Cardinal Health Settlement Causes Rift at FTC

Cardinal Health SettlementThe FTC has announced that Cardinal Health has agreed to settle charges that it maintained an illegal monopoly over 25 local markets for the sale and distribution of its low-energy radiopharmaceuticals, and that it forced hospitals and clinics to pay artificially high process for those drugs.  The terms of the settlement orders Cardinal Health to disgorge $26.8 million in ill-gotten gains to the FTC.  The fine against Cardinal Health represents the second largest settlement the FTC has ever obtained in an antitrust case.  The settlement also includes provisions to prevent Cardinal Health from committing future violations and restore competition in six markets where Cardinal Health remains the majority in the radiopharmacy market.

While the FTC ultimately voted to approve the settlement, it was not by a unanimous vote.  The FTC voted to approve the settlement by only a 3-2 vote, with both Commissioners Maureen Ohlhausen and Joshua Wright dissenting.  The two Commissioners said the FTC’s authority to require disgorgement in these cases might actually harm competition.

Commissioner Ohlhausen said the complaint is based largely on the company’s 2003 and 2004 acquisitions to build up its pharmacy network – and the FTC never challenged those acquisitions at the time.  Continuing on, Ohlhausen said, “Nor, in my view, does Cardinal’s alleged post-merger conduct, even if proven, represent a clear violation of the antitrust laws.  We appear to be veering from our special mission in pursuing disgorgement in a case that involves conduct that is seven to 12 years old, mixed evidence on liability, (and) no clearly established effects on consumers.”  Ohlhausen wrote the case harkens back to her dissent in 2012 when the FTC withdrew a nearly 10-year-old policy that offered more clear policy on when the agency could take money in monopoly cases to return to customers.  The FTC pursued two such cases in the nine years the policy was in effect, she wrote, but three including Cardinal Health’s since withdrawing it.

Commissioner Wright in his dissent stated that Cardinal Health’s customers could have sued if they thought prices were unfair. “I fear that a lack of guidance from the commission could cause much mischief,” Wright wrote.  “Risk-averse companies concerned about the financial and reputational effects associated with a disgorgement order from the FTC could respond to the lack of guidance by not engaging in conduct that could plausibly benefit consumers.”

The majority issuing the FTC’s decision to approve the settlement shot back at the dissenting Commissioners, stating, “The fact remains that up until that time (2008) Cardinal suppressed competition in the relevant markets through its exclusionary tactics and charged its customers significantly higher prices.”  According to FTC Chairwoman Edith Ramirez, the settlement was significant not only for the injunctive relief that was obtained, but also for the disgorgement it ordered from Cardinal Health.  “In addition to obtaining important injunctive relief to restore lost competition and prevent future misconduct, the settlement ensures that Cardinal disgorges the monopoly profits it obtained and that affected customers get relief,” she said.

Even though the settlement has created a potential rift within the FTC, the case against Cardinal Health signals the FTC’s growing interest in disgorgement, particularly in the pharmaceutical industry.  In fact, in just the last few months, the FTC in four cases, including the Cardinal Health case, has shown that there is a very real risk of disgorgement as a remedy in antitrust cases.  In the first case, the FTC sought disgorgement from Cephalon, Inc.  In April 2015, a federal district court held that the FTC could pursue disgorgement against Cephalon for lost profits related to reverse payment agreements involving the drug Provigil.  The judge’s order could expose Cephalon to possibly disgorging between $3.5 billion and $5.6 billion in ill-gotten profits.  Less than one week after the district court decision against Cephalon, direct purchasers brought suit against Cephalon and its parent and sister companies.  Cephalon and the other parties agreed to settle the case for approximately $512 million.  The settlement represents the largest ever for direct purchasers in a pay-for-delay case.

In the second case, the DOJ joined the disgorgement party.  On March 16, 2015, the Department of Justice announced a settlement requiring Twin America, a tour bus joint venture in New York City, to disgorge $7.5 million.  In connection with its settlement, Assistant Attorney General Bill Baer indicated that antitrust violators “shouldn’t be able to pocket the dollars from [their] wrongdoing” and emphasized DOJ’s commitment to disgorgement as a remedy.

Finally, in September 2014, the FTC filed its first post-Actavis “reverse payment” case against AbbVie, Abbott Laboratories, Unimed Pharmaceuticals, Besins Healthcare, and Teva Pharmaceuticals involving AndroGel.   The FTC stated in its press release that it would seek a court judgment, “ordering the companies to disgorge their ill-gotten gains.”

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