Antitrust Lawyer Blog Commentary on Current Developments

Articles Posted in Antitrust Litigation Highlights

On Monday, August 1, 2016, five retail pharmacies filed a class action lawsuit against Express Scripts Inc., alleging that Express Scripts usurped patient prescription data gained from independent pharmacies through its pharmacy benefit management business to divert sales to its competing mail-order pharmacy.  According to the complaint, Express Scripts used the customer information provided to it by the independent pharmacies for insurance eligibility verification and collection purposes to determine when patients are eligible for prescription refills.  As alleged in the complaint, Express Scripts then fills the prescriptions using its mail-order pharmacy, often without the patient’s consent, and collects the insurance payments for itself.  Among other claims, the pharmacies are alleging unjust competition, breach of contract, violation of the Uniform Trade Secrets Act, and fraud.

On July 21, the U.S. Department of Justice’s Department of Justice (“DOJ”) and several state attorneys general filed two lawsuits, challenging two major health insurer mergers: (1) Anthem, Inc.’s (“Anthem”) proposed $48.4 billion purchase of Cigna Corporation (“Cigna”) and (2) Aetna Inc.’s (“Aetna”) planned $37 billion acquisition of Humana Inc. (“Humana”).

While the cases are substantially different, both complaints contain some similar allegations.  Both complaints describe the proposed mergers as consolidation of the “big five” insurers to the “big three, each of which would have almost twice the revenue of the next largest insurer.”   Taken together, they would cut the number of major health insurers from five to three, with UnitedHealth Group Incorporated (“UnitedHealth”) being the only other remaining large player.  Both complaints say the mergers will harm competition by “eliminating two innovative competitors – Humana and Cigna – at a time when the industry is experimenting with new ways to lower healthcare costs.”  Both complaints allege that the mergers will restrain competition in the sale of individual policies on the public insurance exchanges.

However, the cases are different in that they focus on different product and geographic markets and that the Anthem/Cigna complaint contains a monopsony claim while the Aetna/Humana complaint does not.  The Anthem/Cigna complaint alleges that that merger will restrain competition in the “purchase of healthcare services by commercial health insurers,” as well as the sale of commercial health insurance to national accounts and large-group employers, and the sale of individual policies on the public insurance exchanges.  The Anthem/Cigna complaint also includes an allegation that the merger would substantially increase Anthem’s ability to dictate the reimbursement rates it pays hospitals, doctors, and healthcare providers, threatening the availability and quality of medical care.  The DOJ alleges that Anthem already has bargaining leverage over healthcare providers and this acquisition would make the situation worse in 35 metropolitan areas.  This is otherwise known as a monopsony theory.   The Aetna/Humana complaint alleges anticompetitive effects only in the sale of Medicare Advantage policies to individual seniors and the sale of individual polices on the public exchanges.   The Aetna complaint does not charge a violation in the market for the purchase of healthcare services, and therefore does not rely on a monopsony theory.  Even where the complaints overlap with respect to product market as is the case with the sale of individual policies on the public insurance exchanges, the geographic markets are different.

On July 12, 2016, ValueAct agreed to pay a record fine of $11 million to settle the Department of Justice Antitrust Division’s (“DOJ”) allegations that ValueAct violated the reporting requirements under of the Hart-Scott-Rodino Act (“HSR Act”) by improperly relying on the “investment only” exemption.

HSR Exemption

The HSR Act imposes notification and waiting period requirements for transactions meeting certain size thresholds to ensure that such transactions undergo premerger antitrust review by the DOJ and the Federal Trade Commission.  The HSR Act has a narrow exemption for acquisitions of less than 10 percent of a company’s outstanding voting securities if the acquisition is made “solely for the purposes of investment” and the purchaser has no intention of participating in the company’s business decisions.  In other words, if a person or company intends to be a passive investor and the investment in securities is less than 10 percent of a company’s outstanding securities, the exemption may apply.

On May 29, 2015, the Federal Trade Commission (“FTC”) issued an administrative complaint alleging that Steris Corporation’s (“Steris”) proposed $1.9 billion acquisition of Synergy Health plc (“Synergy”) would violate the antitrust laws by significantly reducing future competition in regional markets for sterilization of products using radiation, particularly gamma or x-ray radiation.

Background

On October 13, 2014, Steris, headquartered in Mentor, Ohio, announced its intention to acquire Synergy, headquartered in the United Kingdom.  On January 9, 2015, the parties received request for additional information and documentary material (“second requests”).  On April 30, 2015, the parties announced that they certified compliance and entered into a timing agreement where they agreed to close the combination before June 2, 2015, unless the FTC closes the investigation before June 2nd.

On March 16, 2015, the Department of Justice (“DOJ”) and New York State Attorney General announced that they reached a settlement with Coach USA Inc., City Sights LLC and their joint venture, Twin America LLC, to remedy competition concerns in the New York City hop-on, hop-off bus tour market.  This case is noteworthy because it is the first time the DOJ’s Antitrust Division sought and obtained disgorgement in a consummated merger matter.

Background

In March of 2009, Twin America, LLC was formed by Coach USA, Inc. and City Sights, LLC.  Coach USA and City Sights were operators of double-decker tour buses that had aggressively competed against each other to attract customers, which were and are for the most part, visitors/sightseers in New York city.  Indeed, the Antitrust Division’s complaint alleged that prior to the formation of Twin America, LLC, Coach USA, the long-standing market leader through its “Gray Line New York” brand, and City Sights, a firm that launched the “City Sights NY” brand in 2005, accounted for approximately 99 percent of the hop-on, hop-off bus tour market in New York City.  Between 2005 and early 2009, the two companies engaged in vigorous head-to-head competition on price and product offerings that directly benefited consumers.

On March 13, 2015, the Federal Trade Commission (“FTC”) announced revisions to its rules regarding the FTC’s process of determining whether to continue on with an administrative challenge to a merger in the situation when it loses a preliminary injunction motion in federal court.

When the FTC seeks to challenge a transaction, the FTC generally seeks a preliminary injunction in federal court to prevent consummation of the transaction pending the outcome of an internal administrative trial.  If the injunction is implemented, it prevents the parties from integrating the assets until the conclusion of the administrative proceeding.  The preliminary injunction is important as it preserves the FTC’s ability to create an effective merger remedy in the event the FTC’s Administrative Law Judge (“ALJ”) finds that the merger violates the antitrust laws.

Under new changes to Commission Rule of Practice 3.26, if the FTC loses its request for an injunction, the pending administrative proceeding will be automatically withdrawn or stayed if the parties file a motion to have the administrative case withdrawn.  If all respondents move to have the administrative case withdrawn from adjudication, it will automatically be withdrawn two days after the motion is filed.  If any motion to dismiss the administrative complaint is filed, the administrative case will automatically be stayed until seven days after the Commission rules on the motion for dismissal.  All deadlines will be tolled for the amount of time the proceeding is stayed.  While the automatic withdrawal of the complaint and stay are characterized as new changes to FTC rules, the changes to Rule 3.26 actually reinstate the long standing practice of an automatic withdrawal from, or stay of, the administrative litigation that was in place until 2009.

On September 8, 2014, the Federal Trade Commission (“FTC”) filed a complaint in the U.S. District Court for the Eastern District of Pennsylvania alleging that several major pharmaceutical companies with entering into an anticompetitive agreement that effectively blocks U.S. consumers’ access to lower-cost versions of the blockbuster drug AndroGel.

Background on Reverse Payment

The agreement at issue is referred to as a reverse payment patent settlement or as a “pay-for-delay” agreement.  These agreements occur after a brand-name drug manufacturer sues a generic manufacturer for patent infringement. In an effort to settling the patent infringement litigation, the companies enter a pay-for-delay agreement, whereby the generic firm controlling the generic drug that seeks to enter the market, accepts a payment to stay out of the market for a certain period of time.  Over the years, there has been a lot of debate on whether these agreements should be considered illegal per se. The FTC took the position that the agreements are illegal, while others believe the agreement could be procompetitive under certain circumstances.

On September 5, 2014, the Federal Trade Commission (“FTC”) announced that it is retracting the proposed settlement agreement with Phoebe Putney Health System, Inc (“Phoebe”), for the extended antitrust litigation regarding its acquisition of its rival Palmyra Park Hospital (“Palmyra”) in Albany, Georgia.

The FTC decided to retract its initial proposed settlement, which included no structural remedies, after its public comment period revealed that Georgia’s Certificate of Need (“CON”) laws do not preclude the FTC from seeking meaningful structural relief.

The FTC’s complaint in 2011 alleged that the merger between Phoebe and Palmyra Park would significantly reduce competition of acute-care hospital services sold to commercial health plans in the six-county area surrounding Albany, Georgia, resulting in higher prices and lower quality of service for patients and their employers. The combined hospitals controlled an 85 percent market share.

On September 5, 2014, following a public comment period, the Federal Trade Commission (“FTC”) has approved a final order settling charges that Actavis plc (“Actavis”)’s acquisition of Forest Laboratories (“Forest”), Inc. would likely be anticompetitive. Under the proposed order, the two companies agreed to divest four drugs in order to preserve competition in those markets.

On July 1, 2014, Actavis announced that it has completed the acquisition of Forest in a cash and equity transaction currently valued at approximately $28 billion. The combination creates one of the world’s fastest-growing specialty pharmaceutical companies, with annual revenues of more than $15 billion anticipated for 2015.

On a pro forma combined basis for full year 2014, the combined company will have an approximately $2 billion CNS franchise; Gastroenterology (GI) and Women’s Health franchises valued at approximately $1 billion each; a Cardiovascular franchise that generates approximately $500 million; and Urology and Dermatology/Established Brand franchises approaching $500 million a year in sales each.

On July 14, 2014, New York State Attorney Eric Schneiderman announced that Casella Wastes (“Castella”), a waste management company based in Vermont but also serving New York, agreed to change its existing contracting practices in the face of antitrust scrutiny.

Casella was found to have unlawfully restricted competition through its acquisition of smaller competitors and restriction on contract terms that ties customers to its services. These contracts involved the collection and disposal of solid waste from dumpsters.  Casella’s contracts required that it serve as the sole provider to all of a customer’s waste disposal needs for at least five years. Early termination of the contract would cost the customer the equivalent of six times the amount on their monthly bill.  In addition, Casella also reserved the right to match competing offers from rivals, effectively discouraging competitors from bidding for Casella’s business.

The terms of the settlement reduced the customer’s burden of terminating a Casella contract: the customer is now only expected to pay the equivalent of two months of service if the contract is within its first year, and the equivalent of one month of service if the contract is beyond the first year.  In addition, Casella’s contract length is also to be capped at two years.