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DOJ closes antitrust investigation into hospital network

By Michael P. Tremoglie | Apr 12, 2012

WASHINGTON (Legal Newsline) - The Department of Justice announced Tuesday that it will close its antitrust investigation of Blue Cross and Blue Shield-licensee Highmark's relationship with West Penn Allegheny Health System, the second-largest hospital network in the Pittsburgh region.

DOJ determined that after a thorough review of the affiliation contract and other evidence collected by the Antitrust Division's investigation, the market for health insurance and medical services was not affected.

"The proposed affiliation holds the promise of bringing increased competition to western Pennsylvania's health care markets by providing WPAHS with a significant infusion of capital and increases the incentives of market participants to compete vigorously," a spokesperson for the DOJ said in a written statement.

DOJ said that the arrangement "is a vertical combination of Highmark, the region's dominant health insurance company, and WPAHS."

Since Highmark does not own any hospital assets and owns only a small number of physician groups, and WPAHS does not compete in the health insurance markets, the affiliation will not eliminate any material horizontal competition between the parties.

The DOJ said its inquiry was justified because such arrangements often can "reduce competition by limiting entry or expansion by third parties."

But it noted that such effects are unlikely in this instance because the hospital market in the Pittsburgh region is highly concentrated. There is only one other significant hospital network - the University of Pittsburgh Medical Center.

This is the region's dominant hospital network. Highmark would likely not sponsor expansion by a hospital network other than WPAHS because there is no other significant network with which Highmark could partner.

"WPAHS on its own likely would not have promoted entry or expansion by other health insurers. WPAHS has previously tried to sponsor entry by national insurers and largely failed," the DOJ said.

"The affiliation agreement is not likely to reduce WPAHS's incentive to offer competitive rates to insurers other than Highmark because WPAHS has strong incentives to increase its patient volume."

DOJ concluded that the affiliation agreement likely will not engender trust arrangements since national insurers are entering the market for the first time in many years. They are attempting to reduce Highmark's dominant market share.

But DOJ will continue to monitor the area. It is aware that vertical acquisitions and affiliations between health insurers and hospitals with market power can potentially reduce competition.

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