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From Antitrust Law Daily, April 26, 2019

Hospital’s per se restraint of trade claim upheld against joint venture with procompetitive aspects

By Robert B. Barnett Jr., J.D.

The Sixth Circuit has affirmed an Ohio federal court’s dismissal of a Sherman Act restraint-of-trade claim by a hospital against a joint venture of competing hospitals on the ground that the hospital failed to establish its per se claim because the joint venture had some obviously procompetitive features.

In a restraint of trade suit filed by The Medical Center at Elizabeth Place (MCEP), an acute-care hospital, against a joint venture of Ohio hospitals alleging per se violations of Section 1 of the Sherman Act, the federal Sixth Circuit Court of Appeals has affirmed an Ohio federal court’s grant of summary judgment to the joint venture on the ground that MCEP was unable to meet the high bar for establishing a per se violation because the joint venture had some obviously procompetitive features. In effect, the Sixth Circuit ruled that MCEP, rather than pursue a claim under the rule of reason, made a legal bet that it could prove that the joint venture was so obviously anticompetitive as to constitute a per se restraint of trade—and it lost. The Sixth Circuit also agreed with the lower court that MCEP was too late in asserting claims involving parallel conspiracies between the joint venture and doctors and the joint venture and payers, ruling that a new pleading amendment at this late date would unfairly prejudice the joint venture (The Medical Center at Elizabeth Place, LLC v. Atrium Health System, April 25, 2019, Batchelder, A.).

Premier Health Partners was formed under a Joint Operating Agreement by Catholic Health Initiatives, MedAmerica Health Systems Corporation, Atrium Health System, and UVMC. The four hospitals agreed to have Premier Health manage many of their business functions, including negotiating managed care contracts with insurance providers. MCEP alleged that Premier Health engaged in a per se illegal group boycott of MCEP. Specifically, MCEP alleged that Premier negotiated on behalf of the hospitals with insurers a "Panel Limitations" clause, which provided that if the insurer added other hospitals to the network, the hospital had the option of terminating the contract or renegotiating its rates. Also, MCEP challenged the defendants’ enforcement of noncompete clauses in leases and employment contracts of physicians who invested in MCEP or referred patients to MCEP. The defendants’ actions allegedly restricted MCEP’s ability to compete in the marketplace and resulted in the sale of 49 percent of its shares to the other major healthcare provider in the area.

MCEP filed suit in Ohio federal court against the joint venture parties, alleging a per se antitrust violation. The court denied the joint venture’s motion for summary judgment and set the case for trial. In a development that was to greatly benefit the joint venture, the judge recused himself and the case was reassigned. Before the new judge, the joint venture renewed its summary judgment motion, which this judge granted, finding that MCEP failed to establish per se violations (Per se claims against hospital joint venture dismissed, August 10, 2017). The judge also refused to allow MCEP to pursue related antitrust claims involving separate restraint-of-trade arrangements between the joint venture and doctors and the joint venture and insurers and other payers on the ground that such claims were not timely filed. MCEP appealed the decision to the Sixth Circuit.

Per se claim. A per se claim, the Sixth Circuit said, is the trump card of antitrust law because, once the plaintiff establishes that the conduct was so obviously anticompetitive that it had no plausibly procompetitive features, the plaintiff avoids the "arduous process" of showing that the challenged conduct was anticompetitive. In a joint venture situation, the court said, where the conduct is challenged (rather than challenging the joint venture itself), a per se analysis asks whether a naked restraint lurks beneath the veneer of a legitimate joint venture. The Supreme Court distinguished among three categories of restraints: (1) restraints that are core to the joint venture, (2) restraints that are ancillary, and (3) restraints that are unrelated to the joint venture’s purpose. Only if the restraint falls into the third category—unrelated to the purpose—will a per se violation be found (Texaco Inc. v. Dagher, 547 U.S. 1, 708 (2206)).

The court concluded that the panel limitations and other conduct that MCEP alleged constituted restraint of trade qualified as ancillary restraints of trade. The joint operating agreement for the joint venture established six goals, such as improving cost effectiveness in the delivery of health care services. Do these constitute procompetitive effects? The court first looked specifically at the panel limitations. Panel limitations, by lowering the cost of the venture’s services, contribute to the cost effectiveness of delivering healthcare services. The court then looked at other factors, such as a non-compete agreement with MCEP-affiliated doctors. This involved refusing to rent office space to MCEP-affiliated doctors at a Premier-associated hospital. But that was really nothing more than good business sense. Why rent space to a doctor who is going to refer patients away from the Premier-associated hospital? Whatever it was, it was not evidence of per se restraint of trade. The court concluded, therefore, that the joint venture contained obviously procompetitive aspects. As a result, the Sixth Circuit concluded that the lower court was correct when it concluded that MCEP failed to establish per se violations.

Other conspiracy claims. MCEP argued that the lower court erred in refusing to allow it to pursue the conspiracy claims involving arrangements between the joint venture and doctors and payers. It also argued that its claims were not new, that they were claims related to additional evidence found through discovery that supported a single larger conspiracy theory. The Sixth Circuit, however, disagreed, noting that nothing in the amended complaint referenced any conspiracy other than the one among the joint venture partners. The lower court had found that the joint venture would be "severely prejudiced" if MCEP were to be allowed to amend its complaint at this late date. The Sixth Circuit concluded that this conclusion was not an abuse of discretion. An amendment would trigger a new round of discovery that would cause a significant delay in the proceedings, which began in 2012. As a result, the lower court’s ruling was affirmed.

Dissent. Another judge agreed with the ruling that no per se violation occurred, but she dissented on the determination that MCEP should not be allowed to amend its complaint. She would have reversed the lower court and would have allowed those claims to proceed to trial. She accepted the argument that it was part and parcel of an overall conspiracy alleged in the complaint. Also, given that the joint venture and the doctors conspired to exclude MCEP from the market, the claim should have been tried on the merits and not excluded on a pleading technicality, she said.

The case is No. 17-3863.

Attorneys: Richard Arthur Ripley (Ruyak Cherian LLP) for Medical Center at Elizabeth Place, LLC. Shay Dvoretzky (Jones Day) for Atrium Health System.

Companies: Medical Center at Elizabeth Place, LLC; Atrium Health System

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