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October 14, 2021

What Does the Presidential Executive Order on Non-Competes and Consolidation Really Mean, if Anything?

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For more information about this blog post, please contact Khaled J. KleleRyan M. MageeLabinot Alexander Berlajolli, or Brianna J. Santolli

On July 9, 2021, President Biden signed an Executive Order on Promoting Competition in the American Economy ("Executive Order") intended to increase competition across numerous industries, including health care, by reigning in trends of corporate consolidation and non-compete agreements.   The Executive Order garnered a significant amount of media attention, especially media outlets focused on health care, since there has been a significant amount of consolidation in healthcare in recent years. 

Did the Executive Order, however, deserve the headlines that it received regarding non-competes and consolidation? 

The Executive Order, among other things, creates the White House Competition Council (the "Council"), which is supposed to consist of various Cabinet level officials in the industries that the Executive Order targets, including, among others, the Secretary of Agriculture, the Secretary of Commerce, and the Secretary of Health and Human Services.  The Council is required to "coordinate, promote, and advance Federal Government efforts to address overconcentration, monopolization, and unfair competition in or directly affecting the American economy," and they are supposed to do this while meeting twice a year or more if necessary.

The Executive Order also requires the Council to coordinate and work closely with the Federal Trade Commission ("FTC"). The Executive Order places a tremendous amount of responsibility on the FTC, which is the agency that enforces federal antitrust laws. However, whether the FTC can tackle the heavy burdens imposed upon it from this Executive Order, without a significant influx of funding and personnel, remains to be seen.

Just as important, there are questions as to whether the FTC has the authority to accomplish the goals identified in the Executive Order. For example, the Fact Sheet states that the FTC is encouraged to "ban" or limit non-compete agreements across all industries, including healthcare. As a side note, it is significant that the Fact Sheet uses language that goes well beyond what is actually stated in the Executive Order on several occasions, which may explain the media attention the Executive Order received. For example, the Executive Order does not use the word "ban" in connection with non-compete agreements.

In any event, whether you are for or against non-compete agreements, the Executive Order raises the question of whether the FTC can take action against non-compete agreements, such as banning them, when, in many states, such agreements are governed by common law.  It is possible that the FTC can exercise its rulemaking authority and issue regulations, but regulations cannot simply be issued and, instead, require authority from statutes, and statutes require passage by Congress.

The same could be said for further restricting consolidation. Initially, it should be noted that the Executive Order - as opposed to what is in the Fact Sheet - refers to healthcare consolidation only in its opening paragraphs (but does not mention anything regarding health insurance consolidation). Section 5(p) of the Executive Order, which applies to the Secretary of Health and Human Services, does not directly address the issue of healthcare consolidation and, instead, addresses four other issues related to the healthcare industry for which the Executive Order requires action.

More fundamentally, though, is whether the FTC can further restrict consolidation. Historically, the FTC has been successful in enforcing antitrust laws in connection with large healthcare mergers, with the exception of its recent loss regarding the merger of Thomas Jefferson University and the Albert Einstein Healthcare Network in Philadelphia. If the FTC intends to prevent smaller mergers by changing its standards, then that would likely require changes to the antitrust laws through legislative action. Simply put, if the Executive Order is requiring the FTC to restrict additional consolidation from what has already occurred in the industry, that would require a change in the antitrust laws so that more mergers fall under the "anti-competitive" category.

In addition, the FTC should consider the potential negative consequences that may arise from preventing certain mergers in the healthcare industry, something the Executive Order does not address. In certain cases, hospitals merge with larger systems to prevent the only other option - closure.

One thing is for certain; it is likely that any new rules and/or regulations regarding non-competes and consolidation will result in legal challenges.

The one important statement in the Executive Order that received little attention is the following: "It is further the policy of my Administration to support the enactment of a public health insurance option" or otherwise known as Medicare for All.

As noted above, the Executive Order outlines four areas that the Department of Health and Human Services ("HHS") should address: prescription drugs, hearing aids, price transparency, and health insurance.

Prescription Drugs

The Executive Order directs the Food and Drug Administration ("FDA") to work with states to safely import prescription drugs from Canada, pursuant to the Medicare Modernization Act of 2003. It also directs the HHS to increase support for generic and biosimilar drugs, which provide low-cost options for patients, and promulgate a plan to combat high prescription drug prices and price gouging within 45 days. Lastly, it encourages the FTC to ban "pay for delay" agreements - a practice by which brand name drug manufacturers pay generic manufacturers to stay out of a particular market. 

Hearing Aids

In 2017, Congress passed legislation permitting hearing aids to be sold over the counter; however, the FDA failed to promulgate rules necessary to implement the practice. The Executive Order directs HHS to issue proposed rules within 120 days to allow hearing aids to be sold over the counter.

Price Transparency

The Executive Order directs HHS to support existing hospital price transparency rules and to finish implementing bipartisan federal legislation to address surprise hospital billing. On the heels of the Executive Order's efforts to address price transparency, CMS has since introduced a proposed rule to increase the penalty for hospitals that fail to comply with the Hospital Price Transparency final rule. Since the rule's implementation in 2019, CMS claims that hospitals have demonstrated poor rates of compliance. CMS's new proposed rule, however, would address those compliance issues, raising the maximum penalty from $109,500 to $2 million a year for large hospitals that fail to post online prices negotiated with insurance companies for hundreds of common services and procedures.

Health Insurance

The Executive Order directs HHS to standardize plan options in the National Health Insurance Marketplace so that consumers can comparison shop more easily.  

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