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From Antitrust Law Daily, July 18, 2016

Tying, monopolization claims revived against hospital operator

By Greg Hammond, J.D.

In an action alleging that a hospital operator engaged in unlawful tying and monopolization, allegations that described the purported "tying" markets, specifically averred that the hospital operator owned the only inpatient hospital facility in those markets, and specified that the health plans and their members could not obtain alternative sources of inpatient care in those areas, sufficiently detailed a geographic market. The U.S. Court of Appeals in San Francisco consequently reversed and remanded a district court order that dismissed the third amended complaint (Sidibe v. Sutter Health, July 15, 2016, per curiam).

Sutter Health is the owner and operator of various hospitals and other health care service providers in Northern California, and sells inpatient hospital services to commercial health insurance plans. Numerous health plan members alleged that Sutter forced illegal tying arrangements and anti-steering clauses upon the health plans, causing the plan members to pay higher health insurance premiums and other health care charges. The federal district court in San Francisco dismissed the third amended complaint, finding that the plan members failed to allege plausible relevant geographic markets required to state tying and monopolization claims. The plan members appealed.

The alleged relevant geographic markets for the sale of inpatient hospital services are hospital service areas, or HSAs—a collection of specifically-defined zip codes whose residents receive most of their hospitalization in that local area, the plan members alleged. Within the tying HSAs, the plaintiffs claimed that there are no economic substitutes for Sutter’s inpatient hospital services sold to health insurance plans. Specifically, the members asserted that Sutter now owns the only acute care hospitals or offers the only available hospital facilities to health plan members in several Northern California HSAs. They further claimed that because the market for inpatient hospitalizations is local, members residing in an HSA generally do not go outside that HSA to seek inpatient hospital services. Even if an alleged monopolist raised prices, health plans could not feasibly contract with hospital services providers outside the HSA in these tying markets, the members alleged.

The appellate court concluded that the plan members’ geographic market allegations were sufficiently detailed. In particular, the members described the purported tying markets, specifically averred that Sutter owns the only inpatient hospital facility in those markets, and alleged that the health plans and their members could not obtain alternative sources of inpatient care in those areas. The members were not required to allege evidentiary facts about the percentages of patients from inside and outside a particular HSA that use the hospitals in that HSA, according to the court. In addition, the complaint explained that HSAs are areas within which the residents obtain most of their inpatient hospital services. The appellate court concluded that it was not inherently implausible that these residents would be unwilling to seek treatment elsewhere, and that health plans therefore could not purchase hospital services outside of the HSAs.

The case is No. 14-16234.

Attorneys: Azra Zahoor Mehdi (The Mehdi Firm, PC) for Djeneba Sidibe. David Craig Kiernan (Jones Day) for Sutter Health.

Companies: Sutter Health

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