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From Antitrust Law Daily, February 20, 2014

Hospital operator can proceed with monopoly claims based on Blue Cross efforts to block acquisition

By Jeffrey May, J.D.

Hospital operator Steward Health Care System adequately alleged that Blue Cross & Blue Shield of Rhode Island engaged in monopolization or attempted monopolization when it successfully blocked Steward’s acquisition of a general acute care community hospital located in Woonsocket, Rhode Island, the federal district court in Providence has ruled. Blue Cross’s motion to dismiss was denied (Steward Health Care System LLC v. Blue Cross & Blue Shield of Rhode Island, February 19, 2014, Smith, W.).

According to Steward, Blue Cross engaged in a series of anticompetitive steps designed to block Steward’s acquisition of Landmark Medical Center and undermine the Massachusetts-based company’s attempt to enter the Rhode Island markets for the sale of commercial health insurance and the purchase of commercial hospital services. In Massachusetts, Steward purportedly provided lower-cost health care services through community hospitals, and partnered with certain health insurance companies to offer limited-network insurance products.

Following Steward’s attempts to acquire Landmark, Blue Cross applied with the state health department to remove Landmark from its provider network. In addition, Blue Cross sent letters to its subscribers and doctors informing them that Landmark was likely to be removed from its network. These letters allegedly led to a decline in the number of patients seeking treatment at Landmark and a resulting decline in revenues. Blue Cross also stopped making reimbursement payments to Landmark, further undermining Landmark’s financial viability, it was alleged. Blue Cross also notified Steward that it would not renew its contracts with a Steward-owned facility in Fall River, Massachusetts, on the Rhode Island border. Because Steward was unable to negotiate a deal with Blue Cross for reimbursement rates at Landmark, Steward in September 2012 terminated its effort to acquire Landmark. It filed an antitrust complaint against Blue Cross in June 2013.

Blue Cross contended that it acted legally when it refused to accept the reimbursement rates at Landmark that Steward was offering, and otherwise operated within its rights in order to promote its business interests. Blue Cross claimed that it was entitled to dismissal of the claims because: (1) Blue Cross, even as a monopolist, had no duty to deal with Steward; (2) Steward lacked standing to bring antitrust claims; (3) Steward failed to allege plausible product and geographic markets; and (4) Blue Cross’ various lobbying activities were immune from antitrust scrutiny under the Noerr-Pennington doctrine.

The court noted that, in the absence of any purpose to create or maintain a monopoly, the Sherman Act does not restrict one’s independent discretion as to parties with whom it will deal. However, that right to refuse to deal was not unlimited.

Steward plausibly alleged a refusal to deal in violation of Section 2 of the Sherman Act based on an abandonment of a voluntary course of dealing. Steward plead facts sufficient to suggest that Blue Cross, in an effort to undermine the Landmark acquisition and Steward’s entry into the Rhode Island market, unilaterally sought to terminate prior courses of dealing, and that these terminations were contrary to Blue Cross’ short-term financial interests. Blue Cross allegedly refused to purchase similar services from Steward than it purchased from other providers, at prices significantly below what Blue Cross was willing to pay to those other providers, it was noted.

Standing

The Court rejected Blue Cross’s three bases for dismissing Steward’s claims for lack of standing: (1) Steward’s alleged injury—loss of negotiating leverage—was not cognizable under antitrust law; (2) Steward’s alleged damages were too remote and too speculative to state a valid claim in that they presume the successful acquisition of Landmark, followed by the successful statewide implementation of Steward’s community hospital care model; and (3) Steward was a “presumptively disfavored” antitrust plaintiff because it was neither a competitor nor a consumer in the alleged markets.

For standing purposes, Steward argued that its injury was not the loss of negotiating leverage, but rather the millions of dollars invested in the Landmark acquisition prior to its abandonment, and the lost profits that would have resulted from entry into the Rhode Island market. This was sufficient to state a cognizable antitrust injury, in the court’s view. With respect to remoteness or speculative nature of the damages, the court refused to dismiss on these grounds at the initial pleading stage. Even if Steward was a presumptively disfavored plaintiff, as Blue Cross asserted, there was no other party with the incentive or ability to bring claims alleging that Steward was unlawfully excluded from the Rhode Island market.

Relevant market

At the motion to dismiss stage, Steward alleged a valid relevant market, in the court’s view. Blue Cross took issue with the product market limited to the purchase of commercial hospital services on the ground that it ignored the presence of Medicare and Medicaid, both major governmental buyers of hospital services. Blue Cross suggested that the alleged product market did not encompass all interchangeable substitute products.

Steward alleged that it was excluded from the product market for the commercial purchase of hospital services. Thus, it would be appropriate to exclude Medicare and Medicaid purchases because the private purchaser was never competing to purchase those services in the first place. The court also rejected the challenge to the geographic market limited to Rhode Island, even though the complaint admitted that people crossed state lines to obtain medical services.

Noerr-Pennington doctrine

The court denied a request to strike from the complaint allegations concerning Blue Cross’s petitioning activity in opposition to the Landmark acquisition. Blue Cross contended that they should be stricken on the ground that the activity was immune from antitrust attack under the Noerr-Pennington doctrine. The various petitioning activities undertaken by Blue Cross did not form the basis of Steward’s claim, but rather were introduced to show Blue Cross’ anticompetitive intent. A plaintiff may properly include evidence of immune lobbying activity in its antitrust allegations insofar as that evidence serves to illustrate the context and motive underlying the alleged anticompetitive conduct, the court explained.

Tortious interference

Lastly, the court ruled that Blue Cross’ motion to dismiss could not be granted with respect to Steward’s tortious interference claims. Determining whether Blue Cross’s actions were justified in order to protect its business interests would require a fact-intensive inquiry, the court noted.

The case is C.A. No. 13-405 S.

Attorneys: Robert C. Corrente (Burns & Levinson LLP) and Brendan V. Sullivan, Jr. (Williams & Connolly LLP) for Steward Health Care System LLC. John A. Tarantino (Adler Pollock & Sheehan P.C.) for Blue Cross & Blue Shield of Rhode Island.

Companies: Steward Health Care System LLC; Blue Cross & Blue Shield of Rhode Island

MainStory: TopStory Antitrust RhodeIslandNews

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