FTC settles final charges against supplement sellers

The final three of nine defendants that marketed joint health and a cognitive health supplements have agreed to settle allegations brought by the Federal Trade Commission (FTC) and Maine that they engaged in misrepresentations in promoting the products, the FTC announced. The defendants were charged with violating the FTC Act, the Electronic Fund Transfer Act and its implementing Regulation E, the Telemarketing Sales Rule, and the Maine Unfair Trade Practices Act. Synergixx, LLC, an ad agency, and two individuals including the company’s principal, are barred from engaging in a wide range of marketing practices and ordered to pay a $6.5 million monetary judgment that is suspended based on their inability to pay. The settlement orders are similar to the orders against the other defendants, which the FTC announced in February.

The FTC and Maine charged nine defendants with making false and misleading claims that purported cognitive health supplement CogniPrin: (1) reversed mental decline by 12 years; (2) improved memory by 44 percent; and (3) improved memory in as little as three weeks and is clinically proven to improve memory; and that purported cognitive health supplement FlexiPrin: (1) reduced joint and back pain, inflammation, and stiffness in as little as two hours; (2) rebuilt damaged joints and cartilage and; (3) had been clinically proven to reduce the need for medication in 80 percent of users and to reduce morning joint stiffness in all users.

Synergixx and Fusco advertised CogniPrin and FlexiPrin through 30-minute radio spots that were formatted to sound like educational talk shows, and created inbound call scripts that allegedly deceptively claimed that consumers could try the supplements “risk-free” with an unconditional 90-day money-back guarantee, without disclosing that consumers would have to enroll in an auto-ship continuity plan to qualify for the “risk-free” trial offer, and would have 14 days or less to try the products. The FTC also charged Synergixx and its principal with failing to make important disclosures when they “up-sold” consumers negative option buying clubs and discount medical programs with ongoing fees, charging many consumers for poorly disclosed auto-ship continuity plans they did not want.

One individual, whom defendants presented as an objective medical expert, was charged with providing endorsements without examining the products or exercising his represented expertise. Synergixx and its principal allegedly failed to disclose that he was paid a percentage of FlexiPrin and CogniPrin sales revenues.

The two orders against Synergixx and its principal and the medical expert bar the defendants from making the false or unsubstantiated health claims challenged in the complaint, require them to have competent and reliable scientific evidence when making health-related claims, and require them to clearly disclose their material connections between product sellers and product endorsers. Also, the defendants are barred from misrepresenting the existence or outcome of tests and studies when they promote health products. Additionally, Synergixx and its principal are barred from employing deceptive marketing practices relating to cancellations, negative-option payment plans, upsold merchandise, and deceptive pricing practices.

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.”