United States and Mexico | Competition Currents April 2021
Federal Trade Commission (FTC)
On March 1, 2021, the FTC, suffering its first loss in a hospital merger challenge since 2016, voted 4-0 to end its effort to stop the proposed $599 million merger of Philadelphia-area health care systems Jefferson Health and Albert Einstein Healthcare Network. The FTC’s decision comes about a month and a half after the Pennsylvania Attorney General’s office dropped out of the joint challenge.
The FTC challenged the merger on the basis that it would hurt competition in the Philadelphia-area health care market, and after a defeat at the district court, told the appellate court that the judge had applied “faulty economic reasoning.” The FTC alleged that a combined network would control over 60% of the market for inpatient general acute care services in and around North Philadelphia and at least 45% of the market for those services in and around Montgomery County. The FTC alleged that the defendants also control some 70% of the market for inpatient rehabilitation services in the Philadelphia area for those recovering from serious, acute conditions such as a stroke, traumatic brain injury, or spinal cord injury.
The district court judge found, however, that the FTC’s alleged markets wrongly “focus more on patients” than the insurers that would feel the immediate impact of any price increase. He found that the FTC had failed to show that the insurance companies would not just turn to health care providers outside the immediate areas in the face of those price increases.
Georgia health care systems abandon merger in response to FTC recommendation to challenge.
On March 3, 2021, the FTC voted to close its investigation of the proposed merger between Atrium Health Navicent, Inc. and Houston Healthcare System, Inc. following the parties’ decision to abandon the deal.
The parties described the transaction not as a merger but as a partnership. Nonetheless, FTC staff determined that the tie-up would have eliminated “intense competition” between the two biggest hospital systems in central Georgia’s Macon-Warner Robins area, and recommended that the proposed transaction be challenged. FTC staff alleged that the transaction would hinder quality of patient care improvements, investment in facilities and technologies, and expansion of access to health care services.
US, EU, UK, and other antitrust enforcers enter collaboration on review of pharma deals.
On March 16, 2021, the U.S. antitrust agencies and those of the United Kingdom, European Union, and Canada announced a joint review of how they analyze pharmaceutical mergers, aiming for “concrete and actionable steps” to revise and implement a coordinated approach.
FTC Acting Chair Rebecca Slaughter stated to media: “[G]iven the high volume of these mergers that we’re seeing, skyrocketing drug prices and ongoing concerns about anti-competitive conduct in the pharma industry, it’s imperative that we rethink our approach toward pharmaceutical merger review.” Slaughter, now leading the FTC on an acting basis, had been in the minority under the Trump administration and was a regular critic of remedies imposed in pharma deals which, in her view, were too narrowly focused on only the product overlap with particular drugs within merging pharma companies’ portfolios.
The FTC announcement did not say that different standards would apply to pharmaceutical deals. Instead, it listed several issues to be considered as the working group undertakes its task, including how to expand and refresh existing theories of harm and what evidence might be needed to use those theories in a challenge, the full range of effects a pharma merger can have on innovation, how to consider conduct like price-fixing and pay-for-delay deals which restrict or stall generic drug competition, and requirements for a successful divestiture process.
FTC challenges Illumina’s proposed acquisition of cancer detection test maker Grail.
On March 30, 2021, the FTC filed an action in federal court to block Illumina’s $7.1 billion proposed acquisition of Grail, a producer of an early detection liquid biopsy test that can screen for multiple types of cancer in asymptomatic patients using DNA sequencing. The FTC alleges that Illumina is the only provider of DNA sequencing that is a viable option for these multi-cancer early detection (MCED) tests in the United States.
The agency’s challenge rests on a theory of harm specific to vertical mergers, the subject of a revised set of guidelines and commentary published in 2020. While the parties do not currently compete in the development or production of MCED tests, the FTC is concerned that Illumina provides the DNA sequencing Grail competitors need to produce competing testing kits. The FTC alleges that, post-acquisition, Illumina could impede the research and development efforts of Grail’s rivals or raise the prices it charges for these critical sequencing products the rivals require. In addition, the FTC alleges that Illumina could refuse or delay licensing agreements that all MCED test developers need to distribute their tests to third-party laboratories.
For its part, Illumina has offered its oncology customers “contractual guarantees of equal and fair access” to its DNA sequencing products and has committed to lowering prices by more than 40% by 2025.
Department of Justice (DOJ)
DOJ settles challenge to Central PA hospital deal.
On March 3, 2021, the DOJ reached a settlement with Central Pennsylvania health care systems Geisinger Health and Evangelical Community Hospital that resolved the DOJ’s action challenging Geisinger’s partial acquisition of Evangelical. Among other terms, the settlement requires Geisinger to cap its ownership interest in Evangelical at a 7.5% passive interest and eliminates additional entanglements between the two competing hospitals.
The DOJ first challenged the partial acquisition of Evangelical on Aug. 5, 2020, which would have given Geisigner a 30% stake. The DOJ alleged that Geisinger and Evangelical are close competitors for inpatient general acute-care hospital services for patients in a six-county area in central Pennsylvania, where the two hospital systems together account for approximately 70% of the market. According to the DOJ complaint, Geisinger first sought to acquire Evangelical in its entirety out of fears that an insurer would acquire it and thereby compete against Geisinger in the region. The complaint further alleges that the parties recognized the antitrust challenges of a full acquisition and instead structured the deal as a minority investment and “collaboration” agreement.
As settled, the minority investment, according to Evangelical, will be used for a planned patient room expansion and modernization project, including renovation of the intensive care unit. The agreement also guarantees Geisinger the right of first refusal for any future joint ventures by Evangelical and for transactions that result in asset sales or a change-of-control, and permits Evangelical to obtain new electronic health record information technology systems and related support from Geisinger.
Guilty pleas entered in suit alleging construction companies fraudulently represented themselves as Veteran-Owned Businesses.
On March 4 and March 17, 2021, guilty pleas were filed related to an alleged conspiracy of construction companies to defraud the government by obtaining veteran-preference contracts administered by the U.S. Small Business Administration (SBA). On March 4, Michael Wibracht, owner of a San Antonio, Texas construction company, entered a guilty plea. On March 17, an indictment was returned charging Michael Angelo Padron, a former construction company owner also located in San Antonio. A third defendant, Ruben Villarreal, had entered a guilty plea in 2020.
According to court papers, the three defendants were involved in a 13-year conspiracy in which Villarreal, a service-disabled veteran, was installed as the owner of the construction companies, thus qualifying them as a Service-Disabled Veteran-Owned Small Businesses (SDVOSB). Wibracht and other co-conspirators, however, exercised disqualifying financial and operational control over the companies, securing over $250 million in government contracts that were set aside for SDVOSBs. Wibracht and Padron face a maximum penalty of five years in prison and $250,000 fines. The indictment against Padron remains pending. The investigation has included the U.S. Army CID’s specialized unit, the Major Procurement Fraud Unit, and the SBA’s Inspector General office.
Biden nominee promises robust enforcement of antitrust laws.
On March 9, 2021, Vanita Gupta, President Biden’s nominee to be Associate Attorney General, testified at her confirmation hearing on Capitol Hill, promising a robust enforcement of antitrust laws as part of her responsibilities in the number two spot at DOJ. Biden has not yet made official his nominee to head the Antitrust Division.
Indictment issued in suit alleging price-fixing conspiracy to fix wages for nurses.
On March 30, 2021, an indictment was returned charging a health care staffing company and a former staffing manager with conspiracy to allocate and fix wages of nurses, in violation of the Sherman Act. According to court papers, the staffing company, Las Vegas-based VDA OC LLC (formerly Advantage On Call LLC) and the manager, Ryan Hee, entered into an agreement in 2016 and 2017 not to recruit or hire nurses staffed by their respective companies and to refrain from raising the wages of those nurses. A violation of the Sherman Act carries a statutory maximum penalty of 10 years in prison and a $1 million fine for individuals and a maximum penalty of a $100 million fine for corporations, which can be increased in certain circumstances. The investigation involved the DOJ Antitrust Division’s San Francisco Office, the International Corruption Unit of the FBI, and the U.S. Attorney’s Office for the District of Nevada. The charges are connected to the Antitrust Division’s focus on anticompetitive conduct affecting American labor markets.
Go New York Tours, Inc. v. Gray Line New York Tours, Inc. et al; 20-1350.
On March 22, 2021, a New York City “hop on, hop off” tour bus line asked the U.S. Supreme Court to revive claims that its larger rivals bullied top tourist attractions into a boycott, saying two lower courts adopted an “overly restrictive” framework that leaves out “inherently logical” antitrust allegations. According to the plaintiff, the lower courts rigidly required Go New York Tours Inc. to plead “recognized plus factors” instead of taking a holistic view of robust circumstantial evidence that does not fit neatly into those categories, according to the petition asking the justices to take up the case.
According to the Second Circuit, “while Go New York Tours Inc. successfully alleged that Gray Line New York Tours Inc. and Big Bus Tours Group Holdings Ltd., plus their affiliated companies, considered Go New York a disruptive, low-priced competitor from whom they wanted to protect “their comparatively high prices,” that does not mean the motive to conspire against the plaintiff would be “so obvious or compelling that it suffices to create more than a ‘suspicion.’” The appeals court also stated, “Defendants’ allegedly anticompetitive acts would have been objectively rational even if done independently of one another, and plaintiff pleads no facts suggesting that they in reality emerged from an agreement.” Further, “[t]he ‘actions against self-interest’ plus factor relates specifically to the interdependent or parallel actions by the alleged conspirators, rather than third parties like the tourist attractions,” the panel said. “Here, Go New York does not plead that defendants took any actions against their own economic self-interest. Because Go New York has failed to state a claim under Section 1 of the Sherman Act, we affirm the judgment of the district court.”
Sidibe v. Sutter Health, No. 3:12-cv-04854 (N.D. Cal., Mar. 9, 2021).
On March 9, 2021, Sutter Health won dismissal of several antitrust claims but must proceed to trial on other claims in a federal lawsuit alleging anticompetitive behavior by the Northern California health provider. The main issue in the lawsuit is whether Sutter uses its market power to tie its dominant, noncompetitive markets with its competitive markets. According to plaintiffs, Sutter is forcing insurers through Sutter’s systemwide contracts to pay more. The result, the individuals and companies allege, is hundreds of millions of dollars in higher in-patient services, costs, and premiums. The federal antitrust case was brought by four patients and two companies that purchase insurance for employees, alleging Sutter tied purchasers into all-or-nothing plans and violated the state’s unfair business practices act. The plaintiffs contend Sutter’s practices violate the federal Sherman Act and California’s antitrust statute.
Sutter won summary judgment on claims involving the years 2008 to 2010, because the purchasers failed to prove damages, meaning that they failed to establish injury, U.S. Magistrate Laurel Beeler said. Sutter also won summary judgment on monopolization and attempted monopolization claims, because the individuals and companies did not produce evidence showing disputes of material fact. But Judge Beeler held that genuine disputes exist about Sutter’s power in the market, where it is dominant. The Court will allow plaintiffs’ claims for restraint of trade and tying to proceed to a jury.
3. PharmacyChecker.com LLC v. National Association of Boards of Pharmacy, et al., Case No.: 7:19-cv-07577 (S.D.N.Y. March 30, 2021).
The National Association of Boards of Pharmacy (NABP) must face antitrust claims over its alleged scheme to “choke off” online information about affordable Canadian drugs by blacklisting websites that include foreign pharmacies in their comparison shopping features, a federal judge in Manhattan ruled.
According to Pharmacy Checker’s complaint, the Alliance of Safe Online Pharmacies (ASOP), the Center for Safe Internet Pharmacies, Ltd. (CSIP), and LegitScript seek to deny safe online pharmacies access to customers in the United States, and suppress information about those pharmacies, by creating a blacklist and pressuring various internet intermediaries to enforce it. The complaint quotes a 2010 press release from ASOP announcing a goal of “requiring Internet search engines, domain name registrars, and other ‘gatekeepers’ to stop enabling rogue Internet drug outlets.” In practice, says the complaint, NABP tried to convince the International Corporation for Assigned Names and Numbers (ICANN), the organization that sets policy for the domain name system, to require domain name registrars to suspend companies that appeared on NABP’s blacklist, effectively removing them from the internet. The pharmacy organizations also allegedly persuaded vendors that maintain other blacklists used by parental controls and firewalls to list Pharmacy Checker as “not safe,” “malicious,” or “promoting illegal activity.” And, the complaint says, they convinced Microsoft to show a red CAUTION shield and warning dialog when Pharmacy Checker appeared in Bing search results and a user clicked on the link. Other initiatives included working to create a “.pharmacy” top-level domain and excluding both Pharmacy Checker and legitimate Canadian pharmacies from that domain.
On March 30, 2021, Judge Kenneth M. Karas let Pharmacy Checker move forward with allegations that pharmaceutical trade groups led by the NABP engineered an illegal boycott through a “coordinated misinformation campaign” aimed at search engines, social media companies, shippers, and payment processors. Judge Karas found that Pharmacy Checker offered significant “circumstantial evidence of a conspiracy,” including “joint press releases,” meetings “and other communications suggesting that defendants coordinated their activity against plaintiff.” According to the Court, the case can proceed based on circumstantial evidence of a conspiracy.
COFECE issues a formal accusation for cartel conduct against Liquefied Petroleum Gas (LPG) companies. On March 15, 2021, the Federal Economic Competition Commission (COFECE or Commission) notified several companies and individuals of a statement of probable responsibility (formal accusation) for price fixing and market segmentation in the distribution and commercialization of LPG in Mexico. This investigation is the broadest carried out by COFECE’s Investigative Authority, as it involves the analysis of conduct carried out by several participants in multiple states.
LPG is the most widely used fuel for domestic use in Mexico – 76% of Mexican families consume it. The accused companies will have the opportunity to present a defense before the Board of Commissioners of COFECE. In accordance with the Federal Economic Competition Law, collusive conduct can be sanctioned with fines of up to 10% of the company’s annual income. Additionally, individuals who participate in a cartel can face criminal charges and a ruling of five to 10 years in prison.