Canadian COMPETITION LAW

January 17, 2013

Yesterday the U.S. Department of Justice (DoJ) issued a business review letter concluding that it would not challenge a proposed “gainsharing” program by a New York State hospital association (the Greater New York Hospital Association).

The DoJ’s business review letter (the Canadian parallel being advisory opinions available for proposed conduct under section 124.1 of the Competition Act) is interesting in that it shows the importance of minimizing the exchange of competitively sensitive information in the context of association activities.

In this case, the hospital association sought assurance from the DoJ that its proposed program to have physicians take into account their use of hospital resources (and rewards based on shares of achieved savings) would lead to improvements in quality and efficiency and would not violate federal antitrust laws.

The specifics of the particular program in this case aside (the so-called “gainsharing” program involving some 100 hospitals), the aspect of the review letter I found interesting was the DoJ’s analysis of information exchanges.  In this regard, the DoJ considered whether the proposed program would constitute a horizontal agreement among competing hospitals relating to physicians’ compensation or an information exchange between hospitals that would facilitate anticompetitive coordination to limit physician compensation (concluding that the proposed program would be unlikely to facilitate collusion or otherwise raise competitive concerns).

In making this determination, the DoJ considered the fact that the program would not involve the exchange of competitively sensitive information between participating hospitals (and would be limited to non-competitively sensitive cost and benchmark data) and would follow the DoJ/FTC antitrust safety-zone requirements set out in their Statements of Antitrust Enforcement Policy in Health Care (the “Health Care Policy Statements”), namely that the data would be at least three months old, supplied by at least five providers and appropriately aggregated.

In Canada, as in the U.S., the exchange of competitively sensitive information between competitors, such as price, cost, market, supplier or output information, particularly in the context of trade and professional associations, can raise competition law concerns (see e.g.: here).

Generally speaking, there are two potential issues that can arise from the exchange of this type of information without adequate precautions: first, that the exchange results in an agreement that violates the criminal conspiracy provisions of the Competition Act (or raises concerns under the civil agreements provision – section 90.1); and second, that an exchange may allow the Competition Bureau, a court or private plaintiff to infer the existence of illegal or problematic agreement among competitors.

In this regard, in his first public remarks, the Interim Commissioner of Competition specifically highlighted information sharing agreements among association members as a potential concern:

“… we are concerned with conduct that reduces incentives to compete vigorously.  Information sharing agreements are an example of this. Competitively sensitive information exchanged among competitors who can have serious negative effects on competition, especially if these are in highly concentrated markets with relatively homogeneous product offerings.  Clearly, Trade/Industry Associations must be extra vigilant in their efforts to manage and alleviate risk with respect to their activities.”

Some relevant factors for assessing whether an information exchange between competing companies (or members of a trade association) may raise competition law concerns include: (i) the type of information, (ii) currency of the information (i.e., whether current/future or historic), (iii) the frequency of exchange, (iv) the level of detail and aggregation, (v) whether the information is public or private, (vi) who has access and (vii) in some cases market characteristics – for example, in considering whether an information exchange arrangement could raise issues under section 90.1 of the Competition Act, which has a market effects requirement.

Unlike the U.S., however, the Canadian Competition Bureau has not established guidelines similar to the DoJ/FTC Health Care Policy Statements (though does address information exchange agreements in its 2009 Competitor Collaboration Guidelines).

Having said that, safeguards that can be established for information exchanges in an association or other contexts include: using a 3^rd party to collect and aggregate information; adopting conduct of meeting or other guidelines to govern discussions or data exchanges; ensuring that merger negotiations implement “gun-jumping” memoranda; and structuring joint ventures or other strategic alliances to minimize the potential competition/antirust risks of information exchanges (e.g., by adopting “clean team” or “black box” mechanisms to limit who has access to information, limit/control its use and distribution, etc.).

For copies of the DoJ’s news release and business review letter see: here and here.

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