What do companies operating in the health care and pharmaceutical sectors need to know about antitrust enforcement? In this Women in Antitrust episode, Host Kerry Donovan sits down with Partners Neely Agin and Heather Lamberg to talk about current trends. Neely covers the latest developments in hospital mergers as well as recent moves to enhance scrutiny of pharmaceutical deals. Heather discusses some of the key class actions and competitor lawsuits facing health systems, as well as the pharmaceutical antitrust cases everyone is watching.
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Audio Transcript
Kerry Donovan: Welcome to Winston's Women in Antitrust, a limited podcast series tapping into the minds of the wonderful women partners at Winston & Strawn practicing antitrust law. I'm your host, Kerry Donovan. In today's episode, we'll dive into what's new in the health care sector with Heather Lamberg and Neely Agin, two partners who have a particular focus in health care matters and antitrust. Before we get started, I'd like to briefly introduce our guests.
Heather has been a partner with Winston & Strawn since 2017. She focuses her practice on antitrust litigation, investigations, and regulatory compliance. Welcome, Heather.
Neely Agin has been a partner with Winston & Strawn since 2018. She focuses her practice on merger review and clearance, as well as antitrust compliance and counseling. Welcome, Neely.
Together, as you can see, Neely and Heather cover all aspects of health care antitrust law, both on the deal and litigation side. Thank you both for being here.
The various industries that collectively fall into the health care space present thorny and unique antitrust issues. Hospital mergers have fallen under significant federal scrutiny in recent years. And several bills are under consideration in Congress that could portend new changes to the way the Department of Justice and FTC regulate the pharmaceutical industry. Large health care groups and networks are facing increased scrutiny from government enforcement and the plaintiffs' bar. This includes antitrust claims pertaining to conduct that has been seen as more routine in the past, like all-or-nothing contracts with insurers, and the acquisition of independent physicians' practices.
This litigation and regulatory activity also occur alongside a reinvigorated focus on competition issues in health care before the U.S. Congress, which is considering a number of bills that could impact the industry in several ways. So, as we get into it-Neely I want to ask you first, how has the Biden administration approached recent hospital merger cases?
Neely Agin: Thanks, Kerry. The FTC, historically, has been quite aggressive in investigating and challenging hospital mergers that it believes are anti-competitive, and this hasn't changed under Biden. Indeed, many are saying that the FTC is actually being even more aggressive in this area. Just last month, in June of 2022, the FTC announced challenges to two hospital mergers: one in Utah and one in New Jersey.
In Utah, the FTC sued to block a proposed merger between HCA and Steward Health Care. They are two of the largest hospital groups operating in the metro area surrounding Salt Lake City. And the FTC alleged that the deal would eliminate the second- and the fourth-largest health care systems in this area. The relevant geographic area they alleged was the Wasatch Front region, which surrounds Salt Lake City, and the complaint alleges that that's where approximately 80% of Utah's residents live. And the FTC alleged that the deal would eliminate competition in in-patient general acute care services, which is historically the relevant product market that the FTC has often focused on in hospital deals.
The FTC argued that HCA and Steward currently compete to be included in payers' health plan networks, and that Steward-being the smaller of the two groups-offers lower-cost health care services than HCA, and more innovative contract terms, in order to compete with HCA. So, the FTC argued that the merger would eliminate the incentive to offer those benefits and would give the combined hospital system even more leverage in negotiations with payers.
After the FTC filed its complaint, the parties called off the deal. So that deal is no longer going to trial; no longer pending.
The other hospital deal that the FTC challenged last month also led to an abandonment of the deal. On June 2, the FTC sued to block a deal between RWJBarnabas and St Peter's Healthcare Systems, both hospital systems in New Jersey. And, in particular, the FTC alleged that the deal would harm competition in Middlesex County, which is in the central part of the state, and that it would eliminate competition in the same relevant product market as was alleged in the Utah complaint: in-patient general acute care services.
The FTC had alleged that the merger would give RWJ a market share of 50% in general acute care services, and that because St Peter's is less than one mile from the flagship RWJ hospital; that the merger would eliminate important competition between them. So about two weeks after the complaint was filed, the parties abandoned the transaction.
Since 2020, the FTC has challenged at least four other hospital system transactions. And in 2021, Biden signed an executive order on promoting competition that, among other things, directed the FTC and DOJ to increase scrutiny of hospital mergers. So, all of that is kind of consistent with what we have been seeing in the past, so I would expect to continue to see a lot of aggressive enforcement and hospital deals.
Kerry Donovan: Thanks, Neely. That's really interesting. So, let's take a step back from the focus on government enforcement. Heather, what's going on in the broader world of private antitrust litigation in the health care space?
Heather Lamberg: Just like Neely said on the government side, it's very similar on the private litigation side. You continue to see class actions and rival cases in this space, and where the government is not able to bring the case, you see different groups trying to fill that space.
Just a couple of examples of things to watch, and cases that have been brought recently:
There's a case that is pending in Connecticut. It's a class action. I think it was filed in February against Hartford HealthCare, and the basic allegation in that case-it's slightly different than what Neely was saying on the government acquisition side, where they're challenging one deal and looking narrowly at that deal. This case is looking at kind of a pattern of conduct by Hartford HealthCare. The allegation is they have acquired multiple hospitals in various counties throughout Connecticut. And the allegation is, as a result of this, they've got market power in the area broadly. And because of that market power, they're able to (1) increase prices, and (2) enter into what they claim are restrictive contract terms.
And the contract terms are things that you see quite frequently around the country. So, you have these health care systems buying up hospitals, and then they have all-or-nothing contracts. When an insurer is contracting with them, they require you to "take all of our hospitals in this area." You can't just pick and choose the "must haves," you've got to take them all. And the argument that the plaintiffs are saying is that, in competitive areas, that's causing them to pay higher prices than they otherwise would. They also are challenging contractual provisions that they claim Hartford is requiring, basically steering patients to their hospitals.
This case is at its early stages. I believe Hartford is making a pretty technical argument at an early stage, claiming that the plaintiffs-who are just regular patients, they're not insurers-don't have standing because their price with their copay wouldn't change one way or the other. Therefore, they're not really harmed by any allegedly different prices or terms that insurers may enter.
This is a pattern of cases we've seen before. I think there was a case against Sutter Health that raised very similar restrictive contracting terms. In March, it went to a jury trial, and Sutter was not found liable on any of the claims. So it'll be interesting to see if this case is any different, if they get more traction than the plaintiffs in Sutter Health. But it is just as an example of these types of cases that aren't going away.
One other thing I would mention, as well, is another case that's kind of similar but a little bit different. It's not a class action brought by consumers, but rather a rival hospital is suing another hospital, alleging that they were basically acquiring physician groups-so not hospitals, but other physician groups-and then they are basically demanding that those physician groups that they acquired refer their patients when they need hospital care to their hospitals, and kind of "locking up the market" that way. And, you see the FTC is also interested in these physician acquisitions, but from a different angle. So, this is another way that kind of rivals and consumers are looking hard at the space and troubled by different activities. Not a lot of these have been successful by the plaintiffs yet, but it's something to continue to watch. And obviously, clients in the health care space need to think-not just about the transaction itself as Neely was dealing with, with the government-but kind of the broader context and how it might open them up to litigation.
Kerry Donovan: So, looking at the pharmaceutical side of health care-Neely, have you seen similar aggressive enforcement in pharmaceutical mergers over the past year or so?
Neely Agin: Yeah, absolutely. As with hospital deals, I would say the pharma space is one of the industries that the FTC has aggressively been enforcing and looking at, and investigating potential deals. In late 2019, there was a complaint filed against Bristol Myers Squibb and their acquisition of Celgene, and that took a pretty typical pattern in terms of FTC concerns and allegations. It involved Bristol Myers Squibb developing a product that would be the most advanced oral treatment for moderate-to-severe psoriasis, so there was an overlap in an existing product and a pipeline product. And the FTC was concerned about that overlap. That's really a unique feature that we see in complaints from the FTC on the pharma side, compared to other industries. There are a lot more challenges involving pipeline products and potential competition than we see in in other segments. That that has been historical, and we're seeing that still today.
But even more significant is that the FTC has recently indicated that they're revisiting their approach to analyzing pharmaceutical mergers to become even more aggressive. Back in March of 2021, the FTC, together with the DOJ, and offices of state attorneys general, and Canada's Competition Bureau, and the European Commission, and the CMA (the UK competition authority)-they announced a working group called the Multilateral Pharmaceutical Merger Task Force, which had the goal of identifying specific steps to update and refresh how all of those agencies analyze pharmaceutical mergers.
And that Task Force led to a workshop that the FTC hosted in the middle of last month, in June, that was entitled "The Future of Pharmaceuticals: Examining the Analysis of Pharmaceutical Mergers." I think notably, the panelists who presented at the workshop did not include anyone from the pharma industry-there were no pharma company representatives. So, the panelists were uniformly critical of pharma deals. And then, throughout the workshop, there were a lot of different ideas and potential new analyses that were discussed to try and lead to more effective and more aggressive review.
They talked about whether enforcers should consider prior bad acts. Typically, in merger enforcement, we're looking at a prospective view of, "If we look at this deal, and if it happens, what's likely to happen post-transaction? Will it lead to bad conduct?" This is actually saying, "Well, if there's been bad conduct in this industry or by these players in the past, should that influence how we look at this transaction?" And that would really expand the FTC's critical thinking of a deal.
They also discussed again the effect of potential innovation, and really broadly viewing that, even more so than they have, and talked about going beyond traditional approaches. So, historically, as I was talking about the Bristol Myers Squibb deal, the way the FTC has considered and ultimately addressed potential harm in a pharma deal is to go product-by-product, either what's on the market or what's in pipeline, and require a remedy or divestiture of wherever there's overlap and actual or potential competition.
And what the FTC and others talked about at this workshop was the potential to actually look at cross-market theories of harm, which is something we've also seen on the hospital side in recent years. And so that theory would basically say, "Rather than just looking at overlaps in actual markets, we should look at all the markets taken as a whole that a company is engaged in, and the overall picture of the deal, so to speak. And does that give-even if there's no overlap, for example- does it give the combined parties leverage?"
So, the example would be-talking on the hospital-side-if you have a transaction where you're combining two hospitals, that one's on the west coast and one's on the east coast, or two hospital systems that geographically have no overlap but together will create the largest system in the country theoretically. In the past, one would argue that there would be no concern, because those hospitals don't have any geographic competition between them.
This theory, which is now being applied on the pharma side, is to say, "Even if there's no overlap, does that give this hospital system more leverage with payers?" And so that cross-market theory is, "It doesn't matter that there's not a direct overlap in a geographic market." On the pharma side, it would be, "It doesn't matter that there's not a direct overlap in the in the products that the parties provide, but it gives them a really broad portfolio of products. And does that give them more leverage?" So that would really expand the scope.
The other key thing that I took away from the workshop was their discussion of addressing the remedy, and the typical remedy that they will use in a pharma deal where there are concerns. Historically, as I said, it's been divestitures on a piecemeal basis wherever there's an overlap. And they were talking about coming out at a different way, that that's not enough, that perhaps we're seeing deals where, even with those divestitures, they still have concerns. And that pharma companies are just getting bigger, and that that is, theoretically, a concern.
Kerry Donovan: That's really interesting. And so, Heather, what about on the litigation side? Have any sort of these novel approaches been advanced in the world of antitrust litigation in the pharmaceutical space?
Heather Lamberg: There's a variety of different issues that percolate in the pharma litigation area. I thought I would just highlight a couple of cases that everybody's watching on some of these issues.
For example, there is a case that was brought by Dr. Reddy's against Amarin. And the allegation there is that Amarin entered into a whole host of exclusive dealing arrangements with the API-the active pharmaceutical ingredient-suppliers, and in doing so, they basically made it impossible for Dr. Reddy's to get the key ingredient to make a generic version and delayed entry. That case is still in early stages, pending. It'll be very interesting, because from an antitrust perspective, it raises all sorts of interesting questions as to whether they've substantially foreclosed an API market, whether there is an API market, etc. Most of the cases that have raised these types of allegations have ended up settling. So, we don't have a lot of decisions in the space.
Similarly, you have a case that Teva has brought, which is quite similar but different. There is new legislation out there that basically gives a generic company a private right of action to sue the branded if the branded company refuses to give them a product sample. So, in order to sell a generic, you need to have a product sample from the branded to test that your generic is bioequivalent to it and get FDA approval. If they won't give you a sample, you can't show you're bioequivalent to it. And that has been a tactic of some branded companies to say, "I have no obligation to help my competitor. I'm not giving you a sample. Figure it out yourself." And it hasn't been successful prior, but now we have this legislation, and Teva has filed a lawsuit under it for the first time. So we will see how that plays out as well, which is an interesting development.
Kerry Donovan: Thank you so much, Heather. This has been a very interesting conversation. I really enjoyed getting to talk to both of you, hear both of your points of views about these issues. I just wanted to wrap us up with some key points to take away from today's discussion.
- The FTC and DOJ have expressed, and exercised, an intention to aggressively police hospital mergers. Clients should carefully consider the current environment when evaluating a potential merger.
- Class action plaintiffs are also advancing cases based on theories of antitrust harm that may not have seen as much traction in the past. This creates additional uncertainty and risk for businesses operating in the health care space.
- And finally, health care providers should proactively consider and document the pro-competitive benefits of any proposed merger or novel business practice so that these benefits can be conveyed to the government or relied upon to deter costly litigation.
Thank you to Heather Lamberg and Neely Agin for joining our first episode of Winston's Women in Antitrust Series, and giving folks in the health care sector a lot to think about.
Please be sure to subscribe to Winston's Competition Corner blog for antitrust updates delivered straight to your inbox. Our next episode, focused on the sports sector, will be released at the end of August.
Thanks for listening. Until next time!
Heather Lamberg: Thank you.
Neely Agin: Thank you.
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