Collaborative Agreements in Health Care – California Health Care Foundation

A variety of non-merger collaborative arrangements have proliferated in recent years. Compared to traditional mergers and acquisitions, collaboration agreements preserve a certain degree of operational and financial autonomy of the contracting parties. State and federal oversight of healthcare partnership agreements is complex and rapidly evolving. This short issue describes the partnership agreements, examines their potential effects in California, and highlights some of the complexities of overseeing them.

Below is a summary of the key points of the brief:

Collaboration agreements exist on an integration continuum. The key element in identifying and distinguishing the various types of non-merger collaborative transactions is the degree of control maintained by the participants over governance, legal status, branding, and financial and administrative operations. There are collaboration agreements on a continuum that goes from minimal to substantial integration.

The effects of the collaboration agreements are uncertain. Unlike the effects of mergers and acquisitions in the healthcare sector, the impact of collaborative arrangements such as strategic alliances and joint operating agreements is not yet well understood. Proponents typically claim to provide clinical benefits that advance the public interest. At the same time, transacting entities could form exclusive relationships that have the same anti-competitive effects as a merger or acquisition.

To assess the aggregate impact of an agreement on prices, quality, access or innovation in the relevant market, antitrust authorities and courts must balance these effects using a so-called standard reason rule on a case-by-case basis. However, the nebulous and complex nature of structures in the collaborative transaction continuum can make it difficult to definitively determine their impact on the healthcare market.

Collaboration agreements and review of existing mergers and antitrust enforcement. In California, healthcare entity transactions are overseen by the Attorney General (AG), but only with notice prior to the transaction. However, for a variety of reasons, some partnership agreements do not generate a pre-transaction notice to the AG and are therefore likely not to be reviewed. Regulators can also examine transactions for anticompetitive conduct after the fact, but the analysis under antitrust theories is very complex due to the unique characteristics of collaborative agreements.

The regulatory landscape is rapidly evolving. In February 2023, the Department of Justice (DOJ) withdrew decades-old federal enforcement policy statements to remove some of the previously established safe harbor protections for healthcare entity operations, including partnership agreements. The withdrawal adds to the uncertainties surrounding oversight of these transactions, which the DOJ has indicated must be determined on a case-by-case basis.

This new federal enforcement landscape potentially highlights the need for state policies and regulations. In California, the new Office of Health Care Affordability is implementing expanded reporting requirements for healthcare affiliations and transactions that could improve oversight of collaborative healthcare arrangements.

Conclusion. Policy makers interested in the potential benefits and known harms of consolidation in the healthcare sector may wish to extend the scrutiny given to these non-traditional partnership arrangements in the immediate and long term.

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