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A federal appeals court has ruled that UnitedHealth Group Inc. and PacifiCare Health Systems Inc. did not violate federal antitrust laws by offering Medicare reimbursement rates to pharmacy operators that were lower than the competition. The case has been closely followed for guidance on what kind of information can be exchanged between potential merger candidates while undergoing due diligence. “What the court said here was so long as there’s a legitimate justification for exchanging certain types of information, then it’s OK,” said Steven Edwards, a partner in the New York office of Hogan Lovells who represents UnitedHealth and PacifiCare. “In other words, the court was able to look at all the information that was exchanged and say, ‘Yes, we can see why you would want this for legitimate reasons.’ And we had the added protection in this case that everything was reviewed and approved by outside antitrust counsel before it was exchanged.” Omnicare Inc., the nation’s largest operator of pharmacies in nursing homes and other institutions, alleged in 2006 that the two companies conspired against it just before completing their 2005 merger. In 2009, U.S. District Judge Rebecca Pallmeyer in Chicago granted summary judgment for UnitedHealth. On Monday, the U.S. Court of Appeals for the 7th Circuit affirmed that ruling. The panel appeared unconvinced that the evidence proved collusion between UnitedHealth and PacifiCare. “Omnicare’s task — and ours — would be much easier if there were a smoking gun buried in the voluminous record,” wrote Appellate Justice Daniel Tinder. “After considering the totality of Omnicare’s evidence, both separately and holistically, we cannot conclude that it would permit a reasonable jury to dismiss the inference that United and PacifiCare were acting in their independent interests.” A call to one of Omnicare’s lawyers, Aldo Badini, a partner in the East Palo Alto, Calif., office of Dewey & LeBoeuf, was not returned. Omnicare spokesman Andy Brimmer declined to comment. Omnicare sued after UnitedHealth dropped its reimbursement contract while in merger talks with PacifiCare. As evidence of conspiracy, Omnicare said UnitedHealth, armed with knowledge gleaned from the merger discussions, induced it to negotiate with PacifiCare, which was encouraged to “play hardball” with Omnicare. Omnicare alleged that UnitedHealth dropped its contract after Omnicare had agreed to a contract with PacifiCare that provided below-market reimbursement rates. Omnicare claimed that the two insurers created a “buyer’s cartel” in violation of the federal Sherman Antitrust Act. Omnicare also sued for fraud and unjust enrichment under state consumer law in Illinois. In its opinion, the 7th Circuit was skeptical that key pieces of Omnicare’s evidence violated Section 1 of the Sherman Act. That evidence included a UnitedHealth internal memo referring to PacifiCare “as a stalking horse to obtain the best service and contracts.” It also included an e-mail from a UnitedHealth executive to an Omnicare executive encouraging the pharmacy operator to negotiate a contract with PacifiCare. The 7th Circuit also affirmed dismissal of the state law claims. Amanda Bronstad can be contacted at [email protected].

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