Anthem, Cigna call off merger, maybe mooting pending SCOTUS petition

After the Delaware Court of Chancery denied Anthem, Inc.’s motion for a preliminary injunction that would have prevented Cigna Corporation from terminating a merger agreement entered into between the two insurance giants two years ago but beset by legal challenges—including a lawsuit by the United States on antitrust grounds—Anthem finally agreed to terminate the agreement. Cigna, which stopped defending the agreement during the trial, which resulted in a holding that the agreement would harm the public (see Swan song for Anthem’s acquisition of Cigna?, Health Law Daily, February 9, 2017), reiterated its belief that Anthem breached its obligations under the agreement and therefore owes it a $1.85 billion reverse termination fee. Anthem believes that Cigna was first in breach, and is not entitled to the fee. The dueling announcements came one week after Anthem filed a petition for writ of certiorari in the Supreme Court, seeking review of the Circuit Court’s affirmation of the District Court’s decision (see Injunction barring Anthem’s acquisition of Cigna upheld, Health Law Daily, May 1, 2017).

A brief history of recent failed mergers. In 2015, proposed mergers were announced between four of the five largest health insurance companies in the United States. In addition to Anthem’s proposed acquisition of Cigna, Aetna Inc. attempted to purchase Humana Inc., and the subject quickly came under scrutiny (see To merge or not to merge, that was the question before a Senate subcommittee, Health Law Daily, September 24, 2015). While the companies indicated that the proposed acquisitions were in response to the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), concerns about the resultant impact on the Medicare Advantage (MA) program were raised, in addition to concerns about stifling competition and slowing innovations. In July 2016, the Department of Justice (DOJ) filed lawsuits to prevent the two transactions, and the idea that Anthem and Cigna were not necessarily on the same page about the acquisition came to light as Cigna appeared less-than-enthusiastic about fighting the DOJ (see DOJ lawsuit steps in between Aetna-Humana and Anthem-Cigna mergers, Health Law Daily, July 21, 2016). Humana and Aetna terminated their pending merger agreement after the D.C. District Court halted that transaction (see Tale of two mergers: Cigna-Anthem goes South; Humana, Aetna drop plans, Health Law Daily, February 15, 2017; Aetna, Humana plan separate futures after dissolving merger plans, Health Law Daily, February 14, 2017; Aetna’s $47 billion purchase of Humana enjoined, Health Law Daily, January 23, 2017).

Anthem’s fights continue. Although Anthem agreed to terminate the merger with Cigna, the legal battle between the two companies will likely continue. In addition to the imminent fight over the reverse termination fee, Anthem’s writ for certiorari remains pending before the Court (No. 16-1342). The petition presented the question whether a 1967 Supreme Court antitrust decision “forecloses consideration of efficiencies in merger analysis,” and, if not, “whether and how a court must weigh [efficiencies] as part of a determination of net competitive effect.” According to the petition, there is a circuit split on the issue. The petition, however, may be determined moot because there is no longer an active case or controversy; it is unlikely that the Court will take up the question because the issue is capable of repetition, and not evading review.

FTC nails opiate withdrawal supplement company for misleading statements

Catlin Enterprises, Inc. (Catlin) is now barred from making scientifically unsubstantiated claims that their opiate withdrawal treatment alleviates withdrawal symptoms and increases the chances of overcoming opiate dependency. A Texas district court ordered the permanent injunction following the Federal Trade Commission’s (FTC) complaint against Catlin.

Complaint and order

The FTC alleged that Catlin falsely advertised its products Withdrawal Ease and Recovery Ease and participated in deceptive acts throughout the process of labeling, advertising, distribution, and sale of the products. According to Catlin’s statements, Withdrawal Ease significantly alleviates opiate withdrawal symptoms and significantly increases the likelihood of overcoming dependency, while Recovery Ease significantly alleviates post-acute withdrawal symptoms.

The injunction prevent Catalin and its officers, agents, employees, and other people actively participating in the company from engaging in any steps of the process of making and selling any dietary product intended to provide withdrawal assistance or other health benefits and represented as having such benefits unless such statements are not misleading. Any representation of benefits much be based on reliable scientific evidence, obtained from human clinical testing of the product or an equivalent product. The testing must be conducted by qualified researchers and be randomized, double-blind, and placebo controlled.

A $6.6 million judgment was entered and suspended premised upon the accuracy of sworn financial statements. Catalin must provide the FTC with customer information to allow the FTC to “administer consumer redress,” when requested, then destroy this information when instructed to do so by the FTC.

Highlight on Alaska: FTC, DOJ back Alaska Senate’s move to eliminate certificates of need

Citing “considerable competitive concerns” raised by certificate of need (CON) laws, the Federal Trade Commission (FTC) and the Department of Justice (DOJ) issued a joint statement in support of Alaska Senate Bill 62 (SB 62), which would repeal Alaska’s CON program effective July 1, 2019. CON programs generally require firms to demonstrate an unmet need for services to the state before being permitted to enter the health care market, for example, by building a new hospital. Sen. David Wilson (R-Wasilla), who submitted the bill, applauded the statement, noting, “As government officials, we should not lose sight of a basic truth that competition improves the quality and lowers the costs of services; it’s what drives innovation and ultimately leads to the delivery of better healthcare.”

CON laws were enacted to reduce costs and improve access to care, based on the assumption that the existence of too many health care facilities in the same area could lead to inflated pricing for services. However, the FTC and DOJ opined that the laws create barriers to entry and expansion, allow entities to abuse the process to delay or halt competitors’ entry or expansion, and deny consumers effective remedies from anticompetitive mergers.

Alaska’s program requires parties wishing to spend at least $1.5 million on health care facility construction, alter an existing facility’s bed capacity, or add a category of health services provided to an existing facility to secure a CON after demonstrating that the quality, availability, or accessibility of existing health care resources is less than necessary “to maintain the good health of citizens of [the] state.” Specifically, it requires parties to submit an application with a fee ranging from $2,500 to $75,000.  The Department of Health and Social Services holds a public meeting and solicits comments and then submits a recommendation to the Commissioner of Health and Social Services, who makes the ultimate decision. Members of the public substantially impacted by the CON may initiate administrative proceedings and eventually seek judicial review.

The agencies stated that the existing state law raises both the monetary and time-based costs of entry and expansion, eliminates or reduces competitive pressure that normally incentivizes firms “to innovate, improve existing services, introduce new ones, or moderate prices,” and, in the event of denials, prohibits entry or expansion.  Furthermore, the law allows incumbent firms to drag out the CON application process by filing challenges or comments in order to delay competitors’ entry into the market. It also provides a platform that allows firms to form anticompetitive agreements–for example, two firms could agree to file CON applications for separate services to avoid a lengthy application process and potential challenges from one another. Finally, the existing law could impede antitrust remedies. As an example, the joint statement cited to the case of FTC v. Phoebe Putney.  Although the Supreme Court eventually ruled that an anticompetitive merger was subject to antitrust scrutiny, the entities involved had already merged and the applicable state’s CON laws made divestiture “virtually impossible.”

 

CogniPrin and FlexiPrin supplement marketers charged by FTC and Maine AG

The Federal Trade Commission (FTC) and the Attorney General (AG) of Maine have filed a complaint against nine dietary supplement marketers, including three corporations and six individuals, for their roles in a deceptive campaign to sell a joint health supplement (FlexiPrin) and a cognitive health supplement (CogniPrin) in violation of state and federal laws. The FTC and Maine AG have also jointly announced that six of the marketers (two corporations and four individuals) have agreed to settlements, in the form of proposed stipulated orders, with the state and federal governments.

Complaint

The FTC and the Maine AG allege that XXL Impressions LLC, Jeffrey R. Powlowsky, J2 Response LLP, Justin Bumann, Justin Steinle, Synergixx, LLC, Charlie Fusco, Ronald Jahner, and Brazos Minshew made false and misleading claims that the supplement CogniPrin:

  • reverses mental decline by 12 years;
  • improves memory by 44 percent; and
  • improves memory in as little as three weeks and is clinically proven to improve memory.

And that the supplement FlexiPrin:

  • reduces joint and back pain, inflammation, and stiffness in as little as two hours;
  • rebuilds damaged joints and cartilage; and
  • has been clinically proven to reduce the need for medication in 80 percent of users and to reduce morning joint stiffness in all users.

The complaint alleges that the marketers employed unfair or deceptive acts or practices in the advertising, marketing, distribution, and sale of FlexiPrin and CogniPrin. The marketers also allegedly sold these products directly to consumers, primarily through radio and print advertising nationwide and in Canada, which garnered in excess of $6.5 million in gross sales from January 1, 2012 through April 30, 2015. The complaint specifically alleges that the defendants:

  • made false claims about the efficacy and testing of their products;
  • deceptively enrolled consumers in continuity plans, or automatic monthly shipments for which consumers’ credit and debit cards were automatically charged;
  • when consumers attempted to halt shipments or obtain a refund, they were then told of additional, undisclosed requirements they could almost never abide by;
  • would use stage names and claim medical credentials to promote the products and claim clinical testing that never actually occurred; and
  • deceptively induced consumers to purchase other services such as discount buying clubs or health savings plans which were also difficult to cancel.

Proposed stipulated orders

Marketers Powlowsky, XXL Impressions, J2Response, Bumann, and Steinle have agreed in two proposed court orders to substantial injunctions against making unsubstantiated health efficacy claims. A stipulated order against J2Response, Bumann, and Steinle and a second stipulated order against Powlowsky and XXL Impressions LLC both bar these marketers from making the false or unsubstantiated heath claims challenged in the complaint and require them to have competent and reliable scientific evidence when making health-related claims. The orders also requires these marketers to preserve all scientific evidence supporting claims they make, and bar them from failing to disclose a material connection to a paid endorser. The orders further bar these marketers from misrepresenting the terms of any negative-option, continuity plans, or free trial offers, and require them to get consumers’ express consent before charging them.

In addition, the stipulated order against Powlowsky and XXL Impressions LLC bans them from direct response marketing of foods, dietary supplements, or drugs for 20 years, while allowing the former to continue his manufacturing brokering business.

The stipulated order against Minshew bars him from acting as an “expert endorser” unless he has the expertise he claims to have, and requires him to have scientific evidence to support the product claims he makes.

The stipulated orders impose a $6.57 million judgment against the marketers, with all but $556,000 suspended due to their inability to pay. The stipulated final orders will have the force of law if and when approved and signed by a district court judge upon deciding the case.

The litigation continues as to Fusco, Synergixx, LLC, and Jahner.