Merged Health Insurers Did Not Illegally Collude on Pharmacy Rates

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

Now-merged health insurers UnitedHealth Group and PacifiCare did not illegally conspire to depress the rate of reimbursement paid to the nation's largest institutional pharmacy, Omnicare, Inc., for prescription drugs it provided to senior citizens under the Medicare Part D plan, the U.S. Court of Appeals in Chicago has ruled.

UnitedHealth and PacifiCare—both sponsors of the Medicare Part D plan—began merger talks while each was developing an individual Part D plan proposal, and finalized their merger shortly before Plan D's 2006 launch.

According to Omnicare, the insurers conspired to coordinate their negotiations with it while their merger was pending, with UnitedHealth encouraging PacifiCare to use PacifiCare's in-house pharmacy benefits manager (PBM) "as a stalking horse to obtain the best service and contracts."

PacifiCare eventually entered into a contract with Omnicare that had terms significantly less favorable to the pharmacy than UnitedHealth's contract. Then, shortly after the merger became final, UnitedHealth concocted allegedly pretextual reasons to exit its own contract with Omnicare and promptly joined PacifiCare's. Omnicare contended that this course of conduct reflected a buyer's cartel that was per se violative of the Sherman Act.

Anticompetitive Agreement?

The appellate court agreed with the trial court, however, that the evidence on record in the case did not create a genuine issue of material fact as to the existence of an anticompetitive agreement between the insurers.

A granting of summary judgment against Omnicare's federal and Kentucky antitrust claims was therefore affirmed, as was the denial of Omnicare's motion for partial summary judgment on the issue of the insurers' affirmative defenses.

Though Omnicare produced an "extraordinary amount of evidence" to prove the existence of an illegal agreement between UnitedHealth and PacifiCare, it was ambiguous evidence that was at least as consistent with permissible independent action by the insurers as it was with an unlawful agreement, the court stated.

The merger agreement by its own terms, which restricted the ability of PacifiCare to enter into certain contracts without approval of UnitedHealth before the merger was completed, did not establish the existence of a conspiracy in restraint of trade.

The bargaining strategy adopted by PacifiCare, which ultimately resulted in the better deal with the pharmacy, was not shown to be economically irrational in the absence of a conspiracy, the court added.

Pre-Merger Communications

The communications that took place between the insurers prior to the completion of their merger also did not create substantial evidence from which a jury could find the existence of a conspiracy, in the court's view.

In particular, the pricing information they disclosed to each other was not so competitively sensitive that it was inappropriate to disclose before the signing of the merger agreement. Rather, this information exchange was a necessary part of the due diligence process in a merger and appeared to have been conducted in a reasonably sensitive manner, the court observed.

Inference of Independent Action

Even viewing the evidence all together, it still did not tend to negate the reasonable inference of independent action, the court explained. Without sufficient support for a conspiratorial information exchange, Omnicare's claims detailing how the insurers put that information to use was less plausible as well.

The conspiracy theory was further impugned when all of the alleged acts comprising the conspiracy were mapped sequentially and superimposed on a chronological timeline, the court noted. For example, a strategic options memo that was purportedly a blueprint for the insurer's scheme was not drafted until the alleged collusion was well underway, after UnitedHealth already had a contract with Omnicare and before the pharmacy took the initiative to reopen negotiations with PacifiCare.

Moreover, it was difficult to reconcile the theory of an affirmative, ongoing conspiracy to use the PBM as a stalking horse alongside evidence showing that the very target of that conspiracy was the party that made overtures toward it, the court concluded.

The January 10 decision is Omnicare, Inc. v. UnitedHealth Group, Inc., 2011-1 Trade Cases ¶77,304.