LawFlash

Healthcare Tops the Agenda of U.S. Antitrust Enforcers

April 04, 2012

Agencies promise close scrutiny of hospital mergers, reverse payment settlements, and REMS abuses.

During a roundtable discussion featuring federal and state enforcers at the American Bar Association Section of Antitrust Law's Annual Spring Meeting on March 30, 2012, Sharis Pozen, the Department of Justice's acting Assistant Attorney General for Antitrust, declared that U.S. enforcement agencies "will litigate and win" difficult cases. This bold message will perhaps have the most significant impact on firms in the healthcare and pharmaceutical sectors, which were singled out for scrutiny by the Antitrust Division, the Federal Trade Commission (FTC), and state attorneys general. The enforcers' remarks during the March 30 roundtable provide healthcare providers and drug manufacturers several indications of the key areas that will draw enforcement attention in the coming year.

Hospital Mergers

According to Chairman Jon Leibowitz, the FTC will continue to scrutinize hospital mergers that could limit patient choice. In December 2011, based on a finding of likely anticompetitive effects in a market for acute care inpatient hospital services, the FTC ordered ProMedica Health to divest St. Luke's Hospital in Toledo, Ohio. The FTC has several other hospital merger cases currently in litigation, including, most prominently, a challenge to Phoebe Putney Health System's proposed acquisition of Palmyra Park Hospital in Albany, Georgia. Chairman Leibowitz highlighted the March 23, 2012, petition for certiorari filed by the Solicitor General at the request of the FTC, which asks the Supreme Court to review the Eleventh Circuit's affirmance of the district court's dismissal of the FTC's challenge to the merger on the basis of the "state action" doctrine. Based on Chairman Leibowitz's comments, aggressive and resource-intensive challenges to hospital mergers, like Phoebe Putney, are likely to continue.

The FTC will not be alone. Speaking on behalf of state attorneys general, James A. Donahue, III, head of the Pennsylvania Attorney General's Antitrust Section, said that the Patient Protection and Affordable Care Act (PPACA) has led to an explosion of interest in the formation of non-Hart-Scott-Rodino (HSR) reportable accountable care organizations (ACOs), which, he said, can increase costs for patients rather than lowering them. State antitrust regulators, according to Donahue, will be looking closely at ACOs in the coming year to determine whether those alliances harm local competition for medical services.

Reverse Payment Settlements

The FTC will continue to challenge so-called "pay for delay" patent settlements in which pioneer drug companies settle patent infringement lawsuits brought against their generic rivals by, in the words of Chairman Leibowitz, putting a "big bag of cash on the table" in exchange for an agreement by the generic manufacturer to stay out of the market. Chairman Leibowitz estimated that such settlements enable branded manufacturers to charge higher prices at an estimated cost to consumers of $3.5 billion annually. As evidence that the FTC continues to view reverse payment settlements as a top priority, Chairman Leibowitz highlighted the agency's recently filed amicus brief in the K-Dur case, which currently is pending before the U.S. Court of Appeals for the Third Circuit. Chairman Leibowitz said he is "confident" that the FTC's position that reverse payment settlements are unlawful will ultimately be vindicated either in court or by Congress. He made it clear that parties to such settlements should not be surprised to find themselves under investigation and ultimately in litigation with the FTC.

REMS Abuses

To further its goal of lowering the costs of prescription drugs, the FTC indicated that in the coming year it will be paying close attention to abuses of Risk Evaluation and Mitigation Strategies (REMS) by pioneer drug manufacturers that the FTC concludes may be designed to insulate those manufacturers from generic drug competition. Under the FDA Amendments Act of 2007, the Food and Drug Administration may require the manufacturer of a potentially dangerous drug or biologic medicine to adopt a REMS for that drug or biologic if it concludes that such protocols are necessary to ensure that the benefits of the drug or biologic outweighs its risks. REMS for a drug or biologic proposed by a pioneer manufacturer often include restrictions on distribution and disbursement to ensure safe use.

In one case filed in the U.S. District Court for the Eastern District of Pennsylvania, a private litigant alleged that Celgene Corporation misused REMS requirements to deny access to samples of the branded myeloma drug, Thalomid, to its generic rivals. That lawsuit was settled before trial, but it apparently prompted the FTC to issue civil investigative demands to Celgene. At this point, the status of that investigation is unclear, but according to Chairman Leibowitz, the FTC plans to ramp up its efforts in the coming year to stop pioneer drug manufacturers from using REMS as a "pretext" for denying generic drug manufacturers access to drug samples that would enable them to do bioequivalence testing as a prerequisite to the filing of an Abbreviated New Drug Application. Such strategies, according to the FTC, have the potential to block or delay market entry by a generic competitor and result in increased drug prices to consumers. While the FTC did not mention biologics specifically, with the creation of an approval pathway for biosimilars in the PPACA, similar issues of applicability of REMS requirements may arise regarding biosimilars.

Contacts

If you or your company could be affected by these government initiatives and you need additional information, please contact any of the following Morgan Lewis attorneys:

New York
Harry T. Robins
Heather E. Fuentes
Sarah Sandok Rabinovici

Philadelphia
Steven A. Reed
R. Brendan Fee

Washington, D.C.
J. Clay Everett
Thomas J. Lang
Jonathan M. Rich
Scott A. Stempel
David Brenneman
Daniel A. Schiffer

San Francisco
Kent M. Roger