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From Health Law Daily, August 28, 2013

Failure to define the relevant market results in dismissal of antitrust claims

By Harold M. Bishop, JD

Federal and state antitrust claims brought by Marion HealthCare, LLC (MHC), an outpatient surgery center, against Southern Illinois Healthcare (SIH), the owner of multiple hospitals and outpatient centers, and BlueCross BlueShield of Illinois (BCBSI) have been dismissed due in large part to MHC’s failure to properly define the relevant market (Marion Healthcare LLC v Southern Illinois Healthcare, August 26, 2013, Herndon, D). MHC’s 11 count complaint against SIH and BCBSI alleged violations of federal and state antitrust law, specifically, sections 1 and 2 of the Sherman Act (15 U.S.C. secs. 1 and 2), sections 2 and 3 of the Clayton Act (15 U.S.C. secs. 13 and 14), the Illinois Antitrust Act (740 ILCS 10), and a state law claim of tortious interference with a business expectancy.

MHC’s complaint alleged that SIH and BCBSI substantially suppressed competition for outpatient surgical services in a defined relevant market in southern Illinois through exclusionary agreements, exclusive dealing, price discrimination, monopolization, and other conduct. MHC’s asked for damages and to enjoin defendants from entering into, maintaining, or enforcing contracts that prevent BCBSI from contracting with SIH’s competitors.

The parties. MHC is a multi-specialty freestanding outpatient surgery center which offers outpatient surgical services. MHC opened for business in 2004, and is located in the relevant geographic area in southern Illinois.

SIH is a nonprofit corporation that owns various acute-care hospitals which provide inpatient and outpatient medical services. In addition, SIH owns freestanding outpatient surgical service providers. MHC claims there are four hospitals within the defined geographic area that provide outpatient surgical services, three of which are owned by SIH. There are also five freestanding providers of outpatient surgical services within the relevant geographic market, including MHC, two providers fully or partially owned by SIH, and two others which provide a narrow scope of specialized services and do not compete with MHC.

BCBSI is alleged to be the largest health insurance company in Illinois, and the dominant health insurer in the defined geographic market.

Relevant market. In the relevant geographic market, SIH has approximately a 77 percent share of the market for inpatient hospital services sold to commercial insurers, and a more than an 85.3 percent share of the market for outpatient services sold to commercial insurers. Commercial health insurers include managed-care organizations, rental networks, and self-funded plans. MHC excluded government payers, such as Medicare, Medicaid, and TRICARE from its definition of the relevant market.

MHC claimed that on at least three occasions, it submitted an application to BCBSI for acceptance as a network provider with BCBSI, but was denied each time. In 2011, a BCBSI representative informed MHC that BCBSI had an exclusive contract with SIH which precluded or prohibited BCBSI from contracting with MHC. It is this exclusive agreement between SIH and BCBSI that forms the basis of MHC’s claims.

Clayton Act claims. Both SIH and BCBSI sought dismissal of MHC’s claims under the Clayton Act based upon their assertion that sections 2 and 3 of the Clayton Act (15 U.S.C. secs. 13, 14) apply only to goods and not to services. MHC asserted that it has specifically described the essential role of certain goods that are required to perform medical services, such as, intravenous medications for anesthesia and preoperative and postoperative pain management, fixation devices for orthopedic surgery, and ablation kits for gynecological surgery.

According to the district court, however, the goods involved are mere incidentals to the contract for services, and therefore, fall outside the scope of the Clayton Act. The dominant nature of the transaction at issue is services, and MHC’s characterization of the essential role of the goods involved is insufficient to invoke the Clayton Act. The court found that any further amendment of these claims would be futile and thereby dismissed with prejudice the MHC claims brought pursuant to the Clayton Act.

Sherman Act (exclusive dealing claims). BCBSI contended in its motion to dismiss that the vertical exclusive dealing arrangements, by which BCBSI secured lower prices on inpatient hospital and outpatient surgical services subject to the condition that BCBSI would purchase outpatient services only from SIH, are not presumptively illegal. BCBSI, however, asserted that these exclusive dealing claims must be dismissed because MHC has failed to plead a relevant market or substantial foreclosure of that market. BCBSI asserted that the markets defined by MHC are deficient because they are limited to inpatient hospital and outpatient surgical services paid for by commercial insurers and, therefore, exclude government payers (Medicare and Medicaid) to whom MHC can and does sell its services.

The court agreed with BCBSI and found that the relevant markets as defined by MHC are not plausible as stated. The court found that MHC failed to include in the relevant markets all potential buyers of inpatient or outpatient services, such as Medicare and Medicaid. As such, MHC’s exclusive dealing claims were dismissed without prejudice and MHC was granted leave to amend its claims.

Sherman Act (tying claims). Tying arrangements involve an agreement to sell one product only on the condition that the purchaser buy a second product. In addition, illegal tying claims, just like exclusive dealing claims, require an adequate relevant market definition. In light of the court’s ruling on the lack of a relevant market for the exclusive dealing claims, the court did not need to consider whether MHC had adequately plead tying claims against SIH because SIH’s market power in the relevant market could not be analyzed until the relevant market was properly defined. As such, the court likewise dismissed MHC’s tying claims against SIH without prejudice in order to allow amendment so that they may comply with the court’s relevant market ruling.

The tying claim against BCBSI, however, was dismissed with prejudice. According to the court, MHC has not alleged and cannot allege that BCBSI has market power in the tying or tied product, which are hospital services. The fact that MHC delineated its markets as services paid for by commercial insurers, still did not give BCBSI market power in the services at issue because BCBSI is not a seller of inpatient or outpatient services.

Sherman Act (monopolization claims). For reasons similar to those in the court’s ruling on the tying claim against BCBSI, MHC’s monopolization claim against BCBSI was also dismissed with prejudice as a health insurance provider cannot monopolize or attempt to monopolize the hospital services industry because the health insurance provider does not compete in that market by actually providing those services.

Once again, in light of the court’s ruling on the relevant market aspect of MHC’s other Sherman Act claims, the court did not need to consider whether MHC adequately plead that SIH acquired or maintained its alleged monopoly position unlawfully. The court found that to analyze MHC’s monopoly claim, it must first determine whether SIH has monopoly power in the relevant market, which it could not determine until MHC adequately pleads a relevant market. As such, MHC’s monopoly claim based against SIH was dismissed without prejudice.

Illinois antitrust claims. Because the provisions of the Illinois antitrust law are substantially similar to federal law, and the Illinois courts use federal law in construing the Illinois antitrust law, the court’s rulings on the Illinois antitrust counts mirrored the federal counts.

Tortious interference with business expectancy. In order to maintain a cause of action for tortious interference with a contract or prospective contractual relationship in Illinois, the tortfeasor must be a third party to the contractual relationship. According to the court, any in-network physician or patient covered by BCBSI has an existing contractual relationship with BCBSI. As such, BCBSI could not be a non-party to the business expectancy relationships alleged by MHC. The court found that any amendment to the complaint would contradict the allegations already set forth, and would be futile. As such, the court dismissed MHC’s claim against BCBSI for tortious interference with business expectancy with prejudice.

The case number is 12-CV-00871-DRH-PMF.

Attorneys: Thomas J. Pliura (Law Offices of Thomas J. Pliura) for Marion HealthCare, LLC. David Marx , Jr. (McDermott, Will et al.) for Southern Illinois Healthcare. Helen E. Witt (Kirkland & Ellis LLP) for Health Care Service Corporation d/b/a BlueCross and BlueShield of Illinois.

Companies: Marion HealthCare, LLC; Southern Illinois Healthcare; Health Care Service Corporation d/b/a BlueCross and BlueShield of Illinois.

MainStory: TopStory CaseDecisions AntitrustNews IPPSNews OPPSNews IllinoisNews

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