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From Antitrust Law Daily, April 14, 2016

West Virginia hospital operators settle U.S. charges of allocating marketing territories

By Jeffrey May, J.D.

The U.S. Department of Justice sued two West Virginia hospital operators today for conspiring to allocate territories for the marketing of competing healthcare services. The hospital operators have agreed to settle the suit under the terms of a proposed final judgment, prohibiting future conduct similar to that alleged by the government (U.S. v. Charleston Area Medical Center, Inc., Case 2:16-cv-03664).

The complaint names Charleston Area Medical Center, Inc. (CAMC), which operates four general acute-care hospitals in the Charleston area and is the largest hospital system in West Virginia. The other party to the alleged territorial allocation agreement is St. Mary’s Medical Center, Inc. St. Mary’s, which operates a general acute-care hospital in Huntington, is currently entangled in proceedings with the FTC over its proposed merger with Cabell Huntington Hospital, Inc. Last November, the FTC issued an administrative complaint, challenging the combination of Cabell and St. Mary’s on the ground that it would establish a dominant firm with near monopoly power in the general acute care inpatient hospital services and outpatient surgical services markets in various counties in West Virginia and Ohio. The matter has been temporarily withdrawn from adjudication in light of recent state legislation that could provide an antitrust immunity defense to the parties. Proceedings in that matter could resume as early as April 25.

Territorial allocation. According to the Justice Department's complaint, CMAC and St. Mary's entered into a “gentleman’s agreement” under which each firm agreed not to market in the other firm's home territory. CAMC allegedly agreed not to place print or outdoor advertisements in Cabell County—where St. Mary’s is headquartered—and St. Mary’s agreed not to place print or outdoor advertisements in Kanawha County—where CAMC is headquartered.

The complaint cites deposition testimony and e-mails of company executives that suggest the agreement existed. The conduct has allegedly been taking place since 2012. The government contends that the agreement is a naked restraint of trade that is per se unlawful under Section 1 of the Sherman Act.

Proposed consent decree. Under the terms of the proposed final judgment, which requires the approval of the federal district court in Charleston, Virginia, CAMC and St. Mary’s would be prohibited from agreeing with other healthcare providers, including hospitals and physicians, to limit marketing or to divide any geographic market or territory. The proposed final judgment also would prohibit communications between the defendants about their marketing activities, subject to limited exceptions. The hospital operators also have agreed to implement compliance measures.

Attorneys: Kathleen Kiernan for U.S. Department of Justice Antitrust Division. Robert W. McCann (Drinker Biddle & Reath LLP) for Charleston Area Medical Center, Inc. David Simon (Foley & Lardner LLP) for St. Mary’s Medical Center, Inc.

Companies: Charleston Area Medical Center, Inc.; St. Mary’s Medical Center, Inc.; Cabell Huntington Hospital, Inc.

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