Antitrust Health Care April 2018 Chronicle Vol. 32 / No. 3

In This Issue Editor’s Report E ective Advocacy Before FTC on Welcome to the third issue of the Chronicle for the ABA 2017-18 term. Health Care Deals In this issue, we are pleased to present an interview with Alexis Gilman, Interview with Alexis Gilman, former Assistant Director for Mergers IV at the Federal Trade Commission former Assistant Director for and current Partner at Crowell & Moring LLP. Chronicle editor Amanda Mergers IV at the Federal Trade Hamilton interviewed Gilman about best practices for advocating Commission and current Partner before the FTC on health care deals. Our second article discusses the at Crowell & Moring, by Chronicle implications of increased government focus on branded drug companies’ editor Amanda Hamilton, Associate refusals to sell samples of drugs subject to REMS programs to generic at Haug Partners fi rms and other forms of alleged REMS abuse. The third article provides a summary of recent congressional hearing activity related to antitrust issues in the health care sector. The FDA’s and FTC’s Increased Focus If there is a topic that you would like to see covered in a Committee program or if you have any other suggestions, please contact the on Generic Drug Committee Co-Chairs, Seth Silber ([email protected]) or Leigh Oliver Competition Signals ([email protected]). Enhanced Attention If you would like to submit an article for the Chronicle, please contact to REMS Issues Amanda Lewis ([email protected]) or Anthony Swisher (Anthony.Swisher@ Heather Choi, William Lavery and squirepb.com). Michael Perry, Partners, and Jana Seidl, Associate, at Baker Botts L.L.P.

Executive Editors Editors Competition

Amanda G. Lewis Lauren Battaglia in Health Care: Federal Trade Commission Hogan Lovells Summary of Recent Washington, D.C. Washington, D.C. Congressional Anthony W. Swisher Amanda Hamilton Hearings Squire Patton Boggs Haug Partners Liam E. Phibbs, a Law Clerk at Washington, D.C. Washington, D.C. Hogan Lovells US LLP

Daniel Dukki Moon Linklaters New York, NY

James Moore, III Skadden, Arps, Slate, Meagher & Flom Washington, D.C.

A Publication of the Health Care and Pharmaceuticals Committee of the Antitrust Section of the American Bar Association, Co-Chaired by Seth Silber of Wilson Sonsini and Leigh Oliver of Hogan Lovells. April 2018 Antitrust Health Care Chronicle 2

Effective advocacy before ftc on health care deals

Alexis Gilman, a partner at Crowell & Moring LLP and former Assistant Director (AD) at the Federal Trade Commission, was interviewed by Amanda Hamilton, Chronicle editor and Associate at Haug Partners, LLP. From 2014 to 2017, Mr. Gilman served as the AD of the Mergers IV Division (Mergers IV) in the Bureau of Competition of the Federal Trade Commission. As AD, Mr. Gilman oversaw merger investigations and litigations across various industries, including hospitals and other health care providers, distribution services, supermarkets, funeral homes, casinos and online gaming, retail, and consumer goods. In the interview, Mr. Gilman provides insights into Mergers IV’s review process for health care mergers, the types of claims and evidence that the agency fi nds persuasive, and other tips for eff ective advocacy before the agency.

The Chronicle: What should one arguments forward to the staff as expect in terms of process when early as possible. Rather than leaving Mergers IV reviews a health care deal? the staff to form conclusions about unhelpful facts, it’s often better to Mr. Gilman: For mergers that raise provide the staff with context, the potential concerns, the staff will parties’ views on those facts, and the typically send each of the merging reason why those facts aren’t fatal parties a voluntary access letter. for your deal. At the very least, doing Access letters in a health care so could let you know sooner rather provider deal typically ask for, among than later what the staff thinks of Alexis Gilman other things, contact information those facts, your arguments, and the Crowell & Moring LLP for the parties’ top health plans deal overall. Finally, and relatedly, (based on reimbursement); strategic I think another best practice is to and business plans; documents engage with the staff frequently and discussing competition and market ask lots of questions about where shares; information about the they are in their analysis, what parties’ service areas; annual unresolved questions or concerns discharge and revenue data; and they have, and what information information about the parties’ would be helpful to answer those effi ciencies claims and post-merger questions and concerns. plans. Third-party health plans and competing providers can expect a The Chronicle: Does your advice diff er request by Mergers IV staff for an based on the type of merger? interview so that the staff can learn more about the merging parties, the Mr. Gilman: Each deal is diff erent, services they and their competitors so each deal could call for a diff erent provide, and the geographic area approach, but as a general rule, I they serve; understand the health don’t think it matters signifi cantly if plan’s contract negotiations with it’s a horizontal merger or a vertical the merging parties and its provider merger. If a deal raises concerns, the network in the area; and solicit views best practices for advocating for your about the merger. client and working with the staff in a horizontal deal are likely to apply The Chronicle: Generally, what are equally in a vertical deal. some best practices for advocating before Mergers IV in support of health The Chronicle: Alternatively, what are care mergers? some bad, unhelpful, or unproductive practices that you recommend against Mr. Gilman: The most obvious engaging in? best practice is to maintain your credibility with the agency. Another Mr. Gilman: These are really the best practice is to deal with diffi cult opposite of the best practices. facts up front, putting your best Exaggerating or withholding April 2018 Antitrust Health Care Chronicle 3

information is usually not a letter, particularly on substantive for an alternative purchaser when successful strategy because the issues that are likely to be key in making a failing-fi rm defense. For staff almost always gets to the the staff ’s analysis, whether it be geographic market, the best sources bottom of the facts. So taking that geographic market, competitive for how the FTC looks at geographic kind of approach may diminish eff ects, failing fi rm, etc. The staff will market defi nition are the Advocate/ your credibility, lose your client the certainly want to try to get at least NorthShore and Penn State Hershey/ benefi t of the doubt on the margin, a rough cut of market shares and Pinnacle opinions and the FTC’s and perhaps even slow down the try to do diversion-ratio analysis, so briefs in those cases. For effi ciencies, staff ’s review if they have to triple the parties should be prepared to the district court’s decision in St. check all the representations that provide or address that type of data Luke’s/Saltzer is notable because counsel is making. Additionally, analysis. Even if counsel decide not it recognized, even commended, not engaging with the staff for long to affi rmatively present some of this the parties’ eff orts to move from stretches, either generally or with information, counsel should at least fee-for-service to value-based care respect to the unhelpful facts in know what those documents and and achieve other effi ciencies, but your case, is usually not a productive data say. If the staff determines that ultimately said those arguments practice. Again, the staff will work they need to conduct a more in- didn’t save the merger. to fi gure things out and they might depth review, they may want to get Unfortunately for health care reach conclusions that are less detailed discharge data (patient-level providers looking to merge (at least favorable to the client, so counsel information, including age, gender, with a close competitor), those should take their best shot at taking diagnosis, and length of stay, for cases can seem pretty grim. So I on bad facts and engaging with staff each inpatient discharged from a would point to the Statements of on a regular basis. hospital). If the parties have these Antitrust Enforcement Policy in data available to provide to the staff Health Care and the Enforcement The Chronicle: Are there any upon request, that can expedite the Policy Statement Regarding misconceptions about practicing in process because, otherwise, the staff Accountable Care Organizations front of Mergers IV or the FTC that you may need to get these data from the as agency guidance that speaks to would like to correct? state, which can take time. certain mergers, collaborations, and arrangements that raise relatively Mr. Gilman: One potential The Chronicle: Are there any publicly little antitrust risk and that provide misconception is that agency lawyers available sources of information that antitrust safe harbors. Finally, I are always looking to go to court to provide insight into how Mergers IV or would note that over the last decade, block a merger. While the FTC, and the FTC evaluates health care deals? only about 1% of hospital mergers Mergers IV in particular, has been in have been challenged—and the court a lot in the past several years, Mr. Gilman: The Horizontal Merger agency hasn’t challenged any purely what’s harder to see and track are Guidelines are the foundation vertical provider mergers to date— all the investigations that the staff for the staff ’s general analytical so odds are still in your favor if you closes—including some mergers approach, so that’s a good place are a health care provider looking to that are very close calls. I also think to start. More specifi c to health merge. people might be surprised by the care deals, there are a lot of court number of investigations closed, at decisions from the last few years The Chronicle: What is the role of the least in part, because of effi ciencies, in the FTC’s favor, so those will Bureau of Economics in Merger IV’s failing-fi rm, and/or fl ailing-fi rm largely refl ect, and be key sources health care investigations? defenses—although it is certainly of information about, the FTC’s true that there is a very high bar for approach. For example, for product Mr. Gilman: Bureau of Economics those claims in investigations. market issues, the Commission’s (BE) staff plays an important and decision in the ProMedica/St. Luke’s integral role in investigations. BE The Chronicle: What are some merger may be the most important economists are usually involved important issues in a health care deal case to understand how the FTC from day one in crafting the that the private bar should be ready to defi nes product markets in provider information requests in access address during the early stages of an mergers. Additionally, the Sixth letters; interviewing the parties investigation? Circuit’s opinion in the ProMedica/ and third parties; analyzing St. Luke’s case addressed the state discharge data and trying Mr. Gilman: Parties to a merger fl ailing-fi rm defense, and I would to calculate market shares and that could trigger a preliminary also point to an FTC Competition diversion ratios; drafting Second investigation should be prepared Matters blog post in March 2015 Requests, Civil Investigative to provide the information that the that Debbie Feinstein and I wrote Demands, and subpoena staff will likely request in an access about the requirement to search specifi cations; reviewing all April 2018 Antitrust Health Care Chronicle 4

the data that comes in during helpful to bring business people to to be their primary competitors; and an investigation; and helping those meetings to explain the deal maps for any state lines or other attorneys prepare for, and then rationale and help the staff get up natural barriers that might aff ect actually attending, investigational to speed quickly. But counsel need patient travel patterns. The staff hearings. If there are Front Offi ce to make sure that their business will talk to health plans about the or Commissioner briefi ngs, BE people (and counsel themselves) providers that their members turn to managers and staff are involved in are well-prepared to go into those today and where they think they (the those as well. At the end of a full- meetings and not say something, health plans) and their members phase investigation, BE will make unintentionally, that will raise even would go if the parties’ facilities were its own recommendation to the more concern. no longer available. A key question Front Offi ce and the Commission. that the staff asks commercial And if there is going to be a The Chronicle: What if you have a insurers is whether they could complaint recommendation, BE deal that is unlikely to be problematic, off er a marketable health plan in a will have participated in identifying, but presents complex and new issues candidate geographic market if it did interviewing, and working with the that may take the staff more time than not include any of the providers in outside economic experts. So BE the statutory 30-day waiting period that candidate geographic market. is a very important audience when provides for? This is a qualitative way to try to get advocating for a deal before the at the hypothetical monopolist test, agency. Mr. Gilman: If timing is tight and the and testimony responsive to this parties want to close quickly, this is question featured prominently in The Chronicle: What if you have a probably another scenario where it recent cases. Finally, while the FTC deal that is unlikely to be problematic, may make sense for outside counsel clearly states that it doesn’t conduct what do you recommend? and perhaps the business people a formal Elzinga-Hogarty infl ow/ to come in early to meet with the outfl ow test to defi ne a geographic Mr. Gilman: If it’s really unlikely that staff to explain why the complexity market, they certainly will take a a deal is going to be problematic or new issues still don’t make this look at patient-fl ow information. I or even undergo a preliminary a deal that the staff needs to worry don’t think infl ow information—the investigation, there’s probably not about. If timing is tight, it’s probably number or percentage of patients much outside counsel should do also best to have information to coming into a candidate geographic at the agency, at least not much send to the staff readily at hand in market from outside that area—is that would be cost-eff ective for the case they request it, even if you don’t compelling to the staff , but outfl ow client. If early termination of the HSR ultimately need it. This scenario information could be a lot more waiting period is critical, however, is also one where outside counsel relevant because it may suggest you can call the staff to try to explain should prepare their clients for the that patients see providers outside the urgency to them, but there’s possibility that you may need to a candidate market as viable only so much that can be done in pull-and-refi le, not because there is alternatives. that respect. But counsel have to ultimately going to be a problem, but consider this “hands off ” approach simply because the staff might need The Chronicle: What are the types carefully, because the risk of sitting more time to complete their review. of product markets Mergers IV may back is that a staff concern could identify and assess in health-system arise late in the process, which could The Chronicle: What sort of mergers? delay the parties’ ability to close. information is particularly helpful to the agency’s analysis of the relevant Mr. Gilman: In a merger involving The Chronicle: If you have a geographic market? general acute care (GAC) hospitals, health care deal that is likely to be the product market is virtually problematic, what do you recommend? Mr. Gilman: During an investigation, certain to be the market for inpatient the staff tries to take in as much GAC services sold to commercial Mr. Gilman: As I mentioned earlier qualitative and quantitative health plans. What specifi cally is in terms of best practices, I think it’s information as they can from included in the GAC market will vary best for the parties and their counsel diff erent sources about the by deal because it usually consists to be prepared with all (or as much) geographic market. For example, of the overlapping primary and of the information that you know the the staff will look at the parties’ secondary GAC services off ered staff will want to see early on, then primary service area; ordinary by the merging parties. Whether come in to meet the staff to present course documents about which area tertiary services are included in the the deal and your best arguments the parties serve; how (in what area) GAC market has varied by case— about any problematic facts and the parties calculate market shares they weren’t in ProMedica/St. Luke’s, the key issues in the case. It’s often and which providers they consider but were in Advocate/NorthShore and April 2018 Antitrust Health Care Chronicle 5

Penn State Hershey/Pinnacle. The FTC analysis is information about the what a court considers? may also look at individual service structure of the market (e.g., the lines—as it did with obstetrical parties’ post-merger market share, Mr. Gilman: I don’t think what a services in ProMedica/St. Luke’s—to market concentration measured court considers diff ers meaningfully see if the merger would have an by the Herfi ndahl-Hirschman index from what the staff considers. even greater eff ect in a particular (HHIs), and number of remaining But while the FTC staff has closed service line. In a health-system competitors of similar size and investigations based, at least in part, merger, the FTC will also assess, on quality); diversion ratios between on effi ciency claims, no court has a service-line-by-service-line basis, the parties and other evidence ever denied an injunction based on whether the merger raises concerns indicating how closely the merging an effi ciencies defense. The bar has in any outpatient or physician parties compete with each other; been too high for anyone to get over service lines (e.g., outpatient surgical evidence that health plans have used in court. services or primary care physician one party as leverage to negotiate services). lower rates with the other party; The Chronicle: How early in the and evidence that one party agreed investigation should the parties raise The Chronicle: Does Mergers IV to a lower reimbursement rate if effi ciencies arguments? generally view the relevant product an insurer excluded the other party market in health-system mergers as a (i.e., the merger partner) from its Mr. Gilman: The fi rst time they talk bundle or cluster market? provider network and a higher rate to the staff . From day one, the staff if the insurer included the merger will investigate the potential for a Mr. Gilman: Mergers IV has partner in the network. Again, a key merger to result in effi ciencies, and generally taken the view that factor for the staff is whether health the burden of bringing a case is the product market is a cluster insurers say either that they could technically on the agency, but as a market. Because individual health not off er a marketable network in practical matter, the burden ends up care services are generally not a particular geographic area if both falling on the parties to marshal the substitutable for one another, merging parties were out of their evidence on effi ciencies—because the FTC’s view (which courts have network, or that they (the health it’s in their possession—and to accepted) is that each service could insurers) would be willing to pay try to convince the staff that they be its own relevant product market. higher rates to the merged fi rm should not be concerned about a But because you’re often dealing than try to market a health plan deal, because of the effi ciencies with dozens, if not hundreds, of that excluded the merged fi rm. or otherwise. If the parties wait to services off ered by merging health Notably, the FTC’s eff ects analysis present their effi ciencies claims, that care providers, courts have said it’s has not found contracts negotiated could suggest that the effi ciencies appropriate to aggregate hospital between the merging providers weren’t a key driver of the deal and services into the inpatient GAC and commercial insurers that the staff may begin to suspect that services cluster market where the freeze rates for a period of years the claims were generated to defend competitive conditions for the to be persuasive about a merger’s the merger in response to FTC clustered services are similar. potential eff ects. concerns.

The Chronicle: What sort of The Chronicle: What type of claims The Chronicle: How early in the information does the agency consider does the FTC consider in evaluating an review process should merging parties in its competitive-eff ects analysis of effi ciencies defense? retain an effi ciencies expert? health care mergers? Mr. Gilman: The staff considers Mr. Gilman: Of course, if you Mr. Gilman: The agency considers a range of potential effi ciencies, suspect you are going to face agency a range of evidence, including including cost savings, ability to resistance and the parties want documents, data, and testimony off er new services, and an improved to move forward, sooner rather (interviews, declarations, and ability to engage in population than later is better. But experts investigational hearings). Obviously, health management, engage in risk- are expensive, and many provider if the parties’ documents talk based contracts, invest in technology mergers are relatively small (in about the merger enabling them and physician recruiting, and so terms of deal value), are between to raise prices or obtain leverage forth. Ultimately, quality-related non-profi ts, and involve parties with in health-plan negotiations, that’s effi ciencies are probably the most smaller balance sheets and income pretty damaging, although that important and persuasive effi ciency statements—which may make it type of document is pretty rare. claim that merging parties can make. hard to incur big effi ciencies-expert The more common evidence that expenses too early. Early on, I would will get factored into the eff ects The Chronicle: Does that vary from primarily focus on the competitive April 2018 Antitrust Health Care Chronicle 6 eff ects analysis, so retaining an and service line closures; etc.—and economic consultant is more that its quality is, or is at risk of, valuable in the early stages. suff ering.

But given my answer to the prior In fact, quality-based effi ciency question—about when the parties arguments are often most should raise effi ciencies claims— persuasive when the hospital is there can also be signifi cant value in poor fi nancial condition and in hiring an effi ciencies expert very quality is likely to suff er absent early in the process. This question the merger, but likely to be also highlights another challenge maintained or improved with the that merging parties face. On the merger. Of course, as the Merger one hand, agency staff wants to see Guidelines and the FTC Competition that effi ciencies were a driving force Matters blog post makes clear, the for a deal, not an afterthought, but staff will test whether there are it’s extremely diffi cult, if not near alternatives to the merger—such impossible, for the parties to have as an acquisition by an alternative a perfectly polished and detailed purchaser that poses a less severe effi ciencies plan on signing a letter of danger to competition. So counsel intent or even by the time they sign need to understand the acquired a defi nitive agreement. On the other hospital’s sale process and whether hand, the more that the parties can there were any alternative bidders. refi ne their effi ciencies analysis as they continue to conduct diligence The Chronicle: Any other advice and explore opportunities, the more or tips relating to eff ective advocacy confi dent they can be in what they before the FTC on health care deals? present to the staff . But as the deal progresses through an investigation, Mr. Gilman: One thing that we will the staff can become skeptical all have to see is whether there about revised and evolving claims, are any changes in how the new worried that they may be “made-for- Commission approaches health care litigation.” merger analysis, either substantively or procedurally. For example, we’ll The Chronicle: What if the hospital have to see if there are any changes is having fi nancial problems? Will in the types of economic analyses Mergers IV consider a failing- or that the new commissioners fi nd fl ailing-fi rm defense? persuasive, are more accepting of effi ciencies arguments, and whether Mr. Gilman: Yes, Mergers IV staff there is any change in document will consider failing- and fl ailing-fi rm and data requests to reduce the defenses. While the FTC defeated burden on merging parties. Any this type of argument in the such changes could aff ect advocacy ProMedica case, fi nancial-condition before the FTC, although I suspect arguments have resulted in the we’re going to see largely consistent, agency closing several non-public aggressive health care merger investigations. Unfortunately for enforcement. the hospital involved, the most persuasive arguments are those where the hospital can show that its key fi nancial and operational metrics are all pointing and trending signifi cantly downward—declining revenues, profi ts, admissions, patient days, and days cash on hand; increasing debt and accounts payable; violation of debt covenants; physician and staff layoff s; facility April 2018 Antitrust Health Care Chronicle 7 the fda’s and ftc’s increased focus on generic drug competition signals enhanced attention to rems issues

To obtain approval from the U.S. Food and Drug Administration (“FDA”) for generic drugs, the generic manufacturers must prove, not surprisingly, that the drugs are bioequivalent to the reference branded drug. To perform the required bioequivalence testing required for an Abbreviated New Drug Application (“ANDA”), the generic applicant generally needs to have access to a suffi cient quantity of the brand name drug the generic is meant to imitate. If a generic cannot demonstrate bioequivalence in the ANDA, it cannot use this abbreviated pathway to obtain FDA approval for its drugs that would ultimately compete with—and in most instances, due to state substitution laws, replace—the respective branded drugs. Over the past decade, disputes regarding access to samples for bioequivalence testing have increased between generic and brand manufacturers. Specifi cally, some generics have

argued that brand manufacturers these disputes; the FTC is working misuse risk-management programs closely with the FDA in its eff orts, known as Risk Evaluation and signaling potential investigations. Mitigation Strategies (“REMS”)— Congress is considering enacting FDA programs created to help new legislation aimed at providing ensure the safe use of certain a “fi x.” And the fi rst slew of private potentially dangerous drugs—to litigations is moving towards the 1 Heather S. Choi thwart competition from generic merits stage, including class actions. Baker Botts LLP manufacturers by delaying or These developments will impact blocking their access to the samples the dynamic in the pharmaceutical necessary for testing their products. industry and should cause any Brand drug companies, on the interested party to take note. other hand, argue that providing samples of drugs subject to REMS REMS Background could threaten patient safety, leave the brand companies vulnerable to In 1984, Congress passed the William C. Lavery liability, and they have no duty to Hatch-Waxman Act, which created a Baker Botts LLP deal with their generic competitors streamlined process of generic drug under the antitrust laws anyway. approvals and provided additional incentives to invest in pharmaceutical While both the FDA and the Federal research and development.2 The Trade Commission (“FTC”) have kept Act made it easier for generic drug an eye on these developments and companies to demonstrate the safety issued some guidance, including of their drugs while also containing FTC amicus briefs, neither agency provisions to protect the innovator has taken enforcement actions Michael J. Perry companies’ patent rights, recognizing to address this issue. Likewise, Baker Botts LLP the lengthy development timeline while there have been some cases for new drugs. In this manner, challenging this conduct, not a single Congress spurred accelerated entry REMS abuse allegation has been fully of lower priced generic alternatives, litigated on the merits. However, while at the same time maintaining recently there has been an increased incentives for continued research government focus—including by both and development by branded drug Congress and federal agencies—on manufacturers. Under the Hatch- the antitrust implications of some Waxman Act, the generic drug branded companies’ refusals to sell Jana I. Seidl companies can take advantage of samples of drugs that are subject Baker Botts LLP an ANDA to gain FDA approval of a to REMS programs to generic competing generic drug. ANDAs are fi rms. The FDA is clear that it is much less costly and time consuming prioritizing a response to address 1 Heather Choi, William Lavery, and Michael Perry 2 Drug Price Competition and Patent Term are Partners, and Jana Seidl is an Associate, in the Restoration Act of 1984, Pub. L. No. 98-417, 98 Stat. Antitrust Group of the Washington, D.C. offi ce of 1585 (1984) (codifi ed as amended at 21 U.S.C. § 355 Baker Botts L.L.P. The views are those of the authors (2012)). and do not necessarily refl ect the views of Baker Botts L.L.P. or any client. April 2018 Antitrust Health Care Chronicle 8

than New Drug Applications drugs, elements to assure safe use that branded manufacturers would (“NDAs”) required for approval of (“ETASU”).8 ETASU basically comprise have to sell to generics a quantity the initial brand drug. Under an actions to mitigate the drug’s risks of its branded drug suffi cient for ANDA, a generic must demonstrate that physicians must perform before bioequivalence testing, but this bioequivalence to the brand drug, providing the patient access to the language was not included in the or Reference Listed Drug (“RLD”), drug subject to the REMS program. fi nal bill. 11 As recently as 2012, meaning that the “generic version These actions can include liver Congress again considered, but must deliver the same amount of function monitoring or negative did not enact, certain proposals active ingredients into a patient’s pregnancy tests for drugs that carry that would give the FDA additional bloodstream in the same amount the risk of signifi cant birth defects. 9 authority to address competitive of time” as the RLD.3 In addition, the issues raised by REMS programs.12 generic drug must be “comparable Given these parameters, in to an innovator [i.e., branded] drug implementing a REMS to address Additionally, under the FDAAA product in dosage form, strength, certain potential safety concerns, an an ANDA for a generic equivalent route of administration, quality, innovator fi rm may be required to of a listed drug that is subject to performance characteristics, and restrict how the drug is distributed REMS requires that the brand and intended use.”4 To demonstrate to patients. Additionally, REMS may generic work together to implement bioequivalence, generic drug include distribution restrictions a single, shared system REMS companies require access to which limit the types of entities (“SSRS”), unless the FDA waives that samples of the branded drugs for to which the brand manufacturer requirement, which would allow the tests. can sell its product (e.g., only to generic to use a separate, but still hospitals or pharmacies). REMS may comparable, REMS to that required Twenty three years later, in 2007, also require that a manufacturer of the brand drug. This type of Congress passed the Food and closely monitor the distribution and collaboration can obviously create Drug Administration Amendments use of the product. Generic fi rms antitrust questions in and of itself. Act (“FDAAA”) in an eff ort to help have argued that these restricted The dispute to date centers around enhance drug safety.5 One of the distribution programs have made the fact that while the law requires FDAAA’s provisions requires the it diffi cult or impossible to obtain collaboration, it does not set a sponsor of a NDA to implement a samples of the RLD from the usual time limit for implementing shared REMS if “necessary to ensure that sources. REMS programs. So, like the dispute the benefi ts of the drug outweigh relating to the delay of brand drug the risks of the drug[,]” such as injury Notably, the FDAAA includes sample access, generics are also or death.6 The FDA defi nes REMS as language stating that REMS accusing brand manufacturers of “required risk management plans provisions may not be used to abusing the cooperation process by that use risk minimization strategies “block or delay” approval of an prolonging negotiations or refusing beyond the professional labeling to ANDA.10 Nevertheless, the FDAAA to agree to a shared system to block ensure that the benefi ts of certain does not explicitly require brand generic entry. Brand manufacturers prescription drugs outweigh their companies to provide samples for argue that these SSRS negotiations risks.”7 The specifi c REMS program bioequivalence testing and does take time as it requires developing can take many forms and varies not provide for an enforcement complex business arrangements. greatly from drug to drug. REMS mechanism or a private right of The disputes surrounding REMS are programs may, for example, take the action to address anticompetitive showing no sign of slowing down form of a medication guide, a patient blocking of generic competition. as a 2014 study explained that at package insert, a communication An early House draft of the FDAAA the time roughly 40% of all new FDA plan, and, for particularly risky did include a provision mandating approvals were subject to REMS,

3 Id . 6 21 U.S.C. § 355-1. abbreviated new drug application.”).

4 FDA, Abbreviated New Drug Application 7 Id. at 2. 11 David Rodi & Zach Hughes, Life Sciences Update: Are (ANDA), available at https://www.fda.gov/ Branded Manufacturers Obligated to Sell Their Drugs to 8 Drugs/DevelopmentApprovalProcess/ Id. at 7. Generic Manufactures So They Can Make Copies?, BAKER HowDrugsareDevelopedandApproved/ BOTTS LLP (Feb. 28, 2012), https://s3.amazonaws. 9 ApprovalApplications/ Id . at 3, 12-13. com/documents.lexology.com/106332e6-2cb0-41a6-

AbbreviatedNewDrugApplicationANDAGenerics/ 10 a203-ca1907fa1576.pdf. default.htm. 21 U.S.C. § 355-1(f)(8) (“No holder of an approved covered application shall use any element to 12 Henry N. Butler, REMS-Restricted Drug Distribution 5 21 U.S.C. § 355-1; FDA, FDA Basics Webinar: A Brief assure safe use required by the Secretary under Programs and the Antitrust Economics of Refusals to this subsection to block or delay approval of an Overview of Risk Evaluation and Mitigation Strategies Deal with Potential General Competitors, 67 FLA . L. REV . (REMS) (Dec. 30, 2017), available at https://www.fda. application under section 355 (b)(2) or (j) of this title 977, 984 n.36 (2016). gov/AboutFDA/Transparency/Basics/ucm325201. or to prevent application of such element under htm. subsection (i)(1)(B) to a drug that is the subject of an April 2018 Antitrust Health Care Chronicle 9

that include distribution restrictions positives.18 generic does not have adequate has been increasing.13 Currently, the protection.”21 He foreshadowed that FDA website lists 72 active Individual For its part, the FDA has generally “[t]his is going to be an issue that we REMS programs, 8 of which are referred generic manufacturers’ [the FTC] are going to be looking at SSRS programs.14 About 45 of these complaints of alleged in the future.” REMS programs have some sort of anticompetitive conduct on the part restricted access requirement.15 And of branded drug manufacturers to His successor, former FTC at least one report notes that the the FTC, taking the position that Chairwoman Edith Ramirez FDA received 150 complaints from these issues are beyond the scope stated in April 2013, that pursuing generic drug manufacturers last year of the FDA’s regulatory mission.19 alleged REMS abuse would be an regarding alleged REMS abuse by In addition, the FDA has issued enforcement priority.22 In fact, just brand manufacturers.16 draft guidance outlining how a month prior, the FTC had voted generic manufacturers can obtain 4-0 to fi le an amicus curiae brief FDA and FTC Response a letter from the FDA stating that in the pending REMS case, Actelion their proposed bioequivalence Pharms Ltd. v. Apotex Inc. (Case No. to Allegations of REMS protocols contain adequate safety 1:12-cv-05743) in the U.S. District Abuse protections.20 Notably, the process Court for the District of New Jersey.23 for obtaining such a letter has And a few months later the FTC become a signifi cant issue in at least fi led a second, very similar, amicus Allegations of REMS and SSRS abuse one of the antitrust cases involving curiae brief regarding potential started almost immediately following alleged REMS abuse. REMS abuse in Mylan Pharms., Inc. the passage of the FDAAA.17 Some v. Celgene Corp. (Case No. 2:14-cv- commentators have argued In public statements, the FTC has 2094) pending in the same district that the FDA is the appropriate shown an interest in using the court. This time, the Commission agency to take action to address antitrust laws to address perceived vote approving fi ling of the brief these concerns. This is because REMS abuse. For example, then FTC was 4-1, with Commissioner Joshua the FDA already has adequate Chairman Jon Leibowitz stated at the Wright voting no.24 In both briefs regulatory overview, and therefore 2012 ABA Spring Antitrust Meeting the FTC was careful not to opine on allegations of REMS abuse issues that “under the pretext of concern the merits but merely stated that should not also be subject to the for patient safety, it seems that some it believed there were cognizable federal antitrust laws. Emphasizing of the branded drug companies may antitrust claims at issue. To date, that fi rms are generally free to be systematically denying potential however, the FTC has not brought choose with whom to deal, these generic competitors samples of any law enforcement actions in this commentators argue that antitrust their drugs by claiming that they area. liability should be cautiously applied cannot provide it to the generic given the high error cost of false drug manufacturer because the

13 Alex Brill, Lost Prescription Drug Savings from from FDA Stating that Bioequivalence Study 23 Press Release, FTC Amicus Brief: Improper Use of Use of REMS Programs to Delay Generic Market Protocols Contain Safety Protections Comparable Restricted Drug Distribution Programs May Impede Entry, MATRIX G LOBAL A DVISORS (July 2014) at 1, available to Applicable REMS for RLD (Dec. 2014), available Generic Competition (March 12, 2013), https:// at http://www.gphaonline.org/media/cms/REMS_ at https://www.fda.gov/downloads/drugs/ www.ftc.gov/news-events/press-releases/2013/03/ Studyfi nal_July2014.pdf. guidancecomplianceregulatoryinformation/ ftc-amicus-brief-improper-use-restricted-drug- 14 FDA, Approved Risk Evaluation and Mitigation guidances/ucm425662.pdf. distribution. Michael Perry was the staff contact for Strategies (REMS), https://www.accessdata.fda.gov/ this matter. scripts/cder/rems/index.cfm (last accessed Jan. 29, 21 Jon Leibowitz, American Bar Association Section 2017). of Antitrust Law Spring Meeting: Roundtable 24 Press Release, FTC Amicus Brief: Improper Use of Conference with Enforcement Offi cials (March 30, Restricted Drug Distribution Programs May Impede 15 Id. 2012), https://www.americanbar.org/content/dam/ Generic Competition (June 19, 2014), https://www.ftc. aba/publishing/antitrust_source/jun12_full_source. gov/news-events/press-releases/2014/06/ftc-amicus- 16 FDA, FTC take aim at abuse of restricted drug programs, FTC Watch, Aug. 4, 2017 (Issue 922), authcheckdam.pdf. brief-improper-use-restricted-drug-distribution. available at http://ftcwatch.com/?cat=28. 22 Prepared Statement of the 17 The generic manufacturer Lannett Co. sued brand Federal Trade Commission, Before the Unites States manufacturer Celgene Corp. in 2008 alleging that Senate Committee on the Judiciary, Subcommittee Celgene was refusing it access to the sample of the on Antitrust, Competition Policy and Consumer drug Thalomid (thalidomide) necessary to conduct Rights, Oversight of the Enforcement of the Antitrust the bioequivalence testing for Lannett’s proposed Laws (Apr. 16, 2013), at 7, available at https:// ANDA. See Lannett Co. v. Celgene Corp., No. 08-3920, www.ftc.gov/sites/default/fi les/documents/ 2011 WL 1193912 at *1 (E.D. Pa. Mar. 29, 2011). public_statements/prepared-statement-federal-

18 trade-commission-entitled-oversight-enforcement- See, e.g., Butler, supra note 12; Jan Rybnicek, When antitrust-laws/130416antitrustenforcement.pdf. Does Sharing Make Sense?: Antitrust & Risk Evaluation Republican Commissioners have also suggested that and Mitigation Strategies, CPI A NTITRUST C HRONICLE (Apr. the FTC may pursue allegations of REMS abuse. See 2014). Antitrust Health Care Chronicle, “A Discussion With 19 See Butler, supra note 12, at 984. FTC Commissioner Maureen K. Ohlhausen” (Nov. 1, 2013), at 6. 20 FDA, Draft Guidance: How to Obtain a Letter April 2018 Antitrust Health Care Chronicle 10

rule that “[e]ven monopolists are Skiing Corp. (“Highlands”) had been Private Antitrust Actions almost never required to assist their providing a single pass for all four Involving REMS competitors.”27 The exceptions can of the ski areas owned by both be summarized as follows below. companies. Aspen, which owned Private plaintiff s have been more three of the four major ski resorts, aggressive in pursuing antitrust The Supreme Court in Otter Tail then terminated the pass and suits based on alleged REMS abuse, Power Co. v. United States,28 fi rst refused to sell tickets to Highlands’ although none of these cases have established what is now mainly resort or honor vouchers Highland progressed to an adjudication on dead letter—the essential facilities issued as part of its own pass.33 The the merits. In fact, there have been doctrine. In this case, Otter Tail Supreme Court affi rmed the lower eight private antitrust lawsuits Power Co. refused to cooperate with court’s holding that Aspen had a brought, including the Actelion and several localities wishing to establish duty to deal with its competitor Mylan matters noted above, alleging their own electrical systems, thus because, in part, the profi table refusals by branded drug companies replacing Otter Tail.29 However, the prior course of dealing between to sell product samples to their operation of these new systems the two companies demonstrated generic competitors.25 The fi rst class would rely on Otter Tail’s existing its conduct made no economic action lawsuit involving a refusal transmission infrastructure.30 Otter sense—it was not supported by any to deal of REMS-restricted drugs Tail refused the localities access and valid business justifi cation. 34 This was fi led in 2014, with two more the Supreme Court affi rmed the holding of an affi rmative duty to brought just last year. The cases lower court’s holding that Otter Tail deal represents the high-water mark where generics have sued branded had “used its monopoly power . . . in Section 2 cases. But the Supreme companies for denying samples (or to foreclose competition or gain a Court’s next decision on the topic other similar violations) typically competitive advantage, or to destroy leaves no doubt that a theory based allege monopolization claims under a competitor, all in violation of the solely on a prior course of dealing Section 2 of the Sherman Act for antitrust laws”31 —and this despite cannot support liability. exclusionary conduct—specifi cally, a lack of a prior course of dealing unlawful refusals-to-deal with between the parties. The Otter In 2004, in Verizon Communications rivals.26 But the issue as applied Tail decision, however, in practice Inc. v. Law Offi ces of Curtis V. Trinko, to REMS has never been litigated remains extremely limited to the LLP,35 the Supreme Court found through trial and no appellate court facts at issue where the company that Verizon did not have a duty to has addressed the issue. was a natural monopoly in a highly deal with its rivals. Verizon, which regulated business and where its held an exclusive franchise within Antitrust Jurisprudence Regarding refusal-to-deal made little economic a particular service area, competed Refusals-to-Deal sense since the costs it would incur with local carriers but also had a were practically nil. regulatory obligation to complete It is well-settled in antitrust orders for service through its jurisprudence that generally, a The next time the Supreme Court own ordering system. Verizon’s monopolist is free to do business addressed the issue was twelve competitors alleged that Verizon or to not do business with anyone years later in Aspen Skiing Co. v. Aspen breached its duty to deal (i.e., it pleases. There are exceptions— Highlands Skiing Corp.32 Aspen Skiing share its network) by approaching albeit limited ones—to this general Co. (“Aspen”) and Aspen Highlands its obligation in a discriminatory

25 See New England Carpenters Health Benefi ts Fund v. sell samples of Thalomid and Revlimid to generic); 28 410 U.S. 366 (1973). Celgene Corp., No. 2:17-cv-07637-MCA-MAH (D.N.J. Accord Healthcare v. Acorda, No. 13-cv-60742-RNS Sep. 28, 2017) (class action alleging refusal to sell (S.D. Fla. Apr. 1, 2013) (alleged refusal of brand to 29 Id. at 370-73. samples of Thalomid and Revlimid to generics sell samples of Amypra to generic for bioequivalence among other claims); Int’l Union of Operating testing); Actelion Pharms. Ltd. v. Apotex, Inc., No. 30 Id . Engineers Stationary Engineers Local 39 Health and 12-cv-5743-NLH-AMD (D.N.J. Sept. 14, 2012) (seeking Welfare Trust Fund v. Celgene Corp., No. 2:17-cv- declaratory judgment that brand manufacturer has 31 Id . at 377. 04319-MCA-LDW (D.N.J. June 14, 2017) (class action no duty to supply generics with samples of REMS- 32 alleging abuse of REMS distribution systems and restricted drugs); Lannett Co., Inc. v. Celgene Corp., 472 U.S. 585 (1985). refusal to sell Thalomid and Revlimid samples to No. 08-cv-3920-TJS (E.D. Pa. Aug. 15, 2008) (alleged 33 generics for bioequivalence testing among other refusal to sell samples of Thalomid to generic). Mylan Id . at 593-94. claims); Int’l Union of Bricklayers and Allied Craft v. Celgene and the class action cases, which have 34 Id . at 608-609, 611. Workers Local 1 Health Fund v. Celgene Corp., No. been consolidated, are the only cases still active. 2:14-cv-06997-KSH-CLW (D.N.J. Nov. 7, 2014) (class 35 540 U.S. 398 (2004). action alleging abuse of REMS distribution systems 26 In the two instances where the FTC has weighed and refusal to sell Thalomid and Revlimid samples in, the FTC argued that the branded companies’ to generics among other claims); Natco Pharma Ltd. conduct may also violate Section 5 of the FTC Act, v. Gilead Sciences, Inc. and Express Scripts Holding Co., although the FTC did not outline a “standalone” No. 14-cv-3247-DWF-JSM (D. Minn. Aug. 22, 2014) Section 5 theory. (alleged refusal of brand to sell samples of Letairis for bioequivalence testing of generic ambrisentan); 27 Authenticom v. CDK Global, LLC, 874 F.3d 1019, 1025 Mylan Pharms., Inc. v. Celgene Corp., Case No. 2:14-cv- (7th Cir. Nov. 6, 2017) (Wood. J.). 2094-ES-MAH (D.N.J. Apr. 3, 2014) (alleged refusal to April 2018 Antitrust Health Care Chronicle 11

manner thereby creating barriers when Mylan initially requested that a duty to deal would only arise to entry. The Supreme Court fl atly samples of Thalomid (thalidomide) where there was a prior course of rejected this claim, holding that from Celgene for bioequivalence dealing and the alleged monopolist “Verizon’s alleged insuffi cient testing. Thalomid is subject to a irrationally abandons short-term assistance in the provision of service strict REMS program.41 Celgene has profi ts for long-term gains. 44 Instead, to rivals is not a recognized antitrust several FDA requirements under the Judge Salas remarked that “there claim under this Court’s existing Thalomid REMS program to ensure remains valid Supreme Court law refusal-to-deal precedents.”36 The safe use of the drug.42 In 2013, imposing an affi rmative duty to deal Court went on to explain that it did Mylan also requested samples of when no prior course of dealing “not believe that traditional antitrust Celgene’s Revlimid (lenalidomide) for was alleged” and “Mylan has pled principles justify adding the present bioequivalence testing. Revlimid is that there is no legitimate business case to the few existing exceptions also subject to REMS restrictions.43 reason for Celgene’s actions, which from the proposition that there Celgene initially refused Mylan’s it argues are solely motivated is no duty to aid competitors.”37 requests, seeking assurances by its goal to obtain long-term Importantly, in this case, the that Mylan’s testing protocols for anticompetitive gain.”45 Because Supreme Court’s decision was thalidomide and lenalidomide Mylan’s complaint was suffi ciently partially informed by the fact that testing were acceptable under the detailed, the court concluded that there already existed regulatory drug’s REMS restrictions. In late the complaint “may give rise to a schemes in place. In recognizing 2007, the FDA signed off on Mylan’s plausible § 2 claim.” 46 Celgene sought this, the Court also warned that “[m] testing protocols for Thalomid and interlocutory appeal but the Third istaken inferences and the resulting in mid-2013, found that Mylan’s Circuit refused the opportunity to false condemnations ‘are especially protocols for Revlimid were address the certifi ed question of costly, because they chill the very adequate to ensure patient safety. “whether a prior, voluntary course conduct the antitrust laws are At no point did the FDA affi rmatively of dealing is required to allege an designed to protect.’”38 require Celgene to provide samples actionable refusal to deal under to Mylan. Celgene issued additional Section Two of the Sherman Act.”47 Application to REMS Abuse Claims information requests related to The parties have argued a motion safe use and requested agreements for summary judgment and are To date, some of the cases involving providing for indemnifi cation currently awaiting a decision.48 REMS claims were dispensed on a to protect Celgene in the event motion to dismiss, and still others of misuse of its REMS-restricted Recent Actions Signal A settled while a motion to dismiss drugs. Celgene did not provide the was pending or after surviving the requested samples. Mylan fi led Likelihood of Increased motion to dismiss stage, so there suit in 2014, alleging that Celgene Enforcement By The FDA are very few decisions applying improperly withheld both Thalomid the refusal-to-deal jurisprudence and Revlimid drug samples. and FTC to REMS claims.39 As such, Mylan Judge Esther Salas of the U.S. District Pharmaceuticals, Inc. v. Celgene Corp. Court for the District of New Jersey Over the past several years, generic remains one of the few decisions upheld Mylan’s complaint based manufacturers and members to address refusals to deal in the on an alleged Section 2 violation of of Congress have advocated for REMS context.40 The dispute in this the Sherman Act. In doing so, Judge more aggressive action to address matter goes back as far as 2004, Salas rejected Celgene’s argument allegations of REMS abuse. More

36 Id. at 410. Pharma Ltd. v. Gilead Sciences, Inc. and Express Scripts v. Celgene Corp., No. 2:14-cv-02094-ES-MAH, at 10 Holding Co., No. 14-cv-3247-DWF-JSM (D. Minn. 2015) (D.N.J. Dec. 22, 2014). 37 Id. at 407-408. (motion to dismiss granted on REMS claims because 38 Id. at 414 (internal quotation omitted). brand manufacturer had a valid business reason to 45 Id . at 16-18.

39 refuse supplying generic outside of REMS program). See Lannett v. Celgene, No. 08-cv-3920 (E.D. Pa. 46 Id . at 17. 2011) (parties settled after Lannett’s allegations that 40 Transcript of Oral Opinion, Mylan Pharms. Inc. v. Celgene improperly withheld samples of Thalomid Celgene Corp., No. 2:14-cv-02094-ES-MAH (D.N.J. Dec. 47 See Celgene Petition for Leave to File Interlocutory – characterized as an essential facility by Lannett – 22, 2014). Appeal, Mylan Pharms., Inc. v. Celgene Corp., Case No. survived a motion to dismiss); Actelion Pharms. Ltd. 41 15-8017 (Feb. 9, 2015); Order Denying Petition for v. Apotex, Inc., No. 12-cv-5743-NLH-AMD (D.N.J. 2013) FDA, Thalomid Risk Evaluation and Mitigation Permission to Appeal, Mylan Pharmaceuticals, Inc. v. (parties settled after the court denied Actelion’s Strategy (June 2017), available at https://www. Celgene Corp., Case No. 15-8017 (March 5, 2015). motion for judgment on the pleadings and allowed accessdata.fda.gov/drugsatfda_docs/rems/ discovery to proceed on Actelion’s request for Thalomid_2017-06-27_REMS_Document.pdf. 48 The court’s ruling on summary judgment was declaratory judgment that it had no duty to supply 42 Id . deferred for a period of time while the parties generic competitors with samples of REMS-restricted pursued mediation, but these eff orts ultimately drugs); In re Suboxone (Buprenorphine Hydrochloride 43 FDA, Revlimid Risk Evaluation and Mitigation Strategy proved to be unsuccessful. Minutes of Proceedings, and Naxolone) Antitrust Litig., No. 13-md-2445 (E.D. (June 2017), available at https://www.accessdata.fda. Dkt. 273, Mylan Pharmaceuticals, Inc. v. Celgene Corp., Pa. 2014) (motion to dismiss granted on REMS claims gov/drugsatfda_docs/rems/Revlimid_2017-06-27_ Case No. 2:14-cv-02094-ES-MAH (D.N.J. Dec. 13, because generic was able to obtain a sample and the REMS_Document.pdf. 2017). brand manufacturer had no duty “to aid Generics in obtaining expeditious approval of an ANDA.”); Natco 44 Transcript of Oral Opinion, Mylan Pharms. Inc. April 2018 Antitrust Health Care Chronicle 12

recently, these calls appear to approved drugs.52 As part of this prices due to the lack of generic have resulted in renewed attention eff ort, the FDA is launching a Drug substitutes. Some of the loudest from Congress and the FDA. For Competition Action Plan aimed at voices for additional reform come example, a 2016 report from the eliminating obstacles to generic from sponsors of the Creating Senate Special Committee on drug access, including the misuse of and Restoring Equal Access to Aging concluded that REMS may be REMS. According to Scott Gottlieb, Equivalent Samples Act of 2017 abused to delay generic entry into “we know that branded companies (“CREATES Act”) (discussed further the market place and characterized are using [FDA] rules that are below). For example, Senator the abuses as “serious”—reportedly intended to protect consumers… Mike Lee lamented the “complex resulting in an estimated increased and taking advantage of these rules regulatory environment[] … rife cost to consumers of $5.4 billion in order to deliberately forestall with opportunities for manipulation per year.49 More notably, the newly the entry of expected generic drug and abuse to avoid competition.”55 appointed FDA Commissioner, Scott competition.”53 Senator Chuck Grassley (R-Iowa), Gottlieb, has pushed for enhanced in a recent letter to Commissioner scrutiny of potential REMS abuse, At this point, the FDA is also explicitly Gottlieb, stated that he shared the noting that while the FDA “doesn’t inviting the FTC to the table. FDA’s concerns about “abuses within have a direct role in drug pricing” Commissioner Gottlieb remarked the REMS program.”56 Senator it could likely address some of the that the FDA would be “looking Grassley followed up with a joint issues raised by the tension between hard at how best to coordinate letter, alongside Senators Patrick bioequivalence requirements and with the Federal Trade Commission Leahy (D-Vt.), Mike Lee (R-Utah), and REMS restrictions “by using [its] own in identifying and publicizing Amy Klobuchar (D-Minn.), promoting authorities more forcefully.”50 For practices that the FTC fi nds to be the CREATES Act as “an essential example, Commissioner Gottlieb anti-competitive. FDA is not the part of the solution to ending these has testifi ed regarding SSRS FTC. It is the FTC’s responsibility to [REMS] abuses.”57 The CREATES Act programs that the FDA “through prevent anticompetitive business would provide a mechanism for a our current policy can help address practices.”54 Commissioner Gottlieb’s private right of action and expedited a potential stall tactic. . . . if we put statement signals that he does review for lawsuits by a potential in place a policy signifying that not believe the FDA has suffi cient generic entrant based on a claim we were willing to step in [after a authority to regulate the potential that a branded manufacturer is delay in negotiations] and . . . allow anticompetitive eff ects of REMS. withholding access to a RLD sample the generic company to move on Instead, he issued an express call necessary for bioequivalence testing their own, companies might reach for involvement from the FTC in under an ANDA.58 Additionally, the agreement quicker than they are implementing the FDA’s goals of CREATES Act would provide the today.”51 improved patient access to generic FDA with the authority to allow versions of FDA-approved drugs, generics to create their own REMS On June 21, 2017, the FDA opening the door to increased system to combat any potential announced a renewed focus on regulatory enforcement activity. anticompetitive conduct related removing some of the “scientifi c to SSRS programs.59 Addressing a and regulatory obstacles to Commissioner Gottlieb’s statement concern for brand manufacturers, generic competition” that can is in line with a series of recent the CREATES Act also includes a delay and deny patient access to calls for antitrust enforcement to limitation on liability, absolving more aff ordable versions of FDA- fi ll the gap in combating rising drug brand manufacturers of claims

49 United States Senate Special Committee on Aging, 52 Commissioner Scott Gottlieb, FDA Working to 56 Senator Charles Grassley, Ltr. to Dr. Scott Gottlieb, Sudden Price Spikes in Off -Patent Prescription Drugs: Lift Barriers to Generic Drug Competition (June 21, Commissioner, FDA (June 19, 2017), available at The Monopoly Business Model that Harms Patients, 2017), available at https://blogs.fda.gov/fdavoice/ https://www.grassley.senate.gov/sites/default/fi les/ Taxpayers, and the U.S. Health Care System, at 114 index.php/2017/06/fda-working-to-lift-barriers-to- constituents/2017-06-19%20CEG%20to%20FDA%20 (Dec. 2016), available at https://www.aging.senate. generic-drug-competition/. -%20Aff ordable%20Prescription%20Medication.pdf. gov/imo/media/doc/Drug%20Pricing%20Report.pdf. 53 Remarks by Commissioner Scott Gottlieb, Opening 57 Senators Charles Grassley et al., Ltr. to Dr. Scott 50 Remarks by Commissioner Scott Gottlieb, Opening Remarks for Part 15 Public Meeting on Generic Drug Gottlieb, Commissioner, FDA (July 20, 2017), available Remarks for Part 15 Public Meeting on Generic Drug Competition (July 18, 2017), available at https://www. at https://www.grassley.senate.gov/sites/default/ Competition (July 18, 2017), available at https://www. fda.gov/NewsEvents/Speeches/ucm567323.htm. fi les/constituents/CREATES_FDA_07.20.17.pdf. fda.gov/NewsEvents/Speeches/ucm567323.htm. 54 Id. 58 S.974 - CREATES Act of 2017, available at https:// 51 C-SPAN, Commissioner Gottlieb, Testimony www.congress.gov/115/bills/s974/BILLS-115s974is. before a Senate Appropriations subcommittee 55 Senator Mike Lee, Opening Statement on pdf. on President Trump’s fi scal year 2018 Food the CREATES Act (June 21, 2016), available at and Drug Administration budget request (June https://www.lee.senate.gov/public/index.cfm/ 59 Id . 20, 2017), available at https://www.c-span.org/ speeches?ID=D038B585-B5F0-47F9-BF8B- video/?430216-1/fda-administrator-testifi es-fy-2018- 59B2600BCCB5. budget&start=1590. April 2018 Antitrust Health Care Chronicle 13

arising from a situation in which the existing REMS distribution [sic] enforcement in pharmaceutical the generic manufacturer failed to system so the FDA cannot approve markets, . . . will be made on the follow adequate safeguards during the generic fi rm’s ANDA. 64 He basis of specifi c facts and actual development and bioequivalence acknowledged that “some of these market eff ects, using the familiar testing.60 methods will be diffi cult to reach methods and processes of anti- eff ectively under the antitrust laws trust [sic] law.”68 Commissioner And the FTC appears willing to take today.”65 While Acting Director Gottlieb participated in the up the cause, though with some Meier noted that the FTC believes workshop and called on companies reservations about the scope of REMS abuse “an appropriate to “end the shenanigans.”69 He their purview. Already in March area for Congressional focus and also foreshadowed potential for 2016, the FTC stated that it was concern,” he also added that the increased regulatory focus noting still “concerned about potential FTC has pursued and will continue that he “look[ed] forward to abuses by branded pharmaceutical to engage in eff orts to combat building on enhancing our [FDA’s] companies of [FDA] safety protocols anticompetitive conduct by both partnership with the FTC in order known as REMS….”61 A little over a branded and generic fi rms to “keep to achieve our shared goal of year later, in recent testimony before prices artifi cially high.” 66 Additionally, increasing competition, expanding the U.S. House of Representatives’ he made clear that the FTC supports access to quality generic drugs, and Judiciary Committee Subcommittee the CREATES Act “to protect the protecting consumers.”70 on Regulatory Reform, Commercial competitive process by eliminating and Antitrust Law, the FTC’s incentives and opportunities for Conclusion Acting Director of the Bureau of branded manufacturers to engage in Competition, Markus H. Meier, manipulation of the REMS process to Ultimately, developments currently testifi ed that branded manufacturers delay generic entry.”67 underway related to regulatory have used restricted distribution enforcement by the FDA and FTC, programs to delay generic entry.62 The most recent statements from the proposed CREATES Act, and This is because “drug manufacturers the agencies on REMS issues come the currently active litigations have exploited certain features of from a November 2017 workshop demonstrate an increased focus on the existing regulatory framework on “Understanding Competition the competitive dynamic between created by the Hatch-Waxman Act to in Prescription Drug Markets: brand and generic manufacturers extend exclusive rights well beyond Entry and Supply Chain Dynamics” in the pharmaceuticals industry. the periods Congress provided to held at the FTC. Acting Chairman Any additional investigations the spur investments in innovation.”63 Maureen Ohlhausen opened the agencies launch could also invite workshop announcing that “when further private challenges. If the Consistent with the FDA’s view of a law enforcement agency like the CREATES Act were to become law, the potentially problematic conduct, FTC identifi es an area of concern, it could spur additional litigation Acting Director Meier testifi ed that many people assume that this is a as it would provide generic brand companies abuse REMS, prelude to a raft of new enforcement manufacturers with a legal avenue attempting to distort competition actions,” cautioning to audience to to force branded manufacturers to in two main ways: by refusing to be careful about such assumptions. provide samples for bioequivalence provide samples to the generic She then went on to note that testing and monetary damages for fi rm, leaving it unable to perform “the anti-trust [sic] laws are not alleged REMS abuses, without having the required bioequivalence testing a panacea for every economic to prove the elements of an antitrust to obtain FDA approval, or by concern” and that any decision “that violation under the refusal-to-deal preventing the generic from joining there is a need for greater anti-trust

60 Id . Law about Antitrust Concerns and the FDA Approval 66 Id . at 3-4. Process, Fed. Trade Comm’n (July 27, 2017), 61 Chairwoman Edith Ramirez, Prepared available at https://www.ftc.gov/news-events/ 67 Id . at 14. Statement of the Federal Trade Commission press-releases/2017/07/ftc-testifi es-house-judiciary- Before the United States Senate Committee committees-subcommittee-regulatory. 68 FTC, FTC Understanding Competition in on the Judiciary Subcommittee on Antitrust, Prescription Drug Markets: Entry and Supply Chain 63 Prepared Statement of Markus H. Meier, Acting Competition Policy and Consumer Rights Dynamics Workshop (Nov. 8, 2017), at 5, available at Director, Bureau of Competition, U.S. Federal Trade “Oversight of the Enforcement of the Antitrust https://www.ftc.gov/system/fi les/documents/videos/ Commission Before the United States House of Laws” (March 9, 2016), at 10, https://www.ftc. understanding-competition-prescription-drug- Representatives Judiciary Committee Subcommittee gov/system/fi les/documents/public_statements markets-intro-keynote-remarks/ftc_understanding_ on Regulatory Reform, Commercial and Antitrust /934563/160309enforcementantitrustlawstest.pdf. competition_in_prescription_drug_markets_-_ Law on Antitrust Concerns and the FDA Approval transcript_segment_1.pdf. Process (July 27, 2017), at 3, available at https:// 62 The FTC approved Acting Director Meier’s judiciary.house.gov/wp-content/uploads/2017/07/ testimony and its inclusion in the formal record by 69 Id . at 5. Meier-FTC-Testimony.pdf. a vote of 2-0. Press Release, FTC Testifi es before House Judiciary Committee’s Subcommittee on 64 Id . at 7-8. 70 Id . Regulatory Reform, Commercial and Antitrust 65 Id . at 4. April 2018 Antitrust Health Care Chronicle 14 case law. And legal decisions in the pending REMS cases could reshape refusal-to-deal jurisprudence going forward. Given all these variables, pharmaceutical companies and other industry stakeholders should continue to pay attention to how these legal and regulatory developments unfold. April 2018 Antitrust Health Care Chronicle 15

Competition in health care: summary of recent congressional hearings

Recently, on the same day, Congress held hearings in both the House and Senate that addressed topical trends in the health care and life sciences industries. The hearings demonstrated that Congress remains keenly interested in looking into a wide array of health care-related issues. The Senate hearing to consider President Trump’s nominees to the Federal Trade Commission (“Nomination Hearing”) covered a broad range of issues.2 The Senate Commerce Committee approved the four nominations by voice vote on Wednesday, February 28, 2018, and a fi nal confi rmation vote by the full Senate remains. The House of Representatives hearing was titled, “Examining the Impact of Health Care Consolidation” (“House Hearing”), and featured a panel of health care experts who addressed a range of health care-specifi c issues and policy proposals. 3 This article provides a summary of both hearings.

Keynote Remarks From the proposals. FTC and FDA After the senators’ opening statements, the nominees were President Trump has now introduced and each read their nominated individuals for all fi ve own opening statements. None of FTC Commissioner seats, but the the nominees’ opening statements Nomination Hearing only considered specifi cally touched on health four of the fi ve nominees. 4 The care issues. The senators then Nomination Hearing began with questioned the nominees on a range Liam E. Phibbs1 opening remarks from Senators of issues relevant to the health-care Hogan Lovells US LLP Thune (R-SD) and Nelson (D-FL). industry, including pharmacy benefi t The senators touched on several managers (“PBMs”), the possibility of industries that the FTC has shown a merger retrospective, drug prices, interest in over the past few decades, and merger challenges. including the health care industry. Specifi cally, Senator Nelson noted PBMs and a Proposed Merger several consumer protection actions Retrospective that he viewed as positive steps by the FTC in this space. Senator Nelson Mr. Simons indicated in the commended the FTC for its eff orts questionnaire he submitted to the to combat cigarette ads aimed at Senate committee and again in his children and false ads that claimed testimony that, if confi rmed, he certain sports equipment was safer would like to implement a merger than it actually was. He also noted, review retrospective program.5 The however, how long the FTC took goal of the program would be to to respond to the opioid epidemic. identify whether the FTC’s merger The senator asked the nominees enforcement eff orts have been to refl ect on what the FTC could eff ective. Mr. Simons would ideally have done diff erently when large like to identify areas where the pharmaceutical companies fi rst FTC has been effi cient in bringing marketed these products, but he did enforcement actions, as well as not put forward any specifi c policy where the FTC has been too lax in its

1 Liam E. Phibbs is a Law Clerk at Hogan Lovells. 4 On March 26, 2018, President Trump nominated a second Democrat, Rebecca Slaughter, who is 2 Nomination Hearing to Consider Pending currently a top aide to Senator Charles Schumer. Nominations to the Federal Trade Commission: Dana Elfi n, Federal Trade Commission Will Be Hearing Before the S. Comm. on Commerce, Sci., & Back at Full Strength, BLOOMBERG BNA (March 30, Transp., 115th Cong. 2nd sess. (2018). Video of the 2018), https://www.bna.com/federal-trade- testimony is available at https://www.commerce. commission-b57982090616/. senate.gov/public/index.cfm/hearings?ID=EECF6964- F8DC-469E-AEB2-D7C16182A0E8. 5 Completed Questionnaire from Joseph J. Simons 3 Examining the Impact of Health Care Consolidation: for Nomination Hearing, U.S. Senate Committee on Commerce, Science, & Transportation, https:// Hearing Before the H. Comm. on Energy & dlbjbjzgnk95t.cloudfront.net/1010000/1010064/ Commerce, 115th Cong. 2nd sess. (2018). Video of simons.pdf (last visited Feb. 23, 2018). the testimony available at, https://energycommerce. house.gov/hearings/examining-impact-health-care- consolidation/.

April 2018 Antitrust Health Care Chronicle 16

enforcement actions, as well as found evidence that hospitals had reasons were likely anticompetitive where the FTC has been too lax in its substantially raised prices after in nature, he indicated that the FTC enforcement. One of the industries some mergers that the FTC had not would get involved. If, however, Mr. Simons specifi cally identifi ed challenged. This evidence was not it appears as though the increase as a candidate for the retrospective only used to challenge prospective were due to other causes, other program is the PBM industry. hospital mergers, but already- steps would be appropriate. For consummated hospital mergers as example, if the causes of the price Senator Capito (R-WV) asked the well.8 increase were regulatory in nature, nominees about consolidation in the FTC staff could communicate the PBM industry and how the FTC Pharmaceutical Task Force their fi ndings to the FDA. If the should deal with it. Mr. Simons causes were something else, the FTC agreed that consolidation in this Several senators raised concerns could coordinate with Congress. Mr. industry is a concern, and noted about the price of prescription Simons also indicated that he would that reviewing the latest mergers drugs. Senator Blumenthal (D-CT) consider Senator Blumenthal’s under his retrospective program indicated that, although this is not measure to address drug-pricing would help identify actions that the a new issue, it is a persistent one issues. FTC should take moving forward, in despite eff orts taken by Congress. response. He stated that this indicates the FTC Rohit Chopra, also responded to needs to undergo an enforcement Senator Blumenthal’s question Senator Wicker (R-MS) brought up “reinvention” with respect to about drug prices and noted that PBMs again, later in the hearing, prescription drug pricing. Senator the FTC “needed to anchor its and asked Ms. Wilson about the Blumenthal also noted that he work” by focusing on consumers’ lack of transparency in the PBM supports the creation of a task force pocketbooks. Mr. Chopra views industry.6 Ms. Wilson indicated that to look into drug prices and that he this issue as a “top priority” for the transparency is often an eff ective was a co-sponsor of the Improving agency given the ever-increasing agent to ensure competition in Access To Aff ordable Prescription prices of prescription drugs. the marketplace, regardless of the Drugs Act, which seeks to create industry. She went on to testify that such a task force, but that such a Preliminary Injunctions for Mergers she supported Mr. Simons’ proposal measure is only an early eff ort that to include the PBM industry needs support from the FTC.9 The Committee also questioned in a retrospective analysis to the nominees on their views determine whether the FTC should Senator Blumenthal also asked the about diff erences in the FTC and take any action in relation to the nominees if the FTC should engage DOJ standards for obtaining a consolidation in that industry. in more vigorous enforcement preliminary injunction in merger regarding the pricing of drugs. Mr. challenges and the appropriate Based on Mr. Simons’ testimony and Simons agreed that drug pricing is venue in which the FTC should seek the written statements he submitted, a signifi cant concern. Mr. Simons preliminary injunctions. Senator the proposed retrospective program also noted that consumers are often Lee (R-UT) specifi cally asked the appears similar to the retrospective already at a diffi cult point when they nominees about the “SMARTER program implemented by former have to consider large expenditures Act,”10 and whether the nominees Chairman Muris related to hospital on drugs. Like Senator Blumenthal, knew of a reason why the FTC merger challenges. The hospital Mr. Simons indicated that he would and DOJ should have diff erent merger retrospective analyzed be interested in creating a drug- standards for merger reviews. He consummated hospital mergers pricing task force with the goal of also asked the nominees whether to determine whether prices better identifying, in real time, when they would consider seeking a increased after the merger.7 As a price increases occur and the likely preliminary injunction through an result of the retrospective, the FTC causes of the price increases. If the administrative proceeding in a Part

6 As discussed below, one of the witnesses in the 2286195, at *64 (F.T.C. Aug. 6, 2007). acquisitions. Id. In order to secure a preliminary House Hearing echoed this sentiment when Dr. injunction to block an unconsummated transaction, 9 Improving Access To Aff ordable Prescription Drugs Gaynor expressed his opinion that the PBM industry the DOJ must fi le an action in federal court. The FTC, Act, S. 771, 115th Cong. 1st sess. (2017), https:// is one of the least transparent in the health care however, can bring an administrative proceeding www.congress.gov/bill/115th-congress/senate- space. before pursuing an action in federal court. There is bill/771. an ongoing debate about whether the current FTC 7 Timothy J. Muris, Everything Old Is New Again: Health standard is in fact easier to satisfy, thereby giving 10 Standard Merger and Acquisition Reviews Through Care and Competition in the 21st Century, Remarks the FTC greater leverage. Jason M. Bussey, et al., Equal Rules Act of 2015, H.R.2745, 114th Cong 2nd Before the 7th Annual Competition in Health Care House Judiciary Committee Again Approves Legislation sess. (2015), https://www.congress.gov/bill/114th- Forum (Nov. 2002), http://www.ftc.gov/speeches/ to Align FTC and DOJ Merger Reviews, THE M&A LAWYER, congress/house-bill/2745. The SMARTER Act would muris/murishealthcarespeech0211.pdf. 21 No. 5 M&A Law. NL 2 (May 2017). amend the Clayton and Federal Trade Commission 8 In re Evanston Nw. Healthcare Corp., 2007 WL Acts to align the standards and processes for the DOJ’s and FTC’s review of proposed mergers and April 2018 Antitrust Health Care Chronicle 17

III administrative court. All nominees • Representative Diana DeGette acknowledged that both the FTC and House Energy and (D-CO 1st) also provided an opening DOJ should face the same burden Commerce Committee statement in which she observed in order to secure a preliminary that although consolidation in health injunction to block a transaction. Hearing: Examining the care is not per se negative, there Impact of Health Care are still concerns when increased • Mr. Simons agreed that there market power leads to increased should only be one standard, but Consolidation costs for consumers. Rep. DeGette went on to state that he was of also expressed concerns about the opinion that the two standards On the same day as the Nomination trends in the supply chain for are functionally the same. Mr. Hearing, the House Energy and prescription drugs—particularly Simons also indicated that merger Commerce committee held a issues involving PBMs. hearing titled “Examining the Impact challenges should occur in federal • courts. According to Mr. Simons, of Health Care Consolidation.” Three Representative Greg Walden, there should only be one “bite at the health care experts were called Chairman (R-OR 2nd) gave the apple,” when seeking to block any as witnesses to provide testimony fi nal opening statement. He echoed merger. regarding consolidation in the concerns about the horizontal healthcare industry: Dr. Leemore consolidation of hospitals, vertical • Mr. Chopra agreed that market S. Dafny11 ; Dr. Martin S. Gaynor12 ; consolidation of physician services participants should not have and Dr. Kevin A. Schulman.13 The with hospitals, and both the to worry about navigating two committee members asked about a horizontal and vertical consolidation standards, but stated that he broad range of issues in the health of PBMs. Rep. Walden emphasized would need to consult with FTC care space, including consolidation the need to understand what these staff to get more information on at various levels of the industry and consolidation trends mean for where it would be best to seek a innovation. patients. preliminary injunction. Mr. Chopra also observed that there are certain Opening Statements The witnesses then provided their effi ciencies to seeking a preliminary own opening statements. injunction through an administrative Three committee members gave procedure, but also acknowledged opening statements. Dr. Gaynor explained that there the due process concerns that weigh has been increasing consolidation in favor of a preference for federal • Representative Gregg Harper in the health care industry and that courts. (R-MS 3rd) opened the hearing consolidation trends like this can • by highlighting that health care prevent markets from functioning Mr. Phillips agreed that there spending has been on the rise, as they should. This in turn can lead should only be one standard, but, and that this increased spending to higher prices for patients, without like Mr. Chopra, he indicated that he has been passed onto the any accompanying improvement would need to consult with FTC staff American public. He explained that in the quality of care. Dr. Gaynor regarding the preliminary injunction consolidation has contributed to outlined several explanations as to issue. these increased costs and that there what drives consolidation trends, • Ms. Wilson agreed that there needs to be a better understanding namely: (1) attempts to protect should only be one standard and about the impact of consolidation, market share; (2) “Newton’s third law further noted it would be her which is what prompted (at least in of consolidation,” where one group preference to pursue a preliminary part) the hearing itself. Specifi cally of sees consolidation occurring in the injunction for an unconsummated interest to Rep. Harper were hospital industry and decides to pursue merger in federal court. mergers—both horizontal mergers consolidation eff orts of its own; (3) between hospitals and vertical to lower costs through increased consolidation of hospitals with scale; and (4) to help ensure physician services. continuity. Dr. Gaynor concluded by reiterating that consolidation can stifl e competition and innovation,

11 Bruce V. Rauner Professor of Business Administration, Harvard Business School.

12 E.J. Barone University Professor of Economics and Health Policy, Heinz College, Carnegie Mellon University.

13 Visiting Scholar, Harvard Business School, Associate Director, Duke Clinical Research Institute. April 2018 Antitrust Health Care Chronicle 18

which in turn negatively impacts and trends that were addressed expressed concern regarding failing consumers. throughout the remainder of rural hospitals. He asked whether an the hearing, namely: hospital example of a benefi cial consolidation Dr. Dafny was the next to speak, consolidation, the vertical may be scenarios where a hospital echoing some of Dr. Gaynor’s consolidation of hospitals acquiring in a rural area is failing, and the statements. Dr. Dafny explained physician groups, horizontal only way for the hospital to survive that her research has found that consolidation in the PBM industry, is for the hospital to be bought by consolidation in the health care and general vertical trends in a larger system. Dr. Dafny stated industry generally leads to higher the industry (e.g., CVS’s potential that a merger along those lines prices, but that the quality of care acquisition of Aetna). could be benefi cial, but that simply does not improve accordingly. Like keeping a hospital open, without Dr. Gaynor, Dr. Dafny provided Hospital Consolidation more, does not automatically make explanations as to what is driving a merger “good,” because it could parties to consolidate in the Representative Harper asked enable the newly merged hospital health care industry, in particular the witnesses whether the trend to raise prices for consumers. that the parties are seeking to: towards consolidation among Representative Collins stressed (1) increase their bargaining hospitals has increased patient that access to care in rural areas is leverage with industry players at costs and whether this trend a very diffi cult issue that needs to other levels of the supply chain; should be viewed as a concern. Dr. be addressed. Dr. Schulman agreed (2) reach scale economies to Gaynor noted that the combination with Representative Collins and realize cost savings; (3) take better of closely competing hospitals noted that his home state of North advantage of government program generally leads to increased prices Carolina was working through these reimbursement rules; and (4) create for consumers, and that the same issues. integrated systems of care that will evidence is mixed as to whether produce synergies. To better ensure the quality of care increases. Dr. Finally, Representative Costello (R- that consolidation creates value for Dafny off ered a somewhat stronger PA 6th) questioned the witnesses consumers, Dr. Dafny advocated perspective, stating that the regarding the FTC’s traditional for the creation of publicly available available data gives the public good approach to analyzing hospital industry pricing databases and reasons to be concerned about the mergers, and, specifi cally, on how for increased funding for antitrust impact of consolidation on patients the FTC conducted the merger enforcement agencies. and went so far as to say that she retrospective under Chairman has not been able to identify a Muris. Dr. Gaynor explained that Dr. Schulman’s statement hospital merger that she would after having lost a series of hospital emphasized the need for consider “good.”14 merger challenges in the 1990s, the organizational and disruptive FTC decided to review these mergers innovation in health care. He Later in the hearing, Representative to see what impact they had on noted that there is little evidence Tonko (D-NY 20th) asked the consumers. The evidence gathered that hospitals are planning for witnesses how a hospital merger as part of this eff ort indicated that major changes to their business could lead to increased prices for the consummated mergers often architecture, demonstrating that consumers. Dr. Dafny responded led to price increases. This evidence little eff ort is being made to make that this occurs because merged of price increases post-merger was health care more fl exible. Dr. hospitals have increased bargaining then used by the FTC to successfully Schulman stressed the importance power vis-à-vis insurers. When there challenge future unconsummated of hiring and properly funding Chief are fewer hospitals in a region, an hospital mergers.16 Innovation Offi cers and innovation insurer is more likely to be beholden eff orts in order to better equip to whatever rate the post-merger Vertical Consolidation of Physician health care organizations to drive hospitals request. Groups and react to change. Representative Collins (R-NY In the context of this broader These opening statements 27th) acknowledged the concerns discussion on how mergers can lead introduced many of the issues regarding hospital consolidation, but to increased prices for consumers,

14 Dr. Dafny published an article outlining how she 15 See generally FTC & DOJ, Improving Health Care: A would defi ne a “good” merger. Leemore Dafny, The Dose of Competition, Ch. 4 Competition Law: Hospitals Good Merger, THE NEW ENGLAND JOURNAL OF (2004), https://www.ftc.gov/sites/default/fi les/ MEDICINE, 372 New England Journal of Medicine documents/reports/improving-health-care-dose- 1804-1806 (2015), http://www.nejm.org/doi/ competition-report-federal-trade-commission-and- full/10.1056/NEJMp1502338. department-justice/040723healthcarerpt.pdf. 16 See supra Sec. I.a.i. April 2018 Antitrust Health Care Chronicle 19

Representative Tonko raised the PBM consolidation. However, she more enforcement-focused research issue of vertical consolidation went on to advocate for a merger on vertical transactions. Dr. Gaynor of physician services. Dr. Dafny retrospective to examine recent PBM recommended that the vertical explained that when hospitals mergers, which (as discussed above) merger guidelines be amended to acquire physician groups, the same is something the now-confi rmed better address current trends. services may cost consumers more. Chair of the FTC indicated interest Additionally, there may be a referral in pursuing. Dr. Gaynor agreed that Representative Costello asked the issue where the physician will be there should be a retrospective witnesses if there will be more more likely to refer patients to the assessing concentration levels in the consolidation in the future and hospital for other health care issues, PBM market. whether it would likely be horizontal which may be more expensive than or vertical. Dr. Dafny noted that receiving care outside of the hospital Representative Carter (R-TX 31st) the incentives for consolidation system. also inquired about whether the have not changed so it would likely discounts PBMs negotiate with drug continue, and that it would likely be In his opening statement manufacturers are actually passed vertical because parties may think Representative Walden on to consumers. Dr. Schulman a vertical merger is less likely to be acknowledged that the 340B Drug stated that PBM operations are not challenged. Pricing Program had been cited transparent and there is no way of as a major factor that has caused knowing how much of the discount Innovations in the Industry hospitals to acquire oncology goes back to consumers or the physician groups. Representative employers who pay for insurance Several representatives remarked Barton (R-TX 6th) expressed plans. Dr. Dafny indicated that this is on the need for more innovation in similar views. Later in the hearing, another issue that could be studied health care. One of the examples Representative Castor (D-FL 14th) in the context of a PBM merger frequently cited by committee sought to clarify for the record, retrospective. members was the announcement that the 340B program has been from Amazon, JP Morgan, and generally eff ective and asked the General Vertical Consolidation Berkshire Hathaway that they witnesses their opinions on the Trends would be looking into ways to issue. Dr. Gaynor agreed that provide more eff ective healthcare the program has been helpful, Several Representatives questioned for their employees.18 The but echoed the comments from the panel regarding recent committee members citing this Representatives Walden and Barton announcements about vertical example acknowledged that little in explaining that studies have consolidation in the health care is known publicly so far regarding shown that the program is a major industry, highlighting, in particular, the initiative, but wanted to know factor behind hospital acquisitions of the proposed merger between CVS the witnesses’ opinions regarding oncology and hematology physician and Aetna.17 the announcement. Dr. Gaynor groups. As a result, patients have stated that he did not have enough to go hospitals for oncology and Representative Brooks (R-IN 5th) information to evaluate whether the hematology treatments, which can asked the witnesses what antitrust eff ort will be successful, but viewed be more expensive. enforcement of vertical transactions it as a positive step to see executives will look like in the future and of large companies focusing on PBM Consolidation what tools would be helpful when healthcare. challenging vertical transactions. Representative DeGette asked Dr. Dafny remarked that antitrust Outlook whether PBM consolidation could enforcers have narrow laws to result in increased prices for enforce and that they enforce them The concerns raised during these important drugs like insulin. Dr. narrowly. Because defi ning vertical hearings demonstrate that Congress, Dafny stated that she had not seen markets is diffi cult, they are less as a whole, remains focused on the statistical research indicating that likely to be challenged. Dr. Dafny state of health care in America, and prices have increased as a result of recommended that there should be that this focus encompasses a broad

17 See Press Release, CVS Health to Acquire Aetna; 18 Nick Wingfi eld, et al., Amazon, Berkshire Hathaway Combination to Provide Consumers with a Better and JPMorgan Team Up to Try to Disrupt Health Care, Experience, Reduced Costs and Improved Access to N.Y. TIMES, Jan. 30, 2018, https://www.nytimes. Health Care Experts in Homes and Communities Across com/2018/01/30/technology/amazon-berkshire- the Country (Dec. 3, 2017), https://cvshealth.com/ hathaway-jpmorgan-health-care.html. newsroom/press-releases/cvs-health-acquire-aetna- combination-provide-consumers-better-experience. April 2018 Antitrust Health Care Chronicle 20

range of topics and issues. While none of the issues were novel, they are persistent and echo ongoing conversations already occurring at the agencies. For example, in November 2017, the FTC held a workshop on the prescription drug supply chain, where issues related to PBMs were a major topic of discussion. The workshop discussed, among other topics, the impact of PBM consolidation, concerns regarding transparency, and the potential that a lack of transparency can lead to misaligned incentives for PBMs vis-à-vis their health plan customers and patients.19 Assuming that the FTC commissioner nominees are ultimately confi rmed by the full Senate, it appears that, although there is unlikely to be a sea change with respect to how the FTC will analyze and prioritize health care and life sciences issues, the future may hold some interesting insights from new initiatives, including the proposed merger retrospective.

19 FTC, Understanding Competition in Prescription Drug Markets: Entry and Supply Chain Dynamics, Panel 2: Understanding Intermediaries: Pharmacy Benefi t Managers , slides 73-130, https://www.ftc.gov/ system/fi les/documents/public_events/1255653/ understanding_competition_in_prescription_drug_ markets_workshop_slides_11-8-17.pdf. April 2018 Antitrust Health Care Chronicle 21

Antitrust Health Care Chronicle Editorial Board

EXECUTIVE EDITOR EXECUTIVE EDITOR

Amanda G. Lewis Anthony W. Swisher Federal Trade Commission Squire Patton Boggs 202.326.3308 202.626.6294 [email protected] [email protected]

EDITOR EDITOR

Lauren Battaglia Amanda Hamilton Hogan Lovells Haug Partners EDITOR EDITOR Daniel Dukki James Moore, III Moon Skadden, Arps, Linklaters Slate, Meagher & Flom Health Care and Pharmaceuticals Committee Leadership

COCHAIR COCHAIR COUNSEL LIAISON

Seth Silber Leigh Oliver Jeff rey W. Brennan Wilson Sonsini Hogan Lovells McDermott Will & Emery 202.973.8824 202.637.3648 [email protected] [email protected] [email protected]

VICE CHAIR VICE CHAIR VICE CHAIR

Amanda G. Lewis Michael Gleason Amy Paul Federal Trade Commission Jones Day Ropes & Gray [email protected] [email protected] [email protected] VICE CHAIR VICE CHAIR VICE CHAIR Lauren Rackow Jacqueline Grise Anthony Swisher Cahill Gordon Cooley LLP Squire Patton Boggs [email protected] [email protected] [email protected]

VICE CHAIR YOUNG LAWYER REPRESENTATIVE YOUNG LAWYER REPRESENTATIVE Patrick English Brendan Coff man Ariel Martinez Latham & Watkins Wilson Sonsini Ropes & Gray [email protected] bcoff [email protected] [email protected]

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