Antitrust Alert : International Antitrust Attorneys: McDermott Will & Emery Law Firm

by Carrie Amezcua

The next step of the on-going Phoebe Putney litigation is completed.  On Wednesday, April 15, the district court for the Middle District of Georgia granted the Federal Trade Commission's (FTC) motion for a Temporary Restraining Order (TRO) in Federal Trade Commission v. Phoebe Putney Health System, Inc., No. 1:11-cv-58 (M.D. Ga.).  In its order, the court stated that the FTC "carried its burden of persuasion to establish the need for the imposition of the 'extraordinary and drastic remedy' of a TRO pending the outcome of the court’s decision on the [Preliminary Injunction] Motion."  The TRO prohibits Phoebe Putney Memorial Inc. from taking further steps to consolidate with Palmyra Park Hospital.  Further, the court stated "In response to Plaintiff’s request that the Court order Defendants to refrain from instituting any price changes, the Court ordered that Defendants are prohibited from making any price changes to existing contracts; however, said prohibition does not extend to the formation of any new contracts."  Richard A. Feinstein, Director of the FTC's Bureau of Competition issued a brief statement on the district court's ruling saying "We are pleased that the Court has issued a Temporary Restraining Order prohibiting any further steps to consolidate the two hospitals in Albany, and prohibiting any price changes to existing health-plan contracts, pending our Motion for Preliminary Injunction." 

The district court had granted a TRO the FTC filed in 2011 to stop the acquisition, but dissolved that TRO upon the district court's finding that the transaction was exempt under the state action immunity doctrine.  The 11th Circuit affirmed, but in February of this year, the Supreme Court reversed holding that Georgia's enabling statute did not clearly articulate an affirmatively expressed policy for displacing competition.    

The district court's grant of the TRO is another victory for the FTC in this long litigation.  Now that the Supreme Court ruled the transaction is not exempt from the antitrust laws, the hospitals will have to defend what the FTC calls a merger to monopoly.  The TRO will stay in place until a hearing on the motion for Preliminary Injunction, which is scheduled for June 14, 2013.  The FTC has a successful track record in getting preliminary injunctions granted in hospital mergers, so it would not be surprising if the district court also granted the Motion for Preliminary Injunction.  This case is further evidence of the high priority the FTC places on challenging health care mergers it views as anticompetitive and shows the FTC is willing to commit resources over an extended period of time to challenge such mergers.

The administrative hearing is scheduled to begin July 15, 2013.  More information on the district court and adjudicative proceedings can be found at http://www.ftc.gov/os/caselist/1110067/index.shtm and http://www.ftc.gov/os/adjpro/d9348/index.shtm.

• Print
• Share Link

by Jeffrey Brennan and Carrie Amezcua

On Tuesday, the North Carolina legislature has enacted into law, pending the governor's signature, a prohibition on the use of most favored nations (MFN) clauses in contracts between commercial health insurers and providers. 

The two-page bill, titled “Freedom to Negotiate Health Care Rates,” lists "prohibited contract provisions related to reimbursement rates."  The bill prevents a commercial health insurer from prohibiting a health care provider with which it contracts from entering into a contract with another insurer at equal or lower rates.  In addition, insurers are not permitted to require a provider to accept a lower rate from the contracting insurer, or to require a renegotiation of rates, in the event that the provider agrees to provide equal or lower rates to another commercial health insurer.  Next, the bill prohibits an insurer from terminating a provider that agrees to provide services at lower rates to another insurer.  An insurer is also prevented from requiring that a provider charge another commercial health insurer a higher rate.  Finally, insurers can no longer require that providers disclose the provider's contractual rate with another health insurer.  

MFN clauses have been attracting attention in recent years, particularly in the health care field.  North Carolina's bill follows closely on the heels of Michigan's ban on MFN clauses passed in March 2013.  That action led the Department of Justice (DOJ) to file a motion asking the court to dismiss an antitrust suit against Blue Cross Blue Shield of Michigan (BCBSM), in which the DOJ alleged the MFN clauses in BCBSM's contracts with hospitals stifled competition, raised health care costs and harmed consumers.  Ohio has a similar ban on MFN clauses. 

Last year, the DOJ and the Federal Trade Commission (FTC) held a public workshop specifically to discuss the competitive effects of MFN clauses.  The workshop featured panels discussing economic theories concerning MFN clauses and why they are used, and the legal treatment of and industry experiences with MFN clauses, among other topics. 

MFN clauses are evaluated under the antitrust law rule of reason, because, depending on the applicable facts and circumstances, such provisions have been found to have procompetitive or anticompetitive effects.  A recognized procompetitive feature of MFN clauses is lower transaction costs, which provides price stability over time and ensures that a buyer is not treated any worse than its rivals.  The DOJ argued in the BCBSM case, on the other hand, that the MFN clauses there reduced incentives to lower prices, facilitated coordination and prevented entry. 

Health care clients using or considering the use of MFN clauses should consult antitrust counsel to assess their legal risks in light of these developments.    

• Print
• Share Link

by Hillary Webber

In remarks made this week at the International Competition Network annual conference, Federal Trade Commission (FTC) Chairwoman Edith Ramirez stated that health care will continue to be a top priority for the FTC.   Referring to health care and hospital mergers in particular, she said that the Commission will "guard[] against what we consider to be consolidation that may end up having adverse consequences for consumers."  The Chairwoman's comments indicate that the recent leadership change at the FTC from former Chairman Jon Leibowitz to Chairwoman Ramirez has not altered the Commission's priorities.

Recent months have seen a flurry of FTC activity in the courts related to health care.  For example, two FTC cases came before the U.S. Supreme Court this term -- the FTC's challenge to Phoebe Putney's acquisition of Palmyra Park Hospital in Georgia and the FTC's challenge to "pay-for-delay" patent infringement litigation settlements between branded and generic pharmaceutical manufacturers. 

In February, the Supreme Court ruled that the state action doctrine did not immunize Phoebe Putney's hospital transaction from federal antitrust scrutiny, and the FTC has subsequently filed renewed motions in federal district court to stop further integration of the two hospitals even as it prepares for a full administrative hearing on the merits that will begin in August. 

A decision on the "pay-for-delay" case is expected in June.  The Supreme Court’s ruling may have a large impact on further FTC efforts against what it perceives as anticompetitive efforts to delay generic drug entry.

Health care clients considering acquisitions are advised to consult antitrust counsel early in the transaction process.  Given the FTC and DOJ's close scrutiny of health care transactions, early advocacy before the antitrust agencies is often critical to a deal closing on schedule.  

• Print
• Share Link

by Jeffrey Brennan and Glenn Engelmann

The Supreme Court’s ruling in Federal Trade Commission v. Actavis, Inc., will almost certainly have major implications for the viability of Federal Trade Commission and private suits alleging that pay-for-delay settlements are anticompetitive, and for the level of antitrust risk facing companies that enter into such settlements.

Click here to view Jeff Brennan discuss the case on PBS' “Nightly Business Report.” 

To read the full article, click here.

• Print
• Share Link

by Jeffrey W. Brennan, Ashley M. Fischer, David Marx, Jr., Stephen Wu and Christine G. Devlin

The Supreme Court decision in FTC v. Phoebe Putney Health System, Inc., makes clear that state action immunity from federal antitrust laws is disfavored, and local governmental, quasi-public and private entities can only qualify for the immunity under certain specific conditions.

To read the full article, click here.

• Print
• Share Link

by Ashley M. Fischer

In a February 13, 2013, advisory opinion, the Federal Trade Commission (FTC) Bureau of Competition stated that it has no present intention to recommend that the FTC challenge a clinical integration program proposed by Norman Physician Hospital Organization, a multi-specialty physician-hospital organization in Oklahoma.  The opinion is the fifth advisory opinion the FTC has issued concerning a clinically integrated managed care contracting network.  Four of the advisory opinions were favorable, and one was unfavorable to the respective requesting parties.  This White Paper summarizes the Norman Physician-Hospital Organization advisory opinion and its key takeaways, and compares the opinion to the FTC’s previous four advisory opinions on clinical integration programs.

To read the full article, click here.

• Print
• Share Link

by Stephen Wu

On January 16, the U.S. Department of Justice Antitrust Division issued a Business Review Letter in which it disclosed its intention not to challenge the Greater New York Hospital Association's (GNYHA) voluntary "gainsharing" program for its hospital members and the physicians who practice at their hospitals. 

GNYHA's program is designed to encourage physicians to become more cost-conscious in their treatment decision-making and reward them for greater efficiency.  Important aspects of the program include:

• that it is non-exclusive and voluntary;
• each participating hospital will have its own quality-standards;
• it will apply to commercial health insurance and Medicaid and Medicare managed care products;  
• each hospital will choose how much savings to share with its physicians (or none at all) subject to other regulatory requirements; and
• the information that will be shared among GNYHA members is already publicly available.

The Antitrust Division concluded that the program was neither an agreement among competitors to set physician compensation levels nor an anticompetitive information exchange.

The Antitrust Division's business review letter should provide guidance to hospitals and physicians looking to reduce costs of care.  Importantly, however, the program and the Antitrust Division's business review letter only addressed gainsharing between hospitals and their physicians and not joint contracting or "clinical integration" arrangements among competing providers, for example. 

To read the Antitrust Division's press release, click here.

• Print
• Share Link

by Jeffrey W. Brennan and Wilko van Weert

The Supreme Court of the United States has granted the government’s petition for a writ of certiorari in FTC v. Watson Pharmaceuticals, agreeing for the first time to address the antitrust and patent law implications of so-called “pay-for-delay” or “reverse payment” patent settlement agreements between branded and generic pharmaceutical manufacturers.  The Court’s ruling will likely resolve this contentious issue, which has divided the federal courts and which the Federal Trade Commission has pursued for more than a decade.

To read the full article, click here.

• Print
• Share Link

by Jeffrey Brennan, Ashley Fischer, David Marx and Carrie Amezcua

In oral argument in FTC v. Phoebe Putney Health System, Supreme Court Justices focused on whether the state legislature clearly articulated a state policy to displace competition with regulation, in a case challenging the application of the state action doctrine to a hospital merger to monopoly.

To read the full article, click here.

• Print
• Share Link

by Stephen Wu

During an American Bar Association (ABA) program on antitrust and health care issues on October 1, 2012, U.S. Federal Trade Commission (FTC) Deputy Director for Health Care and Antitrust, Leemore Dafny, said that the FTC will focus on how patients purportedly react to price increases, as measured by "diversion ratios," when deciding which hospital mergers to investigate further for potential anticompetitive effects. 

Dafny stated that the FTC will focus on diversion ratios rather than geographic markets because relying on geographic market overlaps in hospital mergers may do a poor job of identifying the true source of potential competition problems.  Instead, the FTC has and will continue to evaluate hospital mergers to look at whether patients would be willing and able to substitute one hospital for the other if one hospital decided to raise prices for services, using the diversion ratio or the proportion of patients who would switch between them in response to a change in prices.  Importantly, the diversion ratio does not rely on any one particular geographic market definition to give the FTC what it believes to be an accurate idea of how a hospital merger might affect competition. 

To the extent the FTC considers geography, its staff begins by examining the primary service area of the hospitals – the area from which the hospitals draw about 75 percent of their patients – when conducting a preliminary evaluation of a merger to determine whether overlaps exist.  According to Dafny, the more significant the overlaps, the higher the likelihood of a potential competition problem.

• Print
• Share Link

by Stephen Wu

On June 12, 2012, the Federal Trade Commission (FTC) announced the appointment of Leemore Dafny to assume the newly created position of Deputy Director for Health Care and Antitrust, effective August 1, 2012.

Dafny is an Associate Professor of Management and Strategy at the Kellogg School of Management of Northwestern University, where she has served on the faculty since 2002.  She is a microeconomist whose research focuses on competition in health care markets.

Her appointment to a newly created position signals the FTC's continuing focus on the U.S. health care industry for antitrust scrutiny and, if anything, an effort to increase its expertise/jurisdiction over health care in relation to the U.S. Department of Justice.  According to economists with whom McDermott regularly works, clients should not expect a change in the FTC's enforcement posture as a result of her appointment, but Dafny should bring a broader perspective given her work with health insurance markets, experience the FTC is currently lacking. 

The FTC's press release announcing Dafny's appointment can be found here.

• Print
• Share Link

by Jeff Brennan

On June 7, 2012, Pennsylvania, through its Attorney General (AG), filed an antitrust complaint and consent order in U.S. District Court (M.D. Pa.), settling charges that Geisinger Health System's acquisition of Bloomsburg Hospital violated section 7 of the Clayton Act and the state common law prohibition on suppression of competition.  The core allegation is that the merging of Geisinger and Bloomsburg -- two of three principal rival hospitals in the Columbia County area and employers of physicians -- would lead to higher prices for (i) primary and secondary inpatient acute care services and (ii) primary and non-tertiary specialist physician services.  Notably, the AG did not seek to enjoin the deal but elected to accept a multi-faceted "conduct" remedy.  

Probably the most significant of the many conduct restrictions is the enablement of health plans to trigger (with AG involvement) independent third party review of Geisinger's price proposals.  Geisinger's prices must be based on Bloomsburg Hospital costs, not System costs, to obtain "a reasonable profit margin for similarly sized and well run community hospitals."  In other words, Geisinger may not readily apply System prices to Bloomsburg.  The settlement also prohibits Geisinger from requiring payors to contract with the whole System in order to contract with Bloomsburg, and from requiring a payor to exclude a competitor hospital from the network in order to obtain a contract with Geisinger.   A few observations:

1. PA implied that it accepted a conduct remedy over an injunction in light of Bloomsburg's dire financial condition.  Bloomsburg said that by October 2012 it would have insufficient cash to meet its obligations and could not continue operations.  The AG said it consented to the order "[g]iven the Acquired Parties' financial condition and the potential for the loss of 900 jobs."
2. The Federal Trade Commission (FTC) was not a party to this action, for reasons we do not know.  The FTC has traditionally been unwilling to accept conduct restrictions in lieu of divestitures to resolve concerns that a prospective hospital merger is anticompetitive.  An exception was in the unusual case of a merger that had been consummated for seven years prior to the FTC's finding of antitrust liability, at which point the FTC concluded that divestiture would do more harm than good and instead required separate contracting between the merged hospitals.  (This was 2007's decision in Evanston Northwestern/Highland Park.)
3. The Geisinger case is one of "good news/bad news" for hospitals.  The good news is that, at least at the state level, it shows a potential path forward for deals that raise antitrust concerns.  The bad news is that consummation came with the cost of an extensive set of restrictions on contracting and other activities that require rigorous monitoring for compliance.  Especially for hospitals facing difficult financial challenges, moreover, there is -- again, from the limited perspective of state enforcement -- the good news that alliances with a large and financially sound competitor may be obtainable, but also the bad news that the rival's more favorable rate structure may not be fully available.  

• Print
• Share Link

by Ashley McKinney Fischer and Stephen Wu

Federal antitrust enforcement agencies continue to challenge transactions in the health industry that they view as anticompetitive. This newsletter provides an update on recent public comments by government officials overseeing antitrust enforcement in the health industry and outlines some of the key steps that parties to certain types of transactions with potential competitive implications in the health industry should take to position themselves for defending against a government review.

Read more here.

• Print
• Share Link

by Hillary Webber

Last week, Sharis Pozen, Acting Assistant Attorney General for the Antitrust Division of the U.S. Department of Justice, spoke at the World Annual Leadership Summit on Mergers and Acquisitions in Health Care, where she affirmed that protection of competition in the health care industry is a top priority of the Division.  Pozen highlighted the Division's recent enforcement activities in insurance and provider markets, including challenges to insurance company mergers and contracting practices used by dominant insurers or providers such as Most Favored Nation (MFN) provisions and exclusivity agreements. 

Of note, Pozen remarked that the Division undertook a comprehensive evaluation of health insurance markets, the results of which have caused the Division to regard with increasing skepticism the ability of new entry to constrain a merged health insurance firm.  Pozen explained that new entrants face obstacles because they need provider discounts to attract enrollees but have difficulty obtaining them without a large number of enrollees.  Pozen stated that the Division will focus more attention on entry analysis to protect markets from harmful consolidation, especially markets dominated by one or two plans.  Regarding provider markets, Pozen described the Division as "on the lookout for agreements or arrangements purported to improve quality but where the real goal is simply to raise prices."  This is especially relevant given the Affordable Care Act's encouragement of provider collaboration in the form of Accountable Care Organizations (ACOs).

Pozen's remarks are available at: http://www.justice.gov/atr/public/speeches/281236.pdf.

Pozen's comments highlight the need for health care companies considering collaborative arrangements with competitors or contracting arrangements such as MFNs or exclusivity agreements to consult counsel and articulate a clear pro-competitive basis for such conduct. 

• Print
• Share Link

by Jeffrey W. Brennan, Ashley McKinney Fischer, David Marx, Jr. and Hillary A. Webber

On October 20, 2011, the Federal Trade Commission and Department of Justice issued a final policy statement on accountable care organizations (ACOs) participating in the Medicare Shared Savings Program (MSSP).  Significantly, the Agencies eliminated mandatory antitrust review of certain ACOs seeking to participate in the MSSP, but declined to adopt other stakeholder recommendations.

To read the full article, please visit: http://www.mwe.com/info/news/ots1111c.htm.  

• Print
• Share Link

by William Diaz, Raymond A. Jacobsen, Joseph F. Winterscheid and Jeffrey W. Brennan

On October 31, 2011, a California state court of appeal affirmed a lower court's ruling upholding a "reverse payment" (pay-for-delay) settlement between Bayer (Bayer) AG and Barr Pharmaceuticals (Barr).  Bayer had sued Barr for patent infringement pertaining to the latter's planned production of a generic form of Bayer's Cipro.  The case was settled with Bayer paying Barr to delay entry until the expiration of Bayer's patent in 2004.  Thereafter, consumers filed a class action lawsuit challenging the settlement agreement under California's state antitrust laws.  The appellate court upheld the settlement agreement because it concluded that the agreement did not restrain competition beyond the scope of the Bayer patents.  This court's ruling is consistent with the predominant view among the courts that these agreements do not violate the antitrust laws when the period of the delay and products at issue are within the scope of the relevant patents.

For years the Federal Trade Commission (FTC) has expressed serious concerns about reverse payment settlements.  Most recently, on October 25, 2011, the FTC released the findings of its study into the prevalence of these agreements and their effects on consumers.  The FTC noted that "pharmaceutical companies continued a recent anticompetitive trend of paying potential generic rivals to delay the introduction of lower-cost prescription drug alternatives for American consumers …drug companies entered into 28 potential pay-for-delay deals in FY 2011 (October 1, 2010 through September 30, 2011).  The figure nearly matches last year’s record of 31 deals and is higher than any other previous year since the FTC began collecting data in 2003.  Overall, the agreements reached in the latest fiscal year involved 25 different brand-name pharmaceutical products with combined annual U.S. sales of more than $9 billion."  This latest report demonstrates the FTC's continued commitment to enforcement in this area.  Further, the FTC's Chairman has continued to urge Congress to pass legislation that restricts reverse payment settlements.

These recent events highlight the need to work closely with antitrust counsel to ensure that any settlement agreements are properly vetted and take into account the latest antitrust developments.

• Print
• Share Link

by Joseph F. Winterscheid

On Wednesday, August 31, the Federal Trade Commission issued a report on "Authorized Generic Drugs: Short-Term Effects and Long-Term Impacts."  In the report, the Commission indicated that it would take a hard-line approach to pay-for-delay deals in which brand-name drug makers agree to defer introduction of their own generic formulations in exchange for competitors delaying entry into the market.  The report signals that the FTC pay-for-delay pharmaceutical patent settlements continue to be a "hot button" at the FTC, including deals that contain commitments by branded players to withhold generic versions of their own products.  

• Print
• Share Link

by Veronica Pinotti

On 5 August 2011, the Italian Competition Authority levied fines totalling €5,538,750 on Alliance Medical S.r.l., Toshiba Medical Systems Italia S.r.l., Philips S.p.A. and Siemens S.p.A. Each firm produces and sells electro-medical equipment used for diagnostic imaging and together they represent approximately 68 per cent of Italian sales.

The inquiry process started when Ge Medical Systems Italia S.p.A. lodged a complaint against the companies, alleging that they agreed to coordinate their response to the tender that Società Regionale Sanità of Campania issued for the provision (purchase and rental) of seven magnetic resonance machines and related support services. Under the infringing joint tender agreement, each company was allocated a pro-rata share of the business.

According to the Italian Competition Authority, the exchange of sensitive information and the formation of an agreement altered the normal competitive dynamics among businesses involved in the tender. Their commercial strategies were no longer independent as they were based on knowledge of the other companies’ strategies: Siemens and Alliance entered into a temporary association for the direct provision of three machines for purchase, while Philips and Toshiba were sub-contracted by Alliance to provide the remaining four machines for rental.

Laure Carapezzi, trainee lawyer in McDermott Will & Emery based in the Rome office, also contributed to this newsletter.

• Print
• Share Link

by Stefan M. Meisner

On May 10, the Federal Trade Commission announced that Sanofi-Aventis U.S. LLC and two generic drug makers had violated federal law by failing to notify antitrust authorities about agreements involving Sanofi’s insomnia drug Ambien CR. The FTC found no harm to consumers or competition in this instance and recommended no enforcement action, but the agency seized upon the opportunity to provide public guidance to the industry about the scope the filing requirement under the Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA).

The MMA requires filing of certain types of agreements between a brand name drug company and a generic drug applicant that has submitted an Abbreviated New Drug Application that contains a certification that a patent asserted to cover the branded drug is invalid or not infringed (“Paragraph IV certification”). Failure to file within ten business days exposes the parties to penalties of up to $11,000 for each day the party is in violation of the notification requirement.

The Advisory Letters issued by the FTC analyze the Sanofi agreements and seek to clarify how the FTC interprets the Act. The FTC has signaled that it will recommend enforcement actions for future violations of the MMA. This announcement emphasizes the continuing concern that the FTC has shown for the anti-competitive impact of deals between brand name drug manufacturers and generic competitors. The FTC has in recent years repeatedly attacked so-called “pay-for-delay” deals.

For more information on the Sanofi settlement and to view the FTC Press Release with links to Advisory Letters, please visit:  http://ftc.gov/opa/2011/05/sanofi.shtm.

• Print
• Share Link

McDermott Will & Emery's International News, Issue 2, 2010, covers a range of legal developments of interest to those operating internationally.  This issue focuses on Antitrust and Competition.

In this issue...

• Merger Control: Gun Jumping Goes Global
• International Cartel Enforcement: On the Rise and More Severe
• China's Anti-Monopoly Law: Experience and Lessons Learned After Two Years
• Antitrust Enforcement Under the Obama Administration: One Year Later
• Class Actions: An EU Update
• Information Sharing under EU Competition Law: Handle with Care

The full issue can be found at: http://www.mwe.com/info/news/int0210.htm.
 

• Print
• Share Link