Cardinal Health Agrees to Pay $26.8 Million to Settle FTC Charges
The Federal Trade Commission (FTC) announced Monday that Cardinal Health, Inc. has agreed to resolve charges that it illegally monopolized 25 local markets for the sale and distribution of low-energy radiopharmaceuticals and forced hospitals and clinics to pay inflated prices for these drugs.
The proposed stipulated order requires Cardinal to pay $26.8 million of ill-gotten gains and represents the second largest monetary settlement the FTC has obtained in an antitrust case. The money will be deposited into a fund for distribution to injured customers. The order also includes provisions to prevent future violations and restore competition in six markets where Cardinal remains the dominant radiopharmacy.
"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," said FTC Chairwoman Edith Ramirez. "In addition to obtaining important injunctive relief to restore lost competition and prevent future misconduct, the settlement ensures that Cardinal disgorges the monopoly profits it obtained and that affected customers get relief."
Cardinal owns the nation's largest chain of radiopharmacies which sell and distribute drugs known as low-energy radiopharmaceuticals. These radiopharmaceuticals are used by hospitals and clinics to diagnose a range of medical conditions, including heart disease. Due to the short half-life of the radioactive isotopes used in these drugs, hospital and clinics rely on radiopharmacies located nearby, resulting in highly localized markets.
As alleged in the FTC complaint, between 2003 and 2008, Bristol-Myers Squibb and General Electric Co. (which acquired Amersham plc in 2004) were the only U.S. manufacturers of heart perfusion agents or HPAs. HPAs are radiopharmaceuticals used to perform heart stress tests, the most common procedure in nuclear medicine. As such, they are key inputs for a financially viable radiopharmacy business. During this time, a radiopharmacy could not profitably enter a new market and compete without obtaining the right to distribute either Cardiolite (BMS's HPA) or Myoview (GE's HPA).
According to the FTC's complaint, through separate acquisitions in 2003 and 2004, Cardinal became the largest operator of radiopharmacies in the United States and the sole radiopharmacy operator in 25 metropolitan areas. Between 2003 and 2008, Cardinal employed various tactics to coerce and induce both BMS and GE to refuse to grant distribution rights for their respective HPA products to new competitors in the relevant markets.
As a result of these tactics, the complaint alleges that Cardinal obtained de facto exclusive distribution rights to the only HPAs available on the market and prevented numerous potential entrants from gaining access to these radiopharmaceuticals.
Under the proposed stipulated federal court order, Cardinal is required to pay $26.8 million as disgorgement of its ill-gotten gains. In addition, the order bars Cardinal from entering into simultaneous exclusive deals with manufacturers of the same radiopharmaceutical product or from using coercion or retaliation to obtain de facto exclusivity. The order also requires Cardinal to notify the FTC before entering into new exclusive distribution agreements or buying radiopharmacy assets that would not otherwise be subject to the notification requirements of the Hart-Scott Rodino Act.
The order also includes additional provisions designed to facilitate entry and restore competition in six of the relevant markets where Cardinal continues to operate the sole or dominant radiopharmacy: Little Rock, Arkansas; Gainesville, Florida; Lexington, Kentucky; Omaha-Lincoln, Nebraska; Knoxville, Tennessee; and Spokane, Washington.
Cardinal has agreed to give its customers in these six markets the option to terminate their contracts with Cardinal for low-energy radiopharmaceuticals. A monitor will oversee the process of notifying customers and administering any termination of contracts. Finally, the order also requires Cardinal to establish and maintain an antitrust compliance program for its radiopharmacy division.