Recent District Court Decision Highlights Potential Conflicts Between Goals of the Affordable Care Act and Antitrust Laws

The Affordable Care Act (“ACA”) promotes the formation of Accountable Care Organizations (“ACO”) designed to improve patient outcomes and lower the overall cost of medical care.  However, a recent decision by the United States District Court for the District of Idaho, in Saint Alphonsus Medical Center, et al. v. St. Luke’s Health System, LTD, Docket No. 1:12-CV-00560-BLW, highlights the fact that the goals of the ACA do not override the antitrust concerns regarding the potential anticompetitive effects such organizations may have on the healthcare market.

The Idaho suit was brought by the Federal Trade Commission as well as two of the merged entity’s competitors, who contended the acquisition would have anticompetitive effects.  The merged entity, which was formed by St. Luke’s Health System and a Saltzer Medical Group, argued that the acquisition was primarily intended to improve patient outcomes.

In its decision, the District Court noted that it believed that if left intact the acquisition would have indeed improved patient outcomes.  In fact, the court stated that “St. Luke’s is to be applauded for its efforts to improve the delivery of health care in the Treasure Valley.” Nevertheless, the District Court concluded that the potential for improved patient outcomes was outweighed by the potential anticompetitive effects including the risk that the combined entity would use its dominant market share to (1) negotiate higher reimbursement rates with health plans and (2) charge more for ancillary services at higher hospital-billing rates.  Thus, the District Court found the affiliation to violate Section 7 of the Clayton Act and ordered the acquisition to be unwound.

The decision reminds us that when forming ACOs through vertical and horizontal integration, health care organizations must remain cognizant of the potential effects of such organizations on market competition.  Regardless of the goals of the entities forming such organizations, it will be the potential effects on competition which determines whether the affiliations run afoul of the antitrust laws.

Proposed HIPAA Rule Change Potentially Threatens Second Amendment Rights Without Due Process of Law

On January 7, 2014 the U.S. Department of Health and Human Services (“HHS”) issued a notice of proposed rulemaking to modify the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) Privacy Rule to expressly permit certain HIPAA covered entities to disclose to the National Instant Background Check System (“NICS”) the identities of individuals who are subject to a Federal “mental health prohibitor” which disqualifies them from shipping, transporting, possessing, or receiving a firearm. The proposed rule would permit disclosure of only the fact that the individual is subject to the prohibitor, not the underlying diagnosis, treatment records or other protected health information (“PHI”).

Among the persons disqualified from receiving firearms under the “mental health prohibitor” are individuals who have been “adjudicated as a mental defective” or “committed to a mental institution.” 27 C.F.R. 478.32(a)(4). Included in those “adjudicated as a mental defective” are individuals found incompetent to stand trial or not guilty by reason of insanity as well as those determined by a court, board, commission, or other lawful authority to be a danger to themselves or others or lacking the capacity to contract or manage their own affairs. “Committed to a mental health institution” includes not only commitment for mental illness, but also commitment for other reasons, such as drug use. 27 C.F.R. 478.11.

HHS indicates that the rule is designed to address perceptions that HIPAA creates a barrier to entities reporting information to NCIS. In this regard, HHS notes that the vast majority of determinations of incompetence and involuntary commitments are originated in the justice system by entities which are not HIPAA covered entities. Thus, HHS believes the proposed rulemaking merely resolves any perceived ambiguity and clarifies the authority of these entities to report information to NCIS.

However, it has been suggested that the rule change may have a more significant impact. While HHS states the rule change is an attempt to balance individual privacy rights against the public safety, opponents suggest additional considerations should be weighed. Commitment procedures vary from state to state and some states permit mental health providers to commit individuals without prior adjudication. HHS responded to earlier comments on this subject by noting that those states still require the information to eventually be shared with the judicial system. Opponents of the rule argue that by permitting disclosure by the mental health provider directly, rather than limiting disclosure to non-covered entities such as the judicial system, the proposed rule change fails to ensure the individual has received appropriate judicial review prior to reporting. Thus, it is argued by some that reporting of a commitment will result in a deprivation of an individual’s Second Amendment rights and, therefore, it is essential that the individual be provided appropriate due process protections, if not prior to commitment, prior to reporting.

To address these issues, amendments would be required to the definition of “committed to a mental institution” to ensure an individual receives appropriate procedural protections prior to being committed and reported to NCIS. The U.S. Department of Justice (“DOJ”) issued a proposed rule change related to that definition on the same day HHS issued its proposed rule. However, the proposed DOJ rule addresses whether the term includes both inpatient and outpatient treatment, and whether it applies to commitments of individuals while under the age of majority. The DOJ’s proposed rule does not address what procedural protections would be provided to a patient prior to being “committed to a mental health institution” and subject to the mental health prohibitor.

It is fair to expect that these and other concerns will be addressed during the comment periods on the proposed rules; the comment periods for the proposed HHS and DOJ rules expire on March 10, 2014 and April 7, 2014 respectively.