Strategies for Collaborating With Other Health Care Firms to Expand Production and Secure the Supply Chain
Stabilizing core business operations and managing risk should be key priorities at this stage of your company’s response to COVID-19. On Sunday, March 29, the Federal Trade Commission and United States Department of Justice issued a joint statement to ease the challenges ahead by confirming that they will take exigent circumstances into account in evaluating joint efforts to facilitate production and distribution of personal protective equipment (PPE), medical supplies, and healthcare.
While not a blank check to coordinate with competitors, the joint statement suggests that the antitrust agencies are unlikely to challenge joint conduct that ordinarily may have been more closely scrutinized by regulators as long as the joint effort (1) is “limited in duration and necessary to assist patients, consumers, and communities affected by COVID-19 and its aftermath” and (2) does not restrain competition by increasing reimbursement rates, lowering wages or otherwise negatively impacting employee benefits and freedom of movement, restricting service levels, or excluding competitors. This increased flexibility opens the door to a number of viable strategies to help the industry get out ahead of COVID-19:
Facilitating the acquisition and shipment of medical supplies by integrating procurement groups and coordinating supply chains
Expanding capacity by contributing component parts, know-how, staff, technology, and other resources to produce medical devices and other healthcare resources jointly
Managing staffing shortages by temporarily integrating back-office support services and facility caregivers through secondments or the coordination of schedules
Robust information sharing with respect to operational challenges created by COVID-19, including discussions about solutions, best practices, and data sharing necessary to ensure continuity of distribution and services
Coordinated lobbying at each level of government to obtain subsidies, competitive advantages, regulatory concessions, and immunities
The time is now for companies to identify creative solutions, and the industry is answering the call. For example, Project Airbridge — a collaboration between McKesson, Cardinal Health, UPS, Federal Express, and others designed to facilitate international shipments of PPE and other medical supplies into the United States — was announced over the weekend. The Healthcare District Alliance applauded the effort with the following statement from its new CEO Chip Davis: “Project Airbridge’ demonstrates how the nation’s healthcare distributors are going above and beyond to protect the global healthcare supply chain in the face of the unprecedented challenges presented by COVID-19. Distributors are working each day to ensure that pharmacies, hospitals and healthcare providers have access to the medicines and medical supplies that our communities need.”
Yesterday, Fresnius Medical Care North America announced that it had partnered with DaVita and other dialysis providers to expand the number of isolation units nationwide. In addition to space considerations, expanding isolation unit capacity will require ensuring that there are sufficient numbers of nurses, social workers, dieticians, care technicians, and available space to treat all dialysis patients including those who are suffering from COVID-19. Fresnius explained that “This collaboration will help safeguard caregivers, conserve personal protective equipment and other important supplies, and create an environment that provides excess capacity for providers that may be overwhelmed by larger COVID-19 clusters.”
Whether a particular collaboration is likely to generate antitrust scrutiny will depend on whether the collaboration is narrowly tailored to achieve the procompetitive outcome, the compliance measures implemented by the parties, and other relevant factors. Importantly, if the parties are generally aligned on commercial terms, getting up and running does not need to be complicated. Documenting the scope of the joint activities and compliance measures can take the form of an agreement or charter and should not delay the initiative. Moreover, for short-term collaborations, creating new entities and management structures generally may not be necessary.
But remember that stretched supply lines and the resulting pressure to meet internal supply needs create opportunities for fraud and corrupt practices by third-party opportunists. Further, do not assume that agency statements and emergency authorizations will insulate you from scrutiny after the crisis has ended. Regulatory guidance from federal and state agencies with health care jurisdiction is qualified, continually evolving, and sometimes conflicting. Our experience with past disasters unfortunately also teaches us that regulators, government investigators, and plaintiff lawyers will often second guess good faith efforts to protect patients.