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From Antitrust Law Daily, March 15, 2018

Hospital system unable to get quick win in surgery center’s exclusive dealing, tying suit

By Paul A. Ferrer, J.D.

An independent outpatient surgery center can proceed with its exclusive dealing, tying, and monopolization claims against a large hospital system in southern Illinois, even as to those time periods in which the hospital system did not have written contracts with payors containing exclusionary provisions, a federal district court in East St. Louis, Illinois, has ruled. The surgery center alleged that the hospital system suppressed competition in the relevant market through exclusionary agreements with commercial health insurers. The hospital system moved for partial judgment on the pleadings as those times in which the hospital system did not have express exclusionary contracts with the payors. However, the court denied the motion, finding that there was a disputed fact issue as to whether the exclusionary agreements continued on a constructive or de facto basis during those times (Marion HealthCare, LLC v. Southern Illinois Healthcare, March 14, 2018, Williams, S.).

Exclusionary contracts. Marion HealthCare, LLC is a multi-specialty freestanding outpatient surgery center offering outpatient surgical services to residents of two Illinois counties. Southern Illinois Healthcare is a nonprofit hospital system that owns three hospitals in those two counties. Marion alleges that Southern has roughly a three-quarters share of the relevant geographic market for in- and outpatient services reimbursed by commercial health insurers. Marion further alleges that Southern has maintained monopoly power in the relevant market for outpatient surgical services by entering into exclusionary contracts with commercial health insurers, which effectively prevent those insurers from contracting with other healthcare facilities competing with Southern, including Marion. For example, Marion applied to become a network provider for the largest insurer in the relevant market multiple times over an eight-year period, but was denied each time. Marion alleges that the exclusionary contracts cause patients to pay substantially more for Southern’s outpatient services than they would at an independent outpatient facility like Marion.

Marion alleges that the exclusionary contracts constitute both exclusive dealing contracts and illegal tying arrangements that violate section 1 of the Sherman Act and the Illinois Antitrust Act. Marion also claims that Southern violated section 2 of the Sherman Act by willfully acting to maintain its monopoly power in the market for outpatient surgical services. Marion’s exclusive dealing, tying, and monopolization claims previously survived a motion to dismiss by Southern.

Partial judgment on the pleadings. Although the court allowed Marion’s antitrust claims against Southern to go forward, Southern moved for partial judgment on the pleadings under Federal Rule of Civil Procedure 12(c), arguing that Marion cannot recover on its antitrust claims for certain time periods in which Southern did not have in effect written contracts containing the exclusivity provisions in question. In response, Marion pointed to an expert report, in which the expert opined that Southern’s exclusionary agreements must have continued on a constructive or de facto basis during those times in which there were no written exclusionary agreements in effect, because no rational insurer would have decided not to contract with Marion when that decision resulted in the insurer paying a significantly higher cost for outpatient surgical services. The court decided that it could consider the expert report merely for the purpose of demonstrating that the issues raised by Southern’s motion are disputed issues of fact, without converting the motion into one for summary judgment.

The court also concluded that the kind of implied or unwritten agreement suggested by the expert could give rise to liability under section 1 of the Sherman Act and the Illinois Antitrust Act as an illegal exclusive dealing or tying arrangement, even without an express exclusivity provision. Likewise, illegal monopolization under section 2 of the Sherman Act need not be the product of explicit contractual provisions. Finally, given that the unwritten continuing agreements were adequately pleaded, the opinion of Marion’s expert was enough to create a factual dispute as to whether Southern could be held liable even during those periods in which it did not have written exclusivity agreements with commercial health insurers. Finding issues of fact best left for trial or summary judgment, the court denied Southern’s motion for partial judgment on the pleadings.

The case is No. 3:12-cv-00871-SCW.

Attorneys: Thomas J. Pliura (Law Offices of Thomas J. Pliura) and Richard H. Wolfram (Richard H. Wolfram, Attorney at Law) for Marion Healthcare, LLC. Kaitlin Patricia Sheehan (McDermott Will and Emery) and Russell K. Scott (Greensfelder, Hemker & Gale PC) for Southern Illinois Healthcare. Stacey Gabris Pagonis (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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