This summer, the Federal Trade Commission (“FTC”) and U.S. Department of Justice (“DOJ”) (together “antitrust agencies” or “agencies”) continued to push boundaries on what constitutes anticompetitive conduct with the withdrawal of key healthcare policy statements and heightened scrutiny of the pharmaceutical industry. This summer also saw the DOJ and FTC score crucial enforcement wins in the form of two major healthcare settlements. Anticompetitive conduct in healthcare markets has been a top priority for the Biden Administration (see Biden’s July 2021 Executive Order on Promoting Competition in the American Economy). Scrutiny of the markets, therefore, is expected. Companies are advised, however, to keep apprised of recent enforcement actions as the antitrust agencies continue to break ground in new ways. We outline below four recent agency actions that have important antitrust implications for how companies operating in healthcare markets should act moving forward.
FTC Withdraws from Two Major Healthcare Policy Statements
First, the FTC withdrew from two antitrust policy statements related to the healthcare market – Statements of Antitrust Enforcement Policy in Health Care (dated August 1996) and Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program (dated October 2011). Although these statements were healthcare specific, they included guidance on information exchanges that all industries used to guide their practice. Specifically, the policy statements recognized information exchange “safety zones” reflecting circumstances under which the FTC would not challenge conduct as anticompetitive. Competitively sensitive information, such as price and cost information, was within a “safety zone” if the information was exchanged using (a) a survey managed by a third-party, (b) information more than three-months old, and (c) aggregated data from at least five providers that could not readily be untangled and had no single provider accounting for more than 25% of the information.
Additionally, the statements outlined healthcare-specific “antitrust safety zones.” Such safety zones existed for mergers involving small hospitals, certain joint purchasing arrangements, joint ventures involving high-technology medical equipment or expensive healthcare services, certain physician network joint ventures, select accountable care organizations, and the collective provision of nonprice or fee information for healthcare consumers.
In a press release accompanying the withdrawal, the FTC stated that the “the statements no longer serve their intended purpose” due to “profound changes in these markets over the last 30 years.” The DOJ previously withdrew from these policy statements in February of this year (our analysis of that withdrawal can be accessed here). Rather than issuing new policy statements, both the FTC and DOJ have indicated that information exchanges and conduct within the healthcare industry will be assessed on “a case-by-case basis[.]”
So far, it appears that the antitrust agencies will approach information exchanges in a manner consistent with the policy statements. For instance, neither the FTC nor DOJ have challenged any information exchanges that would have previously been considered within a “safety zone.” An August 16 consent order resolving anticompetitive concerns surrounding possible information exchanges in a $5.2 billion transaction between a private equity firm, Quantum Energy Partners (“Quantum”), and a natural gas producer, EQT Corporation (“EQT”), also reflect standard antitrust principles. In that transaction, the FTC was concerned that Quantum, an EQT competitor, would have access to EQT’s competitively sensitive information by making Quantum one of EQT’s largest shareholders and a member of the board. This type of information exchange is illegal under Section 8 of the Clayton Act and would not fall within any of the “safety zones” outlined in the policy statements.
Additionally, federal courts also continue to approach information exchanges consistent with the policy statements. On June 30, a District Court rejected a class action allegation that a common industry benchmarking report constitutes illegal information exchanges in In re Broiler Chicken Antitrust Litigation because the information exchanged was third-party aggregated and did not involve pricing or production information.
FTC Targets Prescription Drug Markets Middlemen
Second, the FTC has ramped up its oversight of pharmacy benefits managers (“PBMs”). PBMs, which are “the middlemen who are hired to negotiate rebates and fees with drug manufacturers, create drug formularies and surrounding policies, and reimburse pharmacies for patients’ prescriptions[,]” have been the focus of an FTC market-wide inquiry since June 2022. As FTC Chair Lina Khan explained in a July statement to the House Judiciary Committee, the FTC is concerned about the PBM’s “enormous” influence on what drugs can be prescribed and the price patients pay given recent changes in the market, such as increased vertical integration and horizontal concentration. The growth of PBM rebates, list prices, and DIR fees, and the expiration of prior FTC consent orders, have also added to FTC’s concern about the role PBMs play in pharmaceutical markets.
In May and June, the FTC expanded the study to issue additional compulsory orders to three group purchasing organizations that negotiate drug rebates on behalf of large PBMs. The FTC also sued to block the merger of drugmakers Amgen Inc. (“Amgen”) and Horizon Therapeutics (“Horizon”), alleging that the merger would allow Amgen to cross-bundle its products with Horizon’s in order to gain preferential treatment with PBMs and entrench current monopolies. A hearing is scheduled for October 25, 2023, and further details about the lawsuit can be found here. PBMs, and pharmaceutical companies working with PBMs, should take note of these recent actions and be aware that further FTC action is imminent.
Pharmaceutical Merger Analysis Workshop
Third, the antitrust agencies released a summary of the joint FTC-DOJ Pharmaceutical Merger Analysis workshop where Chair Lina Khan emphasized her concern about “killer acquisitions” that shut out potential competitors. Khan also raised concern about new drug price increases and illegal bundling and tying practices in the industry. DOJ Assistant Attorney General Jonathan Kanter likewise stressed the importance for antitrust enforcers to address anticompetitive mergers. These types of concern are further outlined in the revised merger guidelines, the draft of which was released in July.
The pharmaceutical merger analysis summary and new draft merger guidelines signal that the agencies’ already stringent scrutiny of pharmaceutical mergers is likely to get stronger. Of note, in the Amgen-Horizon challenge flagged above, the FTC signaled that it would step out of the box and challenge mergers under new theories of anticompetitive conduct, such as cross bundling. Antitrust agencies have also signaled that they are no longer satisfied with historically acceptable structural and behavioral remedies, such as firewalls. Companies should take care with mergers that involve any participant in the pharmaceutical industry.
DOJ and FTC Announce Key Healthcare Settlements
Lastly, both the DOJ and FTC scored key settlements in long-running antitrust battles. In August, the DOJ secured a long-awaited settlement with two pharmaceutical companies for their roles in a conspiracy to fix the price of cholesterol drug pravastatin. The settlement included multimillion dollar fines and required divestment of the pravastatin operating units. The DOJ previously issued similar multimillion dollar fines to three other pharmaceutical companies for their roles in the same price-fixing scheme. These settlements and fines indicate a continuation of the DOJ’s aggressive enforcement in the pharmaceutical space. Indeed, just two months ago, the DOJ issued multiple multimillion dollar fines to pharmaceutical companies for healthcare fraud.
In late July, the FTC reached a settlement with health information technology company Surescripts. That lawsuit, which was on-going since April 2019, accused Surescripts of using anticompetitive tactics to monopolize two e-prescription drug markets. The settlement is a much-needed victory for the FTC, which recently experienced a string of court losses. In a statement accompanying the settlement, FTC Bureau of Competition Director Holly Vedova stated that “[t]he FTC will not hesitate to take action in enforcing the antitrust laws to protect health care consumers.” The win is likely to bolster FTC’s enforcement of the healthcare sector.