Summary
The Federal Trade Commission ("FTC") announced on April 20, 2015 that it had entered into a stipulated consent order ("Order") with Cardinal Health, Inc. ("Cardinal"). The Order, which is pending court approval, requires Cardinal to pay $26.8 million to settle the FTC’s claim that Cardinal monopolized the sale of radiopharmaceuticals to hospitals and clinics in 25 markets nationwide. In addition, Cardinal may not enter simultaneous exclusive deals with rivals in the radiopharmaceutical industry, and Cardinal must also permit customers in six of the 25 identified markets where Cardinal still dominates the radiopharmacy landscape to terminate their existing Cardinal contracts. As a result of the FTC’s success, the radiopharmaceutical market should become more competitive, which will benefit health care providers making purchases for their patients in need of these drugs.
The $26.8 million represents the disgorgement of Cardinal’s profits resulting from its alleged monopolistic conduct, and is the second largest settlement ever accomplished by the FTC in an antitrust case. The money will be placed into a fund for purchasers of radiopharmaceuticals injured by Cardinal’s conduct. The order is pending before the Southern District of New York (S.D.N.Y., No. 15-CV-3031).
Radiopharmacies operate in very localized markets because of the short half-life of the radioactive isotopes contained in "low energy radiopharmaceuticals." The FTC alleged that in addition to monopolizing over two dozen markets nationwide, Cardinal was either the only, or the dominant, radiopharmacy in six of the 25 markets. The settlement will require Cardinal, which owns the largest chain of radiopharmacies in the United States, to permit customers in those six markets (Little Rock, Arkansas; Gainesville, Florida; Lexington, Kentucky; Omaha-Lincoln, Nebraska; Knoxville, Tennessee; and Spokane, Washington) to terminate their existing agreements with Cardinal.
In addition, Cardinal will be required to (a) adopt an antitrust compliance policy for its radiopharmacy division, (b) notify the FTC before it enters into any new exclusive distribution agreement, (c) notify the FTC before buying any radiopharmacy assets not otherwise subject to a Hart-Scott-Rodino filing, and (d) avoid entering into simultaneous exclusive contracts with competing radiopharmaceutical manufacturers or from using coercion or retaliation to otherwise obtain such exclusivity.
Through acquisitions, Cardinal became the largest radiopharmacy operator in the country and the only operator in 25 markets (listed below). Between 2003 and 2008, Bristol-Myers Squibb (BM) and General Electric Company (GE) were the only manufacturers of a class of radiopharmaceuticals – heart perfusion agents (HPAs). During that time period, no radiopharmacy could profitably enter a new market without the ability to distribute either BM’s or GE’s HPA products. Cardinal exercised its market dominance by allegedly engaging in tactics to coerce and induce both BM and GE to refuse HPA distribution rights to new market entrants. The FTC alleged that this allowed Cardinal to obtain de facto distribution exclusivity for the only HPAs available in those markets, which foreclosed competition from new rivals.
The FTC believes that the Cardinal settlement will restore competition to the radiopharmacy market while at the same time providing injured consumers a source for monetary relief. Radiopharmacy customers in the following markets should contact their legal counsel once the settlement receives court approval in order to determine the mechanism available for securing monetary relief relating to purchases from Cardinal during the relevant time period:
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Albany, New York
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Birmingham, Alabama
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Charlotte, North Carolina
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Chattanooga, Tennessee
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Columbia, South Carolina
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Gadsden, Alabama
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Gainesville, Florida
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Greensboro, North Carolina
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Huntington, West Virginia
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Indianapolis, Indiana
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Jackson, Mississippi
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Jacksonville, Florida
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Knoxville, Tennessee
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Lexington, Kentucky
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Little Rock, Arkansas
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Louisville, Kentucky
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Nashville, Tennessee
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Omaha-Lincoln, Nebraska
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Orange, Texas
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Raleigh, North Carolina
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Richmond, Virginia
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Spokane, Washington
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Springfield, Missouri
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Tulsa, Oklahoma
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Wichita, Kansas
Hospitals, medical groups, clinics and other purchasers of medical supplies, whether drugs or devices, should pay close attention when dealing with sellers who appear to be, or are, the "only game in town." Monopolies (and exclusive dealing agreements) in and of themselves are not illegal, but, once achieved through legitimate means, no such seller can maintain its monopoly and foreclose competition with illegal tactics (like the coercive or retaliatory conduct Cardinal is alleged to have engaged in). That kind of exercise of "monopoly power" more often than not evidences itself in the form of either artificially high prices or scarcity of supply, or both. Health care provider-buyers, particularly when buying unique products, should pay close attention when dealing with a seller who appears to or is actually known to be the "only game in town" and should report suspicious pricing patterns or supply difficulties to their counsel for further review.
