By Douglas Ross, James Harlan Corning, David Maas & Douglas Litvack
Although a federal district court twenty years ago included Kaiser hospitals as market participants when considering a merger of two non-Kaiser hospitals, the courts have not considered the matter again. But the issue remains a live one: in two recent enforcement actions, California and Washington have argued that Kaiser providers do not compete with non-Kaiser providers because commercial payers cannot substitute Kaiser providers into their networks in place of non-Kaiser providers who seek to raise price. But if non-Kaiser providers raise price after a merger in a market where Kaiser competes vigorously with commercial payers for covered lives, those providers risk losing patients who may switch to Kaiser’s lower cost coverage provided through Kaiser hospitals and physicians. Consequently, the argument for inclusion of Kaiser as a market participant is strong, and can be bolstered by facts specific to the transaction under review: Kaiser’s success in a particular market in competing with other commercial payers, the extent to which employers offer their employees Kaiser and a non-Kaiser option, the extent to which employees can (and do) switch between the two, and documents generated in the ordinary course of business that show non-Kaiser providers viewing Kaiser as a significant competitor in their market.