Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Cardinal Health agrees to pay $1.2M to settle surgical product distribution litigation, (Sep 28, 2015)

By Linda O’Brien, J.D., LL.M.

In an action by three acute care hospitals against the two largest distributors of medical and surgical products for employing exclusive dealing and illegal tying arrangements that suppressed competition in the sutures and endomechanical products market, Cardinal Health has reached an agreement to settle the hospitals’ claims, according to the plaintiffs’ motion for preliminary approval of class action settlement filed in the federal district court in Philadelphia (Schuylkill Health System v. Cardinal Health 200, LLC, September 25, 2015).

Cardinal Health 200, LLC and Owens & Minor Distribution, Inc. (O&M) are the largest distributors of medical and surgical products to hospitals. Schuylkill Health System (SHS), Titusville Area Hospital, and Warren General Hospital operate acute care hospitals and are customers of Cardinal and O&M for the distribution of sutures and endomechanical products, two categories of medical-surgical products.

SHS, Titusville, and Warren General filed a putative class action suit against Cardinal and O&M, alleging that the companies used exclusive bundling contracts to suppress competition in the sutures and endomechanical products market and caused customers, such as the three hospitals, to be overcharged for products necessary to treat their patients. The contracts were employed in response to a competitive threat from specialty distributor, Suture Express. Specifically, the hospitals claimed that in 2008 the defendants imposed contractual terms to punish customers who purchased products from a competitor that included penalties exceeding the cost of the products. The penalties were packaged as discounts for customer who bundled their orders with the defendants. The complaint included claims for bundling in restraint of trade, exclusive dealing, and illegal tying.

In the proposed settlement agreement, Cardinal has agreed to pay $1.15 million and will establish the authenticity and admissibility of documents and data that were produced in the litigation. The settlement agreement defines the settlement class as all acute care providers in the United States that purchased suture and endomechanical distribution services from Cardinal Health and Owens & Minor Distribution during the period from December 18, 2008 through August 20, 2015.

According to the memorandum in support of the motion, the settlement is sufficiently fair, reasonable, and adequate. The settlement was a result of arm’s length negotiations conducted by highly experienced counsel. Further, there was extensive discovery conducted by the parties. and the inherent risks and expense of continued litigation supported preliminary approval.

The motion states that the settlement class satisfies the requirements for class certification under Federal Rule of Civil Procedure 23(a) of numerosity, commonality, typicality, and adequacy of representation. Finally, common questions of law and fact predominated over individual questions, and a class action was superior to other methods for the fair and efficient adjudication of the controversy, the plaintiffs maintained.

The case is No. 12-cv-07065.

Attorneys: Brent W. Landau, Gary I. Smith, Jr., Hilary K. Scherrer (Hausfeld LLP) for Schuylkill Health System.

Companies: Schuylkill Health System; Cardinal Health 200, LLC; Owens & Minor Distribution, Inc.

News: Antitrust PennsylvaniaNews