FTC Announces Revised Hart-Scott-Rodino Thresholds for Acquisitions and Exclusive Licenses
By Neal N. Beaton and John R. Dierking
The Federal Trade Commission (FTC) has announced this year's revisions to the thresholds under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act), which will be applicable to transactions closing on or after Feb. 28, 2018. The FTC is required to revise the HSR Act thresholds annually based on changes in the U.S. gross national product, resulting in an increase of roughly 4.45 percent over last year. The size-of-transaction threshold will now be met if, as a result of the transaction, the buyer will hold voting securities, assets and/or non-corporate interests of the seller valued in excess of $84.4 million; and the size-of-person threshold will now usually be met if one party to the transaction has total assets or net sales of $168.8 million or more and the other party to the transaction has total assets or net sales of $16.9 million or more.
If the minimum jurisdictional thresholds are met and there are no applicable exemptions, the HSR Act requires parties intending to merge, purchase or sell voting securities, non-corporate interests or assets, or engage in certain other types of acquisition transactions, to provide information and stay the consummation of a covered transaction for the waiting period specified by law. In particular, the grant of an exclusive intellectual property (IP) license (defined as "all commercially significant rights") is the transfer of an asset to the licensee that can trigger the HSR Act requirements. In order for the transaction to be treated as an acquisition, the license must be exclusive — even against the grantor. Moreover, partial or limited exclusivity, such as license grants for exclusive geographic territories or for specific fields of use or jurisdictions, may be considered an acquisition of an asset for HSR Act purposes.
Reverse Settlements Are Not Per Se Cartwright Act Antitrust Violations
By Nathan A. Adams IV
In In re: Lipitor Antitrust Litigation RP Healthcare, Inc., No. 14-4632, 2018 WL 266751 (3d Cir. Jan. 3, 2018), the court determined that the district court had diversity jurisdiction over the plaintiff's Cartwright Act (California's antitrust statute) claim, but affirmed dismissal of the claim because a reverse settlement is not a per se violation of the act. The district court initially declined to send the case back to state court from whence it was removed based on an erroneous finding of federal jurisdiction in potential patent defenses of the defendants. At the time, there were non-diverse defendants, but RP Healthcare voluntarily dismissed them so that by the time of final judgment there was a proper basis for federal jurisdiction. Turning to the merits, RP Healthcare alleged that Pfizer sued Ranbaxy for infringement of a Lipitor patent and that the parties entered into a reverse settlement agreement, which RP Healthcare claimed was a per se antitrust violation of the act. A reverse settlement occurs when a patent holder sues an alleged infringer and the suit is settled with a payment from the patent holder to the infringer in exchange for a promise from the infringer to exit the market for a period of time that falls within the term of the patent at issue. A reverse settlement is not a per se antitrust violation; instead, it implicates rule of reason analysis and antitrust concerns when payments are "large and unjustified." Therefore, the court affirmed dismissal of RP Healthcare's complaint.
North Dakota Physician Practice Merger Enjoined
By Jerome W. Hoffman
In Federal Trade Comm'n v. Sanford Health, No. 1:17-133, 2017 WL 7369054 (D. N.D. Dec. 13, 2017), the court preliminary enjoined the merger of two large physician practices in North Dakota's Bismarck/Mandan market on the grounds that the proposed merger would substantially lessen competition in four physician service lines that it deemed separate product markets without close substitutes: general surgery, OB/GYN, adult primary care and pediatric services. As a result of the merger, the combined entity would have had between 80 percent and 100 percent of the market share of the four service lines in question. The court concluded that the evidence did not demonstrate that Sanford's chief competitor, CHI, would be able to recruit enough physicians timely to replace the lost patient referrals. Recruitment of physicians to North Dakota is difficult historically due to the weather and other market conditions. Furthermore, Sanford is an integrated network, including a hospital and insurance plan, meaning the merger would affect more than just the physician services market. In granting the preliminary injunction, the court rejected Sanford's defenses based on enhanced efficiencies and the need to maintain its negotiating power with Blue Cross/Blue Shield of North Dakota, which is the largest commercial insurer in North Dakota. The court also discounted Sanford's promise to not raise reimbursement rates. The court found instead that the creation of a near-monopoly provider of physician services in the Bismarck-Mandan area would likely lead to higher reimbursement rates and higher premiums for consumers.
11th Amendment Precludes Enforcement of Antitrust Settlement Against State
By Nathan A. Adams IV
In In re: Flonase Antitrust Litigation, 879 F. 3d 61 (3d Cir. 2017), the court determined that the 11th Amendment barred the district court from exercising ancillary jurisdiction over a prescription brand name allergy spray manufacturer's motion to enforce an antitrust settlement agreement. As a precursor to this holding, the court ruled that a motion for approval of a class action settlement qualifies as a suit against a state for 11th Amendment purposes when the agreement enjoins the state from suing in state court. The manufacturer argued that Louisiana did not opt-out of the settlement class of the underlying litigation alleging that it had filed sham citizen petitions with the U.S. Food and Drug Administration (FDA) to delay the introduction of a generic version of Flonase and caused the private indirect purchase to pay more for the drug. Alternatively, the manufacturer argued that Louisiana waived its sovereign immunity by receiving a Class Action Fairness Act (CAFA) notice and failing to oppose the settlement based on that notice. The court disagreed this was an adequate "clear declaration" that Louisiana intended to waive sovereign immunity.
False Claims Act Case May Continue Against Medicare Advantage Insurer
By Lynne M. Halbrooks
In United States ex rel. Benjamin Poehling v. UnitedHealth Group, Inc. et al., Case No. CV 16-08697 (C.D. Cal. Feb. 18, 2018), the court dismissed only half of the claims in a qui tam case against UnitedHealth Group, Inc., a Medicare Advantage plan provider. The court applied the U.S. Supreme Court's "materiality" requirement as outlined in Universal Health Servs. Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016) in dismissing the government's three False Claims Act (FCA) claims related to submission of false annual Risk Adjustment Attestations. The court found these specific allegations "do not suggest they are likely to influence the payment of money." Conversely, the court did find the government pled facts sufficient to show that the defendant knowingly avoided obligations to repay the Centers for Medicare & Medicaid Services (CMS) by failing to delete invalid diagnosis codes from CMS's Risk Adjustment Processing System. The court also declined to read too much into the agency's continued payment despite its general knowledge of the defendant's alleged conduct. As a result, the defendant still faces exposure under a "reverse false claims" theory for allegedly knowingly avoiding its obligation to repay CMS by failing to delete invalid diagnosis codes.
New DOJ Policies Should Curtail Frivolous False Claims Act Suits
By Timothy J. Taylor
The U.S. Department of Justice (DOJ) has recently issued two memos requiring closer scrutiny of borderline FCA suits by DOJ attorneys. In some instances, DOJ may even ask that such suits be thrown out. On Jan. 10, 2018, Michael Granston, Director of the Fraud Section of DOJ's Commercial Litigation Branch, issued a now-leaked memo addressing when relator-led FCA suits should be dismissed. (DOJ can do that, though some courts require a rational reason for it.) The memo identifies the following seven situations where DOJ attorneys should consider dismissal:
- The suit is meritless: "[The] relator's legal theory is inherently defective, or the relator's factual allegations are frivolous."
- The suit is parasitic: The relator adds no new information but still wants a cut of the public's money.
- The suit interferes with the government's programs: The relator's suit threatens to disrupt, delay or destroy a government program or a critical government supplier.
- The suit interferes with the government's litigation strategy: The relator's suit threatens to disrupt or delay DOJ's own enforcement measures.
- The suit interferes with national security: The relator's suit jeopardizes classified information.
- The suit is not worth it: DOJ must monitor even declined suits, which can cost more money than the suit could generate.
- The suit suffers from egregious procedural errors: The relator does something to "frustrate the government's efforts to conduct a proper investigation."
Then, on Jan. 25, 2018, then-Associate Attorney General Rachel Brand issued a two-page memo limiting the use of administrative "guidance" in civil enforcement actions. The memo defines "guidance" documents as those that have not undergone notice-and-comment rulemaking — or in other words, virtually anything that is not in the Code of Federal Regulations. The memo's instructions are blunt and clear. "[T]he Department may not use its enforcement authority to effectively convert agency guidance documents into binding rules. Likewise, department litigators may not use noncompliance with guidance documents as a basis for proving violations of applicable law in [affirmative civil enforcement] cases."
Lest there be any doubt, the memo states that it applies "when the Department is enforcing the FCA, alleging that a party knowingly submitted a false claim for payment by falsely certifying compliance with material statutory or regulatory requirements." Companies should look closely when they are under investigation for purported violations of professional standards or codes, of criteria found in manuals or on websites, or of rules based on expert opinion or popular consensus. Unless those violations are pinned to an actual law or regulation, they may not be a basis for an FCA suit.
Reasonable Belief of Medicare Upcoding Can Support Retaliation Claim Despite Failure to State FCA Violations
By Nicholas A.F. Sarokhanian
In United States ex rel. Crockett v. Complete Fitness Rehabilitation, Inc., No. 16-2544, 2018 WL 327453 (6th Cir. Jan. 9, 2018), the court of appeals affirmed the dismissal of FCA claims for Complete Rehab, a provider of physical rehabilitation services to Medicare patients, but reversed the dismissal of the relator's FCA retaliation claim. The relator was employed by Complete Rehab as a certified occupational therapist and as a manager of skilled nursing facility managed by a non-party, Bortz Health Care Facilities (Bortz). The relator filed a qui tam action on behalf of the U.S., alleging that Complete Rehab had a policy of "upcoding" Medicare Parts A and B patients into the highest possible Resource Utilization Group (RUG) subcategories, which the relator contended may have led to false claims submitted to Medicare. As such, the relator alleged three FCA violations: (1) submitting false claims by inducing the government to pay for more services than Complete Rehab's patients required; (2) a reverse FCA claim based on Complete Rehab's alleged concealment of overpayments by the government; and (3) a conspiracy between Complete Rehab and Bortz to overbill Medicare. The court agreed with the dismissal of the relator's FCA claims because the relator admitted that Complete Rehab would bill Bortz, which would then bill Medicare, yet disavowed any knowledge of what Bortz did with Complete Rehab's bills (e.g., revise them, submit them with alleged upcoding and so forth). The court agreed that the relator's circumstantial allegations failed to meet Federal Rule of Civil Procedure 9(b)'s particularity requirements, and that the relator's failure to actually allege that false claims were submitted to Medicare was fatal to her FCA claims. However, the court reversed the dismissal of the relator's retaliation claim because the relator's allegations met the lower plausibility pleading standard under Federal Rule of Civil Procedure 8. The court found that the relator's allegations relating to several emails she and her supervisor exchanged regarding the appropriate RUG subcategories for Complete Rehab's patients created the plausibility necessary to survive a motion to dismiss on her retaliation claim, i.e., that it was plausible that the relator's allegations of upcoding to her supervisor grew out of a reasonable belief in such fraud. Finally, the court agreed with the dismissal of a state law statutory retaliation claim because the state statute only applied in the absence of another statutory retaliation prohibition, and the FCA provided such a prohibition.
Lawsuits over Biosimilars Subject Exclusively to BPCIA, Not State Law
By Nathan A. Adams IV
In Amgen, Inc. v. Sandoz, Inc., 877 F. 3d 1315 (Fed. Cir. 2017), the court dismissed the plaintiff's unfair competition and conversion claims as pre-empted by the Biologics Price Competition and Innovation Act of 2009 (BPCIA). In May 2014, the defendant filed an abbreviated biologics license application (aBLA), seeking FDA approval of a biosimilar filgrastim product, for which Neupogen was the reference product. Sandoz received notification from the FDA that it had accepted the plaintiff's application for review on July 7, 2014, whereupon the defendant notified the plaintiff that it had filed the application and of its plan to launch its biosimilar product upon FDA approval. The plaintiff sued the defendant for unfair competition, conversion and patent infringement, claiming that the defendant violated the BPCIA by failing to disclose its aBLA or its product's manufacturing information and by giving a premature, ineffective notice of commercial marketing before FDA approval. The defendant counterclaimed for a declaratory judgment that BPCIA permitted its actions, that the plaintiff's state law claims were pre-empted and that its patent was invalid. The defendant also asserted the affirmative defense of pre-emption in its answer. The court determined that there was both field pre-emption and conflict pre-emption. Pursuant to the former, state law is pre-empted where it regulates conduct in a field that Congress intended the federal government to occupy exclusively. The court ruled that the BPCIA's "comprehensive, carefully calibrated 'scheme of federal regulation ... [is] so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it.'" Conflict pre-emption occurs when state law conflicts with federal law. The court ruled that there was conflict pre-emption because the plaintiff would, through state law, impose penalties intentionally left unavailable under the BPCIA.
Florida Statute Authorizing Ex Parte Interviews with Treating Physicians Stricken
By Tiffany A. Roddenberry and Jerome W. Hoffman
In Weaver v. Myers, 229 So. 3d 1118 (Fla. 2017), the court, in a 4-3 decision, ruled that 2013 statutory amendments authorizing the conduct of informal, ex parte interviews with a medical malpractice claimant's treating physician unconstitutionally infringe rights of privacy and access to courts. The Florida Supreme Court first made clear that Weaver's late husband's privacy right survived his death and could be raised by his wife in these proceedings, then ruled that the amendments unconstitutionally require claimants to waive their right to privacy as to both relevant and irrelevant medical information. The court considered the legislature's reasons for the amendments; i.e., to encourage settlement by providing equal access to relevant information, to screen out frivolous claims and to streamline medical malpractice litigation not "sufficiently compelling" to outweigh patient privacy rights. Even if the rights were compelling, the court determined that authorizing "clandestine, ex parte secret interviews is far from the least intrusive means to accomplish those stated goals." The court also held that the amendments violated the constitutional right of access to courts because they coerced claimants into foregoing their fundamental right to privacy in order to exercise their fundamental right to access to courts. The dissent argued that the majority ignored that the 2013 amendments require only the disclosure of relevant medical information and that well-established law recognizes that a claimant waives the right to privacy with respect to relevant medical information by filing a medical malpractice suit. The dissent added that the legislature is within its right to carve out a limited, Health Insurance Portability and Accountability Act (HIPAA)-compliant exception to a legislatively created physician/patient confidentiality right in order to place plaintiffs and defendants on a level playing field with respect to access to treating physicians.