The Department of Justice recently announced that it had charged one of the largest independent oncology groups in the country, Florida Cancer Specialists & Research Institute LLC (“FCS”), with antitrust violations under the Sherman Act, an incredibly rare antitrust action against a health care provider and the first in 25 years. The DOJ’s investigation into criminal antitrust violations amongst oncology providers has led to the defendant’s agreement to pay a whopping $100M fine in exchange for the DOJ’s agreement to defer prosecution on the antitrust charges until 2023.
According to the DOJ’s press release, FCS—a privately held oncology practice headquartered in Fort Myers with approximately 100 locations in Florida—had conspired with a competing oncology practice also based in Fort Myers (referred to only as “Oncology Company A” in the DOJ’s complaint) to unlawfully divvy up the oncology market in southwest Florida over the course of 16 years. The DOJ alleged that while FCS typically would provide both chemotherapy and radiation services to patients in most locations, it had agreed with its co-conspirator that FCS would provide only chemotherapy or other medication-based treatments (collectively called “medical oncology treatments”) to patients in Collier, Lee, and Charlotte counties in southwest Florida. In exchange, the competing practice (which also would typically offer both radiation and medical oncology treatments to its patients) would only provide radiation treatment to patients in these counties. The DOJ’s Information (essentially, a criminal complaint that serves as the formal charging document) stated that this agreement was a per se unlawful restraint of trade in violation of § 1 of the Sherman Act. FCS also agreed not to hire physicians specializing in radiology, whereas its co-conspirator agreed not to hire medical oncology specialists. The parties also coordinated in attempts to prevent competition from other local oncology practices to drive down competition in the local market generally, and exchanged information regarding drug and treatment options, including which party should provide those options to patients in southwest Florida. As a result, both practices had relatively little competition for their respective treatments, and, according to the DOJ’s press release, leaving vulnerable cancer patients with limited options.
DOJ investigation leads to hefty fine, waiver of restrictive covenants, and deferred prosecution for FCS
As a result of the DOJ’s investigation, FCS agreed to a deferred prosecution agreement (“DPA”) under which it “admit[ted], accept[ed], and acknowledge[d] that the facts set forth in the [DOJ’s Information] are true and accurate,” and that should the DOJ pursue prosecution, FCS would “neither contest the admissibility of, nor contradict, any of the facts” in the Information. The DOJ, for its part, agreed to enter into the DPA due to the fact that a conviction would likely result in FCS’s “mandatory exclusion from all federal health care programs … for a period of at least five years,” which would negatively affect patients and FCS’s employees. The DOJ also noted that FCS had provided it with substantial cooperation over the last 18 months, and had agreed to cooperate with the ongoing investigation into antitrust violations in the oncology industry.
Under the DPA, FCS is obligated to cooperate fully with the ongoing investigation. It also agreed to make a $100M payment (plus interest) over the next 2.5 years, beginning on June 1, 2020, with a hefty initial $40M installment, and terminating on December 31, 2023. FCS also agreed to “waive and not enforce any and all non-compete, non-solicitation, and/or non-interference provisions restricting competition with FCS in the provision of oncology services or solicitation of FCS’ employees.” FCS is likewise obligated to inform its current employees, directors, and officers (among others) of the existence of the DPA, including the waiver of the restrictive covenants. Finally, FCS was required to implement (and agree to continue) a compliance program aimed at preventing and detecting antitrust violations in its operations and those of its affiliates and subsidiaries.
The criminal suit and DPA serve as a cautionary tale to businesses that may be tempted to coordinate with competitors. As always, businesses should take great pains to avoid coordination that could be viewed as restraints on trade, rather than collaborative efforts intended to promote the public interest. This is particularly true in the health care context, where COVID-19 has increased public reliance and, simultaneously, public scrutiny on providers. Indeed, given the incredibly rare enforcement action against a health care provider, this action may reveal that the government is willing to flex its muscles against providers where it previously would not have done so.
However, the lesson is appropriate for companies in all industries, as the DOJ has made increased efforts in the last decade to crack down on agreements between competitors that impact trade, such as no-poach agreements and the like. In fact, given the government’s statements in the DPA regarding the need for FCS to continue providing lifesaving services to cancer patients in Florida, employers who do not provide such critical services to the public may face even stiffer penalties, including potentially a full-court press prosecution in lieu of an agreement to defer prosecution.
Companies that rely on restrictive covenants agreements to prevent unfair competition should be particularly wary of conduct that might draw government scrutiny—even though FCS’s restrictive covenants agreements were, presumably, enforceable under Florida law (which is generally one of the most pro-employer jurisdictions in the nation for restrictive covenants), FCS’s conduct has resulted in it losing a powerful tool in its arsenal to prevent unfair competition for the next few years. Employers should be careful not to find themselves in a similar position.