Health and Pharmaceuticals Committee: Recent Developments Series February-April 2012 April 26, 2013 12:00PM EDT Davis Wright Tremaine LLP
Agenda Agency overview State action Reverse payments ACOs and provider networks Other litigation 2
Agency overview The FTC Edith Ramirez named Chair (March 2013) FTC is down to four commissioners after Jon Leibowitz s term ended Edith Ramirez Maureen Ohlhausen Julie Brill Joshua Wright 3
Agency overview FTC Annual Highlights (Spring Meeting) 4
Agency overview Tension between ACA and antitrust law? Providers think so HHS view? FTC: status quo http://newsandinsight.thomsonreuters.com/legal/news/2013/04_- _April/Health_secretary_says_health_reform_in_tension_with_antitrust_law/ 5
Agency update DOJ dismisses MFN case (Michigan BCBS) DOJ challenged BCBS use of MFNs Claimed MFNs anticompetitive because of large market share; restrict negotiations for lower rates State now bars MFNs www.justice.gov/atr/public/press_releases/2013/295114.htm 6
Agency overview FTC letter re: APRNs Request for comments from legislature Long line of similar letters Law to eliminate requirement for collaborative agreements with MDs Pro-competitive as long as no impact on patient safety www.ftc.gov/opa/2013/03/aprn.shtm 7
Agenda Agency overview State action Reverse payments ACOs and provider networks Other litigation 8
Phoebe Putney Headlines: Supreme Court rules state action doctrine doesn t immunize the Phoebe Putney deal FTC renews litigation, filing amended complaint and seeking injunction 9
Phoebe Putney Two hospitals in Albany, GA Phoebe Putney Hospital Owned by County Hospital Authority But leased in 1991 to Phoebe Putney Health System which operates the Hospital Palmyra Medical Center Owned by HCA 10
Phoebe Putney The deal Hospital Authority would buy Palmyra, using Phoebe s $195MM, then lease Palmyra to Phoebe Putney Health System Phoebe Putney Health System negotiated deal Told Authority only after it was done Changes would cost $$ 11
Phoebe Putney FTC challenged in district court (2011) Claimed deal would combine the only two hospitals in Albany, GA, with 86% share Court denied injunction, dismissed complaint State action immunity Eleventh Circuit affirmed 12
Phoebe Putney Supreme Court reversed State action doctrine (as applied to local governments): when a local governmental entity acts pursuant to a clearly articulated and affirmatively expressed state policy to displace competition, immune from antitrust attack 13
Phoebe Putney Two issues were before Court Scope of state action immunity Whether the transaction was essentially one between private entities (and so not immunized) Court only reached the first issue 14
Phoebe Putney 11th Circuit s view of immunity: Immunity if conduct was a foreseeable result of Georgia s legislation Foreseeable: result could have been reasonably anticipated by state legislature Not necessarily the result be one that ordinarily occurs, routinely occurs, or is inherently likely to occur as a result of the empowering legislation Based on FTC v. Hospital Bd. of Directors of Lee Cty., (11th Cir. 1994) 15
Phoebe Putney Supreme Court: Given the law s emphasis on competition, state-action immunity is disfavored, much as are repeals by implication Here, no evidence the State affirmatively contemplated that hospital authorities would displace competition by consolidating hospital ownership 16
Phoebe Putney Authority had standard powers routinely conferred by state law upon private corporations to buy and sell property, enter contracts, etc. Power to act does not contemplate acting anticompetitively Simple permission to play in a market does not foreseeably entail permission to roughhouse in that market 17
Phoebe Putney So what s the test for forseeability? Where the displacement of competition is the inherent, logical, or ordinary result of the exercise of authority delegated by the state legislature the State must have foreseen and implicitly endorsed the anticompetitive effects as consistent with its policy goals. 18
Phoebe Putney The fact many counties are small, and that some county Hospital Authorities might not be able to make an acquisition unless it is anticompetitive does not mean the legislature authorized anticompetitive acquisitions Nor does unique responsibility of Authorities to provide for the poor mean anticompetitive deals were foreseeable 19
Phoebe Putney FTC renewed litigation Amended complaint in district court Motion for injunction Deal was closed during the litigation FTC wants to stop further integration Trial before ALJ: August 5, 2013 20
Agenda Agency overview State action Reverse payments ACOs and provider networks Other litigation 21
Reverse payments FTC v. Actavis (Androgel) March 25: Supreme Court oral argument Androgel 11th Circuit refused to decide a patent case within an antitrust case about the settlement of the patent case, calling this a turducken task 22
Reverse payments FTC v. Actavis (Androgel) Circuit split 11th Circuit: scope of the patent test Same as 2nd Cir. (Tamoxifen); Federal Circuit (Ciprofloxacin) 3rd Circuit: presumptively anticompetitive In re K-Dur Antitrust Litigation, 686 F.3d 197 (3rd Cir. 2012) March 25: Supreme Court argument 23
Reverse payments Typical patent case Alleged infringer sells product; patentee sues; if it wins damages paid to patentee So, settlements involve payments to patentee Hatch-Waxman: litigate without infringing sales Validity of patent is at issue Some settlements involve payments by patentee in return for delayed entry by infringer 24
Reverse payments Reverse payment or pay for delay FTC position: If brand has strong case: parties would agree on late entry by generic If brand s claim is weak: would agree on early entry Where the parties simply agree to a compromise date of generic entry, no payment, the agreement is lawful 25
Reverse payments The problem with the reverse payment is that it gives the generic an incentive to accept something other than competition as a means of earning money Assistant Solicitor General at oral argument 26
Reverse payments Scalia: This was not a problem, I gather, until the Hatch- Waxman amendments? ASG: These types of payments appear to be essentially unknown in other lawsuits and other patent infringement cases. Scalia: Yes, and so do suits against this kind of payment. And I have the feeling that what happened is that Hatch- Waxman made a mistake. It did not foresee that it would produce this kind of payment. 27
Reverse payments Scalia: And in order to rectify the mistake the FTC comes in and brings in a new interpretation of antitrust law that did not exist before, just to make up for the mistake that Hatch-Waxman made, even though Congress has tried to cover its tracks in later amendments, right, which deter these payments? ASG: Congress has tried to reduce the incentives for these payments to be made. Scalia: So, why should we overturn understood antitrust laws just to just to patch up a mistake that Hatch-Waxman made? 28
Reverse payments Breyer: you said it s [the quick look rule] common in antitrust? I know there s a sort of vague area that sometimes in some cases that Justice Souter mentioned in California Dental, there is something slightly in between If you were asking us to produce some kind of structure -- I don t mean to be pejorative, but it s rigid -- a whole set of complex per se burden of proof rules that I have never seen in other antitrust cases, I -- my question is, when I say I ve never seen anything like this before in terms of procedure, I want you to refer me to a case that will show, oh, no, I m out of date. ASG: the Court has recognized such a thing as the quick look approach, NCAA v. Regents of University of Oklahoma is probably the best example 29
Reverse payments Breyer: And are there others? Because I want to be sure I read all of them. if there are few or none, then I would say why isn t the government satisfied with an opinion of this Court that says, yes, there can be serious anticompetitive effects; yes, sometimes there are business justifications; so, Judge, keep that in mind. Ask him why he has this agreement; ask him what his justification is, and see if there s a less restrictive alternative. 30
Reverse payments Five justices seemed troubled that reverse payments permit brand and generic to divide a monopoly profit Breyer, Sotomayor, Kennedy, Kagan, Ginsburg FTC: settling on entry date only does not do this; monopoly profit is competed away If the Court reverses: what is the test? 31
Reverse payments Former Chair Leibowitz at ABA Spring Meeting: predicted reversal Not the first time July 2010, speaking or reverse payment settlement cases: The tide may be starting to turn in [the FTC s] direction 32
Agenda Agency overview State action Reverse payments ACOs and provider networks Other litigation 33
ACOs and provider networks Norman PHO FTC & DOJ report on ACOs Agency actions against provider networks Chiropractors: FTC and DOJ FTC: Nephrologists in Puerto Rico 34
ACOs and provider networks: background Key is a network integrated? If not: price fixing 1996 Statements Financial Integration Clinical Integration 2011 ACO Statement ACO approved by CMS deemed integrated Payers $$ Network: IPA / PHO 35
ACOs and provider networks: background Clinical integration Investment of time, $ Common clinical approach Physician buy-in Enforcement Agreements on price: reasonably necessary to realize efficiencies Payers $$ Network: IPA / PHO 36
ACOs and provider networks: Norman PHO Five FTC letters before 2013 Approved 4 networks Concrete clinical plans Enforcement measures Non-exclusive contracting Disapproved 1 (Suburban Health Org.) Most recent letter: Norman, Oklahoma (Feb. 13, 2013) Approved network 37
ACOs and provider networks: Norman PHO Norman Regional Health System Hospitals from same system 280 physicians (38 specialties) in 7 counties Share: 10% in service area (MDs, hospital) But up to 50% discharges in two counties And most physicians in Norman Plans to jointly contract with payors Replace messenger model 38
ACOs and provider networks: Norman PHO What did the Norman PHO do right? Detailed clinical initiatives Concrete plans to standardize clinical protocols Joint committees address quality and cost Measuring success and compliance Electronic information sharing Physician commitment (time and $) Enforce physician compliance 39
ACOs and provider networks: Norman PHO What does the FTC care most about? Joint contracting necessary to achieve efficiencies. Only way to ensure consistent panel of likeminded physicians with shared commitment Physicians must participate in every contract Non-exclusive network Payors can bypass the network Otherwise serious concerns 40
ACOs and provider networks: Agency report 2011 ACO Policy Statement Safety zones for ACOs with < 30% share in participants service areas Share for each common service Hospitals / ASCs must be non-exclusive Invited ACOs to seek voluntary review if fell outside the safety zone Expedited review 41
ACOs and provider networks: Agency report FTC/DOJ Working Group Report (April 10) Only two requests for voluntary expedited review Both withdrawn First did not plan to operate in commercial markets No explanation for second 42
ACOs and provider networks: Agency report FTC/DOJ Working Group Report (April 10) 33 questions PSA share calculations Resolve questions in 5 days aco_psa_questions@ftv.gov Procedures about voluntary review process 43
ACOs and provider networks: enforcement Chiropractors Association of 80% of SD s chiropractors DOJ alleged joint negotiation of seven insurer contracts since 1997; no integration Settled Nephrologists 8 independent kidney doctors in PR FTC alleged price fixing and boycott Demand higher rates for PR s Medicaid population Identical termination letters sent Settled 44
Agenda Agency overview State action Reverse payments ACOs and provider networks Other litigation 45
Other litigation Boise litigation: the FTC joins the party Renown: more post-mortem More lawsuits against BCBS 46
Other litigation Boise FTC and Idaho investigated St. Luke s proposed acquisition of 44 MD group Idaho asked St. Luke s to delay deal St. Luke s closed on deal anyway St. Alphonsus sued St. Luke s in Fall 2012 Court denied PI, but set early trial Saint Alphonsus Medical Center Nampa et al. v. St. Luke s Health System Ltd., (D. Idaho) 47
Other litigation Boise FTC and Idaho filed complaint March 12 Consolidated with St. Al s case Claimed anticompetitive effect: Horizontal: adult PCP(60%) Vertical: more leverage for St. Luke s Trial: September 16, 2013 48
Other litigation Peoria, IL Three hospitals in Peoria Methodist Health sued Saint Francis St. Francis has 50% inpatient and outpatient surgery services; offers unique services Threatened insurers would withdraw or increase price if contract with other hospitals Another Cascade v. PeaceHealth? 49
Other litigation Renown post-mortem 2012: FTC and Nevada filed complaint and consent order in wake of acquisition of two cardiology groups, requiring release of 10 cardiologists form noncompetes April: CEO, GC and two others leave Board chair blames outside counsel for all ills www.renown.org/body.cfm?id=233&action=detail&ref=541 50
Questions? 51
Presenters GWENDOLYN FANGER Gwen Fanger worked eight years with the FTC before joining Davis Wright Tremaine's San Francisco office. Gwen devotes her practice to commercial litigation and antitrust matters. She advises clients across a spectrum of antitrust matters, including agency investigations in a variety of industries. Gwen has particular expertise in the Hart-Scott-Rodino Act. Gwen graduated from Washington University School of Law and is a leader in community activities in San Francisco. REBECCA FRANCIS RYAN GIST DOUGLAS ROSS Rebecca Francis practices in the commercial litigation group and concentrates on class action defense including antitrust matters, consumer protection claims, and health care litigation. She clerked for the Alaska Supreme Court before joining Davis Wright Tremaine s Seattle office. Becky graduated from the University of Washington Law School, where she was managing editor of the Law Review. Ryan Gist concentrates his practice in litigation and regulatory matters, with an emphasis on antitrust, class actions, and consumer protection claims. He represents clients in litigation and in investigations by the state and federal antitrust enforcement agencies. Ryan served for nine years with the U.S. Army in Bosnia, Afghanistan and Iraq, rising to be a company commander, before graduating from the University of Wisconsin Law School, where he was managing editor of the Law Review. Douglas Ross chairs Davis Wright Tremaine s litigation department. He concentrates his practice in antitrust representing principally health systems, hospitals and other providers in litigation and investigations conducted by antitrust enforcement agencies. Doug is a former member of the Antitrust Section Council, a former chair of the Health Care Committee, and the current chair of the Antitrust Practice Group of the AHLA. He is a member of BNA s Health Law Advisory Board and on the adjunct faculty at the University of Washington Law School teaching courses in antitrust and health law. Doug graduated from Columbia Law School. 52