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NC Governor Signs Law Banning Most Favored Nations Provisions in Health Care Contracts

By Jonathan Lewis and Lee Simowitz on May 14, 2013 Posted in Healthcare, Sherman Act 1

Despite opposition and Blue Cross Blue Shield of North Carolina’s claim that it “has not used ‘most favored nation’ clauses in [its] new contracts and in fact [they are] not part of our strategy to use those clauses on contracts executed in the future,” on May 8 North Carolina’s Governor, Pat McCrory, signed into law legislation that outlaws the use of most favored nation (“MFN”) provisions in health care provider contracts.

The “Freedom to Negotiate Health Care Rates” legislation provides, in relevant part, that no contract with a health care provider shall:

(1) Prohibit, or grant a health insurance carrier an option to prohibit, the provider from contracting with another health insurance carrier to provide health care services at a rate that is equal to or lower than the payment specified in the contract.

(2) Require the provider to accept a lower payment rate in the event that the provider agrees to provide health care services to any other health insurance carrier at a rate that is equal to or lower than the payment specified in the contract.

(3) Require, or grant a health insurance carrier an option to require, termination or renegotiation of an existing health care contract in the event that the provider agrees to provide health care services to any other health insurance carrier at a rate that is equal to or lower than the payment specified in the contract.

(4) Require, or grant a health insurance carrier an option to require, the provider to disclose, directly or indirectly, the provider’s contractual rates with another health insurance carrier.

(5) Require, or grant a health insurance carrier an option to require, the nonnegotiated adjustment by the issuer of the provider’s contractual rate to equal the lowest rate the provider has agreed to charge any other health insurance carrier.

(6) Require, or grant a health insurance carrier an option to require, the provider to charge another health insurance carrier a rate that is equal to or more than the reimbursement rate specified in the contract.

The new law takes effect on October 1, 2013, and applies to contracts “entered into, renewed, or amended on or after that date.”

Early this year, we reviewed Michigan’s enactment of a ban on the use of MFN provisions by insurers, HMOs, and nonprofit health care corporations in contracts with providers. That ban, which takes effect January 1, 2014, was cited by the Department of Justice Antitrust Division, Michigan, and Blue Cross Blue Shield of Michigan (“Michigan BCBS”) as a reason for ending nearly 2 ½ years of antitrust litigation challenging Michigan BCBS’s use of MFN provisions in its contracts with Michigan hospitals. The parties to that litigation agreed the relief sought by DOJ and Michigan was now unnecessary and the litigation between them should be dismissed, because of the ban.

With more than 20 full-time antitrust lawyers in our Washington, D.C. office alone (more than 40 firm wide), we have the depth and experience to handle the most significant antitrust litigation and challenging transactions. If you have any questions regarding this matter, or would like to learn more about our antitrust capabilities, please contact Jonathan L. Lewis, jllewis@bakerlaw.com or 202.861.1557, or Lee H. Simowitz, lsimowitz@bakerlaw.com or 202.861.1608.

DOJ Announces Changes to Antitrust Division’s “Carve Out” Practice

By Erik Raven-Hansen on May 7, 2013 Posted in Government Investigations

On April 12, 2013, the Department of Justice announced changes to the Antitrust Division’s carve out practices concerning negotiations with companies that plead guilty to criminal antitrust violations. These changes were issued in the first statement of Assistant Attorney General Bill Baer.

Corporate plea agreements commonly contain a non-prosecution provision that insulates corporate employees from the threat of criminal prosecution. The DOJ will often exclude, or “carve out,” certain employees, leaving them unprotected by the corporate plea agreement. In the past, the Antitrust Division carved out only individuals (i) it believed to be particularly culpable and/or (ii) refused to cooperate with the government’s investigation. The names of all carved-out individuals would then be made publicly available in the body of the plea agreement filed in the district courts where charges were brought.

Going forward, the Antitrust Division announced two notable changes to these practices. First, the Division will only carve out employees who the government has “reason to believe were involved in criminal wrongdoing and who are potential targets of our investigation.” Put otherwise, it will no longer carve out employees for reasons unrelated to culpability; therefore, the only employees the Division is now likely to carve out are those it believes may be appropriate to prosecute. Employees may choose not to cooperate for a variety of legitimate reasons, and this change removes the concomitant negative stigma which previously affected those persons.

Second, the Antitrust Division will no longer “include the names of the carved-out employees” in the plea agreement itself. Instead, these names will be listed in an appendix that the Division will request be filed under seal. Although the courts retain the latitude to reject this request, this increases the likelihood that names of carved out individuals may be kept confidential, consistent with the public policy rationale that it is not ordinarily appropriate to publicly identify uncharged third-party wrongdoers.

Both of these policy changes appear to be welcomed by the antitrust bar. In narrowing the employees who may be carved out, the Antitrust Division has increased the transparency of the carve out process, such that employees who are carved out will now know they are targeted for prosecution. Similarly, the move to file the names of carved out employees under seal will prevent the public from inferring wrongdoing until those employees are formally charged. Together, these policy changes evince the Division’s recognition of the importance of protecting uncharged individuals from the negative publicity of the plea bargain process, and offers corporations a greater degree of certainty in the outcome of the plea.

A copy of the statement issued by Assistant Attorney General Baer is available here.

Where (and What) Is the Harm?

By Bill Devinney on May 2, 2013 Posted in Antitrust Litigation, Sherman Act 1

Antitrust claims in LIBOR manipulation cases dismissed for lack of antitrust injury.

The recent LIBOR suppression scandal has given rise to numerous lawsuits, both individual and putative class actions based on several theories of recovery, that have been consolidated in the Southern District of New York. LIBOR is calculated by averaging certain British Banking Association members’ estimates of the rate at which that bank could borrow funds in the inter-bank market. But investigations by domestic and foreign regulatory agencies found that at least some banks consistently reported artificially low rates which, in turn, suppressed LIBOR.

The resulting lawsuits included claims that the banks violated the antitrust laws by engaging in a price fixing conspiracy. Specifically, the plaintiffs claimed that, because defendants conspired to suppress LIBOR—the benchmark “price” for borrowing funds—the plaintiffs paid more for, or earned less from, financial instruments purchased either directly from the defendants or in the secondary market.

Initially, the plaintiffs’ antitrust claims appear viable. It is well-settled that manipulating any aspect of price, such as an interest rate component, violates the Sherman Act, and courts have allowed other cases alleging rate manipulation, such as reporting false data to distort benchmark rates for different commodities, to proceed as antitrust claims. Moreover, regulatory investigations uncovered emails between different member banks asking, and agreeing, to report lower borrowing rates in order to suppress LIBOR. Those emails tend to exclude the possibility that the banks acted independently—a requirement to plead a plausible antitrust conspiracy that is often found lacking by courts—rather than in concert.

Despite their facial appeal, the district court dismissed all of the plaintiffs’ antitrust claims. The district court acknowledged that suppressing LIBOR could be a form of horizontal price fixing, and that at least some plaintiffs would have been injured by that suppression.

The court cautioned, however, that not every loss stemming from anticompetitive activity, even an alleged per se violation, inflicts an antitrust injury, i.e., an injury caused by restricting competition. It did not matter, according to the court, that the banks competed with one another outside the LIBOR-setting process; the process of setting LIBOR itself, which gave rise to plaintiffs’ injuries, was not competitive. Moreover, the banks did not achieve any competitive advantage over other banks, or other sellers of financial products, since those competitors also sold products tied to a suppressed LIBOR. Thus, plaintiffs’ injuries did not arise from defendants’ restriction of competition. Accordingly, the court dismissed all of the plaintiffs’ antitrust claims for failure to allege an antitrust injury.

Promoting Healthcare Competition – The FTC’s Recent Comments on State Legislative/Regulatory Efforts Impacting Competition from APRNs

By Jonathan Lewis and Lee Simowitz on April 30, 2013 Posted in Healthcare

In recent years, the Federal Trade Commission (“FTC”) has frequently commented on state efforts to either expand, or restrict competition faced by doctors from advanced practice registered nurses (“APRNs”). Generally speaking, there are four broad types of APRNs: (1) certified registered nurse anesthetists (“CRNAs”); (2) certified nurse midwives (“CNMs”); (3) clinical nurse specialists (“CNSs”); and (4) nurse practitioners (“NPs”), or advanced registered nurse practitioners (“ARNPs”). The FTC has commented on bills, regulations, and resolutions affecting the scope of services that APRNs can provide in Alabama (CRNAs), Connecticut (APRNs), Florida (ARNPs), Kentucky, (APRNs), Missouri (CRNAs), Tennessee (CRNAs), Texas (APRNs), West Virginia (APRNs), and, most recently, Illinois (CRNAs).

The FTC’s initiatives are part of its competition advocacy function; the FTC recognizes that harm to competition can result as effectively from legal restrictions as from private actions. The FTC has consistently argued against restrictions that exclude less costly consumer alternatives to doctors, lawyers, or other higher-priced professionals. The FTC’s input is not always welcome in state and local forums, where doctors and other professionals often exercise strong influence over state legislatures and regulatory bodies.

Recent Decisions Provide Guidance for Litigating Capper-Volstead Cases

By Danyll Foix on April 11, 2013 Posted in Antitrust Exemptions & Immunities, Antitrust Litigation, BakerHostetler, Class Action Litigation, Discovery, Sherman Act 1

BakerHostetler’s Danyll W. Foix examines recent litigation decisions regarding Capper-Volstead Act in ABA publication.

Capper-Volstead has been squarely raised in recent litigation involving mushrooms, milk, eggs, potatoes, cattle, and other agricultural products. In addition to addressing the substance of Capper-Volstead, decisions in these cases have considered a number of procedural and practical issues that arise in Capper-Volstead litigation.

“Litigating Capper-Volstead Cases: Developments and Insights from Recent Decisions,” published in the Spring 2013 ABA Antitrust Section Agriculture and Food Committee e-bulletin, reviews developments and insights for litigating Capper-Volstead cases. These developments provide valuable guidance for prosecuting dispositive motions grounded on the Act, handling Capper-Volstead-related discovery, applying class certification to Capper-Volstead entities, introducing Capper-Volstead evidence at trial, and appealing Capper-Volstead-related rulings.

With this guidance, Foix writes, the framework is set for courts to decide emerging substantive Capper-Volstead issues – including the looming question of whether Capper-Volstead protects producers and cooperatives from antitrust liability for engaging in so-called “supply management” practices.

Read full article.

Common and Predominating Damages: Comcast Opinion Extends Wal-Mart v. Dukes’ Standards for Class Certification but Leaves the Question of Daubert for Another Day

By Danyll Foix on April 4, 2013 Posted in Antitrust Litigation, Class Action Litigation, Sherman Act 1

Co-authored by: John B. Lewis, Dustin M. Dow, Patrick T. Lewis, Danyll W. Foix, and Rodger L. Eckelberry

Editor’s Note: This Executive Alert was published by members of BakerHostetler’s Securities Litigation and Regulatory Enforcement Team, Employment Team, and BakerHostetler’s Class Action Team.

On March 27, 2013, the U.S. Supreme Court decided Comcast Corp. v. Behrend, Case No. 11-864, which provides a valuable tool for the defense in combatting class certification in antitrust cases and other types of class actions. Whether Comcast breaks new jurisprudential ground or simply clarifies what the law has been all along will be the subject of debate over the coming months and years, but there can be little doubt that the decision solidifies the trend established in the court’s 2011 decision in Wal-Mart Stores, Inc. v. Dukes that plaintiffs must be able to demonstrate that the case is susceptible to resolution by common proof.

In particular, Comcast provides guidance on several important questions: a) the level of scrutiny that federal courts must give to the factual basis behind expert opinions and other purported common evidence offered by the plaintiff; b) whether the more exacting standards for evaluating class certification that the Court announced in Wal-Mart apply to the resolution of questions of predominance under Rule 23(b) in addition to the question of commonality under Rule 23(a); and c) whether courts must evaluate the impact of individualized damages issues in determining whether class certification is appropriate. In addition, the majority’s opinion raises serious doubts about whether class certification is ever appropriate when there is no common method of calculating damages.

Do Not Pass Go, Do Not Collect $200: Michigan Statute and Regulatory Order Banning MFN Provisions in Provider Contracts Ends Government Antitrust Lawsuit Against Michigan Blue

By Jonathan Lewis and Lee Simowitz on March 26, 2013 Posted in Antitrust Litigation, Government Investigations, Healthcare, Sherman Act 1

In the wake of the passage of a Michigan statute and regulatory order banning the use of most favored nation (“MFN”) clauses by insurers, health maintenance organizations, and nonprofit health care corporations in contracts with providers, the Department of Justice Antitrust Division (“DOJ”), the State of Michigan, and Blue Cross Blue Shield of Michigan (“Michigan BCBS”) have agreed to end nearly 2½ years of antitrust litigation.

In a complaint filed in October 2010, DOJ and the State of Michigan sued Michigan BCBS, alleging that it had taken steps to insulate itself from competition in the sale of commercial health insurance by entering into agreements containing MFN provisions with more than 70 Michigan hospitals. DOJ and the State of Michigan alleged that Michigan BCBS’s MFN provisions effectively prevented Michigan BCBS’s competitors from offering customers competitive rates, because they resulted in Michigan BCBS’s competitors paying higher prices for hospital services. MFNs may have this effect if they discourage hospitals and other providers from giving lower rates to smaller health insurance companies because the providers then have to make those same rates available to large insurers by virtue of the MFN’s requirements.

On July 18, 2012, the Commissioner of the Michigan Office of Financial and Insurance Regulation entered an order banning the use of MFN provisions in health insurance contracts unless approved by the Commission. Then on February 8, 2013, the Commissioner issued a bulletin stating that “all MFNs currently in use by any insurer are void and unenforceable” as of February 1, 2013, and that “any attempt by an insurer to use or enforce an MFN clause in any provider contract, without the Commissioner’s prior review and approval, is prohibited.” Michigan BCBS acknowledged that the Commissioner’s order makes its MFN clauses “void and ineffective.” And even more significantly, on March 18, the State of Michigan enacted laws that ban the use of MFN clauses by insurers, HMOs, and nonprofit health care corporations in contracts with providers. The laws take effect January 1, 2014.

“Wide-Ranging Investigation” Leads FTC and Idaho AG to Join Ongoing Antitrust Lawsuit Challenging Acquisition of Idaho’s Largest Independent, Multi-Specialty Physician Group

By Jonathan Lewis and Lee Simowitz on March 19, 2013 Posted in FTC Act, Government Investigations, Healthcare, Premerger Notification

After dodging an attempt by two of its competitors to stop the closing of its acquisition of Saltzer Medical Group (“Saltzer”)—a for-profit, physician-owned, multi-specialty group comprising approximately 44 physicians located in Nampa, Idaho—St. Luke’s Health System (“St. Luke’s”) must now also fend off the FTC’s and Idaho AG’s joint effort to unwind that transaction.

On December 31, 2013, St. Luke’s closed on the Saltzer acquisition, but only after convincing a federal district court judge to allow the transaction to go forward pending a July, 2013 trial date (which was recently moved to September 16, 2013), and ignoring the FTC’s and Idaho AG’s repeated requests to delay the closing to allow each to complete its own investigation. The FTC and the Idaho AG have now sued, alleging that the transaction created a dominant local provider of adult primary care physician services with a market share of almost 60%.

The case is a rare instance of an enforcement agency antitrust challenge to the acquisition of a physician practice group. Because most markets for physician practices are not concentrated—especially primary care practices—practice acquisitions rarely present antitrust issues. In a smaller market such as Nampa, however, the possibility exists that a single provider may gain market power by acquisition, especially when patients are not willing to travel very far to see a primary care physician.

Eighth Circuit Rules Equitable Estoppel Doctrine Cannot Be Used to Compel Non-Signatories to an Arbitration Agreement into Arbitration

By Carey Busen on March 11, 2013 Posted in Alternative Dispute Resolution, Arbitration, Class Action Litigation

Arbitration in the context of antitrust class action litigation continues to be a front and center issue for the federal appeals courts. (See this blog’s discussion of a Third Circuit decision from late last year, In re Pharmacy Benefit Managers Antitrust Litig. (Case No. 12-1430).)

The Eighth Circuit recently weighed in on arbitration issues, holding that a non-signatory to an arbitration agreement cannot force a signatory into arbitration where there is not a close relationship between the persons, wrongs, and issues. In re Wholesale Grocery Products Antitrust Litig., 2013 WL 514758 (8th Cir. Feb. 13, 2013).

Antitrust claims in LIBOR manipulation cases dismissed for lack of antitrust injury.

Rarely, according to a recent Federal Trade Commission (“FTC”) enforcement action against two nationally known hair restoration businesses—Bosley and Hair Club. However, before you start chatting up your competitor for information, pick up the phone and call your lawyer for advice.

BakerHostetler’s Danyll W. Foix examines recent litigation decisions regarding Capper-Volstead Act in ABA publication.