The BLT: The Blog of Legal Times

FTC Orders Ohio Hospital Divestiture

The Federal Trade Commission announced today that it has ordered ProMedica Health Systems Inc. to divest an Ohio hospital it acquired in 2010, ruling that the deal was anticompetitive.

The merger would create a "combined hospital system with an increased ability to obtain supra-competitive reimbursement rates from commercial health plans, and, ultimately, from their members,” wrote Commissioner Julie Brill in an opinion on behalf of the commission. “We conclude that anticompetitive effects are indeed likely, resulting in higher health care costs for patients, employers, and employees in the Toledo area."

ProMedica counsel David Marx, a partner at McDermott, Will & Emery, said he was “disappointed but not surprised” by the decision, and that he anticipates it will be appealed to the U.S. Court of Appeals for the 6th Circuit.

In August 2010, ProMedica, a non-profit headquartered in Toledo, acquired rival St. Luke’s Hospital in Lucas County, Ohio. The FTC sued to block the merger five months after the fact, alleging in an administrative complaint that the deal gave ProMedica a market share approaching 60 percent for general acute-care services in Lucas County. For inpatient obstetrical services, the FTC said the market share was near 80 percent.

The FTC (along with former Ohio Attorney General Richard Cordray, now head of the Consumer Financial Protection Bureau) also obtained a federal court order requiring ProMedica to preserve St. Luke’s as a separate, independent competitor during the FTC’s administrative proceeding and any subsequent appeals.

In December, after a month-long trial, Administrative Law Judge Judge D. Michael Chappell found ProMedica's acquisition of St. Luke's eliminated competition between the two firms and reduced the number of competing hospitals in the Lucas County market for general acute-care inpatient hospital services from four to three. He found the deal violated of Section 7 of the Clayton Act, and ordered ProMedica to divest St. Luke’s to a FTC-approved buyer.

The FTC commissioners affirmed the ALJ's decision on liability, but altered his definition of general acute-care inpatient hospital services, excluding sophisticated "tertiary" services from its scope. (Tertiary services, like neurological intensive care, are considered to be complex, but not as complicated as so-called quaternary services like organ transplants). The commission also defined inpatient obstetrical services sold to commercial health plans as a separate market.

FTC Commissioner J. Thomas Rosch issued a separate concurring opinion, writing that he would have stuck with the administrative law judge’s market definition. “The ALJ’s relevant product market definition thus accords with the prior teaching of the courts and of this Commission, and there was no need for the Commission to revisit this issue,” he wrote. Further, defining a separate market for OB services was “redundant... neither Complaint Counsel nor the majority can point to any judicial precedent for defining a obstetrical services market [as] separate." Doing so makes the commission vulnerable to “accusations of ‘gerrymandering’ the relevant product market,” he wrote.

ProMedica counsel Marx said he thought both the ALJ and the commission relied on “an analytic framework that is too narrow,” he said. “The focus on a limited set of general acute-care inpatient services provided to commercially-insured patients does not represent an understanding of the true competition dynamics in which health care providers operate today – and leads to some wrong decisions on a case by case basis.”

Federal Courts' Programs Threatened by Budget Cuts, Official Warns Congress

The federal court system needs a budget increase next year to avoid problems like more delays in processing cases and reduced supervision of felons on release, an official with the Judicial Conference of the United States told a congressional panel on Wednesday.

Judge Julia Gibbons, the chair of the conference’s budget committee, told a House Appropriations subcommittee that the courts already downsized nearly 1,100 employees in the last nine months because last year’s $7 billion budget did not include an increase.

And if there is another flat budget, the courts will have to shed another 1,000 positions, she said.

The conference’s 2013 budget request of $7.2 billion – a proposed 3.1 percent increase, the smallest the conference has ever requested – does not include any new support staff to address workload needs, even though staffing levels are at 80 percent of what the court considers necessary, Gibbons said.

Justices Question Whether Medicaid Expansion Coerces States

By Tony Mauro

The Supreme Court's liberal wing came alive Wednesday afternoon, aggressively questioning former solicitor general Paul Clement on his claim that the Medicaid expansion contained in the Affordable Care Act is an unconstitutional intrusion on state power.

"Why is a big gift coercive?" asked Justice Elena Kagan pointedly. "Where does this idea come from?" a skeptical Justice Stephen Breyer asked Clement. The barrage from liberal justices was a highlight of the final of four arguments spread over three days on the constitutionality of the 2010 health care reform law.

Clement, who represented 26 states challenging the law, said the provision, which subsidizes the cost to states of a major expansion of the program for the poor and disabled, was "uniquely coercive" because of the magnitude of the program and the threat contained in the law that all Medicaid funding could be withdrawn from states that don't participate.

The questioning of Clement by liberal justices was so sustained that Chief Justice John Roberts Jr. gave Clement an extra 15 minutes beyond his allotted half hour. Solicitor General Donald Verrilli Jr.'s time was also extended.

Verrilli defended the Medicaid provision, arguing that "states have a choice" not to expand their programs. He also used his time to sum up the Obama administration's position that the entire Affordable Care Act will "secure the blessings of liberty" for 40 million people who now have no health insurance. In rebuttal, Clement said it was a "funny concept of liberty" if the law is based on an individual mandate that forces people to buy insurance.

The law would extend Medicaid benefits over time to an estimated 16 million nonelderly, nondisabled people who have no health insurance now and whose incomes are less than 133 percent of the federal poverty level.

The states represented by Clement object to the incentives the law offers to states to finance the expansion. The law would underwrite 100 percent of the states' added costs through 2016, which the states say amounts to a "take it or else" offer that they cannot refuse — rendering it so coercive that it subverts the power of states and oversteps the spending power of Congress. Thirteen other states filed a brief asserting the law is not coercive, and noting that the penalty for states that don't participate is not an automatic withdrawal of all Medicaid funding.

With the end of the historic three-day arguments on the Affordable Care Act, the justices will discuss the matter behind closed doors, and in the next few months write and review their opinions and likely dissents.

For continuing updates and background on the arguments, visit our health care hub at www.nlj.com/healthcare.

DOJ: Legislation Addressing Discovery 'Unnecessary'

Updated 3:39 p.m.

As the special prosecutor in the Ted Stevens case appeared on Capitol Hill to testify about prosecutorial abuses, the Justice Department today issued a statement urging members of Congress not to meddle with discovery practices.

The special prosecutor, Henry "Hank" Schuelke III, appointed by a federal trial judge in Washington in April 2009 to investigate allegations of government misconduct, testified today about his 525-page examination of the botched case against Stevens.

The report, which did not recommend criminal charges against any Stevens prosecutor, said two assistant U.S. attorneys on the public corruption case intentionally withheld information from Stevens’ defense attorneys. Schuelke and a colleague, William Shields, also explored the apparent mismanagement of the case against Stevens, noting a lack of adequate supervision.

“This is a sad story,” Schuelke, of Washington’s Janis, Schuelke & Wechsler said today. “I take no joy in having come to these conclusions. I hope I never have to again.”

Schuelke, speaking publicly for the first time since his report was published March 15, told members of the Senate Judiciary Committee that they should consider pending legislation that targets discovery reform.

Sen. Lisa Murkowski (R-Alaska) earlier this month introduced such a bill to broaden the scope of information that prosecutors must disclose to defense lawyers.

Internal Justice Department policy mandates a broad discovery practice, urging prosecutors to turn over more information—the good and the bad—than less. But those guidelines don’t carry the force of law. “What is the principled reason for opposing legislation that does just that?” Schuelke asked today at the hearing.

DOJ said in a statement (PDF)L today that proposed discovery legislation “would upset our system of justice by failing to recognize the need to protect interests beyond those of the defendant.”

The statement, which was unsigned, said such legislation “would radically alter” the balance between protecting defendant rights and safeguarding against witness retaliation, disclosing ongoing investigations and protecting the national security.

DOJ said “a new discovery standard could result in the disclosure of investigative steps taken, investigative techniques or trade craft used, and the identities of witnesses interviewed during counterterrorism and counterespionage investigations.”

This afternoon, more than 100 lawyers signed a letter urging Congress to take up criminal discovery reform. The signatories included former Deputy Attorney General Larry Thompson, author and SNR Denton partner Scott Turow and lead Stevens defense counsel Brendan Sullivan Jr. of Williams & Connolly.

"Our experience leads us to believe that the vast majority of prosecutors act in good faith to fulfill their constitutional and legal obligations," the letter said. "However, federal courts, the DOJ and other entities have for years articulated inconsistent, shifting, and sometimes contradictory standards for criminal discovery, leaving it up to individual prosecutors to navigate this legal maze and determine the scope of their obligations to disclose information."

Publisher Seeks Lobbying Help on Pension Issues from Williams & Jensen

Williams & Jensen this week notified Congress it has lobbied for the publisher of The New Yorker, Parade and dozens of other magazines and newspapers on pension plans.

The firm's advocacy efforts for New York-based Advance Publications Inc. centered on the inclusion of a pension provision in a highway bill that the Senate passed on March 14 and sent to the House for consideration, said Williams Vice Chairman Bert Carp, who worked on the account with firm principal Christopher Hatcher. The provision, which the Senate added to the measure on March 7, would change the way companies calculate pension contributions, allowing them to contribute less to retirement funds.

The legislation, with its pension provision, would be “extremely helpful” to Advance, Carp said. “It is obviously important for newspapers because they are facing financial squeezes.”

Advance has taken numerous steps in the past few years to cut costs. In 2009, the company shuttered The News of Ann Arbor, Mich., and reduced the number of days that three of its other Michigan newspapers would publish. According to Editor & Publisher, Advance also instituted mandatory furloughs and pension freezes at most of its daily newspapers that year.

The company, which is owned by the Newhouse family, has holdings that include daily newspapers for almost two dozen cities, as well as Condé Nast Publications, Parade Publications, Fairchild Publications and American City Business Journals. In addition to The Star-Ledger in Newark, N.J., The New Yorker and Parade, Advance publishes newspapers and magazines that include The Times-Picayune of New Orleans, The Plain Dealer of Cleveland, The Oregonian of Portland, the Birmingham News in Alabama, the Washington Business Journal, Golf Digest, GQ and Vogue. The company also has an ownership interest in Silver Spring, Md.-based Discovery Communications Inc.

Williams is the first firm to lobby the federal government for Advance, according to congressional lobbying records that date back to 1999. But the firm won’t stay registered to lobby for the company for long, Carp said. Williams has finished its lobbying work for Advance and will deregister in the coming weeks.

“This is a very limited project,” Carp said.

Supreme Court Considers Impact of Striking Down Individual Mandate

By Tony Mauro

Supreme Court justices appeared sharply divided over what they should do with the Affordable Care Act if they decide that the central feature of the law, the individual mandate, is struck down.

On the third and final day of arguments over the landmark health care law, the choice, as Justice Ruth Bader Ginsburg put it, was between a "wrecking operation and a salvage job" — in other words, scrapping the entire law, or finding portions of it that can survive even without the requirement that most Americans buy a minimum level of insurance coverage. Justices found major problems with both alternatives, making it difficult to predict how they would rule.

Bancroft partner Paul Clement argued for striking down the entire law, asserting that this was an instance where "a half a loaf is worse" than nothing at all. But Deputy Solicitor General Edwin Kneedler argued that the best and most judicially modest approach would be to only strike down the related provisions that would require insurers to cover individuals regardless of medical history or pre-existing conditions. Both alternatives faced hostile questions from several justices.

Justice Antonin Scalia told Kneedler sarcastically that asking the Court to pick and choose between provisions of the law that should stay or go would raise Eighth Amendment problems — cruel and unusual punishment, in other words. But Ginsburg said it would be wrong to force Congress to start from scratch, when many provisions, benefiting black lung victims and American Indians, for example, are unrelated to the individual mandate.

The undercurrent this morning was almost an assumption that the individual mandate will be overturned. At various points, Justice Anthony Kennedy described that as a "significant possibility" or a fair "hypothesis."

The argument over the severability of the individual mandate was the third of four the Court scheduled on the Affordable Care Act, and the first in which Solicitor General Donald Verrilli Jr. did not appear.

Kneedler, a longtime deputy SG, represented the government instead. Because none of the parties embraced the lower court's view that the mandate is severable — and the entire rest of the law could survive — the Court appointed H. Bartow Farr III of Farr & Taranto to advance that argument.

After a lunch break, the Court will tackle the final issue: whether the massive expansion of Medicaid the law calls for intrudes on the power of states, which operate the health care program for the poor.

For continuing updates and background on the arguments, visit our health care hub at www.nlj.com/healthcare.

Judges, Attorneys Debate Cameras in the Courtroom

Hot on the heels of a national debate over whether the U.S. Supreme Court should have allowed the taping of arguments this week on health care reform, a panel of District of Columbia judges, attorneys and journalists sparred last night over the future of cameras in court.

Some state courts have allowed televised proceedings for decades, but, as in the federal trial courts, cameras historically have not been permitted in local courts in the District of Columbia. The federal judiciary is in the middle of a three-year pilot program studying the effects of cameras in 14 federal trial courts.

The Council for Court Excellence, a local nonprofit that studies administration of justice in local courts, organized last night's panel, which was hosted by Venable.

The two judges on the panel – U.S. District Chief Judge Royce Lamberth and District of Columbia Superior Court Judge Jose Lopez – said the resistance to taped proceedings, especially in criminal trials, came from a fear that witnesses would feel intimidated and decide not to testify. Lopez, who presides over the court’s domestic violence unit, said the “anti-snitching” culture in Washington is especially widespread because the city is relatively small.

U.S. Attorney Ronald Machen Jr., the city’s top prosecutor, agreed, saying he was worried about the “chilling effect” cameras could have. “I can’t tell you how real the threat is to witnesses,” he said.

Lamberth also said he thought that, even absent the intimidation factor, cameras can influence behavior in court. He cited the televised trial in 1995 against O.J. Simpson as an example, saying he thought witnesses “shaded” their testimony because they knew they would be on camera. Lamberth said he wanted to see the results of the federal judiciary’s pilot program before coming to any more conclusions.

Panelist Fred D’Ambrosi, news director of local news station WUSA, said he thought opposition to cameras was undermined by the success other state courts have had in allowing televised and recorded proceedings. D’Ambrosi said that when he was covering proceedings in Wisconsin and California, courts there successfully coordinated with members of the press to permit cameras inside.

The Morning Wrap

Health Care: The Obama Administration's top lawyer faced aggressive and often skeptical questioning on Tuesday by U.S. Supreme Court justices in a sweeping and historic argument over the constitutionality of the nation's new healthcare law, The National Law Journal’s Marcia Coyle reports.

No Background Check: Virginia Gov. Robert F. McDonnell’s administration acknowledged Tuesday that it did not know the chef at the Executive Mansion had been convicted of embezzlement when he was hired to work for the governor and his family two years ago. Now, the chef is under investigation for possible wrongdoing at the mansion, The Washington Post reports.

Turn Over: A federal judge has ordered Securities and Exchange Commission lawyers to turn over their notes to federal prosecutors handling the criminal case against Rajat K. Gupta, a former director of Goldman Sachs, The New York Times reports.

Facebook v. Yahoo: Facebook Inc., the social- networking service that’s planning an initial public offering, said a patent dispute with Yahoo! Inc. could have a material impact on its business, Bloomberg reports.

Coal Plant Rules: The first-ever U.S. proposal to restrict carbon dioxide emissions would have once been a major shock to electricity companies, but the discovery of abundant supplies of cheap natural gas means that many of those plants won't get built anyway, Reuters reports.

Consumer Protection Bureau Files Amicus in Truth in Lending Case

The Consumer Financial Protection Bureau has filed an amicus brief, weighing in on a truth-in-lending dispute pending before the U.S. Court of Appeals for the 10th Circuit.

The case, Rosenfield v. HSBC Bank USA, concerns a consumer’s right to rescind a mortgage after the consummation of the loan. Under the Truth in Lending Act, a consumer has three days to do so - unless the lender fails to provide the consumer with disclosures mandated by the law. If the disclosures are not provided, the right to rescind expires after three years.

When a consumer cancels a loan, the consumer must return the money and the lender must release its liens against the property.

According to the CFPB, “many courts incorrectly restrict consumers’ rescission rights,” requiring them to both exercise the right by notifying the lender and also to sue the lender, all within the same three-year period.

“As a result, these courts have erroneously dismissed rescission lawsuits as untimely, leaving consumers unable to litigate their claims on the merits,” according to the brief.

The CFPB argues that if the lender ignores the consumer’s timely notice or refuses to cancel the loan, the courts can determine in subsequent litigation whether the consumer’s exercise of the right to rescind was valid - even if that litigation starts after the three-year timeframe has expired.

“We are committed to making sure that borrowers can exercise their rights to the full extent allowed under this law,” said CFPB Director Richard Cordray in a news release. “The consumer’s right to cancel gives lenders a powerful incentive to provide the disclosures that consumers need to make good financial choices.”

The new agency has filed two other solo amicus briefs, both concerning the Fair Debt Collection Practices Act: Marx v. General Revenue Corp. (10th Circuit) and Birster v. American Home Mortgage Servicing, Inc. (11th Circuit).

For Three Businessmen Who Pleaded Guilty In A Foreign Bribery Case, A Reprieve

Updated 8:13 a.m., 3/28/12

Federal prosecutors in Washington today asked a judge to throw out charges against three businessmen who earlier pleaded guilty to violating anti-bribery laws in a high-profile undercover sting.

U.S. District Judge Richard Leon said he would grant the U.S. Justice Department's request. The government's move comes weeks after DOJ abandoned its Foreign Corrupt Practice Act case following two mistrials.

DOJ trial attorney Joseph Lipton said in court that the government still has an active investigation against one of the defendants, Daniel Alvirez, for his alleged role in the sale of military and law enforcement equipment to the Republic of Georgia. Because the investigation is pending, Lipton asked Leon to dismiss without prejudice one count.

An attorney for Alvirez, W. Asa Hutchinson, a former U.S. attorney under the Reagan administration and administrator of the Drug Enforcement Administration under President George W. Bush, said in court: “We’re obviously hopeful that this concludes everything today.”

Alvirez and the other two defendants, Jonathan Spiller and Haim Geri, pleaded guilty early last year for their participation in the FBI-led undercover foreign bribery sting. The set-up centered on the sale of $15 million in equipment to the west African nation of Gabon.

DOJ in February announced the government would not seek any additional trial, following the two earlier mistrials. In the earlier cases, three businessmen charged in the scheme were acquitted.

“The government submitted that the continued prosecution of the case was not warranted under the circumstances, given the outcomes of the first two trials, the implications of certain evidentiary and other legal rulings in those trials for future trials, and the substantial resources that would be necessary to proceed with another four or more trials,” DOJ said in court papers filed today.

Geri’s attorneys, Kobre & Kim litigation partner Eric Bruce in Washington and Matthew Menchel in Miami, commended the department. “It would have been a grave injustice for Mr. Geri to be branded a felon as a result of this failed sting operation,” the defense lawyers said. “Haim Geri is a good and decent man, who can now put this unfortunate chapter behind him and start rebuilding his life.”