• West Penn Allegheny Health System Inc. v. UPMC No. 09-4468 (3d Cir. Nov. 29, 2010)
  • February 17, 2011
  • Law Firm: Crowell Moring LLP - Washington Office
  • The plaintiff, West Penn Allegheny Health System (Allegheny), the second largest hospital system in the Pittsburgh area, sued the dominant hospital system (UPMC) and the dominant health insurer (Highmark) for conspiring to "protect one another from competition."  Allegheny alleged that UPMC agreed to use its power in the provider market to insulate Highmark from competition in the health insurance market by refusing to contract with Highmark's rivals and by gutting a competing insurance company UPMC had established.  In return, Highmark allegedly agreed to protect UPMC from competition by providing artificially depressed reimbursement rates to Alleghany while paying UPMC supracompetitive rates, by removing its "low-cost" insurance plan from the market, and by engaging in other acts to harm Allegheny.  Allegheny also alleged that Highmark increased its premiums to afford the higher rates paid to UPMC, which it was able to do because UPMC had insulated it from competition.  Finally, Allegheny alleged that UPMC attempted to monopolize the Pittsburgh-area market for specialized hospital services by soliciting physicians away from Alleghany, pressuring community hospitals to refer all patients to UPMC, and making defamatory statements about Alleghany. 

    The district court dismissed the complaint, holding that Allegheny: (1) failed to allege a "conspiracy"; (2) had not suffered an "antitrust injury" caused by the conspiracy; and (3) had failed to show UPMC engaged in "anticompetitive conduct" necessary to support an attempted monopolization claim.

    On appeal, the Third Circuit reversed, criticizing the district court for apparently imposing a heightened pleading requirement due to the complexity of the case.  With respect to the conspiracy claims, the Third Circuit held that the complaint contained sufficient allegations to establish a conspiracy that caused anticompetitive effects in the market.  The court found that Highmark did not cause an antitrust injury when it removed the low cost insurance plan from the market, explaining that a "supplier" such as Allegheny cannot suffer an antitrust injury "when competition is reduced in the downstream market [i.e., the insurance market] in which it sells goods or services."  Similarly, the court held that Highmark's refusal to refinance a loan it had made to Allegheny did not cause an antitrust injury.  The Third Circuit concluded, however, that Highmark's alleged payment of artificially depressed reimbursement rates pursuant to the conspiracy did cause an antitrust injury because, even if this resulted in lower premiums to subscribers (which it did not), it might still have caused other anticompetitive effects such as "suboptimal output, reduced quality, allocative inefficiencies, and (given the reductions in output) higher prices for consumers in the long run."

    Finally, the court held that UPMC's conduct - engaging in a conspiracy to drive Allegheny out of business, hiring away employees to injure Allegheny, pressuring other hospitals to refer patients exclusively to UPMC, and making false statements - at least when viewed as a whole, plausibly suggested UPMC engaged in anticompetitive conduct sufficient to sustain an attempted monopolization claim.  Accordingly, the court reversed dismissal of the complaint.