Litigation and Enforcement Highlights – March 2018
In this edition of the Source Litigation and Enforcement Highlights, we review 1) a pair of healthcare mergers approved by antitrust regulators, 2) the DOJ’s antitrust settlement with the last of four Michigan hospitals, and 3) another challenge against an insurer for overcharging for prescription drugs.
Federal and State Regulators Greenlight Healthcare Mergers
In the midst of a wave of healthcare merger deals across the country, state and federal regulators joined the nationwide trend by approving a pair of mergers last month.
In early February, both the Federal Trade Commission (FTC) and the Illinois Health Facilities & Services Review Board signed off on the proposed merger between Illinois-based Advocate Health Care and Wisconsin’s Aurora Health Care. The $10.7 billion cross-state deal would form the country’s 10th largest not-for-profit hospital system.[1] The deal still awaits approval from Wisconsin regulators before it is finalized. The two health systems announced their merger plan back in December 2017, after Advocate abandoned its proposed merger with NorthShore University Health System due to opposition by the FTC and federal courts. In that case, regulators were concerned about overlapping coverage areas and their potential effects on price and competition, which do not apply in this case of combination of two health systems across state lines.
Also in February, state regulators approved Partners Healthcare’s acquisition of Massachusetts Eye and Ear Infirmary, capping a month-long debate about whether the deal would significantly raise costs for consumers. The deal was under review by two state regulatory panels, as well as the attorney general. The first of the two panels, the Health Policy Commission, said the merger would increase prices at Mass. Eye and Ear by as much as $61 million a year.[2] But the AG found no grounds to file an antitrust suit, and the Massachusetts Public Health Council unanimously approved the merger on February 14. As anticipated, Partners agreed to limit price increases to no more than 3 percent per year, among other promises, as a condition for the approval.[3] The deal, valued at $185 million, aims to strengthen Mass. Eye and Ear’s weak financial status. [4] The transaction is slated to close by April.
While merger mania is definitely catching on, these two recently approved mergers have distinct characteristics that differ from mergers previously blocked by antitrust regulators. The Advocate-Aurora merger is a cross-market merger, meaning that the health systems do not directly compete in the same geographical area, alleviating some concerns of reduced competition that had led to the end of many proposed mergers in the past. While economic evidence is beginning to develop suggesting that cross-market mergers can lead to price increases, antitrust enforcers have yet to bring a purely cross-market antitrust challenge. Partners’ acquisition of a financially struggling specialty hospital, along with the limitation on price increases, has the potential to provide the community with more benefit than harm. These cases demonstrate the fact specific nature of health care antitrust challenges.
Michigan Hospital Strikes Deal to End Three Years of Litigation in Antitrust Suit
Henry Ford Allegiance Health (formerly Allegiance Health), Michigan’s second-largest hospital system, struck a deal with the Department of Justice (DOJ) on the eve of trial to settle antitrust claims filed almost three years ago. In June 2015, the Antitrust Division of the Justice Department and the Michigan Attorney General’s Office filed a civil complaint against four Michigan hospitals, alleging the providers had agreed not to compete with one another in violation of Sherman Act §1 and Michigan state law.[5] Specifically, the antitrust enforcers accused the four hospitals of conspiring to restrict marketing by agreeing not to advertise in each other’s territories, with the exception of new services, stretching back to 1999. DOJ alleged that such practices prevented patients from taking advantage of the benefits of local competition, including information that allows them to make their own healthcare choices. The three other hospitals, Hillsdale, Community Health Center of Branch County, and ProMedica Health System, all settled with the government back in 2015. As part of the settlement filed in Michigan district court on February 9, Henry Ford Allegiance Health agreed to end anti-competitive marketing practices and to submit to compliance inspections by the DOJ. The hospital also agreed to hire a compliance officer and provide antitrust training.[6] Read the Source original blog post on the case here.
Another Insurer Challenged for Overcharging for Prescription Drugs
On the pharmaceutical front, a proposed class action was filed in New York federal court accusing Oxford Health Insurance of overcharging patients for prescription drugs.[7] The complaint, filed on February 16, 2018, alleges that Oxford Health Insurance colluded with pharmacies to charge patients more for certain drugs than they would have paid without insurance. The action also raises claims under the Employee Retirement Income Security Act (ERISA) and federal racketeering law. A string of insurers and pharmacies have been hit with similar lawsuits in recent years, including UnitedHealth, Cigna, Humana, CVS, and Walgreens.[8]UnitedHealth, which owns Oxford, defeated its own lawsuit in December 2017 on nearly identical facts as the Oxford case .[9] A federal judge in Minnesota dismissed that case, ruling that plaintiffs failed to show the defendants were acting as ERISA fiduciaries when they engaged in the questionable conduct. Follow the Oxford case on the Source to see whether the New York court will follow in the footsteps of the Minnesota ruling.
That’s it for this month. Stay tuned for newest developments of these cases and check back next month for more litigation and enforcement actions on the Source blog. In the meantime, be sure to check out the Enforcement page of the Source for timeline and geographic trends of federal, state, and private enforcement actions.
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[1] Tara Bannow, Federal, Illinois regulators approve Advocate-Aurora merger, Modern Healthcare, Feb. 15, 2018.
[2] Massachusetts Health Policy Commission, Review of Partners HealthCare System’s Proposed Acquisition of Massachusetts Eye and Ear Infirmary, Massachusetts Eye and Ear Associates, and Affiliates (Final Report), January 3, 2018: https://www.mass.gov/files/documents/2018/01/03/PHS-MEE%20Final%20CMIR%20Report_0.pdf
[3] http://blog.mass.gov/publichealth/wp-content/uploads/sites/11/2018/02/Partners-MEEI.pdf
[4] Adrianne Appel, Mass. Panel Lets Hospital Merger Move Forward, Bloomberg BNA, Feb. 22, 2018.
[5] United States v. W. A. Foote Mem. Hosp., E.D. Mich., No. 5:15-cv-12311.
[6] https://www.justice.gov/opa/pr/justice-department-reaches-settlement-henry-ford-allegiance-health-antitrust-charges
[7] Mohr-Lercara v. Oxford Health Ins., Inc., S.D.N.Y., No. 7:18-cv-01427.
[8] Jacklyn Wille, Oxford Health Latest Target of Prescription Drug Litigation, Bloomberg BNA, Feb. 16, 2018.
[9] In Re UnitedHealth Group PBM Litigation, Docket No. 0:16-cv-03352 (D. Minn. Oct 04, 2016).