Healthcare Antitrust Issues

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1 Quick Hit on Healthcare Antitrust Sponsored By The Association of Corporate Counsel, Health Law Committee September 10, 2013 Mark J. Horoschak, Partner WOMBLE CARLYLE SANDRIDGE & RICE, LLP Healthcare Antitrust Issues Hospital Mergers and Physician Consolidation The Affordable Care Act (ACA) and Accountable Care Organizations (ACOs) Pharmaceutical Reverse Payments Health Insurance MFNs and Network Exclusions Information Exchanges 2 1

2 Hospital Mergers and Physician Consolidation [T]he FTC... is actively and aggressively monitoring and enforcing the antitrust and competition laws when it comes to provider consolidation. - Maureen K. Ohlhausen, Commissioner, Federal Trade Commission, Hospital Consolidation: The Good, The Bad, and The Ugly, before the 2013 National Policy Forum America s Health Insurance Plans, March 13, Hospital Mergers and Physician Consolidation Since 2011, the FTC has challenged six hospital mergers or hospital acquisitions of physician groups: St. Luke s Health System (acquisition of state s largest independent, multi-specialty physician practice) Renown Health (acquisition of cardiology groups by hospital system) Reading Health System (acquisition of surgical specialty hospital by large health system) OSF Healthcare and Rockford Health System (merger of two must haves for payors) Phoebe Puntey Health System and Palmyra Park (consummated merger of only other hospital in county) ProMedica Health System and St. Luke s (consummated acquisition of hospital by dominant hospital system) 4 2

3 The ACA and ACOs The argument that the ACA encourages providers to consolidate whereas the antitrust laws require that providers compete is mistaken. The ACA requires providers to create entities that coordinate the provision of patient care services. The ACA neither requires nor encourages providers to merge or otherwise consolidate. - Julie Brill, Commissioner, Federal Trade Commission, Promoting Health Completion in Health Care Markets: Antitrust, the ACA, and ACOs, before the 2013 National Summit on Provider Market Power Catalyst For Payment Reform June 11, The ACA and ACOs Federal regulations stipulate that CMS will rely on the antitrust agencies to use their existing enforcement processes for evaluating concerns raised about an ACO s formation or conduct and [to file] antitrust complaints when appropriate. Dep t of Health & Human Servs., Centers for Medicare & Medicaid Servs., Medicare Program; Medicare Shared Savings Program: Accountable Care Organizations, 42 C.F.R. 425 (2011), 76 Fed. Reg. 67,826 (Nov. 2, 2011)(CMS Final Rule). Under those regulations, CMS can exclude from the Shared Savings Program any ACO that violates the antitrust laws. 6 3

4 The ACA and ACOs On October 20, 2011, Department of Justice/Federal Trade Commission issued the final Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program. An ACO is an organization of health care providers that jointly offer services to reduce costs an improve quality of patient care. Under the policy statement, an ACO may calculate its Primary Service Area shares to determine whether it includes an unduly large number of providers and effectively operates as an exclusive network so as to raise significant competitive concerns. Also under the policy statement, a newly formed ACO may request voluntary expedited antitrust review of its program. 7 Reverse Payments The Court has made it clear that pay-for-delay agreements between brand and generic drug companies are subject to antitrust scrutiny, and it has rejected the attempt by branded and generic companies to effectively immunize these agreements from the antitrust laws. - FTC Chairwoman Edith Ramirez on the U.S. Supreme Court s Decision in FTC v. Actavis, Inc., June 16,

5 Reverse Payments In Actavis, the Supreme Court held that reverse-payment patent settlements agreements in which a brand-name drug manufacturer pays a would-be competitor to abandon its patent challenge and agrees not to sell its generic drug product for a number of years are not immune from antitrust scrutiny and are subject to rule-of-reason analysis. FTC v. Actavis, Slip Op. No (S. Ct. June 17, 2013). On August 14, 2013, the FTC filed an amicus brief in the US District Court addressing the question of whether a branded company's commitment not to launch an authorized generic in competition with a generic company can be a reverse payment under the Supreme Court s ruling in Activis. In re Effexor XR Antitrust Litigation, No. 3:11-cv (D.N.J.) (August 14, 2013). 9 MFNs and Network Exclusions One area of focus for us and for the FTC is so-called most favored nation clauses (MFNs). Such provisions potentially distort the competitive process by raising the costs of health insurance and hospital services, preventing other insurers from entering the market and discouraging discounts. - Statement of William J Baer, Assistant Attorney General, Antitrust Division of the U.S. Department of Justice before the U.S. Senate Committee on the Judiciary s Subcommittee on Antitrust, Competition Policy and Consumer Rights at a hearing titled Oversight of the Enforcement of the Antitrust Laws presented on April 16,

6 MFNs and Network Exclusions In 2010, the DOJ filed a lawsuit challenging Blue Cross Blue Shield of Michigan s (BCBSM) use and enforcement of MFNs in its contracts with Michigan hospitals. These provisions required hospitals to charge BCBSM no more than they charge its competitors or to charge competitors more than they charge BCBSM, making it harder for its rivals to compete and survive. In 2011, the DOJ challenged United Regional Health Care System s use of exclusionary contracts with health insurers to maintain market power in the Wichita Falls, Texas market. The system had entered into a number of contracts with insurers that imposed a significant pricing penalty on those insurers if they contracted with a competing facility in the local region. In 2012 the DOJ and the FTC held a workshop on MFN clauses that examined under what circumstances MFNs can present competitive concerns in health insurance markets. On March 18, 2013, the State of Michigan enacted a statute to ban the use of MFNs in health care provider contracts, becoming the latest in a growing list of states that statutorily restrict or prohibit such provisions. Twenty other states currently prohibit or restrict the use of MFNs in health care contracts. 11 Information Exchanges Exchanges of information between competitors, including competitively sensitive information, are not per se illegal under the Sherman Act, but instead are judged under the rule-of-reason. United States v. U.S. Gypsum Co., 438 U.S. 422 (1978). FTC and the Department of Justice Antitrust Division s 1996 Joint Statements of Antitrust Enforcement Policy in Healthcare provides that the agencies generally will not challenge information exchanges if: The exchange is managed by a third party; The information provided by participants is based on data that is more than three months old; There are at least five contributors of data for each disseminated statistic; No individual participant s data represents more than 25 percent of any particular statistic; and Shared information is sufficiently aggregated so that participants are unable to identify the data of any other participants. 12 6

7 Information Exchanges In 2006, registered nurses filed five lawsuits against a number of hospital organizations in five metropolitan regions, alleging that the hospitals practices of sharing and obtaining wage information allegedly helped fix registered nurse wages in violation of Section 1. Most of those cases settled. However, one case, although dismissing the plaintiff s per se claims, allowed the plaintiff s rule-of-reason claims to go to trial. Cason-Merenda v. Detroit Medical Center, 862 F. Supp. 2d 603 (E.D. Mich. 2012). The parties settled prior to trial. Many of the exchanges among defendants did not satisfy the federal agencies safety zone criteria. 13 7