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From Antitrust Law Daily, October 4, 2016

Hospital’s exclusive contracts with insurers did not unreasonably restrain trade

By E. Darius Sturmer, J.D.

The largest hospital in Peoria, Illinois, did not violate federal antitrust law by entering into contracts with major commercial health insurance companies that required those insurers to exclude its principal competitor from their provider networks, the federal district court in Peoria has ruled. The exclusive contracts’ alleged foreclosure of the complaining hospital from competing in the lucrative market for commercially insured patients’ business did not amount to an unreasonable restraint of trade or the unlawful acquisition of a monopoly, the court held. The defending hospital, St. Francis Medical Center, was therefore granted summary judgment on all claims of rival Methodist Health Services (Methodist Health Services Corp. v. OSF Healthcare System, September 30, 2016, Darrow, S.).

Market foreclosure. Addressing the meaning of foreclosure from competition, the court rejected Methodist’s assertion that if a contract excluded it from a provider network "then it [had] been foreclosed from competing for all the patients covered by the plan, full stop." The undisputed facts of the case suggested that there were several layers of competition between the hospitals and payers, and market dynamics at each level impacted the ultimate inquiry of whether a provider was foreclosed from competing from a commercially insured patient’s business.

Whether Methodist was foreclosed, the court reasoned, had to be analyzed at each level in the distribution chain—its ability to compete to be included in a payer’s network, the ability of end users to choose among plans that feature each hospital, and also the hospitals’ ability to reach retail customers notwithstanding out-of-network status. And even if there was a dispute whether Methodist could have competed for a particular contract, there remained an additional question of whether it was foreclosed from accessing patients at intermediate and retail levels.

Peoria inpatient market. The court’s assessment of the alleged foreclosures relevant to the case shrank Methodist’s foreclosure calculations for inpatient services considerably—from 54 percent to less than 20 percent for one year, and from 52 to 22 for another—by excluding patients actually treated at Methodist, those covered by the largest insurer in the market, and those covered by the private plan of the largest employer in the area. Taken in conjunction with the short duration of the contracts at issue in the litigation and several alternative means by which Methodist could have reached commercial patients, it was plain that none of the foreclosure calculations could support a jury’s conclusion that Methodist was substantially foreclosed from the inpatient market as a matter of law.

Outpatient surgical services market. Methodist’s contentions of foreclosure from the outpatient surgical services market were even weaker, and thus also inadequate, the court concluded. Methodist offered no evidence of the level of foreclosure in the outpatient market, the court noted. To contend that the level of foreclosure was the same for outpatient surgery as for inpatient surgery was simply too speculative, especially given that the case was replete with documentary evidence from which it could have performed a calculation of the relevant services. Methodist could not establish actionable foreclosure from the outpatient market by relying entirely on the same foreclosure calculations that had already been found insufficient to support a Sherman Act claim with respect to the inpatient market, the court added.

The case is No. 1:13-cv-01054-SLD-JEH.

Attorneys: Amy Leigh Starinieri (McGuireWoods LLP) for Methodist Health Services Corp. Alexander L. Harris (Pepper Hamilton LLP) and Anand C. Mathew (Schopf & Weiss LLP) for OSF Healthcare System.

Companies: Methodist Health Services Corp.; OSF Healthcare System

MainStory: TopStory Antitrust IllinoisNews

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