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Single State Antitrust Actions
From: Kim VanWinkle
Date: Fri, 14 Jan 2011 13:57:41 -0500
Subject: [AT-STATE] California Halts Online Cosmetics RPM Scheme
The California Attorney General's office today announced that it had stopped Bioelements, Inc., a cosmetics company operating in California, from engaging in an RPM scheme in which it prohibited retailers from selling its products online at a discount. According to the AG's press release, available at http://ag.ca.gov/newsalerts/print_release.php?id=2028, the settlement is one of the first applications of California's strict, pro-consumer antitrust law banning vertical price-fixing in the wake of a controversial 2007 U.S. Supreme Court decision that weakened federal law in this area. Vertical price-fixing occurs when companies along the distribution chain conspire to set the price of a product or service at an artificially high level. In California, prices must be set independently -- and competitively -- by distributors and retailers.
Bioelements markets a line of human beauty-care products under its BIOELEMENTS trademark, offering skin products it claims have quasi-medicinal properties such as reducing wrinkles. These products -- known as "cosmesceuticals" because they supposedly merge the attributes of cosmetics and pharmaceuticals -- are sold at beauty salons across California, as well as on the Internet.
An investigation initiated by Harris' predecessor as attorney general, Edmund G. Brown Jr., revealed evidence that since 2009, Bioelements had entered into dozens of contracts with other companies that required them to sell Bioelements' products online for at least as much as the retail prices prescribed by Bioelements. (There were no express pricing requirements for products sold in person or in shops.)
In doing so, Bioelements violated California's antitrust and unfair competition laws.
Under the settlement, in the form of a stipulated court judgment signed Tuesday by Riverside Superior Court Judge Harold W. Hopp, Bioelements is required to:
- Permanently refrain from fixing resale prices for its merchandise
- Inform distributors and retailers with whom Bioelements made price-fixing contracts that Bioelements considers the contracts void and will not try to enforce them
- Pay a total of $51,000 in civil penalties and attorney fees.
The 2007 U.S. Supreme Court decision Leegin Creative Leather Products, Inc. v. PSKS, Inc. sharply curtailed federal antitrust law pertaining to vertical price-fixing, but did not affect California's strict state antitrust law. In the last three years, the California Attorney General has sent two open letters to Congress urging passage of legislation reinstating federal safeguards against vertical price-fixing schemes like Bioelements'. In February 2010, the Attorney General obtained an injunction under California law against another cosmetics company, DermaQuest, Inc., which halted a price-fixing scheme similar to Bioelements'.
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From: Kim VanWinkle
Date: Mon, 18 Oct 2010 12:33:02 -0400
Subject: [AT-STATE] Michigan, DOJ challenge BCBS MFN clauses
The Michigan Attorney General's Office and the U.S. Department of Justice today filed suit in the United States District Court for the Eastern District of Michigan challenging Blue Cross Blue Shield of Michigan's use of allegedly anti-competitive "Most-Favored-Nation" (MFN) clauses in reimbursement contracts with approximately half of Michigan's hospitals. The lawsuit alleges that MFN status gives Blue Cross an unlawful advantage over other insurers by requiring hospitals to charge the other insurers more than they charge Blue Cross, driving up prices for consumers and damaging competition in the healthcare market place - all to benefit Blue Cross' market share.
A joint investigation by the U.S. Department of Justice and Cox's office revealed that Blue Cross ramped up its practice of requiring MFN clauses in 2007, threatening to slash payments to 45 small, rural hospitals by up to 16% if the hospitals refused. The investigation also revealed that Blue Cross secured MFN clauses with at least 23 larger hospitals by offering to increase the amount Blue Cross paid hospitals, as long as all other insurers paid more, putting other insurers at a competitive disadvantage while raising prices for everyone. For these larger hospitals, the MFN that Blue Cross secured was an even costlier type of MFN called an "MFN-plus." These clauses require hospitals to give Blue Cross better prices than other insurers, while adding on a specific percentage increase - in some instances resulting in other insurers paying as much as 39% more than Blue Cross.
In all cases it is alleged that Blue Cross stifles competition to protect its market share, leading to higher costs and keeping new insurers from entering markets. For example, MFN status at Marquette Hospital requires other insurers to pay the hospital at least 23% more than Blue Cross. Other insurers at Beaumont Hospitals are required to pay 27% more. And Blue Cross competitors at Covenant Medical Center are required to pay at least 39% more.
The joint lawsuit filed today challenges Blue Cross' anticompetitive practices under both state and federal antitrust law. The suit seeks an injunction to end all variations of MFN clauses by alleging violations of Section 1 of the federal Sherman Act and Section 2 of the Michigan Antitrust Reform Act, both of which prohibit contracts that unreasonably restrain trade or commerce. In 1999, the U.S. Department of Justice successfully challenged Blue Cross Blue Shield of Ohio's use of MFN clauses under Section 1 of the Sherman Act in the case U.S. v Medical Mutual of Ohio (formerly Blue Cross Blue Shield of Ohio).
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From: Kim VanWinkle
Date: Thu, 6 Jan 2011 15:21:36 -0500
Subject: [AT-STATE] Ohio and FTC move to block hospital merger
Cordray, FTC to File Motion to Suspend Merger of St. Luke's Hospital and ProMedica Health System
(COLUMBUS, Ohio) — Citing potential violations of antitrust law, Ohio Attorney General Richard Cordray announced today that he will join with the Federal Trade Commission (FTC) in filing a motion to hold open the merger of St. Luke's Hospital (St. Luke's) and ProMedica Health System (ProMedica), both of which operate hospitals in the Toledo area.
"Over the past several months, we have conducted extensive interviews of Toledo-area health care providers, health insurers, physicians and employers," said Cordray. "As a result, I am troubled by the threat posed by this merger to reduce competition and increase costs for hospital services in Lucas County – an area that already has some of the highest health care costs in the state. In order to ensure that the citizens and employers of Lucas County do not suffer a reduction in quality of patient care or an increase in health care costs as a result of this transaction, I believe it is vital to maintain the status quo while a full and fair hearing is conducted."
The FTC today filed a complaint alleging that the deal violates federal antitrust laws and requesting a trial before an administrative hearing officer. The joint motion for preliminary injunction, which will be filed later this week in the United States District Court for the Northern District of Ohio, Western Division, asks the court to issue an order to suspend the combination of the merged hospitals' assets pending the resolution of that administrative trial.
In May, St. Luke's and ProMedica announced the proposed merger, which was consummated on August 31, 2010. ProMedica is a not-for-profit organization based in Toledo that operates 283 medical facilities in Ohio and Michigan, including 10 hospitals. In Lucas County, ProMedica operates The Toledo Hospital, Flower Hospital and Bay Park Community Hospital. Paramount Health Care, a health insurer owned by ProMedica, is the largest HMO in Northwest Ohio. St. Luke's is an independent, full-service, nonprofit community hospital located in Maumee, a suburb of Toledo.
The joint motion will ask the court to prevent ProMedica from fully integrating its hospital operations with those of St. Luke's by eliminating staff, shutting down or relocating services, implementing higher prices for its services or taking other similar actions pending the results of the administrative trial.