At Last, Some Judicial Guidance In Health Care Mergers

The health care industry is undergoing very rapid change. Health care entities everywhere are looking to clinically integrate, create a stronger capital base, and affiliate to address quality issues and marketplace challenges, as well as for a host of other reasons. They are routinely exploring mergers, strategic partnerships, and joint ventures. Consolidation often occurs when two or more actual or potential competitors come together to form a strategic alliance. In a landscape where growth and expansion are achieved through consolidation of competitors, antitrust concerns are surfacing with some regularity. A challenge is in ascertaining the limits to collaborative activity, particularly in two areas: activities between or among health care entities prior to their actual merger or consolidation as they explore the viability of the arrangement; and second, in the context of joint operating agreements (JOAs). Unfortunately, there is very little in the way of bright line rules to guide health care entities looking to avoid Sherman Act Section 1 scrutiny in these areas.

Three recent cases, as well as one not quite so recent case, however, provide some insight into what courts consider when examining alleged antitrust violations in the current consolidation environment. The first two, Asahi Kasei Pharma Corp. v. CoTherix Inc.1 and Omnicare Inc. v. United Healthcare Group Inc.,2 provide guidance on premerger activities that could be susceptible to antitrust scrutiny. The two cases support the notion that the premerger sharing of competitively sensitive information should be reasonable, and necessary to achieve legitimate business objectives. In that context, antitrust exposure may be limited. The last two, Medical Center at Elizabeth Place LLC v. Premier Health Partners3 and Healthamerica Pa. Inc., v. Susquehanna Health Sys.,4 explore postaffiliation challenges when merger was not the solution to the need to affiliate or consolidate, and the parties have pursued a JOA structure.

Premerger Antitrust Scrutiny

Omnicare is one of the most recent federal case law precedents to provide antitrust counsel with judicial guidance on how to advise clients engaged in premerger activity in the health care field. This matter was before the U.S. Court of Appeals for the Seventh Circuit on appeal from the grant of summary judgment in favor of defendant United Healthcare Group (UHG). Plaintiff Omnicare, a large U.S. institutional pharmacy, brought suit against UHG alleging that UHG and health insurer PacifiCare Health Systems (PHS) formed a buyer's cartel against it to obtain below-market reimbursement rates for drugs covered under the then-new Medicare Part D program. Omnicare argued that while UHG and PHS engaged in a standard due diligence process prior to merging, the two insurance companies crossed the antitrust line when they exchanged competitively sensitive information in violation of Section 1, and coordinated their negotiations with Omnicare whereby PHS aggressively negotiated with Omnicare to obtain belowmarket reimbursement rates. Once the merger between UGH and PHS was completed, UGH allegedly abandoned its previous agreement with Omnicare and adopted the more favorable agreement between Omnicare and PHS.

In affirming the district court's grant of summary judgment in UGH's favor, the Seventh Circuit held that in order for Omnicare's claims to have survived summary judgment, it would have had to: ''show that the inference of conspiracy is reasonable in light of the competing inferences of independent action or collusive action,'' proffer evidence that tended to ''rule out the possibility that the defendants were acting independently,'' and prove that the pricing and strategic...