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From Antitrust Law Daily, August 27, 2013

Federal and Illinois antitrust claims over exclusive agreement between hospital company and insurance provider fail

By Tobias J. Gillett, J.D., LL.M.

An Illinois outpatient surgery center failed to state federal and Illinois antitrust claims against a hospital services provider and an insurance company over an alleged agreement preventing the insurance company from contracting with other providers for outpatient services, the federal district court in East Saint Louis, Illinois has ruled (Marion Healthcare LLC v. Southern Illinois Healthcare, August 26, 2013, Herndon, D.).

Marion Healthcare LLC (MHC) is a multi-specialty freestanding outpatient surgery center offering outpatient surgical services in Williamson County and Jackson County, Illinois, and surrounding areas, defined by MHC as the relevant geographic market. Southern Illinois Healthcare (SIH) owns various hospitals and surgical centers, including three of the four hospitals and two of the five outpatient surgical services providers in the geographic market. The remaining three surgical providers consist of MHC and two providers of specialized services that do not compete with MHC.

MHC’s complaint defined two relevant product markets, defined as (1) “the sale of general acute-care inpatient hospital services, including pediatric services and neonatal care services to commercial health insurers,” of which SIH allegedly possessed 77 percent, and (2) “the sale of outpatient surgical services to commercial health insurers,” of which SIH allegedly possessed more than 85.3 percent. MHC claimed that SIH used its dominant position in the relevant markets to coerce Health Care Service Corporation, doing business as BlueCross and BlueShield of Illinois (BCBSI), into entering agreements that prohibited BCBSI, the dominant insurer in the geographic market, from contracting with MHC and other competitors to SIH for healthcare services as an “in-network provider.”

MHC further alleged that SIH took advantage of its monopoly power in the relevant markets to raise its prices, and that it sought to assert control over patient referrals by controlling or acquiring independent providers in the area. MHC also alleged that the agreement between SIH and BCBSI substantially foreclosed MHC and other competitors from commercial health insurance contracts for outpatient services in the relevant geographic area due to SIH’s monopoly power and BCBSI’s market power, preventing the competitors from effectively competing. Moreover, patients covered by government plans like Medicare were allegedly not adequate substitutes for commercially insured patients, because government plans paid providers significantly less than private insurers.

MHC asserted claims for exclusive dealing in violation of Section 1 of the Sherman Act and the Illinois Antitrust Act against SIH and BCBSI, illegal tying in violation of Section 1 of the Sherman Act and the Clayton Act against SIH and BCBSI, monopolization in violation of Section 2 of the Sherman Act against SIH, price discrimination in violation of Section 2 of the Clayton Act against BCBSI, and tortious interference with a business expectancy against BCBSI. SIH and BCBSI filed motions to dismiss.

Clayton Act claims. The court found that to the extent MHC sought to bring its exclusive dealing, tying, and price discrimination claims pursuant to Section 2 and 3 of the Clayton Act, its claims were barred because those provisions do not apply to the sale of services. The court noted that the Seventh Circuit had adopted the “dominant nature” analysis, under which “the dominant nature of the transaction governs whether the activity is subject to the Act.”

Here, MHC had “itself designate[d] the relevant markets as the sale of inpatient and outpatient services.” Although MHC had included goods, such as “prescription medications delivered intravenously” and “various fixation devices,” on the ground that some of them were utilized and billed for separately, the court observed that the Seventh Circuit had stated that “medical services are not commodities.” Moreover, the court concluded that it could decide the issue of whether the goods alleged were “incidental” to the transaction on a motion to dismiss, and that it was “clear, in this case, that the goods involved, are mere incidentals to the contract for services.” The court therefore dismissed MHC’s Clayton Act Section 2 and 3 claims with prejudice.

Sherman Act exclusive dealing. The court also concluded that MHC failed to adequately plead its exclusive dealing claims under Section 1 of the Sherman Act because MHC “failed to include all potential buyers of inpatient or outpatient services” in its relevant markets. The court found the Eighth Circuit’s 2009 decision in Little Rock Cardiology Clinic PA v. Baptist Health, 591 F.3d 591, 09-2 Trade Cases ¶76,849, in which the appellate court addressed a similar market definition that distinguished between government and private insurers and found that “a product market cannot be limited to a single method of payment when there are other methods of payment that are acceptable to the seller,” to be “persuasive.” In the present case, “although [MHC] ha[d] alleged that government payers pay less than commercial insurers, and that the government reimbursement amounts are not negotiable, [MHC] ha[d] not adequately alleged that Medicare or Medicaid patients are not significant sources of input to it as a supplier of outpatient services.” Therefore, the court dismissed MHC’s claims without prejudice to repleading them.

Tying claims. The court also dismissed without prejudice MHC’s tying claims against SIH for failure to adequately allege SHI’s market power in the relevant market.

However, the court dismissed with prejudice MHC’s tying claims against BCBSI for failure to show that BCBSI had market power in the market for the tying product. The court observed that a plaintiff asserting a tying claim “must prove that the defendant has market power in the tying product.” Here, MHC did not, and could not, allege that BCBSI had market power in the market for the tying product (inpatient hospital services) or tied product (outpatient surgical services) because BCBSI did not even offer those services. “The allegation that BCBSI has market power in the health insurance market [was] irrelevant,” according to the court.

Moreover, to the extent that MHC sought to assert a monopolization claim against BCBSI in the same count, that claim was also dismissed with prejudice because “a health insurance provider cannot, as a matter of law, monopolize or attempt to monopolize the hospital services industry because the health insurance provider has never and does not now compete in that market.”

Monopolization claim. The court dismissed without prejudice MHC’s monopolization claim against SIH for failure to adequately plead a relevant market.

Illinois claims. The court observed that “federal courts (and Illinois state courts) use federal law in construing provisions of the Illinois Antitrust Law that are substantially similar to federal law,” and that MHC did not “dispute that the provisions of the Illinois Antitrust law at issue in this case are substantially similar to the relevant federal law.” Therefore, the court dismissed with prejudice those Illinois claims “to the extent that each is based upon the portion of Illinois law that is substantially similar to the Clayton Act,” and dismissed without prejudice those claims that were “based upon the portion of Illinois law that is substantially similar to the Sherman Act.” The court also dismissed with prejudice MHC’s Illinois tying claim against BCBSI, “in accordance with the court’s ruling on the federal claim.”

The court also dismissed with prejudice MHC’s claim for tortious interference with a business expectancy against BCBSI, because “[i]n order to maintain a cause of action for tortious interference with a contract or prospective contractual relationship, the tortfeasor must be a third party to the contractual relationship,” and BCBSI was not a third party to the business expectancy relationships alleged by MHC.

The case is No. 12-CV-00781-DRH-PMF.

Attorneys: Thomas J. Pliura (Law Offices of Thomas J. Pliura) for Marion HealthCare, LLC. David Marx, Jr. (McDermott, Will & Emery LLP) for Southern Illinois Healthcare. Helen E. Witt (Kirkland & Ellis LLP) for Health Care Service Corp.

Companies: Marion Healthcare LLC; Southern Illinois Healthcare; Health Care Service Corp.

MainStory: TopStory Antitrust IllinoisNews

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