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FTC Developments

ABA Antitrust Spring Meeting Highlight: “Antitrust & Health Care: Square Peg in a Round Hole?”

by Michelle Lowery | Apr 30, 2015 | FTC Developments, Healthcare Antitrust, Mergers & Acquisitions

In this month’s American Bar Association (ABA) Section of Antitrust Law Spring Meeting, the program “Antitrust & Health Care: Square Peg in a Round Hole?” featured debate and discussion about antitrust law treatment of health care transactions and how that treatment might (or should) evolve (via regulation, legislation, or some combination of approaches), or conversely, whether the intersection of antitrust law and health care is more akin to a square peg meeting a round hole. Moderated by Jim Donahue (Office of the Pennsylvania Attorney General), the panel’s speakers included Robert Berenson, MD (The Urban Institute), Alexis Gilman (the Federal Trade Commission (FTC)), Melinda Hatton (American Hospital Association (AHA)) and Elinor Hoffmann (Office of the New York Attorney General (AG)).

Horizontal Mergers

The program first considered a hypothetical merger of specialty physician practices, where the acquiring practice has privileges at one of the market’s two hospitals and the merger would consolidate privileges at that hospital.

The FTC said it would likely look at the transaction on a specialty-by-specialty basis; the New York AG agreed, but thought it was worth considering: is multi-specialty a market itself? She referenced ProMedica’s cluster markets as a possible route for analyzing the transaction (e.g., a parent might take two children to a multi-specialty practice at the same time, one to see a pediatrician and the other to see a dermatologist).

The American Hospital Association (AHA) thought that with the Affordable Care Act’s (ACA’s) incentive to keep the population out of the hospital, hospitals are repurposing services toward population health goals, and referenced remote medicine and affiliations.

Remedies

The FTC stated that it continued to prefer structural remedies in the form of injunctions or divestitures for health care transactions, pointing to its rejection of Phoebe Putney’s proposed conduct remedy. The New York AG agreed that while structural remedies are typically best, the states (particularly Pennsylvania and New York) tend to be more willing to consider conduct remedies, often with the goal of marrying regulation with achievement (efficiencies).

Dr. Berenson posited that physician group acquisitions are the wave of the future, because the current regulatory environment makes solo practice difficult. So, he said, where physicians or specialties must be divested, those doctors are now likely to seek hospital employment.

From the hospital perspective, the AHA noted that health care transactions are a peculiar breed— health care cannot be divorced from regulation, acquisition costs are usually very high, and hospitals must pay fair market value under Stark and Anti-Kickback laws—and commented that the peculiarities of such transactions are not always adequately taken into consideration in merger challenges.

Vertical Mergers; Narrow vs. Broad Networks

The panel next considered a hypothetical merger where a health plan with 60 percent market share in a mid-size city purchases one of the two hospitals and changes its network from broad to narrow.

The FTC noted that although they have not challenged this sort of vertical health care transaction, it would do so under the right circumstances (e.g., if the hospital had no excess capacity, [...]

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Antitrust Enforcers Discuss Recent Highlights, Ongoing Cases, Enforcement Priorities and General Trends at the 2015 ABA Section of Antitrust Law Spring Meeting

by Louise Aberg | Apr 29, 2015 | Cartel Enforcement, DOJ Developments, EC Developments, FTC Developments

The American Bar Association (ABA) Section of Antitrust Law Spring Meeting concluded earlier this month with the traditional “Enforcers’ Roundtable,” an interview with leading competition authorities about recent highlights, ongoing cases, enforcement priorities and general trends.

This year’s participants were Bill Baer, U.S. Assistant Attorney General for Antitrust; Edith Ramirez, Federal Trade Commission (FTC) Chairwoman; Kathleen Foote, Chair of the Multistate Antitrust Task Force of the National Association of Attorneys General; Margrethe Vestager, E.U. Commissioner for Competition; and Lord David Currie, Chairman of the one-year old UK Competition and Markets Authority (CMA). Below is a summary of certain highlights from the discussion.

Recent Domestic Achievements and Enforcement Priorities

Ramirez touted the FTC’s recent U.S. Supreme Court victory in North Carolina Board of Dental Examiners[1], in which the court held that a state licensing board was not entitled to state action immunity because active market participants controlled the board, and the board was not subject to active supervision by the state. Foote noted that states are currently taking steps to ensure compliance with this ruling.

Ramirez also highlighted the FTC’s current efforts to challenge the merger between the nation’s two largest food distributors, Sysco and US Foods. Foote noted that the Sysco/US Foods[2] case is a multistate effort, with 11 state attorneys general collaborating with the FTC.

Enforcement in the pharmaceutical industry, especially pertaining to reverse payment settlements, is a priority, panelists stated. Ramirez discussed the FTC’s ongoing litigation in three reverse payment settlement cases. She noted that in the aftermath of the Supreme Court’s ruling in Actavis[3], the FTC posits that non-monetary payments, such as supply agreements, could constitute reverse payments and thus be subject to antitrust scrutiny.

Foote remarked that reverse payment settlements are also a major state focus, pointing to the recent settlement between the New York Attorney General and two generic pharmaceutical companies, Ranbaxy Pharmaceuticals Inc. and Teva Pharmaceuticals USA Inc.

Global Cartel Enforcement: a Record-Breaking Year

Baer and Vestager highlighted the increasing number and severity of fines imposed on companies engaged in price-fixing, as well as prison sentences imposed on executives in the U.S. In recent years, enforcers have scrutinized conduct in a range of industries, including financial services, agriculture, ocean shipping, consumer goods and the auto parts industry.

Baer indicated that cartel enforcement accounts for more than 40 percent of the Antitrust Division’s work. Vestager noted that the European Commission (EC) rendered 10 decisions related to cartel activity in 2014, including eight settlements. She noted that settlements are part of the EC’s “toolbox,” but the EC would continue rendering infringement decisions to develop case law.

In contrast to the U.S. Department of Justice (DOJ) and the EC, Currie said that the CMA’s 2014 cartel record was not as strong as he would have liked and that the CMA received a recent budget increase in part to enhance enforcement efforts.

International Enforcement Cooperation

Each of the panelists praised the quality of international cooperation among antitrust agencies. Vestager said that 60 [...]

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FTC Clarifies “Failing Firm” Defense

by McDermott Will & Emery | Apr 2, 2015 | FTC Developments, Healthcare Antitrust, Mergers & Acquisitions

Earlier this week, the Federal Trade Commission (FTC) published an article that offers guidance on the “failing firm” or “flailing firm” defense often invoked in the hospital merger context. The article, written by Debbie Feinstein and Alexis Gilman of the Bureau of Competition, clarifies the circumstances under which this defense is and is not available.

At the outset, Feinstein and Gilman point out the basic requirements for establishing a failing firm defense, as set forth in § 11 of the Horizontal Merger guidelines:

the company is unable to meet its obligations as they come due;
the firm would not be able to reorganize successfully in bankruptcy; and
it has made unsuccessful good-faith efforts to elicit reasonable alternative offers that would keep its assets in the relevant market and pose a less severe danger to competition than does the proposed merger.

The article goes on to emphasize an additional nuance required for the defense—that the acquiring company is the only available purchaser. This goes hand-in-hand with requirement three listed above. As an example, the authors describe a recent FTC investigation that involved “a hospital that was clearly failing.” The hospital’s bankrupt status did not calm the FTC’s concerns about the transaction, because the FTC learned that there was an interested alternate purchaser who did not pose the same competitive risks as the chosen acquirer.

Even if the acquisition price of a “failing” or “flailing” firm is below the Hart-Scott-Rodino reporting threshold, potential acquirers should assess the antitrust risk associated with the transaction and be sure to factor any costs associated with that risk into the sticker price. The failing or flailing firm should be prepared to demonstrate the efforts it made to find an acquirer. Non-reportable transactions are within the FTC’s reach and are often on the agency’s radar, particularly in the health care context.

The full text of the article is available here.

FTC Consent Agreement with Par Petroleum Demonstrates Increased Agency Focus on Competitive Effects

by Emily Townsend | Mar 29, 2015 | FTC Developments, Joint Ventures/Competitor Collaboration, Mergers & Acquisitions

On March 18, 2015, the Federal Trade Commission (FTC) ordered Par Petroleum Corporation to terminate its storage and throughput rights at a key gasoline terminal in Hawaii. This action will settle FTC charges seeking to prevent Par’s acquisition of Koko’oha Investments, Inc. Notably, the market structure created as a result of this remedy mirrors a market structure that was deemed anticompetitive in a 2005 FTC action. The two differing approaches to the same market highlight a key trend in the FTC’s merger enforcement: the focus on competitive effects of a transaction, as opposed to the resulting market structure.

The Market for Hawaii-Grade Gasoline Blendstock

The allegedly anticompetitive transaction affects the market for Hawaii-grade gasoline blendstock. Gasoline blendstock is produced by refining crude oil and is later combined with ethanol to make finished gasoline. The finished gasoline is sold to Hawaiian consumers.

Prior to the transaction, there were four competitors in the market for Hawaii-grade gasoline blendstock. Par and another oil company competed by operating refineries and producing the blendstock on the Hawaiian Islands. The other two competitors, Mid Pac Petroleum, LLC, and Aloha Petroleum, Ltd., competed by sharing access to the only commercial gasoline terminal on the Islands not owned by a refinery and capable of receiving full waterborne shipments of gasoline blendstock. This terminal, the Barbers Point Terminal, was owned by Aloha, but Mid Pac shared access through a long-term storage and throughput agreement.

The two oil refiners produced more gasoline than was consumed in Hawaii. As a result, importing gasoline blendstock was unnecessary. However, Mid Pac and Aloha were able to constrain the price of gasoline blendstock purchased from the Hawaiian refiners by maintaining their ability to import gasoline blendstock through the Barbers Point Terminal.

The Proposed Transaction and the FTC Challenge

On June 2, 2014, Par agreed to acquire Koko’oha for $107 million. As part of this transaction, Par would acquire Koko’oha’s 100 percent membership interest in Mid Pac and, therefore, Mid Pac’s rights to access the Barbers Point Terminal. The FTC filed a complaint alleging this transaction was likely to substantially lessen competition in the bulk supply of Hawaii-grade gasoline blendstock.

The basis of the FTC’s action was that “[t]he Acquisition would weaken the threat of imports as a constraint on local refiners’ [gasoline blendstock] prices.” By acquiring Mid Pac’s throughput and storage rights at Barbers Point Terminal, Par would have an incentive to use those rights strategically to weaken Aloha’s ability to constrain the price of gasoline blendstock. The specific competitive concern the FTC cited was that Par would store substantial amounts of gasoline in the Barbers Point Terminal for extended periods of time. By doing so, Par would tie up the capacity at the terminal and thereby reduce the size of import shipment that Aloha could receive at the terminal. “This would force Aloha to spread substantial fixed freight costs over a smaller number of barrels of gasoline, which would significantly increase its cost-per-barrel of importing.”

On March 18, 2015, the FTC and Par [...]

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FTC Rule Change Simplifies Process Following a Denial of a Preliminary Injunction Motion

by Lisa A. Peterson | Mar 18, 2015 | FTC Developments, Mergers & Acquisitions

On March 14, 2015, the Federal Trade Commission (FTC) announced procedural revisions governing the FTC process when it loses an injunction bid in federal court, to block the consummation of a merger pending its in-house administrative proceedings on the legality of the merger.

When the FTC seeks to challenge a merger, the FTC generally seeks an injunction in court to prevent consummation of the merger pending the outcome of an internal administrative proceeding. If the injunction is implemented, it prevents the parties from integrating the assets and preserves the FTC’s ability to effectively and efficiently fix the merger should it be warranted at the conclusion of the administrative proceeding.

Under the new rules, when the FTC loses its request for an injunction, the pending in-house administrative proceeding will be automatically withdrawn or stayed at the request of the merging parties unless the FTC determines that continuing the litigation would serve the public interest. The intention of the new procedure it to make clear that the FTC will not automatically continue its internal administrative hearing to block a merger if it fails to win an injunction in federal court.

When deciding whether to continue its administrative proceedings, the FTC will still evaluate a proposed transaction under the same factors it used before the rule change. The five factors the FTC uses to determine whether it is in the public interest to pursue administrative proceedings are: (1) a federal court’s factual findings and legal conclusions; (2) any new evidence developed during the preliminary injunction proceeding; (3) whether administrative proceedings will resolve important issues of fact, law or merger policy raised by the transaction; (4) an overall evaluation of the costs and benefits; and (5) any other matter that influences whether it would be in the public interest to continue with the merger challenge.

The FTC’s procedural revision will go into force shortly. It will, therefore, be in effect before the outcome of its preliminary injunction hearing seeking to block the merger between Sysco Corp. and US Foods Inc. pending an internal administrative proceeding. The preliminary injunction hearing is set in May 2015 before Judge Amit Mehta in the United States District Court for the District of Columbia, and the in-house administrative proceeding is set for July. If the FTC loses the preliminary injunction hearing in federal court, the new procedure will be exercised for the first time.

FTC Competition Chief Defends Stand-Alone Section 5 Use in Unfair Competition Cases

by Young Cynn | Mar 16, 2015 | FTC Developments

In a blog post last Friday, Debbie Feinstein, Director of Competition at the Federal Trade Commission (FTC), defended the agency’s use of FTC Act Section 5 to target unfair methods of competition outside the scope of the Sherman and Clayton Acts.

While the use of Section 5 in consumer protection cases has long been established, many, including U.S. Congress members and FTC Commissioners, have urged the FTC in recent years to issue clearer guidelines on how Section 5 will be used to target conduct related to unfair methods of competition. Feinstein suggested that those interested in the FTC’s future use of Section 5 “should look at what the Commission has done and the reason it gave for acting to stop the behavior. . . . The touchstone of every stand-alone Section 5 claim . . . is likely or actual harm to competition or the competitive process.”

Feinstein pointed specifically to invitation to collude cases as a prime example of the type of conduct prosecuted in a stand-alone Section 5 action. The FTC first brought an invitation to collude case in the early 1990s, see Quality Trailer Products, 115 F.T.C. 922 (1992), in which Quality Trailer Products employees visited a competitor and urged it to raise its prices while stating that Quality Trailer would also raise prices. Since that time, the FTC has continued to use Section 5 to bring actions in invitation to collude cases. Most recently, the FTC brought complaints against two internet resellers of UPC barcodes in July 2014, alleging they had sent messages to one of their competitors proposing a scheme to raise their prices in line with the prices of another competitor. Feinstein suggested that the large number of cases brought unanimously by the Commissioners “demonstrates that we are using our stand-alone Section 5 authority responsibly.”

Feinstein also noted that nearly all stand-alone Section 5 cases brought by the FTC have resulted in an injunctive remedy — “I want to underscore that the Commission’s policy is not to seek disgorgement in stand-alone Section 5 cases. . . . Without the threat of a monetary penalty (let alone treble damages), I find it hard to understand the claim that significant procompetitive conduct is chilled by the possibility that the FTC may use its stand-alone Section 5 authority in some unforeseen way.”

FTC and DOJ Host Workshop Examining Health Care Competition

by McDermott Will & Emery, Ashley Fischer, Lisa A. Peterson, Stephen Wu and McDermott Will & Emery | Mar 4, 2015 | DOJ Developments, FTC Developments, Healthcare Antitrust, Mergers & Acquisitions

The Federal Trade Commission (FTC) and the Antitrust Division of the U.S. Department of Justice (DOJ) held a public workshop on February 24–25, 2015, to examine recent trends and developments in health care provider organization and payment models, and their potential effects on competition in the provision of health care services. A main message from FTC and DOJ leadership at the workshop is that the agencies evaluate new provider and payment models for their adherence to competition principles, effect on cost of care, access and quality, and avoidance of market power.

Read the full article.

FTC Merger Review Likely to Incorporate Analysis of Privacy Issues

by Emily Townsend | Mar 3, 2015 | Consumer Protection/Privacy, FTC Developments, Mergers & Acquisitions

The Federal Trade Commission (FTC or the Commission), along with the U.S. Department of Justice, can challenge mergers it believes will result in a substantial lessening of competition – for example through higher prices, lower quality or reduced rates of innovation. Although the analysis of whether a transaction may be anticompetitive typically focuses on price, privacy is increasingly regarded as a kind of non-price competition, like quality or innovation. During a recent symposium on the parameters and enforcement reach of Section 5 of the FTC Act, Deborah Feinstein, the director of the FTC’s Bureau of Competition, noted that privacy concerns are becoming more important in the agency’s merger reviews. Specifically she stated, “Privacy could be a form of non-price competition important to customers that could be actionable if two kinds of companies competed on privacy commitments on technologies they came up with.”

At this same symposium, Jessica Rich, director of the FTC’s Bureau of Consumer Protection, remarked on the agency’s increasing expectations that companies protect the consumer data they collect and be more transparent about what they collect, how they store and protect it, and about third parties with whom they share the data.

The FTC’s Bureaus of Competition and Consumer Protection fulfill the agency’s dual mission to promote competition and protect consumers, in part, through the enforcement of Section 5 of the FTC Act. With two areas of expertise and a supporting Bureau of Economics under one roof, the Commission is uniquely positioned to analyze whether a potential merger may substantially lessen privacy-related competition.

The concept that privacy is a form of non-price competition is not new to the FTC. In its 2007 statement upon closing its investigation into the merger of Google, Inc. and DoubleClick Inc., the Commission recognized that mergers can “adversely affect non-price attributes of competition, such as consumer privacy.” Commissioner Pamela Jones Harbour’s dissent in the Google/DoubleClick matter outlined a number of forward-looking competition and privacy-related considerations for analyzing mergers of data-rich companies. The FTC ultimately concluded that the evidence in that case “did not support the theories of potential competitive harm” and thus declined to challenge the deal. The matter laid the groundwork, however, for the agency’s future consideration of these issues.

While the FTC has yet to challenge a transaction on the basis that privacy competition would be substantially lessened, parties can expect staff from both the Bureau of Competition and the Bureau of Consumer Protection to be working closely together to analyze a proposed transaction’s impact on privacy. The FTC’s review of mergers between entities with large databases of consumer information may focus on: (1) whether the transaction will result in decreased privacy protections,i.e., lower quality of privacy; and (2) whether the combined parties achieve market power as a result of combining their consumer data.

This concept is not unique to the United States. The European Commission’s 2008 decision inTomTom/Tele Atlas examined whether there would be a decrease in privacy-based competition [...]

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Supreme Court: State Agencies Controlled by Active Market Participants Must Have Active State Supervision to Qualify for Antitrust Immunity

by Emily Townsend | Mar 3, 2015 | FTC Developments, Healthcare Antitrust

The Supreme Court of the United States’ recent ruling in North Carolina State Board of Dental Examiners v. Federal Trade Commission held that in order for a state agency controlled by active market participants to receive federal antitrust immunity under the state-action doctrine, that agency must be actively supervised by the state. State licensing boards and other agencies that include market participants should take careful note of the decision’s potentially wide-reaching effects.

Read the full article.

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