Cardinal Health has agreed to pay $26.8 million as part of a settlement with the Federal Trade Commission that sparked disagreement among the commissioners about the agency's appropriate role.
The settlement resolves allegations that Cardinal illegally monopolized the sale of low-energy radiopharmaceuticals in 25 markets. The settlement announced Monday is the second-largest in FTC antitrust history.
Cardinal Health said in a statement Monday that the settlement does not include any admission or determination of wrongdoing.
“Cardinal Health is dedicated to delivering the very best nuclear pharmacy services to our customers, and we are committed to open and fair competition,” according to the statement. “Cardinal Health does not believe it violated the law and voluntarily entered into this settlement to avoid the costs and inherent unpredictability associated with litigating this issue, especially given the age of the alleged conduct (2003-08).”
Cardinal noted that the settlement will not have a material impact on its operations.
The FTC alleged that Cardinal, which owns the nation's largest chain of radiopharmacies, monopolized the 25 markets with its sales of radiopharmaceuticals, which hospitals and clinics use to diagnose a variety of medical conditions, such as heart disease. Cardinal's monopoly allowed it to charge hospitals and clinics inflated prices, the FTC alleged.
Cardinal, through a variety of tactics, blocked or delayed potential competitors from entering the markets, the FTC alleged. “We have reason to believe that Cardinal, by preventing other radiopharmacies from entering its markets, was able to deny customers the benefits of competition and reap monopoly profits from the sale of radiopharmaceuticals for a sustained period of years,” FTC Chairwoman Edith Ramirez said in a statement.
The $26.8 million payment included in the settlement is intended to offset the money Cardinal made through allegedly illegal means—a remedy known as disgorgement that some say is inappropriate in cases such as this.
The FTC commissioners voted 3-2 to approve the settlement with the two dissenters citing the disgorgement as a problem.
Commissioners Joshua Wright and Maureen Ohlhausen wrote in dissents that the FTC should reinstate its previous policy statement, which set forth criteria to guide decisions about whether to pursue disgorgement in competition cases. The FTC withdrew that policy statement in July 2012 and did not replace it.
Ohlhausen wrote that it's not enough to say the agency will be guided by case law, considering how little relevant case law exists.
Wright wrote that he is “troubled by the Commission's continued efforts to pursue monetary remedies without providing any guidance regarding the bases it uses to choose when and whether it will pursue them.”
“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,” Wright wrote. “The Commission's decision to accept a monetary payment from Cardinal to settle this case presents precisely this risk.”
Ohlhausen wrote that the Cardinal case is not an appropriate one for the “extraordinary remedy” of disgorgement. She wrote that she does not believe Cardinal violated antitrust laws, and the FTC cannot calculate the disgorgement amount with any certainty.
“This case raises significant policy concerns regarding the pursuit of disgorgement in competition cases and the lack of guidance that the Commission has provided the business community about when it will seek this remedy,” Ohlhausen wrote.
Seeking disgorgement, Ohlhausen wrote, represents a “significant departure” from the agency's traditional reliance on cease-and-desist orders in antitrust cases. “Overuse of this remedy fundamentally changes the nature of the agency and the role it was designed to play."
But the three commissioners who voted to approve the settlement said cease-and-desist orders allow defendants to keep the profits of their illegal activity when the government is unable to intervene early enough.
“Disgorgement deters subsequent conduct simply by sending a message that wrongdoers, if caught, will not be able to profit from their wrongdoing,” they wrote. The FTC, they said, withdrew its policy statement on disgorgement in 2012 “to dispel the notion that the FTC would seek disgorgement and restitution remedies only in 'exceptional' cases.”
And in the Cardinal case, the commissioners in favor of the settlement wrote, disgorgement was the only way to bring relief to the victims of Cardinal's conduct because of the statute of limitations for them to sue. The $26.8 million is slated to go into a fund to be distributed to customers allegedly hurt by Cardinal's business practices.
As part of the settlement, Cardinal is prohibited from entering into simultaneous exclusive deals with manufacturers of the same radiopharmaceutical product or from using coercion or retaliation to obtain exclusive distribution rights. Cardinal must also notify the FTC before entering into new, exclusive distribution agreements or buying radiopharmacy assets.
Cardinal has also agreed to give customers in six markets (Little Rock, Ark.; Gainesville, Fla.; Lexington, Ky.; Omaha-Lincoln, Neb.; Knoxville, Tenn.; and Spokane, Wash.) the option to terminate their contracts with Cardinal for the drugs.
The settlement order is subject to court approval.
