Kusserow on Compliance: DOJ Policy for continued antitrust enforcement DOJ

At the American Bar Association’s Anti-Trust in Healthcare Conference, Deputy Attorney General Barry Nigro provided a wide ranging presentation regarding DOJ efforts to combat rising health care fraud. He noted that, in 2016, health care spending in the United States accounted for $3.3 trillion, or $10,348 per person—approximately 18 percent of Gross Domestic Product (GDP). At this level of spending, the economy can ill afford fraudulent activity to increase the cost of health care. Inasmuch as health care involves critical care, it means the DOJ is giving it a higher priority. DOJ is continuing to give this area a priority that includes rigorous investigation and prosecution of those engaged in Medicare provider fraud and price gouging by drug makers. The DOJ will carry on with questioning mergers and potential collusion among health systems and payers. This includes market allocation agreements, price fixing, and naked market allocation. Some of the topical areas covered in his address included the following:

  1. Criminal prosecutions related to price fixing and market allocation agreements
  2. Parties circumventing generic drug regulations
  3. Market allocation and no-poach agreements
  4. Limitations on exemptions and immunities from anti-trust laws
  5. Continued reliance on the Clayton Antitrust Act
  6. Urging states to consider negative effect on competition when passing laws
  7. Support for certificate of need provisions
  8. Urging states to consider laws that impose occupational licensing requirements
  9. Professionals being able to advertise receiving board certification to patients

 

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2017 Strategic Management Services, LLC. Published with permission.

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.

Insurance antitrust exemption reform clears House

The House passed on March 22, 2017, H.R. 372, The Competitive Health Insurance Reform Act of 2017, with a bipartisan vote of 416 to 7. The Act repeals in part the McCarran-Ferguson Act antitrust exemption for insurers, including price fixing, bid rigging, and market allocation, and retains the exemption for certain collaborative activities. A CBO report projected that the Act would have no significant net effect on the premiums that private insurers would charge for health or dental insurance and that any effect on federal revenue would be negligible.

The report noted that health insurance premiums could be lower to the extent that enacting the bill would prevent insurers from engaging in practices currently exempted from antitrust law. On the other hand, insurers could become subject to additional litigation and thus their costs and premiums might increase. The CBO estimated that both of those effects would be small.

The American Hospital Association had expressed concerns about the abuse of market power by large commercial insurers with the Departments of Justice and Health and Human Services previously.

Tale of two mergers: Cigna-Anthem goes south; Humana, Aetna drop plans

Cigna Corp. has chosen to terminate its proposed merger agreement with Anthem, Inc., which would have combined two of the largest medical health insurance carriers in the U.S. in a $54 billion deal. The decision comes after a D.C. court order enjoining the transaction. The district court found that the merger would decrease competition and lessen choices in the health insurance market and that the competitive harm could not be offset (see Swan song for Anthem’s acquisition of Cigna?, Health Law Daily, February 9, 2017). 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).

In Cigna’s announcement about the merger termination, the company noted that its decision was based on its belief that the proposed merger would not have been approved. To effect termination, Cigna filed a complaint in the Delaware Court of Chancery seeking declaratory judgment that it lawfully terminated the merger agreement and that Anthem is not permitted to extend the termination date. Cigna’s complaint seeks payment by Anthem of the $1.85 billion reverse termination fee contemplated in the merger agreement, as well as additional damages in an amount exceeding $13 billion. In response, Anthem sought a temporary restraining order in the same court to enjoin Cigna from terminating and taking any actions contrary to the terms of the proposed merger agreement. Anthem contended that there was still sufficient time to meet the merger agreement date of April 30, 2017, and that the merger would save more than $2 billion in annual medical costs for consumers. Anthem also provided a long list comparing the carrier’s interests in proceeding with the merger and Cigna’s interest in avoiding it.

In addition to Cigna and Anthem’s announcements following the D.C. court ruling, Humana and Aetna recently terminated their pending merger agreement (see 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). Under the terms of the merger agreement, Humana is entitled to a “breakup fee” of $1 billion, or approximately $630 million, net of tax. Of note, in order to demonstrate that its proposed merger with Humana would not run afoul of antitrust issues similar to the now contentious Anthem-Cigna merger, Aetna had pulled out of some health insurance exchanges for the upcoming enrollment period. Humana has now stated its intent to pull out of the exchanges for 2018. President Trump weighed in on the pullout, repeating the “repeal and replace” mantra. The pullout is based on Humana’s analysis of data associated with the company’s exchange membership following the 2017 open enrollment period, and what it perceived as future uncertainty in the risk pool.