Health Affairs, 22, no. 6 (2003): 101-110 doi: 10.1377/hlthaff.22.6.101 © 2003 by Project HOPE	New Online   Senate Health Reform Bill   Rewarding Providers   Public Option Policy Brief   Health Reform & Abortion   Delivery System Reform

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Interview

INTERVIEW

Protecting Competition And Consumers: A Conversation With Timothy J. Muris

Abstract

 
In this interview with William Sage of Columbia University, Federal Trade Commission (FTC) chair Timothy Muris discusses his commission’s role in the health care arena. He details the FTC’s antitrust and consumer protection activities in a variety of sectors, including hospitals, physicians, and pharmaceuticals. Muris affirms the commission’s belief that markets benefit consumers and that markets need basic rules to operate. The FTC’s role is to enforce those rules, based on empirical evidence, in as much of the economy as possible, including health care.

The FTC is headed by five commissioners, nominated by the president and confirmed by the Senate. A commissioner is generally appointed for a seven-year term. The president chooses one commissioner to act as chairman, and no more than three commissioners can be from the same political party.

Timothy Muris was sworn in as chairman 4 June 2001. He held three previous positions at the FTC: assistant director of the Planning Office (1974–1976), director of the Bureau of Consumer Protection (1981–1983), and director of the Bureau of Competition (1983–1985). After leaving the FTC in 1985, he served for three years in the Executive Office of the President, Office of Management and Budget. He received his law degree from the University of California, Los Angeles, in 1974. Bill Sage is a professor of law at Columbia University in New York City, where he teaches courses in antitrust, health law, regulatory theory, and the professions.

William Sage: You have spent most of your periods of public service at the Federal Trade Commission (FTC). That must give you a unique perspective on the agency.

Timothy Muris: This is the fourth job I’ve had at the FTC, and the commission has transformed radically since my first tour here in the mid-1970s. The standard view at that time was that the FTC was an out-of-control agency, too often engaged in what I regard as not very sensible things. On the competition and antitrust side, it had a very simple big-is-bad view. On the consumer protection side, it had great hostility to the market and was trying to write rules telling businesses how to deal with their customers on an industry-by-industry basis.

When I returned in the 1980s, we made changes. There was a revolution in antitrust thinking, though it didn’t occur overnight. It was led by academics. Courts adopted it, and the agencies were the last to accept it. Something like that happened in consumer protection as well. My immediate predecessors performed extremely well in both consumer protection and antitrust. When I took over as chairman, I inherited an agency that had a lot of credibility, a sensible agenda, and bipartisan congressional support. I think everyone is on the same page now in knowing what we want to do. And we’ve been able to do a lot.

Sage: How does the FTC choose what industries and cases to investigate?

Muris: We have great flexibility in deciding what we’re going to do. When I took over as chairman, I wanted to emphasize health care. It’s a major part of the economy, and it’s an area where we can add value. On the antitrust side, we have close to doubled our resources on health care. In consumer protection, we’re also spending more resources attacking health care fraud and promoting the benefits of information sharing. We are also working closely with [FDA Commissioner] Mark McClellan on consumer protection issues.

"Health care fraud cases became a staple of FTC work about twenty years ago."

In addition to our enforcement arms—the Bureau of Competition and the Bureau of Consumer Protection—the FTC employs one of the largest groups of industrial-organization economists in the world. Our Bureau of Economics does first-rate analysis and research about problems in many industries. We’re continuing that work in health care, and we’ve also brought in some very good academic consultants to help us.

The FTC And Health Care

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Sage: Is the FTC’s interest in health care new?

Muris: Health care was very important even when I started at the FTC [in 1974]. It’s obviously a very large chunk of the economy, and it has been one area, particularly on the competition side, where there has been bipartisan congressional support for our involvement. Thirty years ago we were already worried about the price of prescription drugs. We came up with two things we thought were wrong. One, advertising wasn’t allowed; and two, a lot of states had anti–generic substitution laws. We worked hard to do something about both problems. After that we formed an occupational licensure task force. In policy planning, we hired [University of California, Santa Barbara, health economist] Ted Frech, who was young then, like I was. Ted and I wrote a memo to the commission on what became the AMA case.¹

In consumer protection, health care fraud cases became a staple of FTC work about twenty years ago. The commission also began to focus during the 1980s on the importance of truthful information for consumers of health care goods and services.

Sage: Although we clearly have a market-based health system in this country, many people still resist the idea. In one of the articles you wrote as a law professor, you quote Judge Easterbrook to the effect that competition is a ruthless process. Is this a problematic image for health care, which is supposed to be based on compassion and healing?

Muris: The point of that quote was that competition has winners and losers. And the fact that it has winners inspires people to better performance. I think it’s completely consistent with the goals of patient welfare. The market is all about protecting consumers, and in health care, obviously, the consumer is the patient. So I think there is a vast congruence between competition and patient welfare.

Antitrust And Hospitals

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Sage: Let’s talk specifically about hospitals. If you count private as well as public cases, hospitals are involved in 70 percent or so of all antitrust decisions, almost always as defendants. Why do hospitals so often find themselves in that role?

Muris: I think the number is so high because of private cases involving staff-privileges disputes. The hospital is a very prominent and important institution. Anytime there is a privileges lawsuit, there’s a natural tendency to throw in an antitrust count. It used to be like that in other industries before the courts clamped down on "vertical restraints" cases: Every time a distributor was terminated, both a contract count and an antitrust count were filed. It was routine. It’s certainly not true that hospitals are usually the defendants on the government side. The FTC and DOJ have been more balanced in looking across the whole industry.

Sage: There is a perception that challenges to hospital mergers are the centerpiece of public antitrust enforcement. The $64,000 question for a lot of readers is why the FTC and DOJ have lost so many cases.

Muris: Challenges to hospital mergers have not been the salient feature of government enforcement. If you look in terms of commission resources as opposed to number of cases, overwhelmingly more goes to the pharmaceutical area. We’ve certainly increased resources recently on physician issues, but pharmaceutical resources have gone up at a forty-five-degree angle for about five years.

In hospital merger cases, the government is zero for the last seven. I don’t know the specifics of every case, but what’s striking is the zero. I can certainly accept the idea that the government should not have won them all. But it seems very unlikely the government should have lost them all.

A variety of things have come up. The Butterworth case, for example, would never have come out the way that it did in any other industry.² The court’s reliance on the nonprofit aspect was highly unusual. I also don’t think you have a chance to win a hospital merger case unless you have the insurance companies and managed care companies on your side. In a few cases where that wasn’t true, the government had two and a half strikes against it to start with.³ Of course, even with the insurance companies and managed care companies on your side, you can still lose.

Courts have used the Elzinga-Hogarty patient flow test to define geographic markets, which I think doesn’t make a lot of sense in a health care context.⁴ The basic problem is that looking only at historical patient flows doesn’t provide a useful indication of the reaction of patient flows to a change in price. In our cases, employers and insurers have indicated that they can’t effectively shift patients in response to higher prices.

Sage: You seem to be suggesting that judges don’t always understand how to evaluate evidence in hospital merger cases. Is the FTC making any efforts to provide guidance?

Muris: Absolutely. We’re doing it in a couple of different ways. As you know, we’re holding hearings right now on competition in health care. We spent half a day on why we’re losing these cases. We spent a full day on defining product and geographic markets for hospitals. We’re going to write a report, which I hope will be out in mid-2004. We’re going to explicitly address issues such as Elzinga-Hogarty based on what we learned at the hearings.

We have also changed tack and are looking carefully at the effects of consummated hospital mergers. If we find that prices went up, and that there aren’t offsetting benefits such as higher quality, and that we have a viable remedy, then we will proceed with administrative litigation at the FTC. Any FTC decision would be appealable to the relevant federal Circuit Court of Appeals. This administrative proceeding will allow the commission to give guidance on what it thinks is the appropriate methodology for evaluating a hospital merger.

Even if we don’t bring a case, having in-depth studies of consummated hospital mergers will help provide a better basis for evaluating future situations. These investigations are intensive. Just understanding premerger and postmerger prices is extremely complex. We’re spending a lot of time talking to the players in the market to figure out what has happened. We will publish the results of our merger retrospective no matter what we find.

Sage: You said that the FTC would only pursue an administrative case if it had a viable remedy. What would a viable remedy be?

Muris: In most of the older mergers—in the late 1980s and early 1990s—there was a significant amount of real consolidation, what antitrust lawyers call egg scrambling. In a lot of the newer mergers, that isn’t necessarily the case. If the merged hospitals still have facilities that they can sell off so that they can compete on a freestanding basis, that’s what I mean by a viable remedy.

A case that’s brought after the fact will require strong proof. But the possibility is there. Our leading case right now—I can’t tell you what it is—looks like a merger to monopoly, and it actually passes the Elzinga-Hogarty test. It also may have a viable remedy. The case might turn on how courts interpret the "state action" doctrine.⁵

Sage: I can’t help wondering—typical law professor skepticism—whether judges use statistical arguments such as Elzinga-Hogarty mainly to justify results they have already reached on intuitive grounds. One possible explanation for the government’s losses is that when you go before a federal district judge in a community, the judge trusts local hospitals, particularly nonprofit institutions, to do the right thing regardless of how the competitive situation appears in Washington, D.C. Does a competitor’s motivation or intent have a role to play in your enforcement decisions?

"Quality should be part of antitrust law, which is about protecting consumers."

Muris: Clearly, in a number of these cases, there did appear to be an interesting degree of trust in the local nonprofit hospital. The FTC doesn’t litigate many merger cases. Nor does the Justice Department. We win most of them. Most of them are here in the District of Columbia. I think, at the margin, being in front of the local judge may make a difference. I’m not sure that it’s high on the list of reasons why the government has lost seven cases in a row.

In any merger, whatever the industry, it’s very useful to know why the parties are merging. So, in that sense, motivation is crucial. If a company is purchasing another company and doesn’t have a good explanation why this makes business sense, it makes you suspicious. If somebody is buying a direct competitor, and they have documents about the utility of eliminating competition, that’s an aspect of why they are doing it that raises all sorts of red flags. That can happen in a hospital case, just as it can in any other case. At the same time, if the motivation is a desire to lower cost—and there is evidence that lots of hospital mergers have been efficient—that’s something that we pay attention to, too.

Sage: What if you ran into a case where there is a credible trail of documentary evidence that says, "Once we’ve merged, then we will be able to provide charity care to everyone who comes in the door, support research, and do all sorts of good things for the community"?

Muris: Well, I have a very broad view, broader than most people in antitrust, of so-called efficiency defenses—but a worthy purpose does not insulate anticompetitive conduct from antitrust liability. It’s hard to see abstractly why a merger leads to higher quality without some fairly specific set of facts. It’s certainly not hard to see why it might lower costs. But we will always listen to a credible story about quality. Quality, after all, is what the whole health care system is all about: protecting patients. It should be part of antitrust law, which is about protecting consumers.

Sage: You mentioned the state action doctrine in connection with a hospital’s defense against antitrust enforcement. Should the doctrine be changed?

Muris: Sixty years ago the U.S. Supreme Court ruled that the antitrust laws were not meant to stop states from acting as sovereigns, even if that included supplanting competition. Some federal circuit courts have taken that basic insight and run with it in ways that are blatantly anticonsumer.

For example, there’s a decision in a circuit court to the effect that a very basic and general state law authorizing the existence of a hospital allows hospitals to merge and to be exempt from the antitrust laws. We think that this sort of vague implication is not the "clear articulation" of a state’s intent to displace competition that the Supreme Court requires in order to invoke the state action doctrine. The Supreme Court also requires what’s called "active supervision." We take the Court at its word: If a state is going to say that it can supplant the market, the state has to actively supervise and regulate. For example, we’ve just reached a consent agreement with an association of intrastate movers where the state allows the movers to fix prices without being supervised.⁶ The last time I worked at the FTC, we sued the title insurance industry on the same basis.

In part because of the state action doctrine, we have an active program called "competition advocacy" where we go before state and federal agencies and advocate more reliance on markets. We also file amicus briefs in court. A lot of the research that supports competition advocacy is done by our Bureau of Economics. An example: Several state bar associations are trying to get their states to adopt rules that require lawyers to be at all real estate settlements, including simple refinancings. Well, that will raise prices. It’s clearly a bad idea.

The Medical Profession

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Sage: Would you please challenge New York’s rule on that? I’d appreciate it, as a homeowner. Let’s talk about physicians for a few minutes. According to the standard histories, the American medical profession was the most powerful economic force in health care until at least 1980, and therefore it had the greatest ability to suppress or distort competition. Do physicians still have this degree of economic authority, or has their role changed?

Muris: I’m certainly more cognizant than I was when I first started of the various parts of the health care system, how they interrelate, and how antitrust problems can occur at all levels. As I mentioned, the area where the FTC spends the most time is pharmaceuticals. Because those cases deal with patents and there’s a significant amount of money involved, they are very resource-intensive.

Doctors are obviously still a prominent part of health care, and they are more prominent than the amount of income that goes to them would indicate because of their role with hospitals and steering patients to other providers. We have brought a fair number of price-fixing cases against physicians, where there is not even a credible argument that they’re doing anything efficient.

At the same time, I think we have been more willing than the FTC in prior administrations to state that the antitrust laws shouldn’t hinder efforts to improve quality. We issued an advisory opinion in the MedSouth matter where we said that clinical integration was a legitimate defense, even absent financial integration.⁷ In another matter, a group of doctors were highly concentrated, but they showed us that they had, on a variety of measures, improved patient welfare. We agreed that concentration alone was not a problem in that setting.

Sage: Doctors often claim that they need to negotiate fees collectively to counterbalance the leverage of managed care organizations. Can they do this and still not run afoul of antitrust law?

Muris: The antitrust laws are extremely dubious, and appropriately so, of countervailing power arguments. The evidence shows that you often end up with what economists call double output restriction, where you have two levels of monopoly problems, not one. We discussed this at our hearings. Outside of the AMA, there’s not a lot of support for letting the doctors get together to fix prices. In fact, there’s universal condemnation.

Doctors can do a lot of things collectively, as long as those things are designed to improve quality. They can even do a lot of things together to reduce their paperwork hassles. But when they are independent businesspeople simply getting together to fix prices, we’re going to be hostile. And we’ve been aggressive in that area.

Sage: In the California Dental Association case, which the FTC lost, the Supreme Court allowed dentists to collectively restrict price-and quality-related advertising.⁸ You wrote a scholarly article about the case before you became FTC chairman. Does the Court’s ruling mean that professions are entitled to special treatment under the antitrust laws?

Muris: No. I think what happened in California Dental was that the Court transferred a dispute about whether state government could restrict professional advertising without violating the First Amendment to the antitrust context, but did not pay sufficient attention to the implications of allowing private competitors to impose those restrictions. The opinion can and should be read as focusing on empirical issues—whether the FTC had proved that the specific conduct it was challenging harmed consumers.

The irony of California Dental is that a significant empirical literature, some of it produced by the FTC, demonstrates that advertising helps consumers and doesn’t lower quality. Unfortunately, the FTC in litigating the California Dental case chose not to present any of that evidence. The Supreme Court’s opinion says that health care is a complex area that requires proceeding with evidence, not assumption, and I think that makes a lot of sense.

The Pharmaceutical Industry

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Sage: You have mentioned pharmaceuticals several times already. How has antitrust activity involving pharmaceuticals changed over the past decade?

Muris: The Hatch-Waxman Act created a substantial role for antitrust by making it easier for generic drugs to come into the market. Because manufacturers of branded drugs make so much money from keeping generics out, there have been two problems. One is that the branded pharmaceutical companies have attempted to bribe the generics to stay out of the market by sharing some of the profits with them. The other problem is that the branded pharmaceutical companies have abused the system unilaterally; for example, listing patents in the Orange Book that weren’t legally listable to get themselves additional periods of exclusivity under the act. We have brought several cases to address these problems. For example, we recently reached an excellent settlement with Bristol-Myers Squibb.⁹

Sage: What novel antitrust issues do those cases present?

Muris: Well, they’re factually complex in a way that is novel to antitrust because lots of issues about patent law are involved. By the time I’m done at the FTC, I think we’ll probably have hired four or five patent lawyers. That’s not something we had when I was here before.

These cases also present some tricky antitrust issues. For example, we think we’re on the right side of the Noerr-Pennington doctrine, which is named after a couple of Supreme Court cases that held that petitioning the government is exempt from the antitrust laws. Some courts have interpreted that doctrine fairly broadly. So far, we’ve been very successful taking a narrower view. In one of the Orange Book listing cases, Bristol-Myers Squibb argued that listing a patent in the Orange Book is petitioning the government. We argued, in an amicus brief, that listing a patent in the Orange Book was a ministerial function that had nothing to do with antitrust immunity, and the judge agreed with us.¹⁰

Sage: What new types of pharmaceutical cases do you see on the horizon?

Muris: Because there’s so much money involved, lots of smart people will be trying to figure out ways to restrict generic entry. So far, we have mainly seen companies misleading the Patent and Trademark Office and the Food and Drug Administration in order to extend their patent exclusivity. Maybe there are new ways to do that.

Sage: Has anything come up that involves biotechnology, genomics, or proteomics instead of traditional pharmaceuticals?

Muris: This is by far the biggest difference between antitrust at the FTC now and in the mid-1980s, when I was director of the Bureau of Competition. The number of issues that involve intellectual property has just exploded. It’s day and night. Pharmaceuticals are the main area, but we are also looking at lots of other areas involving potential abuse of intellectual property in health care. Just as we’re now holding hearings on health care, last year we held a comparable set of hearings on intellectual property. We’re currently finishing a report on the relationship between intellectual property and competition policy.

Health Insurance And Antitrust

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Sage: Let’s talk a bit about health insurance. The McCarran-Ferguson Act walls off certain insurance issues from antitrust law, and the FTC faces other constraints on taking enforcement action against insurers. How can you construct an overall competition policy for health care that makes sense when your authority is limited?

Muris: We’re one of two federal agencies that deal with antitrust policy. The Justice Department handles more of the insurance cases for partly jurisdictional and partly historical reasons. For example, the FTC doesn’t have jurisdiction over nonprofits except in the merger context. We coordinate closely with the Justice Department. Justice has actually been more active in the insurance area than people realize. For example, with the increasing power of the Blues, they have forced those plans to drop most-favored-customer clauses in Alabama and Pennsylvania, and they have been active in the merger area, too. To go back to a point that I made before, you can have a competitive imbalance in insurance. You can have it in hospitals. You can have it in physicians. You can have it in pharmaceuticals. Antitrust attention needs to be paid to all of them.

"The term ‘market failure’ is a distraction because it causes people to compare markets to some perfect world that doesn’t exist."

Regulating Markets

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Sage: I know you don’t like the term "market failure," but I’m going to use it. Monopoly power is certainly one type of market failure. Lack of information is another, and you’ve mentioned both of those. But there are other sources of market failure in health care, particularly problems that arise when insurers, employers, or health professionals are acting as agents for individual patients and consumers. Has that come to the attention of the FTC?

Muris: I think the term "market failure" is a distraction because it causes people to compare markets to some perfect world that doesn’t exist. I would rather say we’ve got two different states of the world, and let’s compare them.

One of the first articles I wrote, and probably still the most widely cited, is called "Opportunistic Behavior and the Law of Contracts." It comes out of the agency problem area. I’ve been personally quite sensitive to agency issues, and, increasingly, I think that antitrust law has been as well. Health care is, no doubt, complex. It is a good that is very hard for consumers to evaluate, even after they purchase it. Therefore, you have lots of opportunities for agency problems, and lots of opportunities for fraud. In addition, in health care, because of the tax laws and the way the insurance system works, consumers don’t face the marginal cost of what they consume.

It would make no sense if we weren’t cognizant of those characteristics and didn’t take them into account in our analysis. We can get better at it, of course, and that’s one of the reasons we’re doing the hearings and the hospital merger retrospectives.

Medicare

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Sage: Medicare tends to get neglected in discussions of antitrust enforcement. In what ways do you think the existence of Medicare has influenced health care competition?

Muris: That’s a good question. When I worked at OMB, I spent a lot of time thinking about Medicare because of my budget responsibilities. Forty-five percent of health care dollars are directly paid by the government. It has an enormous impact. I think we would be much better off if Medicare followed a more competitive model. For example, more emphasis on quality and rewards for quality couldn’t help but be beneficial. I know [CMS Administrator] Tom Scully agrees with me. He gave the keynote address at our health care hearings. But we’re talking about, to use the classic metaphor, turning the battleship. Medicare is a very complex program with all the contractors and all the regulation.

Sage: Do you think that the government should use its purchasing power to require better consumer information in health care?

Muris: Well, the government could exercise monopsony power, but there are real risks, and I think it should be very careful about doing that. I’m concerned, particularly in the pharmaceutical arena, when I hear people talk about having the government beat up on the drug companies. That bothers me.

On the informational side, the CMS is starting down this road with publicly disclosed quality measures for some of the services they purchase, but there’s much more that we can do. I’ve talked about the comparison between the auto industry and the health care industry. It’s a startling fact that I can find out a lot more about buying cars than I can about buying health care. One of the things we’re doing in the hearings is to go through the quality issues and the informational issues. I hope that we can collect a lot of information about what is happening on the ground right now, report on it, and make some recommendations.

"We have been quite aggressive in going after not just traditional frauds, but advertisers who claim too much."

Information And Consumer Protection

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Sage: Information is obviously a big part of consumer protection, which is the other half of the FTC’s responsibilities. What cutting-edge consumer protection issues are on the FTC’s health care agenda right now?

Muris: We spend 57 percent of our budget on consumer protection, and 53 percent of our staff is assigned to it. So, by those measures, we do more consumer protection than antitrust enforcement.

Fraud, obviously, is a staple of what we do. It’s a complex issue, particularly because fraud is migrating, through the Internet, outside the United States. One of the great things about Mark McClellan is that he has increased the antifraud efforts of the FDA as well. For example, we’re going to make several joint announcements in upcoming months about problems with dietary supplements. There’s a lot of fraud there. He’s committed to really going after it, and so are we.

We are also paying much more attention to consumer information generally. Markets need basic rules of the road. By enforcing rules against deception and against fraud, the FTC helps increase the reliability of information for consumers. At the same time, by doing studies that show how important marketing and advertising are to consumers, I think we can help persuade professional elites of the benefits of competition. Also, a lot of people in the government establishment tend to be suspicious of markets. That’s certainly true historically of some parts of HHS. A good thing about McClellan is that as both a physician and a professional economist, he understands the importance of markets in health care. He also understands that markets need information to function, and that consumers benefit from truthful information.

After McClellan and I met with the president last December, we held a press conference at which we announced that the FTC and FDA would be increasing our joint enforcement efforts against dietary supplements that were deceptively labeled or advertised. We also announced changes to FDA rules that will allow a greater range of truthful health claims in food labeling. The FTC has done some excellent empirical work about the benefits of providing truthful information about the health effects of foods through advertising. For example, studies done here showed that many consumers learned about the link between fiber and cancer prevention not from their nutritionists, but from advertising. Advertising changed the nature of consumption and production. That’s a very powerful story. The Nutrition Labeling and Education Act [NLEA] of 1990, unfortunately, has discouraged certain kinds of beneficial health claims. The FDA has also interpreted the NLEA more narrowly than it should have. McClellan is committed to making it more consumer-friendly.

Sage: Since Mark McClellan’s name has come up so often, should we understand that there is a closer working relationship between the FTC and the FDA now than a few years back?

Muris: Well, yes. The FTC and the FDA have always worked well at the staff level. Since McClellan arrived at the end of last year, we have dramatically increased our contact at the top. We talk a lot. We’re working on Hatch-Waxman issues. We’re working on dietary supplements. We’re working on health claims. We’ve had conversations on several other issues, such as direct-to-consumer drug advertising. I think it’s an important relationship, and he’s a superb choice for that job.

Sage: Would you be comfortable using the same consumer protection approaches for mainstream medicine, rather than something that was obviously quackery? For example, is there a role for consumer protection law in monitoring claims being made about novel medical procedures?

Muris: I really think there is. We have been quite aggressive in going after not just traditional frauds, but advertisers who claim too much. We’ve sued providers of Lasik surgery and a predecessor form of laser eye surgery, where they were overclaiming the benefits and downplaying the safety risks.¹¹ We also entered into a consent agreement where the marketers had claimed that eating [calcium-enriched] Wonder Bread helped children study better, which is a dubious proposition.

Sage: In terms of information, are you focusing mainly on encouraging voluntary standards, or on civil and criminal enforcement?

Muris: Both. In the dietary supplement area, for example, there are legitimate sellers who have been trying to devise standards. Self-regulation can be very helpful. You need an overlay of civil and criminal enforcement, though, to deal with the bad actors.

Sage: Does private tort litigation have a role to play in consumer protection?

Muris: Sure. Private tort law can be very helpful also. The reason we have a federal consumer protection agency is that basic tort law and basic contract law have procedural flaws in them, in the sense that going to court isn’t worth it for typical consumers when they get defrauded. And class actions have their own set of problems. The FTC also has the ability to ask a court to freeze assets of people who are defrauding consumers. If one left things to private lawsuits, the assets would disappear.

Hearings On Health Care Competition

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Sage: Let’s look ahead. The FTC is holding detailed hearings on health care, cohosted by the Department of Justice. What are the goals of these hearings?

Muris: At the very highest level, we’re committed to the importance of competition in health care. We would like to be able to publish a report that surveys the health care field, talks about the benefits of what we do. Second, and also very important, the hearings are being undertaken as a learning exercise. We’re engaged in what we call policy research and development. One of the main functions of the FTC is to be the leader in policy R&D, producing information to help the policy community.

Let me give you an example that ties together what we’re talking about. Coming back to the pharmaceutical area, I think we have used all of our policy instruments in an effective way. We have brought cases involving the two problems I talked about—generics and branded drugs getting together, and branded drugs trying to keep out generics. We filed an amicus brief that had a very positive impact. We issued a report where we surveyed the universe of cases in which a generic was seeking to compete with a branded before the patent expired.¹² That report included a series of recommendations, the most important of which the FDA has adopted by rule, and both houses of Congress have passed bills on the subject.

Sage: In the 1990s the FTC and the Justice Department took a new approach by issuing three sets of joint statements of antitrust enforcement policy with respect to health care. Are you planning more?

Muris: Well, giving such guidance is not unique, although it’s certainly not the norm. We have intellectual property guidelines. There are environmental advertising guidelines. There are other guidelines, although most of them are more general than the health care guidelines.

I think all our guidelines have been helpful. We have increased our transparency in mergers generally. In several cases when we haven’t sued, we’ve issued a fairly detailed statement about why. It’s all to the good for government to explain what it’s doing.

The application of the guidelines is not a primary topic of our current health care hearings, but it comes up frequently. Certainly, as we go along, we’re evaluating the guidelines. We’ve just brought a case against a physician group where they’re raising a defense under part of the guidelines. It remains to be seen how that issue will play out in litigation.

Concluding Comments

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Sage: Can you boil down to a sentence or two how readers should think about the FTC? What image should they take away from this interview?

Muris: We’re an agency that, on a bipartisan basis, believes that markets benefit consumers. We also believe that markets need basic rules of the road. Many are so simple that people don’t even think of them as rules: You can’t fix prices; you can’t engage in fraud. We enforce those rules, grounded in empirical evidence, in as much of the economy as we can. Health care is a big part of the economy. I think people should see us as a friend, someone trying to make life better for consumers.

Editor's Notes

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Chairman Muris’s remarks do not necessarily reflect the views of the Federal Trade Commission or of any other individual commissioner.

NOTES

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1. See American Medical Association v. FTC, 638 F.2d 443 (2d Cir. 1980) (enforcing, with modifications, FTC order to cease and desist from promulgating, implementing, and enforcing restraints on advertising, solicitation, and contract practices by physicians and on the contractual arrangements between physicians and non-physicians), affirmed by an equally divided court, 455 U.S. 676 (1982).
2. See FTC v. Butterworth Health Corp., 946 F. Supp. 1285 (W.D. Mich. 1996) (denying preliminary injunction and allowing the two largest hospitals in Grand Rapids, Michigan, to merge based on their "white-hat" reputation, the support of community leaders, and their promise to act as benign monopolists).
3. See United States v. Long Island Jewish Med. Ctr., 983 F. Supp. 121 (E.D.N.Y. 1997) (rejecting the government’s "anchor hospital" theory that ascribed market power to merging hospitals because their reputations and scope of services made them indispensable to managed care networks).
4. The theory of the Elzinga-Hogarty test is that if the geographic boundaries of the market have been defined correctly, few patients living outside the boundaries will seek care from hospitals within the boundaries, and few patients living inside the boundaries will seek care from hospitals outside the boundaries.
5. The state action doctrine insulates the actions of a state and certain state-authorized actions taken by private parties from antitrust scrutiny. Parker v. Brown, 317 U.S. 341 (1943). In order for the actions of private parties to qualify for this privilege, the state must have a clearly articulated purpose of displacing competition, and it must actively supervise the results.
6. In the Matter of Indiana Household Movers and Warehousemen, Inc., File no. 021-0115, decision and order issued 25 April 2003.
7. See Letter from Jeffrey W. Brennan to John J. Miles, Ober, Kaler, Grimes, and Shriver, dated 19 February 2002, re: proposal of MedSouth, Inc., a physician independent practice association (IPA) located in Denver, Colorado, to integrate partially its member physicians’ practices. The FTC cited the IPA’s proposed Web-based clinical data record system, clinical protocols, and measurable performance goals as evidence of its potential to increase the quality and reduce the cost of medical care that physicians provide to patients.
8. See Cal. Dental Ass’n v. FTC, 526 U.S. 756 (1999) (holding that "quick-look" analysis was insufficient to overturn professional association’s restrictions on dental advertising).
9. In the Matter of Bristol-Myers Squibb Company, File nos. 001-0221, 011-0046, and 021-0181, decision and order dated 14 April 2003.
10. See In re Buspirone Antitrust Litigation, 185 F. Supp. 2d 363, 370 (S.D.N.Y. 2002).
11. In the Matter of LCA-Vision, Inc. d/b/a LasikPlus, File no. 022-3098; In the Matter of The Laser Vision Institute LLC, File no. 022-3053, complaints and proposed consent orders dated 26 March 2003.
12. See Federal Trade Commission, GenericDrugEntry Prior to Patent Expiration: An FTC Study, July 2002, www.ftc.gov/os/2002/07/genericdrugstudy.pdf (2 September 2003).

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