Please respond to peer
The question was: In today’s economy, there are powerful companies who in all appearances control massive segments of different markets. Using the NEXIS-Uni Legal Database or the FTC website below, research and provide one company and case in the last five years that has been sued by the FTC/Government for anti-competitive behavior. Explain why the activity is anti-competitive. (Do not write on Amazon, Google, Facebook, Qualcomm, Samsung, or Apple – try to find a local company in your home state). Nexis-Uni link: https://libdatab.strayer.edu/login?url=https://www.nexisuni.com OR Federal Trade Commission: Cases and Proceedings: Advanced Search | Federal Trade Commission (ftc.gov) From the chapter reading, explain the types of horizontal restraints of trade and how the Sherman Act and Clayton Act effect these types of lessening competition actions. Also, explain what a vertical restraint of trade is and your understanding and thoughts on the case 14.3 provided in the text. Substantiate your response.
Students Response Ryan
Commonwealth v. UPMC, 2019 Pa. Commw. Unpub. LEXIS 305
Commonwealth Court of Pennsylvania
March 18, 2019, Submitted; April 3, 2019, Decided; April 3, 2019, Filed
No. 334 M.D. 2014
University of Pittsburgh Medical Center is the top healthcare network provider in the Commonwealth of Pennsylvania. They also control insurance holding companies including UPMC Health Plan which covers about 2 million people in that part of the state. The issue at hand pertains to a consent agreement that was ordered by the court between UPMC and Highmark Health and Highmark Inc. in 2002. for a 10-year period, that agreed to charge Patients in-networking pricing when receiving treatment at UPMC facilities. After the agreement was made, Highmark acquired Pittsburgh-area West Penn Allegheny Health System which resulted in UPMC’s refusal to renew the consent agreement or renegotiate the terms of the agreement for reasoning that Highmark would create competition for them. The result of the agreement ending would mean much higher prices for patients that are insured under Highmark at UPMC facilities and force many people to switch their insurance over once of UPMC’s health plans. The state force UPMC to mediate with Highmark in order to extend in-person rates for a few years. However, in 2013 UPMC decided not to pursue a contract extension or negotiate any new agreements once the Highmark acquisition was completed with acceptation to a number of hospitals in southwest Pennsylvania (Commonwealth v. UPMC, 1).
Since then, the commonwealth has forced both parties into another consent agreement even though the relationship between the two parties has become much distained. The consent decree allows for the court to hold jurisdiction “to enable any party to apply to this Court for such further orders and directions as may be necessary and appropriate for the interpretation, modification, and enforcement of this Consent Decree.” The attorney general has since petitioned to modify the consent decree. Highmark has agreed to the modification by UPMC has not (Commonwealth v. UPMC, 1).
The attorney general’s primary argument to the modifications of the new consent decree is based on UPMC being a non-profit charitable organization. Among other benefits, UPMC and its subsidiaries are tax exempt and they have received over a billion dollars in contributions to support their research. The attorney general argues that the public support has gone unrewarded while UPMC has turned into one of the biggest healthcare providers and insurers in the state. The attorney general further argues that UPMC will refuse to enter into agreements with other healthcare insurers forcing more people to pay out of pocket costs which conflicts with their status of being a charitable organization. (Commonwealth v. UPMC, 1).
Further allegations point to UPMC employing practices of transferring patients to higher cost specialty physicians, requiring up-front costs that from out of network patients before providing services, and billing out of network for more than actual costs. Misleading advertisements to commercial employers were marketed which incentivized employers to switch to their healthcare insurance, but a clause allowed them to modify the agreement at any time. Once the consent decree expires then UPMC will require that all out of network patients pay in full upfront, including Medicare cardholders to an extent, before being able to be treated or they will be denied. This causes a burden to the public at large. Furthermore, UPMC holds great finances and their CEO received a $6 million salary causing them to seem as they are operating as a for profit entity. Since the initial consent decree, UPMC has further expanded their footprint meaning that many people would suffer if agreements are extinguished (Commonwealth v. UPMC, 1).
The attorney general’s petition argues, among other violations, that UPMC violates the Unfair Trade Practices and Consumer Protection Law. The attorney general seeks to court order consent between UPMC and Highmark to prohibit them from fixing prices, share sensitive information, limit patient choice or access based on health coverage through tiering or steering, give equal access by prohibiting the most favorable nation practice, remove board members with conflicting interests, and extend the consent decree indefinitely to promote competition. UPMC files a motion to dismiss/P.O.’s (Commonwealth v. UPMC, 1).
UPMC answers the petition and argues “(1) OAG’s claims are barred as a matter of law because they are released, forfeited, or unripe; (2) the Petition wrongfully seeks to modify the Consent Decree to regulate UPMC beyond the Consent Decree’s expiration date; (3) the Petition must be dismissed because OAG is proceeding without the proper parties; and (4) the requested modifications exceed OAG’s powers to regulate nonprofit entities.” UPMC argues the consent decree was a 5-year transition from an all-encompassing to a limited agreement with Highmark and any allegations that predate the decree are released. Furthermore, the state supreme court held that the consent decree ends on June 30, 2019 with no extensions. UPMC also argues that the attorney general could have brought these modifications to the table in 2017 but did not. The attorney general also knew of their expansion and choose to do nothing about it at the time. They also argue that the petition is purely speculation to actions which they have not previously practiced. The court denied UPMC’s motion per count 1, but did not overrule the expiration date of the Consent decree as the supreme court ruling is binding (Commonwealth v. UPMC, 1). Although vast litigation occurred concerning the consent decree, UPMC and Highmark entered into a new decade long decreed one week before the expiration date of June 30, 2019. The new decree began July 1, 2019 and extended Highmark health insurance at UPMC facilities (2).
This case begs the question to if a monopoly benefits geographical areas concerning healthcare networks that are non-profit. I argue that a monopoly concerning any type of insurance is non beneficial. However, if UPMC has the best doctors and the best facilities, would it be beneficial to the public for its footprint to be expanded in order to help the most people? The attorney general did a great job in this case by petitioning the court to compromise any illegal advantages of UPMC and in the end they have presumedly held themselves accountable in order to do what is best for the people of western Pennsylvania, for the most part, by entering into a new decree. Healthcare has always been a hot topic in the USA. Do you believe that there should be a unified health system for the entire country run by the Government? Would this be a beneficial monopoly to the majority or do you think it would cause even more price fixing issues and raise healthcare costs to the average person?
Horizontal behaviors pertain to actions between competitors. Whereas, vertical behaviors would be along the supply chain. An example of a Horizontal infringement would be a collective group of competitors met to fix a price for a product that they both market and sell. A vertical infringement would be if a dominant supplier made an arrangement to only supply to one retailer in a certain geographical area.
“The Sherman Act prohibits the horizontal restraints of price-fixing, market division, group boycotts and refusals to deal, and monopolization. The Clayton Act also covers the problem of anticompetitive horizontal mergers or mergers with competitors” (Jennings, 3). The second section of the Sherman act prohibits monopolization which requires proof of market power and intentional abuse of power. Market power represents the ability to control prices and raise them above averages that would arise if fair competition was present in the market. Market share is a factor in market power. Any market share above half of the relevant market can directly correlation to monopolization (3). Market power can be reduced to a certain product known as a product market and the elasticity for substitute products in the relevant market (Jennings, 3). A monopolization violation cannot be the direct result of a superior product. To establish a Sherman Act violation, the government agency or individual bringing suit must show that the firm acquired is maintaining monopoly power by some purposeful or deliberate act that is not “superior skill, foresight, and industry” (Jennings, 3). Proof of immoral acts must coincide with market power in order for a monopoly to be a legal antitrust violation. Other violations stem from predatory pricing which is used to take a temporary loss in order to drive competitors out of the market that need prices at or above costs. The result provides the firm an opportunity to raise prices once the competition can no longer compete. Exclusionary conduct results in making the barriers of entry into a particular market too vast for competition. Group boycotts are also an infringement. A group boycott may involve a group of suppliers unwilling to provide products to a single or group of small retailers that doesn’t purchase in bulk.
Vertical restraints happen along the supply chain and can be involved in any of the processes from material production/gathering to the product’s final destination before consumer sale. Resale price agreements pertain along the lines of vertical trade where the first entity requires the next entity to sell their product to the third entity for either above minimum pricing or below maximum pricing. This practice was used so that independent retailers couldn’t undercut the bigger department stores. Monopsony deals with the purchaser having the power concerning predatory bidding (Jennings, 3). Competitors can raise the costs from their suppliers by creating a bigger demand that forces some competition out of the relevant market. Sole outlets/exclusive distributors deal with a manufacturer using only one distributor or retailer. This is subject to other competitors in the area selling suitable substitutes for the relevant product. If other manufactures are producing the same product and selling to other retailers then there is no issue. If they are the only game in town then section 1 is violated (Jennings, 3). Tying arrangements violet section 3 of the Clayton Act when unnecessary addons must be purchased with the relevant product (Jennings, 3). Material defenses to this vertical restraint are valid concerning startup firms (Jennings, 3). If a supplier made an arrangement to supply to a certain retailer for a lesser price as compared to that retailer’s competitors, then price discrimination occurs (3). Vertical mergers are also subject to review in regards to the Clayton Act if competition is lessened.
Case 14.3 in my textbook is Ohio v American Express Co. 138 S.Ct. 2274 (2018) and concerns the fees charged to a merchant when a credit card is used. The case is based on violations of § 1 of the Sherman Antitrust Act. The lower court initially ruled in favor of Plaintiff. However, on appeal the ruling was reversed. The court ruled that only looking at the merchant side due to Visa and Mastercard raising fees in places where Amex did not do business. Competitiveness remains ruled by the court.
I agree with the reversal because having a different business model geared towards cardholders only increases the competition in the marketplace. I was going to argue price fixing until I read “The plaintiffs offered no evidence that the price of credit-card transactions was higher than the price one would expect to find in a competitive market.” (Jennings, 3). In fact, no evidence was provided at all to any anti-steering claims and it seems to be just a matter of speculation. Furthermore, Amex isn’t even the leading credit card provider in the relevant market. The court even argues that their higher fees increase competition between creditors thus capping the increase in fees that they can make to remain competitive in the market place. I can argue that retailers need the credit card companies more than they need the retail companies because without credit there would be less transactions completed. Retailers do not need to accept credit. Section 31 U.S.C. 5103 allows for merchants to accept any form of currency as payment (BOARD OF GOVERNORS of the FEDERAL RESERVE SYSTEM, 4). You could argue that the states are attempting to strong arm the credit card companies. I affirm as well.
Sources
Commonwealth v. UPMC, 2019 Pa. Commw. Unpub. LEXIS 305. April 3, 2019. Commonwealth v. UPMC, 2019 Pa. No. 334 M.D. 2014. https://advance-lexis-com.libdatab.strayer.edu/document?crid=e50967d4-4c8f-46c4-a555-1852f0a785e5&pddocfullpath=%2Fshared%2Fdocument%2Fcases%2Furn%3AcontentItem%3A5W78-RWJ1-JFDC-X1C1-00000-00&pdsourcegroupingtype=&pdcontentcomponentid=36609.
Gu. September 16, 2019. [Case Watch] Commonwealth of Pennsylvania v. UPMC and Highmark: State AG Prevails with 10-Year Consent Decree After Long Bitter Court Battle. https://sourceonhealthcare.org/case-watch-commonwealth-of-pennsylvania-v-upmc-and-highmark-state-ag-prevails-with-10-year-consent-decree-after-long-bitter-court-battle/.
Jennings. 2022. Business It Legal, Ethical, and Global Environment. https://strayer.vitalsource.com/reader/books/9780357447789/pageid/0
BOARD OF GOVERNORS of the FEDERAL RESERVE SYSTEM. July 21, 2020. Is it legal for a business in the United States to refuse cash as a form of payment?. https://www.federalreserve.gov/faqs/currency_12772.htm.
