A Lawyer Looks at Monopolies

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Could Linkia become a monopoly? Some in the O&P industry have expressed concern over this possibility. As a consequence, could Linkia be liable to antitrust laws?

When asked about the possibility of a monopoly developing in the O&P industry, healthcare attorney John Latkso of Schottenstein, Zox and Dunn, Columbus, Ohio, answered, "My thinking is that there is no O&P facility so large as to be a monopoly in O&P, although there could be some certain specific markets, involving both public and private companies, [in which this could exist]. Each market would need to be defined and evaluated to determine that."

Latsko pointed out that there are many different antitrust laws, and that each deals with a different arrangement that results in anticompetitive behavior or restraint of trade. "Some things such as price fixing are illegal per se, while market circumstances and level of economic power must be evaluated under a rule-of-reason standard for other behavior." Latsko noted that, generally speaking, the antitrust enforcers look to see whether the market power possessed is causing--or can cause--prices to go up. If prices are remaining stable or declining, antitrust enforcers tend not to be as concerned.

"In either event, it would appear that based on the information I have available, there is no company in an economic position to artificially inflate O&P prices or use predatory pricing to eliminate competition," Latsko continued. "On the contrary, the facts would seem to imply that pricing is at best stabilizing, if not dropping in most O&P markets. Third-party payers have established criteria and pricing for contracting entities. Anyone meeting those criteria would be in a position to compete for the contract. Even Medicare has done this with its managed care products and DMEPOS competitive bidding."

There is sometimes a very fine line between actions that are procompetitive and those that are anticompetitive, Latsko pointed out. "While nearly every healthcare item or service industry has large and small competitors, including hospitals, pharmaceutical companies, [and] medical device makers, O&P is unique because there is only one large company and many small companies.

"Being large does have its advantages, but so does being small," he added. "Healthcare has always been considered a local industry, and the local hospital, local physicians, and local O&P facilities have traditionally done well against outside competition."

Payers Take More Control

As healthcare delivery and financing has changed over the years, payers have taken more control over the spending of healthcare dollars, Latsko observed. Hospitals and physicians are competing for managed care contracts and the pricing of those contracts. "The result of this competition includes mergers, joint ventures, and creative management in order to survive. Sometimes this creativity has gone too far, and the results were higher prices, less competition and possibly price fixing, group boycotts, or other illegal activities.

"Can a large payer agree to contract with a company under terms that might result in the exclusion of competitors?" Latkso asked rhetorically, then answered, "Managed care does this all the time. The benefits available for out-of-network services are intended to minimize out-of-network use. Is this illegal? No. Is turning program and management over to a company having the resources to provide requested services anticompetitive? It would not seem so. It is selling third-party payers the services it asked for. To my knowledge, it does not concern payers that anyone in O&P has such a level of economic power that it can demand and get higher prices. No one has that much economic power to my knowledge except possibly in particular markets. Payers feel they could go elsewhere for the O&P services required if needed."

Independents Effective Competitors

Many independent O&P facilities compete very well with both large and small competitors, Latsko said. "Access, quality, service, price, marketing, and many other factors result in business success. If a large payer decides that it wants to outsource certain network management services, that is permissible. Just as with the Medicare competitive bidding program, large fully integrated drugstore companies might have a definite advantage in the bidding process for many prefabricated devices. In some ways, Medicare is doing the same thing as other payers. Being large, they will have a cost advantage, more locations for patient access, better technology for data gathering and reporting, and dedicated professional management. That does not mean that antitrust laws have been violated."

Latkso stressed, "It is important for the independent O&P facilities to organize themselves to effectively compete... There are some provider networks already in existence that are positioned to work with large payers in their own markets." Many other small retailers have survived opening a large retail superstore by being creative, he noted.

"In healthcare, payers and many different types of providers, such as hospitals, pharmaceutical companies, physicians, and others have merged," he continued. "Even in O&P, many companies have either been acquired or merged. It clearly is more difficult for the small player to compete in today's environment. That is why many hospitals, medical groups and ancillary providers have sold or merged. It is easier to compete in many instances when you are larger and have fewer competitors. This is not to say that a large company cannot turn good competition into a monopoly or restraint of trade. [And] there may be specific markets that in which a company may be involved in activities that could push some part of the antitrust laws. There are some smaller companies that do dominate their particular market."

Editor's Note: For those interested in more information about antitrust law, the Federal Trade Commission (FTC) has published "A Plain English Guide to Antitrust Laws" online at   www.ftc.gov/bc/compguide/index.htm

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