The Numbers Are In: First Quarter 2008 HC M&A Activity Sluggish

The April 2008 issue of the Health Care M&A Monthly (subscription only publication) reports the announcement of 219 health care transactions in Q1 2008, down from the activity in both Q4 2007 (301 deals, down 27%) and Q1 2007 (237 deals, down 8%).  Biotechnology, pharmaceutical and medical device deals account for almost 75% of the deals announced, while home health, managed care, hospitals, long term care and behavioral health transactions collectively accounted for only about 8% of the volume.  The authors recognize that the decline is due, at least in part, to the credit crunch and the fact that activities of financial buyers have slowed, but point out that health care tends to be anti-cyclic and that the industry is still very much in need of consolidation.  Make sure to check out the full report for additional analysis on these and other industry trends.  For those who closely follow HC M&A activity, you may want to consider a subscription to this publication, as I have found the analysis to be very good.

2008 Healthcare M & A Trends: Highlights from The Deal's Healthcare Dealmaking Symposium

The Healthcare Dealmaking Symposium recently held by The Deal in New York City offered great insight into 2008 M & A trends in the health care space. One of my colleagues was in attendance and provided me with a brief overview of the major themes from event.  For those of you following health care M & A trends who couldn't attend, I would encourage you to check out online coverage of the event, as The Deal includes top notch video footage clips of several of the lead presentations. 

I'm sure it will come as no surprise, but the collapse of the credit markets seemed to take center stage.  An article from The Deal's web site entitled Healthcare Dealmaking Symposium: 12 Month Outlook quotes Russell L. Carson, co-founder of Welsh Carson, Anderson & Stowe, who summed up investor sentiment when he stated, "I don't think we want to do anything today that's reliant on capital markets to close.  There won't be a lot of $5 billion-plus deals by private equity firms until the credit markets unfreeze, and I don't see that happening this year." 

Other deals may be slow to take off as buyers and sellers continue to find themselves at a pricing standstill.  Sellers still expect 10-12 x EBITDA, while buyers are looking for multiples in the range of 6 to 8. 

According to panelists, strategic buyers with a lot of cash on hand are well positioned, followed by PEs and SPACs.  The hottest space in health care will likely be pharma, med tech, diagnostics, biotech and companies that focus on cost-containment. 

I'll be in attendance at the conference sponsored by iiBig at the end of the month entitled Investment and M & A Opportunities in Healthcare: Generating BIG Returns in a Fast-Growing Sector and will provide coverage of the trends highlighted at the conference.   For those of my readers who will also be in attendance, I look forward to seeing you there!

United States Supreme Court Denies Certiorari in Abigail Alliance Case

Yesterday, in a devastating blow to terminally ill patients seeking use of experimental drugs, the United States Supreme Court refused to hear an appeal of a ruling by a divided federal appeals court that denies the right of access. 

Juvan's Health Law Update has been following the case for some time.  For coverage of the case by this blog, see D.C. Appeals Court Rules Against Abigail Alliance and D.C. Circuit Vacates Abigail Alliance Decision, Orders Rehearing.

"Brainsuckers": The Changing Face of the 21st Century Patient

The appearance of the typical patient in the 21st Century departs significantly from that of the average patient in the 20th Century.  These days, many patients visit their medical providers armed with diagnosis and treatment options in one hand, and pricing information kept secret for years in the other--most of which is information obtained from a slew of sources on the internet.  Individuals from all ends of the spectrum have come together to discuss the pros and cons of these "brainsuckers" (a phrase coined by Dr. Scott Haig for those patients who research their symptoms).  By all accounts, it seems that the United States Congress will take the opportunity to chime in on the debate, too.

An article published by American Medical News  entitled "Bill Aimed to Improve Health Literacy," caught my attention today because it discussed legislation introduced in the United States Senate directed to further educate consumers about their health.  S.2424 aims "to ensure that all Americans have basic health literacy skills to function effectively as patients and health care consumers." 

According to American Medical News, the legislation, if passed, "would establish a health literacy implementation center to gather and disperse information and to devise national improvement strategies." The center would be charged with the development of a health literacy curriculum for elementary and secondary schools, colleges and adult education programs.  According to the article, the American Medical Association backs the legislation.

I'm generally a proponent of the educated consumer and believe that there could be far-reaching benefits to the legislation.  Given the lively debate on these issues, however, I'd be interested in hearing the opinions of others who disagree.

Legal Services Corporation Features Juvan

The Legal Services Corporation recently published an article featuring a pro bono case taken by Jayne Juvan with a few of her colleagues.  Scroll down to the end of the newsletter to review the article, entitled "Pro Bono Attorneys Save Seniors' Home from Foreclosure."  Special thanks to the Legal Aid Society of Cleveland for its support of the case and for providing notification about the publication of the article.

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Inside Business Names Juvan Finalist for 25 Under 35 Movers and Shakers Award

Make sure to check out this month's edition of Cleveland's Inside Business magazine, which names Jayne Juvan a finalist for the Top 25 Under 35 Movers and Shakers Award.

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Washington D.C. Adopts Legislation Governing Pharmaceutical Representatives

It is well known that most health care providers are subject to complex laws and regulations.  Unlike traditional health care providers, however, pharmaceutical representatives have generally successfully positioned themselves beyond the scope of the health care rules, making the requirements and accompanying penalties for noncompliance inapplicable.  In a noteworthy move, however, council members in Washington D.C. have taken aim at this profession by passing a measure that requires pharmaceutical representatives to obtain licenses and prohibits these representatives from knowingly providing false information to providers.  The legislation now brings the profession within the complex web of health care laws and rules applicable to traditional health care providers.

In the press release discussing the legislation, councilman David Catania stated that  pharmaceutical representatives "have come to play a huge role in our health care system, and it's time to start treating them as healthcare providers." He further stated that "[t]he current system promotes the use of the latest, most expensive drugs at the expense of the best, most effective ones.  This is a major problem for our overall healthcare system." 

Will this be the tipping point that causes other state legislatures to adopt similar measures?

Excluded Provider May License Technology to Third Party Entity, OIG Concludes

The United States Department of Health and Human Services, Office of the Inspector General ("OIG") posted an advisory opinion (Advisory Opinion No. 07-17) last week that addressed whether an individual excluded from federal health care programs who owns the intellectual property to certain technology may legally license the technology to an "unrelated" third party. 

I have often heard OIG officials indicate that they consider their ability to exclude providers from federal health care programs to be their greatest weapon to combat fraud and abuse.  This advisory opinion, perhaps even more than others, addresses how far-reaching this power in fact is--that is, whether the exclusion applies to intellectual property licensed to a third party company in which the excluded individual bears no relation, has no ownership interest, and would receive no remuneration in exchange, and whether ownership of the third party company by the excluded individual's children would have an impact on the analysis.

In the case before the OIG, the requestor pled guilty to a misdemeanor under Section 1128(b)(a)(2) of the Social Security Act, was sentenced to three years probation, fined $2,000,000 and excluded from participation for a mandatory five year period.  The requestor owned the intellectual property rights to an invention and proposed to license the technology to a company formed and wholly owned by the requestor's three children.

The OIG noted that federal health care programs will not pay for items or services furnished directly or indirectly by excluded providers.  The indirect furnishing of such items means that an excluded provider sells items to a distributor who ultimately sells the items to providers that bill federal health care programs for their costs. 

The OIG concluded that the requestor's relationship was attenuated because the requestor would have no ownership interest in the new company and would receive no payments made by federal health care programs for the items provided to program beneficiaries. 

Interestingly, the OIG could have extended its power of exclusion to cover both an excluded individual's children and the license of technology, but the OIG declined to do so.  The OIG called the new company and distributors "intervening entities" that apparently cause a break in the chain.  The OIG also commented on the fact that the requestor's children would own the new company, but decided that the filial relationship does not pose a substantial risk because the parties certified that funds would not flow to the requestor.

 

FDA Advises Consumers to Avoid Purchasing Certain Products Originating in China

Late last week, the Food and Drug Administration ("FDA") issued an alert warning against the consumption of certain products originating in China.  The FDA warned that products packaged and distributed by Shangai Distributor, Inc. of Coamo, Puerto for treatment of erectile dysfunction including RicoSuper Shangai, Strong Testis, Shangai Ultra, Shangai Ultra X, Lady Shangai, and Shangai Regular, also marketed as Shangai Chaojimengnan, contain undeclared active ingredients of FDA-approved prescription drugs and therefore are illegal.  The alert further informs the public that "FDA may take further regulatory actions to protect consumers from these illegal products," but provides no insight as to the nature of these additional regulatory actions.

For additional reading on this alert, see Viagra Ingredient in Chinese Supplements published by the Washington Post.

PDMA Deja Vu? AMP Injunction Granted!

According to Dr. Adam Fein from Drug Channels, U.S. District Court Judge Royce Lamberth has granted an injunction that temporarily prohibits the Centers for Medicare and Medicaid Services from adopting the average manufacturer price rule (the "AMP Rule").  As previously discussed on Juvan's Health Law Update, the AMP Rule establishes a new methodology for calculating Medicaid reimbursement rates for prescription drugs.  The court's move bears a striking resemblance to the grant of the injunction that prohibited implementation of certain provisions of the PDMA last year.  

I'm in the process of undertaking a full review of the move (according to the Associated Press, the decision will be released Tuesday) and will update this post shortly.  In the meantime, I'd suggest that you head on over to Dr. Fein's blog for his witty analysis.  This time, he's gone so far as to agree to refund the subscription fee of his readers because his prediction was, well, let's just say slightly off.  "In Analysis of AMP Lawsuit Odds last month," he writes, "I incorrectly predicted that the injunction would not be granted. (Thanks a lot, Arnie Becker!) Naturally, I will be happy to refund your subscription fee to Drug Channels."

Given the current state of the economy, I might just have to take him up on his offer!