly $300 billion per year and expand career opportunities for about 30 million Americans, including those working in the health care industry. Consumers would save up to $148 billion annually on health care costs under the proposed rule according to FTC estimates.
Wow. Or maybe not. It’s not that there’s nothing there. As I noted way back in April, “there are contexts—perhaps many contexts—in which noncompete agreements raise legitimate policy concerns.” Those include contexts in which such agreements may be anticompetitive, although most of the issues do not appear to be antitrust issues. And some contexts are not all contexts. There are legitimate business reasons for at least some of the restrictions, and the specifics are tricky.
The FTC’s discussion of the literature in its notice of proposed rulemaking (NPRM) was in some ways careful and in some ways both slanted and strained. For one thing, the NPRM bent over backward to discount inconvenient empirical findings, while glossing over limitations to seemingly favorable results. It simply ignored solid work that raised significant questions about the empirical basis of the proposed rule. See, for example, John M. McAdams; Norman Bishara & Evan Starr; and Jonathan M. Barnett & Ted Sichelman. As McAdams noted in 2019:
[T]he more credible empirical studies tend to be narrow in scope, focusing on a limited number of specific occupations . . . or potentially idiosyncratic policy changes with uncertain and hard-to-quantify generalizability.
This is a rule that the FTC, in its current form, couldn’t possibly enforce. Even leaving that aside, there are a few more wrinkles—some small, and some not. First, it’s not at all clear that the proposed rule has “helped lower costs,” not least because they haven’t adopted any final noncompete rule. And presumably (or one aspires to presume), a final rule, if adopted, would reflect the many serious critical comments submitted to the FTC, and not just the cheerleading.
Second, the question of whether the FTC has the sort of general competition-rulemaking authority on which the rule would depend is controversial. It’s not baseless, but old agency hands—including, among others, former FTC General Counsel Alden Abbott; former FTC Commissioner and Acting Chair Maureen Ohlhausen (with Ben Rossen here); former FTC Commissioner Noah Phillips; and Gregory Werden, former chief counsel for economics at the DOJ Antitrust Division—have argued that there is no such authority, and noted administrative-law scholar Thomas Merrill agrees. As Abbott explains:
[T]he structure of the FTC Act indicates that Section 6(g) [the pertinent provision] is best understood as authorizing procedural regulations, not substantive rules. What’s more, Section 6(g) rules raise serious questions under the U.S. Supreme Court’s nondelegation and major questions doctrines … and under administrative law (very broad unfair methods of competition rules may be deemed ‘arbitrary and capricious’ and raise due process concerns.
Third, as the FTC itself recognizes, its competition authority is limited with regard to not-for-profit organizations, and most hospitals and their networks are not-for-profit. It’s unclear what portion of the health-care workforce would be covered, were the FTC to adopt the rule as proposed, and were the rule sustained. It’s also unclear to what extent such a rule would change the law in the 15 states—plus the District of Columbia—that already place certain restrictions on the enforcement of noncompete agreements for physicians (some covering health-care professionals more broadly), not to mention the four states that have general restrictions on noncompete agreements.
Fourth, the literature on health-care noncompetes is very limited: there is one paper investigating the impact on physician compensation (which finds that physicians with noncompetes are more highly compensated than those without) and one paper investigating the impact of certain policy changes on health-care prices. This is a very large and complex space, and two papers do not a body of literature make. One ought to be cautious before basing sweeping, nationwide regulatory reform on a couple of preliminary estimates.
And as discussed in ICLE’s comments to the FTC proposal, and as I discuss in detail here, the paper on health-care prices does not employ a causal design, does not employ data on hospital-based services (ambulatory-care services only), and rests on both market definitions and analytical methods largely repudiated by research from staff in the FTC’s own Bureau of Economics—research undergirding the commission’s own, very successful, health-care merger-enforcement program. The paper is a thoughtful one and, in many ways, a useful starting point to investigate the impact of noncompete agreements on downstream health-care prices. But its estimates are highly dubious, as FTC staff are well-aware, and it is the only basis the FTC has for its estimate of $148 billion in annual health-care savings. Indeed, it’s the only empirical paper that the FTC can cite that says anything about downstream price effects in any product or service market.
Then again, they said “could increase” wages (not strictly inconsistent with any increase or decrease) and “up to” $148 billion (not strictly inconsistent with zero).
The FTC also touts its settlement of the Amgen/Horizon merger matter “to address the potential competitive harm that would result from Amgen’s $27.8 billion acquisition of Horizon Therapeutics plc.”
Sort of. But as I explained in September, “the core of the consent agreement has Amgen doing what they’d offered to do all along.” It’s all well that they settled. That saved the agency scarce resources. And as I explained way back in May, and as my ICLE colleagues and I—together with noted scholars of law and economics—argued in an amicus brief, it was a bad case to bring in the first place. The merger would not have increased anyone’s market share, much less market power, one iota. The FTC had sued “to block a likely procompetitive conglomerate merger based on harms supposed to arise from a chain of conjectured post-transaction events, where each link in the chain is highly speculative. It is unlikely they will all come to pass and cause the harm the FTC posits.” And the risk, however slight, was easily remediable in any case.
Finally, on the eve of trial, the FTC basically accepted Amgen’s standing offer and tacked on a few pointless extras. Better late than never—and better to settle on the eve of trial than to litigate to conclusion, and a loss. But that deserves just one cheer, not three, as it was not really a savings for American consumers so much as a saving of face.
This week’s press release doesn’t tout a similar matter that’s now before the 5th U.S. Circuit Court of Appeals—that is, the FTC’s decision to block Illumina’s acquisition of Grail, notwithstanding the decision of FTC Administrative Law Judge D. Michael Chappell to dismiss the FTC’s challenge in 2022. This is, like the Amgen/Horizon matter, a nonhorizontal merger case based on highly speculative harms that could, in any case, be easily addressed by contractual provisions already in place—provisions that could be further reinforced if they were incorporated in settlement orders. For a detailed critique, see the ICLE amicus brief signed by 28 scholars of law and economics. And, among others, there’s also me (here and here); Alden Abbott; Thom Lambert; various law and economics scholars (here); former director of the FTC Bureau of Economics Director Bruce Kobayashi & former FTC Chairman Tim Muris (here); and Kobayashi & Muris again, this time with Jessica Melugin and Kent Lassman, here.
As a number of us pointed out, there was a serious downside to the FTC getting this wrong. That is, the merger appeared to be very likely procompetitive—in fact, beneficial to consumers, specifically, cancer patients. There is a conspicuous and very real risk that the FTC’s action will slow the development of life-saving multi-cancer early detection (MCED) tests. Antitrust officials should, first, do no harm.
One more matter the agencies touted: the Eyeglass Rule. As the press release points out, the FTC proposed updating its Ophthalmic Practice Rules—known as the Eyeglass Rule—back in December 2022. I have no objection. Actually, I helped a bit with this issue before departing in September 2022. But the rule dates to 1978, and we’ve yet to see what the proposal will bring.
Basically, the rule requires that a prescribing eye doctor—an ophthalmologist (MD) or optometrist—must provide patients with a copy of their prescription after a refractive exam (supposing the exam indicates corrective lenses). There can be no extra charges (beyond those for the exam), and no artificial impediments to comparison shopping.
Under the new proposal, the prescribers will be required to document the prescription release, because such documentation could facilitate enforcement. This mirrors a proposed amendment to the FTC’s Contact Lens Rule (CLR), which was first adopted in 2004, and which implemented the federal Fairness to Contact Lens Consumers Act enacted in 2003. The CLR, analogously, requires prescribers to release such prescriptions automatically, without an extra charge, upon completion of an exam, so that consumers (patients) can shop for contact lenses where they like, instead of being forced to buy them from their prescribing doctors.
That was all well and good, but the “10-year” rule review revealed that the rule was hard to enforce with the FTC’s limited resources. In fact, despite numerous complaints of noncompliance—and survey evidence of widespread noncompliance among prescribers—the FTC had not enforced the central prescription-release requirement of the Contact Lens Rule even once in the first 12 years that it was in force. Which might be a bit shy of establishing a credible threat of penalties for violations.
In 2016, a record-keeping provision was proposed—later modified in 2019—that was supposed to facilitate enforcement. I’m not objecting to any of that. The FTC should enforce the Contact Lens Rule, not least because the statutory charge to the agency is clear. And they should be able to do so. And it’s not easy. But proposing these amendments to the Contact Lens Rule (20 years after enactment of the statutory command) and to the Eyeglass Rule (some 45 years after the initial adoption of the Eyeglass Rule) is not yet a great accomplishment for American consumers, even if they prove to be steps in the right direction.
And perhaps there’s an implication there for the many new regulatory proposals brought forth by the current commission, including some truly vast proposals, like the “commercial surveillance” ANPR and the noncompete NPRM. Regulations are not self-enforcing, even when rules are simple and clear. Not all rules are that.
If, given present resources, it’s this hard to refine and enforce simple prescription-release provisions for eyeglasses and contact lenses—and leaving aside the key question of whether the other proposed rules are, in some abstract sense, good rules—what’s the wisdom in pursuing rules that would pertain to, say, every labor agreement in the United States where the employer is not the government or a not-for-profit? Or every commercial use of “personal data,” however personal data ends up being defined?
Does the commission imagine it could enforce either rule effectively? If so, what on earth are they thinking? And if not, why are they spinning their wheels when—grand ambitions for remaking antitrust and consumer-protection law aside—there are good and important health-care matters waiting in the wings, as well as patients who care about such things.
Health-care competition is important. It’s a significant sector of the economy and one closely tied to consumer welfare. The new record seems very much a mixed bag, and more mixed than it had been.
And now for something completely different: Happy Chanukah to all who are celebrating the holiday, and a good weekend to all.