During the last several years, the Federal Trade Commission (FTC) has taken an active role in antitrust enforcement in the health care industry, particularly with respect to hospital and physician group acquisitions. Last week, the FTC held a two-day public workshop to examine new trends and developments in the health care industry related to professional regulations of health care providers, health information technology, new care delivery models, quality measurements and pricing transparency and how those developments may affect competition. Health care providers should anticipate increased FTC scrutiny of these trends and how they affect health care costs, quality, access and care coordination.
In a challenge brought both by private plaintiffs and the government, a court has ruled that a health system’s acquisition of a competing physician group practice violated the antitrust laws where the transaction resulted in the health system employing 80 percent of the primary care physicians in one area. Hospitals and health systems pursuing physician practice mergers should carefully consider the implications of this decision on proposed acquisitions and should incorporate antitrust due diligence into their transaction planning.
On November 15, 2013, Chairwoman Edith Ramirez testified on behalf of the Federal Trade Commission (FTC) before the House Subcommittee on Regulatory Reform on the topic of antitrust oversight and enforcement. Ramirez explained that the FTC “focuses its enforcement efforts on sectors that most directly affect consumers, such as health care, technology and energy.”
The FTC has identified health care provider consolidation as a significant component of increasing health care costs, and overseeing provider combinations has remained a key priority for the agency. The FTC has also undertaken efforts to promote competition between manufacturers of generic and brand-name drugs. In addition to litigating “pay-for-delay” settlements, the Commission has filed amicus briefs to advocate against other practices it considers anticompetitive, such as “product hopping,” the practice of altering the formula of a brand-name drug in a minor, non-therapeutic way in order to preserve monopoly power in the face of generic competition.
In the technology arena, the FTC has targeted the problem of patent hold-up. The Commission has pursued enforcement actions aimed at preventing holders of standard essential patents from rescinding agreements to license the patents on reasonable and non-discriminatory (RAND) terms. The FTC is also actively looking into the potential harms and efficiencies of “patent assertion entities,” which are companies “with a business model focused primarily on purchasing patents and then attempting to generate revenue by asserting the intellectual property against persons who are already practicing the patented technology.”
The Chairwoman noted that the Commission utilizes “all the powers at its disposal” to police competition in the energy sector, and it considers merger review “essential to preserving competition in these markets.” The agency also monitors gasoline and diesel fuel prices on a daily basis for unusual pricing activity, which could be a sign of anticompetitive conduct.
In a recent advisory opinion, the Department of Health and Human Services inspector general warned health care providers about entering into contracts that may generate illegal kickbacks and result in administrative penalties. An unnamed anesthesiology provider requested advice regarding a proposed contract with an in-hospital psychiatric service. Currently, the anesthesiology provider is the exclusive provider of anesthesia services to a hospital, with the exception of the in-house psychiatric service, which uses its own provider. Prior to 2011, the anesthesiology provider was the exclusive provider for the hospital, including psychiatric services. In December 2010, however, the psychiatric service relocated its practice to the hospital and negotiated for the right of its anesthesiologist to offer services to its patients, thus eliminating the anesthesiology provider’s exclusivity contract for psychiatric care.
Under the proposed arrangement, the in-house psychiatric service would contract out anesthesiology services to the anesthesiology provider for days when its anesthesiologist is unavailable or an additional anesthesiologist is needed. The anesthesiology provider would receive a per diem payment for each day its services were requested. Per the arrangement, the psychiatric service would retain a fee equal to the difference in the fee billed by the in-house psychiatric service and collected from Medicare, Medicaid, third party payors and patients, and the per diem amount paid to the anesthesiology provider.
Although there was no direct referral for the anesthesiology services, the inspector general cautioned that such remuneration could violate anti-kickback statutes, resulting in the imposition of penalties under sections 1128(b)(7) or 1128A(a)(7) of the Social Security Act. Both of those sections refer to the commission of acts detailed in the federal anti-kickback statute. The inspector general stated that the arrangement essentially allowed the psychiatric service to accomplish indirectly that which it could not do directly—receive a fee from the anesthesiology provider’s revenues in exchange for sending patients to the provider. In effect, such an arrangement constituted a referral.
Under the federal anti-kickback statute, it is illegal to knowingly and willfully offer, pay, solicit or receive any remuneration to induce or reward referrals of items or services reimbursable by a federal health care program. The statute is violated if remuneration is purposefully paid—even if it is just one purpose of the remuneration—with the intent to induce or reward further referrals of items or services payable by a federal health care program. Some safe harbors exist for practices that are unlikely to result in fraud or abuse. Additionally, a determination of intent is required to assess the illegality of the kickbacks. Health care providers should consider how to structure contracts and other arrangements to avoid illegal kickbacks and other anticompetitive effects that may result in administrative penalties.
On October 11, 2013, the plaintiffs in the Detroit nurses litigation who have accused Detroit-area hospitals of conspiring to suppress their wages opposed VHS of Michigan, D/B/A Detroit Medical Center’s (DMC) petition to the Sixth Circuit for leave to appeal the district court’s decision granting class certification.
DMC had asked the Sixth Circuit to do an interlocutory appeal of a September ruling certifying a class of more than 20,000 registered nurses seeking more than $1.7 billion in damages based on a purported antitrust conspiracy among Detroit-area hospitals to reduce nurse wages.
The lawsuit was first filed in December 2006 and accuses the Detroit area hospitals of conspiring with one another to keep registered nurses’ wages low. In particular, the lawsuit alleges that the hospitals agreed to exchange compensation information to reduce wages and competition to hire and retain Detroit nurses. DMC is the only remaining defendant in the case. The other seven defendants previously settled the litigation.
In September, a district court judge granted plaintiffs’ motion for class certification. The hospital asked the Sixth Circuit to review that ruling a few weeks later. In support of that request, DMC argued that the district court’s decision conflicts with the approach followed by other federal courts and raises important questions about the proper interpretation of the Supreme Court’s recent decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013) (Comcast).
In particular, DMC argued that plaintiffs should not have been able to establish predominance through a damages model that calculated damages based in part on a theory of liability (wage fixing claim) that had already been dismissed on a motion for summary judgment. In addition, DMC argued that the district court failed to take a “close look” at the damages model before certifying the class.
Plaintiffs argued that DMC attempted to make a strained analogy to Comcast and also criticized DMC for raising arguments on appeal that were not raised with the district court. Plaintiffs argued that this case does not present the sort of “novel or unsettled question” of “class litigation in general” that is worthy of the Sixth Circuit’s discretionary review.
The full case name is In re: VHS of Michigan, Inc., No. 13-113 (6th Cir. filed Sep. 27, 2013).
The New York Department of Health recently published a proposed regulation that lays out the rules governing the issuance of certificates of public advantage for health care collaborations within the state.
The UK Competition Commission (the CC) has provisionally found that there are anti-competitive features in the supply or acquisition of privately-funded health care services, which give rise to adverse effects on competition. If the CC’s provisional position is indicative of its final position, private healthcare providers—in particular, private hospital groups—may face significant changes in how they do business in the United Kingdom, and potential new entrants may find additional opportunities.
The U.S. Federal Trade Commission (FTC) and Phoebe Putney Health System settled the FTC’s complaint that the health system’s merger with Palmyra Park Hospital violated the antitrust laws. Unique state statutes and regulations effectively prevented the FTC from obtaining its usual remedy for unlawful mergers or acquisitions, a divestiture. Instead, the FTC is requiring Phoebe Putney to provide prior notice of certain future acquisitions and prohibiting it from objecting to state applications by competitors to enter or expand in the marketplace.
The Federal Trade Commission’s (FTC) battle against “reverse-payment” settlements continues. In an amicus brief recently submitted in the case of In re Effexor XR Antitrust Litigation, the FTC advanced a broad interpretation of the Supreme Court’s decision in FTC v. Actavis that looks beyond the labels applied to agreements between brand pharmaceutical manufacturers and the specific type of consideration provided to induce delayed generic entry. The FTC also outlines a two-step inquiry it contends is the appropriate manner of analyzing the potential antitrust concerns raised by such agreements.
The FTC has long targeted “reverse payment” settlements. A reverse payment settlement restricts the generic pharmaceutical from entering the market until a future date (even if that date is before the patent at issue expires) and includes a transfer of value from the brand to the generic firm, typically in the form of payments arising from an ancillary agreement for services or products provided by the generic. The Supreme Court’s decision in Actavis, while rejecting the FTC’s view that “reverse payment” agreements were per se illegal, nevertheless held that such agreements were not immune from antitrust scrutiny. The Court held that such agreements “can sometimes violate the antitrust laws,” and that the rule of reason is the legal standard that courts must apply when determining whether such a particular agreement violates the antitrust laws.
In the Effexor XR case, plaintiffs have challenged a patent settlement agreement between pharmaceutical manufacturers Wyeth and Teva Pharmaceuticals. They claim that Teva agreed to delay introduction of its generic version of Wyeth’s drug Effexor XR, and that Wyeth agreed not to market an authorized generic version of Effexor XR for a period of time. There was no cash payment between the defendants and for this reason they have argued that Actavis is not applicable.
The FTC’s brief rejects the view that Actavis is limited to cash payments only. It contends that the defendants’ interpretation puts form over substance and would allow a ready means for manufacturers to circumvent the Actavis ruling. The FTC argues that Actavis instead reflects an approach focused on a two-part inquiry. Courts, the FTC says, must first examine whether the alleged payment (whatever form it takes) was something that the generic challenger could have obtained had it won the underlying patent infringement litigation. If not, then the courts must inquire whether the payment is a vehicle for the parties to share monopoly profits by avoiding competition.
Taking this “generic” approach to Actavis, the FTC contends that the absence of a cash payment is not determinative and that Wyeth’s commitment not to market an authorized generic version of Effexor XR “presents the same antitrust concern as the reverse payments the Supreme Court considered in Actavis.” It remains to be seen how the district court will rule, but the FTC’s amicus brief signals that the Commission will continue to scrutinize settlement agreements and will resist attempts to limit the application of Actavis narrowly to its facts.
Plaintiffs in a putative class action against Pfizer, Inc. and Takeda Pharmaceutical Co., related to acid reflux drug Protonix, will no longer give the two companies any heartburn. The plaintiffs stipulated to dismissal from New Jersey federal district court after a settlement in related proceedings that held the patent-in-suit valid and enforceable. Fawcett v. Altana Pharma AG, No. 2:07-cv-06133-JLL-CCC.
The plaintiffs had premised their claims on Takeda’s patent—licensed to Pfizer—being invalid and obtained by fraud on the patent office. The court put the suit on hold while Takeda and Pfizer litigated the validity of the patent in an infringement action against generic drug-makers Teva Pharmaceutical Industries Ltd. and Sun Pharmaceutical Industries Ltd. In 2010, a judge found that patent to be valid, and last month the parties reached a settlement in the damages litigation with Teva and Sun agreeing to pay Pfizer and Takeda $2.15 billion.
The settlement prompted the New Jersey court to ask why it should not dismiss as moot the putative class action. The parties replied that they were preparing to stipulate to dismissal, which the court granted on July 14, 2013.
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