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.
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 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.
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.
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.
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.
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.
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: https://ftc.gov/opa/2011/05/sanofi.shtm.
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.
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