Antitrust Law

Cardinal Health Settlement Signals Broader Risks for Consolidating Entities

Authors: Lisl Dunlop, Partner, Litigation | Ashley Antler, Associate, Healthcare Industry

On April 20, 2015, the Federal Trade Commission (FTC) announced that it had entered into a proposed stipulated settlement with Cardinal Health, Inc. to resolve the FTC’s allegations that Cardinal had monopolized the markets for the sale and distribution of low-energy radiopharmaceuticals in 25 metropolitan areas in the United States.1 The settlement requires Cardinal to pay $26.8 million into a fund for injured consumers, by way of “disgorgement” of Cardinal’s gains from its allegedly unlawful conduct.

The FTC’s pursuit of disgorgement, or equitable monetary remedies, and the size of the monetary settlement in the Cardinal Health case demonstrate the regulator’s increasingly aggressive enforcement stance on a broad range of potentially anticompetitive conduct and may signal heightened risks for entities operating in concentrated markets. In a healthcare environment increasingly characterized by consolidation, the FTC’s decision to pursue large disgorgement penalties in this case—where it could be argued that there was no consumer harm and that market efficiencies might have outweighed market consolidation—creates the possibility of a new layer of risk for healthcare market participants riding the wave of consolidation. The case also signals a greater agency focus on “vertical” relationships between firms at different levels of the supply chain (such as manufacturer-dealer or supplier-manufacturer) and highlights the importance of internal antitrust compliance for firms with market power.

The Cardinal Health Case

As a result of two acquisitions in 2003 and 2004—both of which the FTC allowed to proceed without detailed investigation2—Cardinal became the largest operator of radiopharmacies in the United States, and was the only radiopharmacy operator in the 25 geographic markets addressed in the FTC’s settlement. Radiopharmacies sell and distribute radiopharmaceuticals, or drugs containing radioactive isotopes used by healthcare facilities to diagnose and treat diseases. Due to the short half-life of the radioactive isotopes used in these drugs, hospitals and clinics rely on nearby radiopharmacies, resulting in very localized markets.

The sale of Heart Perfusion Agents (HPAs), one type of radiopharmaceutical used to conduct heart stress tests, commonly comprises more than half of a radiopharmacy’s revenues. During the period in which the Commission alleged that Cardinal engaged in anticompetitive conduct, there were only two HPA manufacturers in the U.S. The FTC’s complaint alleged that Cardinal employed a series of unlawful tactics to induce the two HPA manufacturers to deny distribution rights to numerous potential radiopharmacy entrants, thereby excluding potential competitors from entering the markets and unlawfully enabling Cardinal to maintain monopoly power. Specifically, the alleged anticompetitive tactics included:

  • Threatening to cancel, and actually canceling, Cardinal’s current or future purchases of the manufacturers’ radiopharmaceutical products;
  • Threatening to switch, and actually switching, customers from one HPA manufacturer to the other in order to pressure the first manufacturer to abandon plans to license its HPA to new competitors;
  • Conditioning Cardinal’s future relationship with an HPA manufacturer on the manufacturer’s refusal to grant HPA distribution rights to new competitors in the relevant markets; and
  • Threatening to compete against the HPA manufacturers as a generic HPA manufacturer and offering to forgo competing in return for exclusivity.

As a result of these tactics, the complaint alleges that Cardinal obtained de facto exclusive distribution rights to the only HPAs available in the 25 markets and prevented numerous potential entrants from gaining access to these radiopharmaceuticals. The complaint sought injunctive relief and monetary remedies.

In addition to requiring Cardinal to disgorge its allegedly unlawful profits by paying $26.8 million into a fund for compensation of customers impacted by its conduct, the settlement agreement prohibits Cardinal from engaging in certain future exclusive distribution arrangements and coercive or retaliatory conduct similar to the alleged improper schemes at issue. It also includes prospective remedies to restore competition in several of the relevant markets where Cardinal continues to operate as the sole or dominant radiopharmacy. For example, the settlement requires that Cardinal allow customers to terminate their exclusive contracts to facilitate entry by competitors.3

The FTC’s Use of Disgorgement

In 2003, the FTC issued its “Policy Statement on Monetary Equitable Remedies in Competition Cases” (Policy Statement)4, which set forth the factors that the Commission would consider in determining whether to seek monetary relief in a particular case.5 The Policy Statement explained that the FTC would not employ disgorgement and restitution as routine remedies in antitrust matters, and that it would pursue such remedies only in “exceptional cases.”

In 2012, the FTC withdrew the Policy Statement, indicating that it no longer intended to reserve monetary relief for “exceptional cases,” but instead would use this remedy as one of several at its disposal. For the nine years that the Policy Statement was in effect, the FTC sought disgorgement in only two cases, which were closely in line with FTC precedent. In contrast, in the 2½ years following withdrawal of the Policy Statement, the FTC has pursued disgorgement in three cases, including the Cardinal Health case—more cases than it pursued for the nearly ten years that the Policy Statement was in effect.

Aside from the Cardinal Health case, the other two cases in which the FTC has sought disgorgement after its withdrawal of the Policy Statement both involve challenges to pharmaceutical patent settlements, in which the patent holder paid generic pharmaceutical manufacturers to delay entering into the market for a drug in order to extend the patent holder’s monopoly (so-called “pay-for-delay” cases). Just one month after announcing the Cardinal Health settlement, the Commission announced a $1.2 billion settlement in one such matter.6  

While the Commission’s interest in seeking disgorgement in “pay-for-delay” cases is well known, the decision to pursue disgorgement in the Cardinal Health matter stands out as a change in course from the Commission’s usual pursuit of remedies in the competition context. Apart from the “pay-for-delay” cases, the Commission did not seek disgorgement in any of the 17 other settlements relating to anticompetitive conduct entered into since the withdrawal of the disgorgement Policy Statement in July 2012.

Many of these cases were settlements of claims against professional associations for restrictive rules7 or groups of healthcare providers for collective contracting,8 which are unsuitable candidates for monetary remedies. Others, involving conduct such as exclusive dealing by a distributor of animal diagnostic products,9 collusion between propane suppliers over the reduction of volume in exchange tanks10 or allocation of ski endorsers and employees by rival ski equipment manufacturers,11 fall outside the realm of activities for which the FTC has sought disgorgement in the past, even though the parties likely benefited financially from their illegal conduct.

The Commission’s Debate in Cardinal Health

Pursuit of disgorgement in the Cardinal Health case sparked sharp debate within the Commission itself, prompting two of the five FTC Commissioners to issue sharp dissents.12 The Commission was split on whether disgorgement, as opposed to injunctive relief alone, was appropriate in this case. In particular, the Commission’s disagreement regarding the propriety of disgorgement in this case centered around the strength of evidence regarding the underlying antitrust violation, and whether consumers had, in fact, been harmed by the conduct. The dissenting Commissioners were also especially concerned with the absence of policy guidance surrounding the FTC’s use of disgorgement.

Assessing the type of anticompetitive conduct alleged in the Cardinal Health case is always highly case-specific. Whether the conduct is found to be illegal under the antitrust laws depends a great deal on the facts, the economic analysis of competitive effects and consideration of the company’s business justifications for the conduct. The Commission’s majority decision identifies several key pieces of evidence supporting the basis for finding an antitrust violation and justifying its decision to pursue disgorgement:13  

  • Direct evidence that Cardinal’s conduct actually eliminated and prevented the entry of radiopharmacy competitors;
  • Evidence that the HPA manufacturers sought to license competitor radiopharmacies, and only refrained from doing so due to Cardinal’s conduct;
  • Strong evidence of price effects, with customers in geographic markets in which other radiopharmacies competed paying up to 20% lower prices.

Both dissenting Commissioners, however, contended that the evidence on exclusionary effects was, at best, weak, and that other market factors, such as insufficient demand for more than one radiopharmacy, could have caused the lack of entry into the markets at issue. Although the Commission alleged that Cardinal’s conduct lacked any legitimate business or efficiency justification, one of the dissenting Commissioners suggested there were plausible efficiency justifications for Cardinal’s conduct. In light of these concerns, both dissenting Commissioners found this to be an inappropriate case for disgorgement.

The Commissioners also had diverging opinions on whether the degree of consumer harm made this case appropriate for disgorgement. The majority of Commissioners took the position that injunctive relief alone would fail to adequately address the harm Cardinal’s conduct caused, because it would not address the consumer harm and allegedly unlawful gains from charging higher prices in the monopoly markets at issue. In particular, the majority cited the long duration of Cardinal’s conduct—from 2003 to 2008—and the potential statute of limitations problems that private litigants might face in bringing a follow-on lawsuit. In contrast, the dissenting Commissioners argued that use of disgorgement in this matter was inappropriate given that they believed that there was little to no demonstrable consumer harm.

In addition, both dissenting Commissioners raised concerns about the absence of guidance from the FTC to the business community regarding when it will pursue the remedy of disgorgement. One of the dissenting Commissioners noted that “[r]isk-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.”14 Both dissenting Commissioners urged the FTC to adopt policy guidance on when it plans to seek disgorgement in antitrust cases.

Looking Ahead: New Risks Associated with Consolidation

The Cardinal Health settlement and ensuing concerns about the lack of clarity regarding the FTC’s pursuit of disgorgement become increasingly significant when viewed within the context of consolidation in the healthcare market.15 There can be no denying the consolidation trend in the healthcare industry generally, and the pharmaceutical industry, in particular.16 Many factors are fueling consolidation, including increased pressure to drive down healthcare costs.

In light of this trend, the Cardinal Health settlement may increase concerns among healthcare players, such as providers and pharmaceutical supply chain members, about the FTC’s increased attention to concentrated markets and its ability to impose significant monetary penalties. Disturbingly, in the Cardinal Health case, although the FTC was sharply divided as to whether or not the conduct at issue constituted an antitrust violation, it nonetheless voted to impose a historically significant $26.8 million penalty.

This case signals the FTC’s focus on vertical relationships in markets with few sellers or those dominated by a single seller and creates the specter of possible monetary penalties for entities in consolidated markets. Consequently, this precedent might impact the behavior of healthcare entities moving forward.

More specifically, the Cardinal Health decision may prompt healthcare entities to consider and respond to new risks, both pre- and post-consolidation. Risk-averse market participants might be deterred from merging, even where their transactions may pass antitrust muster, to avoid the potential risk of post-merger disgorgement by the FTC. Perhaps more importantly, the case also highlights the need for effective post-consolidation antitrust compliance policies. Healthcare entities, especially those with significant market power, would be prudent to monitor their business conduct closely and educate their personnel on antitrust-related risks. As the Cardinal Health case demonstrates, even when regulators have not challenged a consolidation, large players who flex their market muscles may be at risk of significant monetary penalties at the discretion of the FTC.

Looking ahead, it is not clear whether, or how frequently, the FTC will pursue disgorgement as a remedy. In the future, the Commission may consider alternate remedies, such as disgorgement, to restore competition in an increasingly consolidated healthcare market, particularly if state Certificate of Need laws act as a barrier to divestiture—the FTC’s preferred remedy to restore competition where a transaction has been consummated.17 Without clear policy guidance from the FTC regarding when it will employ the disgorgement remedy, however, it becomes more challenging for healthcare market entities to assess the true magnitude of this risk.

1“Cardinal Health Agrees to Pay $26.8 Million to Settle Charges It Monopolized 25 Markets for the Sale of Radiopharmaceuticals to Hospitals and Clinics,” FTC Press Release, April 20, 2015,

2The FTC did challenge Cardinal’s 2009 acquisition of Biotech nuclear pharmacies in the Southwestern United States, requiring Cardinal to reconstitute and sell nuclear pharmacies in Nevada, New Mexico and Texas to a third party. “FTC Settles Charges That Cardinal Health’s Purchase of Biotech Was Anticompetitive,” FTC Press Release, July 21, 2011, It is possible that Cardinal’s conduct in other markets came under scrutiny as a result of the Biotech investigation.

3These remedies are similar to those included in Cardinal’s settlement with the FTC regarding its 2009 acquisition of Biotech. Id.

4FTC, “Policy Statement on Monetary Equitable Remedies in Competition Cases,” 68 Fed. Reg. 45820 (Aug. 4, 2003),

5L. Dunlop, “The FTC Is Shifting Gears on Monetary Remedies: Should You Be Worried?,” The Antitrust Counselor: The Newsletter of the ABA Section of Antitrust Law’s Corporate Counseling Committee (Oct. 2012).

6“FTC Settlement of Cephalon Pay for Delay Case Ensures $1.2 Billion in Ill-Gotten Gains Relinquished; Refunds Will Go to Purchasers Affected by Anticompetitive Tactics,” FTC Press Release, May 28, 2015,

7In the Matter of Music Teachers National Association, Inc., FTC Matter No. 131 0118 (2014); In the Matter of California Association of Legal Support Professionals, FTC Matter No. 131 0205 (2014); In the Matter of National Association of Teachers of Singing, Inc., FTC Matter No. 131 0127 (2014); In the Matter of National Association of Residential Property Managers, Inc., FTC Matter No. 141 0031 (2014); In the Matter of Professional Skaters Association, FTC Matter No. 131 0168 (2015); In the Matter of Professional Lighting and Sign Management Company of America, Inc., FTC Matter No. 141 0088 (2015).

8In the Matter of Cooperativa de Farmacias Puertorriquenas, FTC Matter No. 101 0079 (2012); In the Matter of Praxedes E. Alvarez Santiago M.D. et al., FTC Matter No. 1210098 (2013).

9In the Matter of IDEXX Laboratories, Inc., FTC Matter No. 1010023 (2013).

10In the Matter of AmeriGas and Blue Rhino, FTC Matter No. 1110195 (2015).

11In the Matter of Tecnica Group, FTC Matter No. 121 004 (2014); In the Matter of Marker Volkl, FTC Matter No. 121 004 (2014).

12Dissenting Statement of Commissioner Maureen K. Ohlausen, Cardinal Health Inc., File No. 101-0006 (Apr. 17, 2015),, and Dissenting Statement of Commissioner Joshua D. Wright, Cardinal Health Inc., File No. 101-0006 (Apr. 17, 2015),

13Statement of the Federal Trade Commission, In the Matter of Cardinal Health Inc., FTC File No. 101-0006 (Apr. 17, 2015),

14Dissenting Statement of Commissioner Joshua D. Wright, In the Matter of Cardinal Health Inc., File No. 101-0006 (Apr. 17, 2015), at 4.

15See, e.g., Manatt,” Five Megatrends Driving the Seismic Shift in Healthcare: How Should Pharma Respond to Succeed in a Transformed Market?” (Aug. 2014).


17This was reflected in the FTC’s recent decision in the Phoebe Putney case, where state Certificate of Need laws precluded divestiture. See A. Antler & L. Dunlop, “Phoebe Putney: A Collision of Federal Antitrust and State Certificate of Need Laws,” Manatt Health Update (Apr. 27, 2015).

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