Health Care Law

The same antitrust and MONOPOLY laws that govern businesses and corporations apply to physicians, hospitals, and health care organizations.

Sherman Act The SHERMAN ANTI-TRUST ACT OF 1890 (15 U.S.C.A. § 1) prohibits conspiracies in restraint of trade that affect interstate commerce. Often, physicians who are denied admittance to, or who are expelled from, the medical staff of a hospital file a lawsuit in federal court, against the medical staff and the hospital, claiming violation of the Sherman Act.

To understand why this kind of federal action applies in this situation, one must first understand the unique relation of doctors to hospitals. Doctors generally do not work for a particular hospital, but instead enjoy staff, or "admitting," privileges at several hospitals. They are accepted for membership on a medical staff by the staff itself, pursuant to its bylaws. The process of selecting and periodically re-evaluating medical staff members (called credentialing or peer review) can result in a denial of admittance to, or expulsion from, the medical staff.

Physicians who are denied admittance to, or expelled from, a hospital's medical staff and file a claim of Sherman Act violation in federal court are essentially claiming that they are being illegally restrained from their trade (i.e., practicing medicine). It is the unique relation between doctors and hospitals, described earlier, that satisfies the first element of a Sherman Act violation, which is that a conspiracy must exist. Normally, a single business cannot conspire with itself to restrain trade—a conspiracy requires a concerted, or joint, effort between or among two or more entities. Because physicians, as independent contractors, constitute individual economic entities, when they vote as a medical staff to admit or expel a physician, they are acting in the concerted, or joint, fashion described by the statute.

The second element of a Sherman Act violation is that a restraint of trade must occur. One rule states that any restraint of trade, especially in the commercial arena, may be viewed as per se (i.e., inherently) illegal. However, courts often have resorted to comparative analysis to balance the pro-competitive versus anticompetitive effects of a medical staff's decision. For example, if a physician has a history of incompetent or unethical behavior, then a denial of medical staff privileges can be independently justified. On the other hand, if there is only one hospital in a small town, and the physician in question meets all qualifications for ethics and competence, a denial of medical staff privileges may well constitute illegal restraint of trade.

The final element of a Sherman Act violation, that the action must substantially affect interstate commerce, is a jurisdictional requirement, which means that if it is not satisfied, the federal court has no jurisdiction to hear the dispute, and the Sherman Act does not apply. Courts are split as to whether a medical staff's decision to grant or deny medical staff privileges satisfies this element. Some courts view the practice of a single physician to have a minimal, as opposed to the required substantial, effect on interstate commerce, and hold that the jurisdictional element is not met. Other courts focus on the activity of the entire hospital (e.g., receipt of federal funds, purchase of equipment from other states, reimbursement from national

insurance companies), and find that the jurisdictional element is met.

Challenged medical staffs and hospitals often raise the "state-action" exemption, which exempts from federal ANTITRUST LAW activities required by state law or regulations. Many states mandate the peer-review process, even at private hospitals, but in order for an exemption based on this mandate to negate a finding of a Sherman Act violation, the state must supervise the process closely.

Clayton Act Section 7 of the Clayton Anti-Trust Act of 1914 (15 U.S.C.A. § 18) prohibits mergers if they "lessen competition or tend to create a monopoly." To be valid, a merger must not give a few large firms total control of a particular market, because of the risks of price-fixing and other forms of illegal collusion. Market-share statistics control merger analysis, and they are based on a "relevant market." The CLAYTON ACT can prohibit a national hospital-management company from purchasing several hospitals in one town, and it even can prohibit joint ventures between hospitals and physicians or between formerly competing groups of practicing physicians.

Several exceptions apply to these prohibitions. If a hospital is on the verge of BANKRUPTCY and certain closure, but for the merger, then the merger will be allowed. Nonprofit hospitals long enjoyed complete exemption from Section 7 of the Clayton Act, but now federal district courts are split as to whether the act applies to nonprofit hospitals. In any case, a careful market analysis that shows that particular relevant markets do not overlap—and hence do not lessen competition or create a monopoly—can be used as evidence to uphold a merger decision between two or more health care entities.