Closing Time: Considerations and Hurdles in Completing Pennsylvania-Based Health Care Transactions

The health care industry has seen a recent shift towards consolidation, driven in part by legislation such as the Patient Protection and Affordable Care Act which encourages integration within the industry. As a result, health care entities are increasingly considering opportunities to merge with or acquire other companies. While this can be an exciting prospect for many organizations, the health care industry’s high level of both federal and state regulation has resulted in a myriad of potential legal issues that can stand in the way of a successful transaction. In particular, there are a number of regulatory hurdles that must be cleared in the state of Pennsylvania before a health care transaction can take place.

To address many of the potential issues that deal counsel must consider when involved in health care transactions in Pennsylvania, Reed Smith attorneys Karl Thallner and Zach Portin authored “Seal the Deal: Health Care Mergers and Acquisitions in Pennsylvania,” which was published in the April 2014 edition of the Pennsylvania Bar Association Quarterly. The article addresses a wide range of topics, including review by the state attorney general’s office and the Orphans’ Court; regulatory approvals at both the federal and state level; antitrust; the corporate practice of medicine doctrine; fiduciary duties; and other various matters for consideration.

Supreme Court Decision on Reverse Payments has Significant Implications for Pharmaceutical Manufacturers

Reed Smith’s Global Regulatory Enforcement Law Blog recently featured a detailed analysis of the Supreme Court’s decision in FTC v. Actavis, where the court ruled five-to-three that reverse payments, also called pay-for-delay settlements, can violate antitrust laws and are subject to antitrust review under the rule-of-reason. As reverse payments are commonly used by branded drug manufacturers to settle patent litigation related to generic drug manufacturers’ market entry, this decision will change the approaches courts, drug company litigants, and lawmakers take to the issue of generic entry into a patented brand drug’s market. To learn more about the implications for both branded and generic drug manufacturers, particularly in their approach to resolving patent litigation, read the full alert.

Affordable Care Act and the Post-Election Implications for Radiology

This post was written by Thomas W. Greeson and Paul W. Pitts.

As the dust settles from Tuesday’s election, pundits and prognosticators are predicting the future of the world based on highly charged and deeply polarized perspectives. Those predictions are sweeping in scope and many we have seen tend toward dire scenarios - even for the diagnostic imaging industry. The more prudent course is to step back for a moment and assess the situation in a more pragmatic and dispassionate way. With this in mind, we wanted to take this opportunity to describe what we expect to see as health reform efforts continue.

In planning for the future, it is vital to take into account that there are things we know for certain, things that are unknown at the moment and things that are simply unknowable. We have to do planning, preparation and decision making taking those factors into consideration. In every situation where change happens (and change happens constantly) there are threats and opportunities. Often we miss the opportunities because we are so focused on the loss of the known and familiar. The well-known adage, “Success is where preparation meets opportunity” applies here. The radiology practice that carefully considers how to position itself for a future that has not fully revealed itself is more likely to be ready to seize the opportunities that come with change.

The Affordable Care Act is here to stay as a result of President Obama’s reelection. Even if Governor Romney had been elected, changes to the health system were inevitable. In some markets, accountability, transparency and greater integration is being driven as much by commercial payers as from the government. We don’t expect everyone to agree with the following comments, but this is how we see the short and mid-term time horizon:

  • Continuing Integration. CMS will continue to foster integration efforts via its shared savings program that calls for creation of accountable care organizations (ACOs) to coordinate care, encourage use of evidence-based measures, reduce costs and achieve betters outcomes for patients. Many of you practice in hospitals that want to be the drivers of ACOs and other integrated delivery systems. Although these organizations are centered around primary care providers, imaging is a necessary component of any ACO’s portfolio of services. The prudent group will try to find some way to “be at the table” to help shape the governance, appropriateness of the imaging service and especially, to shape the compensation model. While we expect these integration efforts to continue, we do not believe that employment by hospitals is the necessary fate of most radiologists. We feel it is critical for the group culture of radiologists to endure to allow radiologists to determine selection and retention of radiologists, scheduling of services and the compensation of individual radiologists. Employment is not necessary to achieve that group role. A carefully drawn contractual agreement can address a health system’s desire for integration while preserving the independence of a radiology practice. CMS requires all ACOs to be legal entities. Many radiology groups may want to consider taking an investment interest in the legal entity organized to operate as the ACO and strive to have key governance and committee roles in those organizations.
  • The Value Proposition. The challenge for the specialty may be a contest between commoditization of the professional services via teleradiology and the local delivery of those same services. The groups that succeed in offering a viable alternative to cost-based marketing of radiology services will learn to sell the value proposition for their services locally. Technology will play a key role, but so will the willingness of radiologists to truly offer consultative services that will be valued by local referring physicians, hospital administrators and payers. Radiologists can be the gatekeepers for appropriate care. There is a need for your role in controlling appropriateness and overall imaging costs in a manner that complies with the fraud and abuse laws and rules governing participation in Medicare.
  • Ventures. The efficiency and patient preference for free standing imaging is unlikely to change. It is even more likely, however, that such free standing facilities will be part of the offerings of an integrated delivery system. Hospitals, will likely have some ownership in an increasing percentage of the outpatient imaging that is delivered in this country. Not all of those facilities will be provider based. It is incumbent, therefore, that radiologists understand the Medicare enrollment rules and the options that are available as they work with their hospitals in organizing free standing imaging services. Here again, we recommend that radiologists work to “be at the table” and strive for ownership and participation in the governance and management of these facilities.
  • Regulatory Awareness. The government is likely to double down in its enforcement activities. Radiologists operate under a complex set of rules and guidelines. Radiology groups will have to remain vigilant to understand the rules that govern how your services are ordered, delivered and billed for Medicare patients. We anticipate those rules could apply to the delivery of certain non-Medicare patients as well.
  • Antitrust and Competition. As health systems continue their efforts to control costs through integration of all stages of care, we foresee greater competition in delivery of imaging services in the future and more disputes regarding whether health systems and large practices misuse their market power.
  • Curtailment of Self-Referral. After more than two decades of radiologists’ advocacy for retrenchment of self-referral, the regulatory climate appears more favorable than ever toward a roll back of in-office imaging. Both governmental and private payers appear now to perceive how the conflicts of interest caused by referral to a physician’s own imaging services is a driver in increased health care costs. The report of the General Accountability Office released last month contained specific policy suggestions for curbing self-referral. As payers adopt various strategies for steering patients away from centers that are higher priced and high utilizers of imaging services, centers owned and operated by radiologists or by radiologists and hospitals are likely to be very competitive in many markets.

Bottom line, we believe that the groups that prepare for these changes, and look for opportunities as a result of these changes, will not only survive but can thrive in the health care delivery system that will emerge.

Supreme Court Rules That Juries - Not Judges - Must Determine Facts Supporting Large Criminal Fines

The Reed Smith Global Regulatory Enforcement Law blog has an interesting post about a recent U.S. Supreme Court ruling that protects the Sixth Amendment rights of defendants in high-stakes criminal cases. In Southern Union Co. v. United States, the Court ruled that any fact supporting a "substantial" criminal fine must be found by a jury applying the "beyond a reasonable doubt" standard. In this post, Efrem M. Grail and Kyle R. Bahr explain the opinion and discuss the wide impact it will have on criminal actions, from investigation to sentencing.

Third Circuit Holds That MDL Judges Can't Reverse Pre-Transfer Orders Absent Extraordinary Circumstances

This post written by Eric Buhr.

In a precedential decision issued Thursday, In Re: Pharmacy Benefit Managers Antitrust Litigation (MDL 1782), the U.S. Court of Appeals for the Third Circuit reinstated a district court order compelling arbitration of antitrust claims, an order which another district court judge vacated after the case was transferred to a federal Multi-District Litigation (MDL)s. Based on the law of the case doctrine, the Court of Appeals held that MDL judges may not overturn an order of the transferor court absent a finding of extraordinary circumstances - a conclusion that has broad ramifications for MDL proceedings in general.

The In Re Pharmacy Benefit Managers Antitrust Litigation case began in 2003, when Bellevue Drug Co. and several other pharmacies and associations sued AdvancePCS, a pharmacy benefits manager now known as CaremarkPCS, Inc for antitrust violations. In 2004, AdvancePCS moved to compel arbitration of all of the Plaintiffs' claims based on a contractual arbitration clause, and the district judge, Judge Eduardo Robreno of the U.S. District Court for the Eastern District of Pennsylvania, granted the motion to compel arbitration and stayed the district court action. 

Two years later, though, the case was transferred to an MDL pending in the Eastern District of Pennsylvania before Judge John P. Fullam. There, Judge Fullam lifted the stay and vacated the order for arbitration. Although Judge Fullam admitted the orders compelling arbitration were "clearly appropriate under the Federal Arbitration Act," he felt that an order vacating the arbitration order would help expedite the case. In support of his ruling, he explained his belief that a transferee judge under the multidistrict litigation statute had the power to vacate or modify any order of a transferor court bearing on pretrial matters.

The Court of Appeals clearly disagreed, stating that "there is nothing in the rules adopted by the Joint Panel on Multidistrict Litigation that authorized a transferee judge to vacate or modify the order of a transferor judge."   Although Judge Fullam relied, in part, on portions of the Manual for Complex Litigation suggesting that a transferee judge may vacate or modify orders of the transferor court, the Third Circuit dismissed that argument. The Court explained that "if Judge Fullam's interpretation of the statute were accurate, litigation could begin anew with each MDL transfer…Moreover, we do not believe that Congress intended that a 'Return to Go' card would be dealt to parties involved in MDL transfers." 

Ultimately, the Third Circuit agreed that the transfer of a case to an MDL does not confer more power on a transferee court; its powers are commensurate with those the transferor court has absent the transfer. Therefore, under ordinary application of the law of the case doctrine, an MDL court may only revisit past orders upon a finding of "extraordinary circumstances". Some recognized examples justifying exceptions and revisiting old orders anew include: (1) when new evidence becomes available; (2) when a supervening new law has been announced; (3) when there is a need to clarify or correct an earlier ambiguous ruling; and (4) when the order might lead to an unjust result. Since the MDL judge had not relied on on any such exception to the law of the case doctrine, the Third Circuit reinstated the original order by the transferor court.  

House To Hold Hearing On Patent Settlements Involving Generics And Impact On Competition

On June 3, 2009, the House Judiciary Courts and Competition Policy Subcommittee will hold a hearing, "Pay to Delay: Are Patent Settlements That Delay Generic Drug Market Entry Anticompetitive?", sure to interest all prescription drug manufacturers. No witness list is posted yet.

Health Law Monitor

Articles in This Issue:

  • Provider Networks and Joint Ventures: Avoiding Antitrust Scrutiny Through Clinical Integration
  • Stark II, Phase III Final Rule
  • In the Spotlight:  Fraud and Abuse
  • Health Law 101:  Fraud and Abuse
  • Recent Reed Smith Publications

Click here to read the Spring 2008 issue of Health Law Monitor.