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.
North Carolina’s dentists were not smiling when a three judge panel of the U.S. Court of Appeals for the Fourth Circuit sided with the Federal Trade Commission in a challenge to the State Board of Dental Examiners’ policy that only dentists could perform teeth whitening. On July 15, 2013, the board filed a petition asking the full court to reconsider the panel’s May 31, 2013 decision. N.C. State Bd. of Dental Examiners v. FTC, No. 12-1172.
The dispute centers on whether the state action doctrine shields the board’s policy from antitrust scrutiny. That doctrine holds that state actors need only show that the state had a clearly articulated policy to displace competition with regulation. However, private parties invoking the doctrine must also show that they are actively supervised by the state. The Fourth Circuit panel concluded that since the board is composed of licensed dentists who have a financial interest in the market and are answerable to other members of the profession with a similar interest, the board needed to demonstrate active state supervision. The board countered that it is a state agency and therefore does not need to satisfy this additional requirement.
The North Carolina State Bar, and the National Association of Boards of Pharmacy together with the North Carolina Board of Pharmacy and North Carolina Board of Physical Therapy Examiners, submitted amici briefs supporting the dental board’s petition.
McDermott Will & Emery is pleased to announce the publication of Antitrust and Healthcare: A Comprehensive Guide, First Edition. This new publication, produced by American Health Lawyers Association provides invaluable “practice pointers” to help healthcare industry participants, and their counsel, minimize antitrust risk and more successfully plan and execute business and litigation strategies. McDermott partner, David Marx, Jr., co-authored this first edition with Christine L. White and Saralisa C. Brau of the Federal Trade Commission. The authors draw on their significant government enforcement and private-sector counseling and litigation experience to explain the application of antitrust principles to the different segments of the healthcare industry and the specific issues they confront. Health care lawyers and antitrust practitioners will find this new guide a complete resource for representing all types of organizations including healthcare providers; commercial insurance companies and managed care organizations; for-profit, not-for-profit, and government-owned or controlled concerns; self-insured employers; and professional partnerships. Sections covered include:
Antitrust Overview
Mergers, Acquisitions, and Issues of Legality
Premerger Notification and Transaction Planning
Joint Ventures
Provider Networks and Managed Care Contracting
Trade Associations and Group Purchasing Organizations
Medical Staff Privileges, Exclusive Physician Contracts, and Peer Review
Monopolization
The Robinson-Patman Act
Exemptions and Immunities
The full table of contents can be viewed here. To purchase the book, click here.
FTC Commissioner Julie Brill addressed attendees at the 2013 National Summit on Provider Market Power on June 11. The focus of her remarks were on the intersection of antitrust, the Affordable Care Act (ACA) and Accountable Care Organizations (ACOs). She first touched on the ACA. Noting the empirical evidence shows that high concentration among health care providers has harmful competitive effects, she was optimistic that the exchanges that will be established as a result of the ACA will offer consumers a range of competing, affordable health care products and will encourage greater competition in local insurance markets.
Turning to ACOs and antitrust, she stated that the FTC is starting to hear providers contend that the ACO program is a justification for their (alleged) anticompetitive activity. Providers complain that the government is "talking out of both sides of their mouth" with Centers for Medicare & Medicaid Services (CMS) encouraging coordination via the ACO program and the antitrust agencies challenging coordination. Commissioner Brill disagreed stating that "the goals of the ACA and antitrust enforcement are aligned and compatible." She noted the extensive cooperation between CMS and the antitrust agencies. She explained that the ACA requires coordination of care but that it "neither requires nor encourages to merger or otherwise consolidate," but like any collaboration short of a merger, they must do so in a way that does not violate antitrust laws. Commissioner Brill also stated that ACOs are flourishing and only two provider groups have thus far sought antitrust guidance as permitted under the ACO Policy Statement from the agencies before forming the ACOs.
Finally, Commissioner Brill emphasized that the FTC will continue to investigate provider collaborations or mergers where there may be competitive harm. She made a point to clarify that the FTC evaluates all assertions of efficiencies and quality improvements but that parties must provide "good documentary evidence" to support these assertions.
Commissioner Brill’s speech is consistent with the posture and approach the agencies have been taking with regard to provider consolidations in the relatively new landscape being built by the ACA and formation of ACOs. There is not yet enough data to see exactly how the ACA will affect providers from an antitrust perspective. But providers can be certain that the agencies will continue to look closely at any consolidation or collaboration that may violate the antitrust laws, regardless of whether the activity was taken to try to comply with the ACA.
On May 31, the Federal Trade Commission (FTC) recorded yet another victory in its continuing efforts to limit the scope and application of antitrust immunity under the state action doctrine. The Fourth Circuit ruled that the North Carolina State Board of Dental Examiners’ efforts to block non-dentists from providing teeth-whitening services was not entitled to antitrust immunity because the Board’s activities were not actively supervised by the state. North Carolina State Board of Dental Examiners v. Federal Trade Commission, Case No. 12-1172 (4th Cir. May 31, 2013).
The case focused on the activities of the North Carolina state agency, which is composed of several practicing dentists, a dental hygienist and a consumer representative. The Board licenses dentists in the state and is otherwise empowered to take disciplinary measures against licensees. Beginning in approximately 2003, in response to complaints from dentists practicing in the state, the Board opened numerous investigations into teeth-whitening services provided by non-dentists. As a result of these investigations, the Board issued dozens of cease-and-desist letters to such service providers and sought to restrict the market to licensed dentists by other means.
The Board’s activity attracted the attention of the FTC, which issued an administrative complaint in 2010 charging that the Board violated the FTC Act by acting to exclude non-dentist teeth whiteners from the market in North Carolina. A trial on the merits before an administrative law judge found the Board had violated the Act. On appeal, the FTC affirmed and entered a final order enjoining the Board from, among other things, continuing to unilaterally issue extra-judicial orders to teeth-whitening services in North Carolina. The Fourth Circuit’s decision came in response to the Board’s petition for review of the FTC’s order.
The Board maintained that it was a state entity created to regulate the practice of dentistry, which encompassed the teeth-whitening services. Under the state action doctrine, private parties may claim immunity from the antitrust laws if they act according to a “clearly articulated and affirmatively expresses state policy,” and their behavior is “actively supervised by the State itself.” California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc. (445 U.S. 97, 105 (1980). Municipalities and sub-state entities benefit from a less restrictive test. Such entities must act pursuant to a “state policy to displace competition with regulation or monopoly public service.” FTC v. Phoebe Putney Health System, Inc., 133 S. Ct. 1003, 1010 (2013). These entities are not required to demonstrate the “active state supervision” required under the two-prong Midcal test because with such entities there is little danger that their activities involve a private anti-competitive activities. Town of Hallie v. City of Eau Claire, 471 U.S. 34, 47 (1985).
Relying on its status as a state entity, the Board maintained that it was not subject to the “active supervision” prong required under Midcal. The FTC countered that entities like the Board, regulatory bodies made up of market participants, were subject to the stricter Midcal test. The FTC focused on the need to [...]
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.
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.
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