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Ashley (Lee) McMahon focuses her practice on antitrust and competition matters. Lee advises clients on complex issues relating to and arising under the antitrust laws in connection with civil litigation, international cartels, and mergers and acquisitions. She assists clients with premerger notification, review and analysis under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act. Lee is experienced in areas of e-discovery, document review and production for investigations before the Federal Trade Commission (FTC), Department of Justice (DOJ) and state attorneys general office. Read Lee McMahon's full bio.

The Department of Justice (DOJ) announced last week that it and the State of North Carolina have reached a settlement with Carolinas Healthcare System / Atrium Health relating to provisions in contracts between the health system and commercial insurers that allegedly restrict payors from “steering” their enrollees to lower-cost hospitals. The settlement comes after two years of civil litigation, and serves as an important reminder to hospital systems and health insurers of DOJ’s continued interest in and enforcement against anti-steering practices.

WHAT HAPPENED:

  • On June 9, 2016, the DOJ and the State of North Carolina filed a complaint in the Western District of North Carolina against the Charlotte-Mecklenburg Hospital Authority, d/b/a Carolinas Healthcare System, now Atrium Health (Atrium).
  • In its complaint, DOJ accused Atrium of “using unlawful contract restrictions that prohibit commercial health insurers in the Charlotte area from offering patients financial benefits to use less-expensive health care services offered by [Atrium’s] competitors.”
  • DOJ alleged that Atrium held approximately a 50 percent share of the relevant market and was the dominant hospital system in the Charlotte area. DOJ defined the relevant product market as the sale of general acute care inpatient hospital services to insurers in the Charlotte area.
  • DOJ alleged that Atrium used market power to negotiate high rates and impose steering restrictions in contracts with insurers that restrict insurers from providing financial incentives to encourage patients to use comparable lower-cost or higher-quality providers. Such financial incentives include health plan designs that charge consumers lower out-of-pocket costs (such as copays and premiums) for using top-tier providers that offer better value, or for subscribing to a narrow network of providers.
  • Atrium also allegedly prevented insurers from offering tiered networks with hospitals that competed with Atrium in the top tiers, and imposed restrictions on insurers’ sharing of value information with consumers about the cost and quality of Atrium’s health care services compared to its competitors. These “steering restrictions” allegedly reduced competition and resulted in harm to consumers, employers, and insurers in the Charlotte area.
  • Atrium allegedly included these steering restrictions in its contracts with the four largest insurers who in turn provide coverage to more than 85 percent of commercially insured residents in the Charlotte area.
  • On March 30, 2017, the court denied Atrium’s motion for judgment on the pleadings, finding that the government met its initial pleading burden. Atrium had argued that the complaint failed to properly allege that the contract provisions actually lessened competition or lacked procompetitive effects.
  • More than a year later, on November 15, 2018, DOJ announced that the State of North Carolina and DOJ had reached a settlement with Atrium, which prohibits Atrium from continuing its practices of using alleged steering restrictions in contracts with commercial health insurers. The proposed settlement also prevents Atrium from “taking actions that would prohibit, prevent, or penalize steering by insurers in the future.” The agreement lists certain prohibitions and permissions for Atrium; for example, that Atrium may not enforce existing alleged anti-steering provisions, and must allow payors to be transparent with consumers about price, cost and quality information. However, Atrium is permitted to enforce other contract provisions that protect against carve outs (where an insurer unilaterally removes a health care service from coverage in a health plan), and may restrict payor steering for any co-branded plan or narrow network in which Atrium is the most prominently-featured provider.

WHAT THIS MEANS:

  • Going forward, both DOJ and the Federal Trade Commission (FTC) are likely to investigate similar contract provisions by health systems susceptible to allegations of market power. The resolution of the Atrium matter comes just one month after Senator Chuck Grassley sent a letter to FTC Chairman Joseph Simons, asking FTC to investigate certain allegedly anticompetitive hospital system managed care contracting practices and to assess how prevalent they are in the marketplace. Senator Grassley’s October 10 letter cited to a recent Wall Street Journal article detailing various provisions said to increase health care costs and restrict patient choice, including anti-steering provisions. The letter cited to the then-pending Atrium case specifically. In the wake of the Grassley letter and the Atrium settlement, hospital systems that have entered into alleged anti-steering provisions with payors may need to expect inquiry from the FTC or DOJ.
  • The Atrium settlement follows the resolution of another DOJ challenge to anti-steering provisions. Earlier this year, in American Express, the Supreme Court rejected DOJ’s challenge to the anti-steering rules that the credit card company imposed on merchants. The cases are distinguishable in part due to the difference in market share of defendants. American Express held 26.4 percent of the credit card market, whereas Atrium allegedly holds 50 percent of the relevant market asserted by DOJ.
  • Many watched the Atrium case as an opportunity for further guidance from the courts on the competitive implications of anti-steering practices, but the settlement means practitioners and industry members must continue to wait for judicial consideration of these types of provisions in the health care industry.
  • The Atrium matter serves as a reminder of the agencies’ interest in alleged anti-steering and other restrictive contracting practices. Now is an opportune time for hospital systems to review their managed care contracting practices for potential antitrust risk under the rule of reason, particularly hospital systems with relatively high shares within concentrated service areas or that have contracting provisions with payors representing a majority of the local patient population that could be characterized as allegedly restrictive.

The Department of Justice (DOJ) and six broadcast television companies reached settlements last week after the DOJ claimed that the companies shared competitively sensitive information that allowed the parties to alter the way prices were set in the television spot advertising market. Assistant Attorney General Makan Delrahim explained in a speech at the ABA Antitrust Section Fall Forum on November 15 that the government’s investigation was triggered by information produced in the merger investigation of two of the defendants, Sinclair and Tribune, which was abandoned earlier this year. The case has important implications for companies and serves as a cautionary tale related to information sharing.

WHAT HAPPENED:

  • The investigation reportedly began from DOJ’s review of the $3.9 billion proposed acquisition of Tribune by Sinclair earlier this year. The parties abandoned the merger this past summer after the Federal Communications Commission (FCC) referred the matter to an administrative law judge and delayed approval.
  • On November 13, DOJ filed a complaint and competitive impact statement against six television broadcast station companies, each of whom sells spot advertising to advertisers in the US or owns and operates broadcast television stations. With the complaint, DOJ simultaneously filed six proposed settlements with defendants.
  • The complaint alleges that the defendants and other broadcasters reciprocally exchanged revenue pacing information and other forms of competitively sensitive sales information in specific designated marketing areas in real time for each individual competitor. Pacing information shows a station’s remaining advertising inventory and that station’s performance compared to the market.
  • DOJ claimed that the information sharing occurred both directly between parties and through Sales Reps Firms, who represent broadcast stations in negotiations with advertisers or advertisers’ agents over spot advertising. This indirect sharing occurred despite the existence of firewalls to prevent coordination and information sharing between sales teams at the Sales Reps Firms representing competing stations. DOJ claimed that the exchanges occurred with defendants’ knowledge and frequently at defendants’ instruction.
  • As a result of the information sharing, DOJ argued that the stations were able to understand the availability of spot advertisement inventory on competitors’ stations in real time. DOJ also argued that the stations used the information to anticipate whether other companies would raise, maintain, or lower prices for spot advertising. The information exchanges therefore “distorted the normal price-setting mechanism in the spot advertising market and harmed the competitive process” and were unreasonable restraints of interstate trade and commerce.
  • The settlements that are proposed by DOJ prohibit defendants from sharing competitively sensitive information directly or indirectly. The settlements require defendants to institute antitrust compliance officers, and compliance and reporting programs, and to fully cooperate in the DOJ’s ongoing investigation. The final judgments are set to expire seven years from the date of entry, but give DOJ the ability to terminate after five years.
  • The proposed settlements indicate that DOJ recognizes certain allowable exchanges of information. DOJ explains that aggregated competitively sensitive information may be communicated if it is handled by a fully independent third party, so long as the information is historical total revenue or other geographic or characteristic information, and is sufficiently aggregated so it does not allow recipients to identify the specifics.

WHAT THIS MEANS:

  • This case is an example of DOJ strictly enforcing the rules on information sharing between competitors. The proposed settlements clarify that high-level, aggregated, historical information may be shared, but not real-time information about individual competitors.
  • DOJ is not retracting its position on exchanges of price and cost information that fall in the “antitrust safety zone” described in the 1996 Statement of DOJ and Federal Trade Commission (FTC) Enforcement Policy on Provider Participation in Exchanges of Price and Cost Information. In that statement, DOJ and FTC together outlined that surveys managed by third parties, that contain information greater than 3 months old, and that have at least five providers reporting, with no individual representing more than 25 percent of the data, can be shared without challenge though the surveys include prices for services, wages, salaries, or other sensitive information. These guidelines were not followed in the case at hand, which illustrates the importance of staying in the “safety zone.”
  • The matter also demonstrates how a merger investigation can lead to a collateral investigation and significant consequences for the parties.
  • Companies, especially those in consolidated industries such as the television broadcasting business here, are best served by confirming that all parties understand the guidelines regarding information sharing, and instituting antitrust compliance programs to ensure that guidelines are followed.

Antitrust laws protect competition and consumers. Antitrust enforcement is prevalent in actions concerning manufacturing and consumer goods, among other things. However, recent enforcement activity by the Federal Trade Commission (FTC) and Department of Justice’s Antitrust Division (DOJ) serves as a reminder that the services industry, particularly healthcare services, is not immune to antitrust scrutiny as well.

Antitrust enforcement and healthcare policy were two priorities under President Obama. So, too, was antitrust enforcement within healthcare markets. The current administration prompted speculation on whether it would change its emphasis in any of these respects. We examine in this article whether the Trump Administration, now a year and a half into its term, has shifted focus or instead has stayed in the hunt for antitrust violations in the healthcare industry. As discussed below, the record of healthcare antitrust enforcement actions over the last five years, spanning both administrations, demonstrates that healthcare has been and remains a priority for civil and criminal antitrust enforcement by the US antitrust agencies and state Attorneys General. Continue Reading Healthcare and Antitrust Enforcement: Continuity through the Administrations

WHAT HAPPENED:

  • On August 7, the FTC published a new Model Timing Agreement. Timing agreements are agreements between FTC staff and merging parties that outline the FTC’s expected timing for various events in order for it to conduct an orderly investigation during a Second Request.
  • The FTC expects the Model Timing Agreement to be used as drafted (or in a similar form) for all transactions that receive a Second Request. The FTC has used timing agreements frequently in the past, as has the DOJ, but the FTC has now published a model, which means this is likely to become the standard practice moving forward.
  • Parties are not required to enter into a timing agreement. However, in practicality, if parties do not agree to the timing agreement, the agency will proceed as if it must be in court to block the deal within 30 days of compliance. Therefore, it will prepare for litigation and will not consider settlement options or engage with the parties on the issues in the same way it would if the agency had more time under a timing agreement.
  • Some highlights of the new Model Timing Agreement are provided below (Note: All days listed refer to calendar days):
    • Parties must provide 30 days’ notice before certifying substantial compliance, and such notice cannot be provided until at least 10 days after signing the timing agreement.
    • Parties cannot close a proposed transaction until a specified time period after substantial compliance with the Second Request. The model indicates this will be 60 days in less complex matters or 90 days in more complex matters, but could be longer than 90 days in “matters involving particularly complicated industries.”
    • Parties must provide 30 days’ notice before consummating the proposed transaction and cannot provide notice more than 40 days before the date on which they have a good faith basis to believe they will have cleared other closing conditions and will be able to complete the transaction, absent an FTC action to block the transaction.
    • The agreement includes a stipulated Temporary Restraining Order (TRO) which will be entered in the event of a challenge. The TRO prevents the parties from consummating the transaction until after five days following a ruling on a motion for preliminary injunction.
    • The timing agreement contains other timing-related provisions such as for document productions and investigational hearings as part of the FTC’s investigation.

WHAT THIS MEANS:

  • Though the Model Timing Agreement does not affect the statutory expiration of the HSR waiting period, it commits the parties not to consummate the transaction for a much longer period and, therefore, effectively extends the waiting period far longer than the 30 days specified under the HSR Act.
  • The 40-day notice required before the closing date means that if there is another condition in the way of closing, such as an ongoing investigation before the European Commission or in China, the parties cannot provide their notice of the anticipated closing date to the FTC. The FTC will not be forced to litigate until the parties are in a position to complete their transaction in the near term, absent an FTC challenge.
  • The FTC has made clear that parties either have to sign up to a much longer period for the HSR review process than the statute specifies or be in an adversarial posture that is less likely to lead to the agency closing its investigation or settling the matter and more likely to lead to a court challenge.

Alert: The Supreme Court clarified the principles of international comity this week in a ruling pertaining to the long-running vitamin C antitrust class action litigation. International comity is the recognition a nation shows to the legislative, executive or judicial acts of another nation. Principles of comity state that US courts should defer to the laws of other nations when actions are taken pursuant to those laws. In this week’s ruling, Justice Ginsberg wrote that federal courts should accord respectful consideration to foreign government submissions when analyzing comity issues, but are not bound by them. This ruling vacates the Second Circuit’s decision in the case overturning the jury verdict for the class, and is a win for the class of US purchasers of vitamin C. Continue Reading Supreme Court Clarifies Principles of International Comity in Vitamin C Ruling

WHAT HAPPENED:

  • Senator Elizabeth Warren (D-MA) gave a speech at the Open Markets Institute on December 6 entitled “Three Ways to Remake the American Economy for All”, in which she repeatedly positioned antitrust policy as a tool to rebalance competition between “big, powerful corporations” and “just about everyone else.”
  • Senator Warren spoke critically about recent antitrust enforcement and advocated three steps for improving antitrust enforcement: (1) block mergers that choke-off competition; (2) crack down on anticompetitive conduct; and (3) get all government agencies to defend competition.
  • On mergers, Senator Warren asserted that “settlement agreements that allowed bad mergers if the companies promised to take actions” have not worked out because “those expertly crafted provisions have been epic failures” and that “[s]tudies show that those settlement conditions often fail to bring about the cost savings and other benefits giant corporations promised.”
  • She advocated that to improve antitrust enforcement “we need to demand a new breed of antitrust enforcers … Enforcers who will turn down papier-mache settlement agreements and actually take cases to court.”
  • Senator Warren stated that increased enforcement is needed not just for horizontal mergers between direct competitors, but also for vertical mergers (e.g., between customers/suppliers). In her view, the “Chicago School party line” that vertical mergers do not harm competition may be accepted theory, but is “not often the reality” when large companies are involved.
  • On anticompetitive conduct, Senator Warren singled out no-poach agreements as an area for increased enforcement—specifically franchises that do not allow an employee of one franchisee to be hired by another franchisee.
  • On getting other agencies to defend competition, Senator Warren noted that while not enforcers like DOJ, other government agencies like the Defense Department, the Food and Drug Administration, the Federal Deposit Insurance Corporation and the Federal Communications Commission, can significantly impact competition through regulation and purchasing.
  • Finally, Senator Warren highlighted several consolidated industries that she views as significantly concentrated for which she would like to see increased antitrust focus including: airlines, banking, healthcare, pharma, agriculture, telecom and tech.

WHAT THIS MEANS:

  • Senator Warren’s theme that antitrust can be used to protect small businesses, entrepreneurs, innovators, workers and just about everyone else from the “rich and powerful” shows that increasing antitrust enforcement has become a key party line for the upcoming midterm elections.
  • Additionally, Senator Warren stated that “[t]he individuals who lead the [FTC and DOJ] determine the federal government’s competition priorities,” and have a significant impact on antitrust enforcement by deciding which cases to open or take to court. Given these statements and that several high-profile mergers will be decided before the midterms, we expect that Senator Warren will continue to highlight the potential impact of high-profile mergers on small business and individuals.

WHAT HAPPENED:

  • On October 2, 2017, the US Court of Appeals for the Third Circuit unsealed its opinion in Valspar Corp. v. E.I. Du Pont De Nemours & Co., No. 16-1345 2017 WL 4364317 (3d Cir. Sept. 14, 2017) in which the court affirmed the district court’s grant of summary judgment for defendant on the grounds that plaintiff lacked sufficient evidence to allege a conspiracy to fix prices.
  • Valspar alleged that titanium dioxide suppliers engaged in price-fixing, citing evidence that the manufacturers announced 31 price increases in a twelve year period and other circumstantial evidence. at *5. The parties agreed that the titanium dioxide market is oligopolistic, with a handful of firms, substantial barriers to entry, and no substitute products. Id. at *1.
  • After Valspar settled with all defendants but DuPont, the latter moved for summary judgment. The district court found that Valspar lacked evidence of an actual agreement among defendant suppliers to fix prices. at *1.
  • The Third Circuit agreed with the district court and found that Valspar’s argument failed on two grounds. First, the court explained that Valspar neglected to consider conscious parallelism when it claimed that it was “inconceivable” that defendants executed identical price increases on 31 occasions without a conspiracy. at *5. Price movement in an oligopoly is expected to be interdependent, as rational decision makers anticipate the movements of other firms. Second, Valspar was required to show that defendants’ parallel pricing “went beyond mere interdependence and was so unusual that in the absence of advance agreement, no reasonable firm would have engaged in it.” Id. at *6 (quoting In re Baby Food Antitrust Litig., 166 F.3d 112, 135 (3d Cir. 1999)).

WHAT THIS MEANS:

  • The Valspar case is interesting in that it is an opt-out case from the In re Titanium Dioxide class action litigation, in which the United States District Court for the District of Maryland denied defendants’ motion for summary judgment based on the same evidence that here allowed the District of Delaware, as affirmed by the Third Circuit, to grant it. The Third Circuit attributed the different outcomes in the class and opt-out cases to the fact that the District of Maryland—which sits in the US Court of Appeals for the Fourth Circuit—is not bound by Third Circuit precedent while the District of Delaware is so bound. at *11 (“This resulted in the Maryland court applying a standard quite different from the one we have developed and that the [Delaware court] applied.”).
  • The opinion clarifies the evidence required under Third Circuit precedent to prove a conspiracy in an oligopolistic industry. The court explained that in oligopoly cases, evidence that price increases are not correlated to supply or demand is “largely irrelevant.” at *7. Awareness among defendants of the conscious parallelism is similarly not enough. Id. at *4 n.3. Plaintiffs must show proof of an explicit, manifest agreement. Id. A plaintiff alleging a conspiracy among defendants may not rely on “ambiguous evidence alone” to survive summary judgment. Id. at *5 (quoting In re Chocolate Confectionary Antitrust Litig., 801 F.3d 383, 396 (3d Cir. 2015)).

This week, the Federal Trade Commission filed an administrative complaint against the Louisiana Real Estate Appraisers Board (LREAB). This complaint is the FTC’s first against a state licensing board since it prevailed in the Supreme Court in the decision in NC State Board of Dental Examiners v. FTC in 2015. There, the Court held that immunity from the antitrust laws under the state action doctrine does not apply to a state board that regulates an industry if: 1) a majority of the board members are active participants in the market they are regulating, and 2) the board has not been actively supervised by the state. McDermott reported in detail about the NC Board of Dental Examiners at the time of the decision. The complaint comes on the tail of a settlement agreement between the FTC and a trade organization, the American Guild of Organists, as reported this week.

FTC alleges that the LREAB violated Section 5 of the Federal Trade Commission Act by unreasonably restraining price competition for real estate appraisal services provided to appraisal management companies (AMCs) in Louisiana.

Continue Reading THE LATEST: FTC Files Complaint Against Louisiana Real Estate Appraisers Board

On February 9, the US Court of Appeals for the Third Circuit upheld a ruling by the US District Court for the District of Delaware that indirect purchasers of Class 8 transmissions did not meet the requirements for class certification. The Third Circuit found that only the individual claims may proceed in the case. The opinion is significant because it reaffirms the difficulty indirect purchaser plaintiffs face when attempting to certify a class.

Read the full article here.

This month, the US Department of Justice Antitrust Division revised its “Frequently Asked Questions About the Antitrust Division’s Leniency Program and Model Leniency Letters” (FAQs), with releases both before and after the new administration took office. The revisions serve as a signal that the continuity we have seen in previous years from the Antitrust Division is likely to continue. The changes include long-needed clarifications and updates since the release of the FAQs in 2008.

Read the full article.