New Executive Order Promotes Competition in Labor and Healthcare Markets - Part One

Last week the Biden Administration announced an Executive Order intended to promote competition. The Order states that it “affirms that it is the policy of my Administration to enforce the antitrust laws to combat the excessive concentration of industry, the abuses of market power, and the harmful effects of monopoly and monopsony — especially as these issues arise in labor markets, agricultural markets, Internet platform industries, healthcare markets (including insurance, hospital, and prescription drug markets), repair markets, and United States markets directly affected by foreign cartel activity. This advisory focuses on the initiatives targeted to labor markets and healthcare markets."

Labor Markets

Antitrust laws apply with equal force to competition for talent. As we have reported previously, ensuring competition for talent has increasingly become a focus of both federal and state antitrust agencies, with challenges to franchises and companies that agree to fix wages. Non-compete, no hire and non-solicit clauses have been of particular concern. The Biden Administration has now raised labor markets to the forefront.

First, following up on a statement President Biden made in June, the Fact Sheet describing the Order claims that “One way companies stifle competition is with non-compete clauses.” The Order specifically encourages the Federal Trade Commission (FTC) to ban or limit non-compete agreements using its statutory rulemaking authority. The FTC has broad rule-making authority to prescribe rules with respect to unfair methods of competition and could ban or limit non-compete agreements through its rule-making power. And, as Commissioner Chopra stated, it may be less expensive in the long run to create and enforce rules, rather than rely on litigation under the broad FTC Act. The FTC, already stretched to the limit, would be the only agency able to enforce such a rule. The Order does not say how the FTC should take into account the legitimate concerns of employers to protect trade secrets and other company-proprietary information. It will take time for the FTC to draft a rule – which it must release and provide time for the public to comment – and finalize it. In the meantime, the FTC will likely be paying closer attention to non-compete, no hire, and non-solicit agreements, often relying on tips from employees. It could bring challenges under Section 5 of the FTC Act, claiming such agreements are “unfair methods of competition.” As we have previously recommended, companies should craft any non-compete or non-solicitation clauses as narrowly as possible, and should ensure a legitimate business reason behind such clauses, such as protection of trade secrets entrusted to senior level employees.

Second, in 2016, the Antitrust Section of the US Department of Justice (DOJ) and FTC released the Antitrust Guidelines for Human Resources Professionals. The Administration’s Fact Sheet, however, criticized those Guidelines stating the fact that it “allows third parties to make wage data available to employers – and not to workers – in certain circumstances without triggering antitrust scrutiny. This may be used to collaborate to suppress wages and benefits.” The Fact Sheet calls on the FTC and DOJ to strengthen “antitrust guidance to prevent employers from collaborating to suppress wages or reduce benefits by sharing wage and benefit information with one another.” The language used here is notably different from the call to ban or limit non-compete agreements by rule. Here, the Administration calls only for “guidance.” The Order itself says that “the Attorney General and the Chair of the FTC are encouraged to consider whether to revise” those guidelines. Moreover, collaboration among employers to suppress wages or reduce benefits is already prohibited by the antitrust laws. The DOJ recently charged a healthcare staffing company with conspiring to fix wages for its employees under Section 1 of the Sherman Act. Whether the FTC and DOJ decide to update their guidelines for human resources professionals remains to be seen. Regardless, companies should be careful not to exchange non-public wage, salary or benefit information because even if there is not agreement to reduce wages or benefits, exchanging such information can lead to an inference of an agreement and mire companies in years of costly litigation.

Third, the Fact Sheet states that the Order encourages “the FTC to ban unnecessary occupational licensing restrictions that impede economic mobility.” The Fact Sheet claims that occupational licensing restrictions “impede worker mobility and suppress wages” restricting competition and making it difficult for employees to move between states, which often have different requirements. Occupational licensing was a subject of interest to former FTC Commissioner Maureen Ohlhausen, when she was Acting Chairman in 2017. She convened the “Economic Liberty” taskforce to examine the effects of occupational licensing on competition. The taskforce released its “Options to Enhance Occupational License Portability” report on September 24, 2018. The interest in the taskforce and report have seemed to fade away since it was released. Perhaps now, with this Order, the FTC will turn back to the report, or other internal findings, for guidance on how it should ban “unnecessary occupational licensing restrictions.” Like the non-compete agreements, the Order itself calls on the FTC to use its rule-making authority to ban such licensing. The FTC can meanwhile try to step up enforcement efforts through existing laws and rules.

Healthcare Markets

Companies in healthcare – pharmaceuticals, hospitals and providers, and insurance – are no strangers to antitrust scrutiny. These markets have been targets of regulatory enforcement for years. The Order underscores the continued focus on these industries across relevant federal agencies.

Pharmaceuticals

The Fact Sheet highlights the Administration’s view that high prices for prescription drugs “are in part the result of lack of competition among drug manufacturers,” with the “largest pharmaceutical companies … able to wield their market power to reap” average annual profits well in excess those for the largest non-drug companies.  Based on this viewpoint, the Order targets pharmaceutical drug pricing and competition issues with a focus on importation of prescription drugs, increased HHS support for generic and biosimilar drugs, and encouragement of more robust FTC rulemaking activity targeting pharmaceutical patent settlements. All of which will promote on-shoring of pharmaceutical manufacturing as well as the development of new and creative business structures for manufacturers, their business partners and alliances in the healthcare industry.

Importantly as related to potential future enforcement efforts, the Order directs HHS to issue a comprehensive plan to combat high prescription drug prices and price gouging within 45 days. 

The Order also leverages the key enforcement priorities announced by the FTC under newly-confirmed Chair Lina Khan in asking that the FTC take a significant and novel rulemaking action to outright ban the use of “reverse payment” settlements in pharmaceutical patent litigations. Those settlements, in which a patent-holding branded pharmaceutical company settles patent litigation against a generic challenger or challengers using one or more forms of compensation paid to the generic, are currently evaluated under the antitrust rule of reason pursuant to the Supreme Court’s 2013 FTC v. Actavis decision. There, the Supreme Court declined to adopt the FTC’s proposed rule that would have subjected reverse payment settlements to heightened scrutiny, instead suggesting that anticompetitive effects and procompetitive benefits should be evaluated and balanced in each case. And notably, the FTC’s previous position before the Supreme Court was that such settlements should not be viewed as automatically or per se unlawful under the antitrust laws, meaning that the proposed rulemaking would signal a sharp turn from the past and current frameworks. 

The FTC rulemaking encouraged by the President would also come against the backdrop of the FTC’s recent loss of authority to seek monetary relief under Section 13(b) of the FTC Act. As we have previously highlighted, even beyond the consumer protection context at issue in the case itself, the Supreme Court’s AMG Capital Management decision also significantly impacted the FTC’s ability to bring antitrust conduct cases alleging unfair methods of competition – including actions targeted alleged reverse payment settlements – meaning that the FTC will be limited to seek only injunctive relief barring future congressional action. The suggested FTC rulemaking, if developed and effectuated by the FTC, would accordingly be forced to navigate potentially significant procedural and prudential hurdles down the line.

Hospitals

According to the Fact Sheet, “the ten largest healthcare systems now control a quarter of the market.” The FTC is the regulatory agency that typically challenges anticompetitive hospital mergers. Most recently, the FTC challenged the merger of Thomas Jefferson University and Albert Einstein Health System. The federal district judge denied the FTC’s request for a preliminary injunction that would have stopped the merger until the FTC could have a hearing on the merits through its administrative process. The Parties moved forward with the merger and the FTC dropped its challenge. The Fact Sheet states that the Order “[u]nderscores that hospital mergers can be harmful to patients and encourages the Justice Department and FTC to review and revise their merger guidelines to ensure patients are not harmed by such mergers.” While the agencies can review the merger guidelines and even release more strict guidelines, they are just that – guidelines. The agencies would still need to show that any merger actually harms competition and patients under a framework long followed by courts and the agencies themselves under Section 7 of the Clayton Act. Hospitals considering a potential merger or acquisition will need to look closely at all competitive aspects and be prepared for inquires, if not outright challenge, by the FTC and possibly the State Attorney General for the State in which the hospital operates.

The Fact Sheet also states that the Order “[d]irects [the Department of Health and Human Services] HHS to support existing hospital price transparency rules and to finish implementing bipartisan federal legislation to address surprise hospital billing.” In January of this year, a CMS rule requiring hospitals to disclose their negotiated rates with commercial health insurers, among other requirements, went into effect. While hospitals are still in the process of complying, this Order may lead to faster HHS enforcement of the rule than otherwise could have been expected. Hospitals that have not yet complied may want to consider accelerating their timeline for compliance.

Health Insurance

With regard to health insurers, the Order focuses on standardization and transparency, rather than anticompetitive practices or mergers. The Order directs HHS to “implement standardized options in the national Health Insurance Marketplace and any other appropriate mechanisms to improve competition and consumer choice.” The Order looks to be building on the previous Administration’s HHS Rule regarding price transparency, which focused on patient access to treatment prices, coverage and estimated out-of-pocket costs. In addition to transparency, the Order looks to be reinstating the National Standardized plans that were dispensed of in 2019. The HHS removed the National Standardized plans in response to Executive Order 13765 which demanded a repeal the Patient Protection and Affordable Care Act, or alternatively that HHS “to the maximum extent permitted by law” remove several commercial barriers including National Standardized plans to preserve and encourage “maximum options for patients and consumers” for health insurance.    

The Executive Order will lead to multiple agencies seeking proposals and comments on how to achieve the President’s stated goals. Buchanan’s Federal Government Relations Team is actively monitoring the political landscape of this issue within the Administration, specific agencies, and Congress and stands available to assist clients in advocating their interests throughout Washington, D.C.

In part two of our series, we’ll take a deeper dive on the impact of this Executive Order on employers.