- District Court Weighs in on Level of Integration Required to Shield Health Care Collaborations from Section 1 Scrutiny
- December 1, 2014 | Authors: Helen Cho Eckert; David R. Garcia
- Law Firms: Sheppard, Mullin, Richter & Hampton LLP - Los Angeles Office ; Sheppard, Mullin, Richter & Hampton LLP - Los Angeles Office
- In Medical Center at Elizabeth Place v. Premier Health Partners et. al, Case No. 12-cv-26 (S.D. Oh. Oct. 20, 2014), the Southern District of Ohio held that previously-competing health care systems who join together in a revenue-sharing arrangement are incapable of conspiring with each other under Section 1 of the Sherman Act. This is the latest decision to weigh in on the level of integration required among legally separate entities to be deemed a single economic actor for antitrust purposes, and particularly significant given the rapidly increasing number of collaborations within the health care industry following passage of the Affordable Care Act.
Plaintiff Medical Center, a physician-owned hospital in Dayton, brought suit against Premier Health and its four corporate members (all acute-care hospital systems serving the Dayton area). In a single cause of action under Section 1, plaintiff alleged that defendants engaged in an unlawful horizontal conspiracy to eliminate competition in the market for general inpatient medical and surgical services.
According to plaintiff, two of the hospital defendants initially agreed to a Joint Operating Agreement (JOA) - as opposed to a formal merger - specifically to avoid antitrust scrutiny by the Federal Trade Commission, particularly given the relatively high aggregated market shares of the JOA members. As alleged by plaintiff, upon creating Premier Health through the JOA and recruiting the remaining members hospitals, the defendants yielded enough collective power to make them a "must have" partner for Dayton’s managed care plan providers, and began conspiring to eliminate competition from plaintiff and other specialty hospitals. Plaintiff alleged for example that Premier Health (on behalf of its member hospitals) coerced plan providers into withholding from plaintiff full access to their networks, threatened physicians who affiliated with plaintiff, offered financial incentives to physicians who agreed not to work with or at plaintiff, and coerced plan providers into reimbursing plaintiff at rates below those of the hospital defendants.
The district court, however, granted summary judgment for defendants, holding that for purposes of the challenged conduct, defendants constituted a single entity under Copperweld and Dagher. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (a parent and its wholly-owned subsidiary are incapable of conspiring under Section 1); Texaco Inc. v. Dagher, 547 U.S. 1 (2006) (extending Copperweld doctrine to joint ventures). The court held that despite the fact that the member hospitals previously competed with one another and the JOA did not create any shared ownership of assets among its members, they ceased to be separate economic actors once they contractually agreed to share in risks and profits by combining all of their income into a single bottom line. They also integrated by empowering Premier Health to negotiate and enter into payor contracts binding all member hospitals, develop business plans and budgets for all member hospitals, and assess shared costs for implementing new technologies and programs.
The court rejected plaintiff’s proffers of evidence of separateness and continued competition between the member hospitals, finding that none created a disputed issue of material fact as to defendants’ status as a single economic actor. Namely, plaintiff’s evidence included various statements by hospital executives that the hospitals competed with one another for patients, statements of separateness made in public financial disclosures, and at least once instance where each member hospital contracted separately with a major payor.