United States: No Resuscitation Of Hospital's Exclusive Dealing Antitrust Suit Against Competing Hospitals And Physicians

Last Updated: September 23 2016
Article by Bruce D. Sokler and Farrah Short

The Third Circuit reminds, "[i]n antitrust suits, definitions matter." Last week, in applying that maxim, the court affirmed a lower court's dismissal of a suit filed by a hospital against a competing hospital and physician group, in which the plaintiff hospital alleged that defendants engaged in an illegal exclusive dealing arrangement by referring patients to a third hospital rather than to the plaintiff hospital. In its decision, the Third Circuit clarified an antitrust plaintiff's burden when alleging a Sherman Act Section 1 claim with no allegation of market power, holding that anticompetitive effects must then be shown on the relevant market as a whole, not only on a small subset of the market. Deborah Heart & Lung Center v. Virtua Health, Inc., Case No. 15-2032 (3rd Cir. Aug. 17, 2016).  

Background

Deborah Heart and Lung Center ("Deborah") is a charity hospital in New Jersey that, among other services, is licensed to perform advanced cardiac interventional procedures ("ACIs"). Virtua Memorial Hospital ("Virtua") competes with Deborah in the market for medical services, but during the relevant time period was not licensed to perform ACIs. The Cardiology Group PA ("CGPA") was a group of 12 cardiologists, none of whom were initially licensed to perform ACIs. From 1992 until 2005, CGPA referred many of its patients in need of ACIs to Deborah through physician leases. In 2005, the relationship between Deborah and CGPA began to unravel, and CGPA entered into an exclusive agreement to provide all necessary cardiology services to Virtua. CGPA then terminated the physician leases with Deborah, and in 2007 entered into new ones with doctors at Penn Presbyterian Hospital ("Penn") in Philadelphia.

Prior to 2007, approximately 85% of CGPA's ACI transfers went to Deborah. After 2007, it fell to approximately 30%. Deborah alleged that the goal of the new physician leases between CGPA and Penn was to drive Deborah out of business. Deborah further asserted that the arrangement constituted an illegal restraint on trade that resulted in harm to competition because it forced some consumers to obtain ACIs at Penn when they might otherwise have chosen Deborah.

Third Circuit's Decision

The Third Circuit identified four elements that an antitrust plaintiff must prove: (1) concerted action, (2) anticompetitive effects in the relevant market, (3) that the concerted action was illegal, and (4) that the concerted action was the proximate cause of plaintiff's injury. The district court held that Deborah failed to present sufficient evidence to raise a genuine issue of material fact as to the second element. The Third Circuit agreed.

To proceed to trial with its allegation of an illegal exclusive dealing by CGPA and Virtua with Penn, the Third Circuit held that Deborah needed to present sufficient evidence of anticompetitive effects in the relevant market. Anticompetitive effects can be shown by demonstrating actual anticompetitive effects (such as increased price, reduced output, or deteriorated quality of goods or services), or by establishing defendants' market power (the ability to raise prices above what would prevail in a competitive market).

There were two, uncontested, relevant markets at issue: A relevant market for emergency ACIs that covered three New Jersey counties, and a relevant market for non-emergency ACIs that covered those same counties plus two more in New Jersey and part of Philadelphia. At the summary judgment hearing, Deborah's counsel explicitly stated that they agreed with those market definitions. Within those market definitions, Deborah was unable to argue market power; the relevant market included multiple hospitals and hundreds of cardiologists, with CGPA representing less than 8% of cardiologists for emergency ACIs and less than 5% for non-emergency ACIs.

Thus, instead of market power, Deborah's only option to demonstrate anticompetitive effects was to show actual anticompetitive effects. Here, the market definitions agreed to by Deborah determined the outcome of the case in favor of defendants. In its argument for actual anticompetitive effects, Deborah focused only on CGPA's patients and Virtua's emergency patients, ignoring all other patients in the 3- and 5-county relevant markets. The Third Circuit reasoned that, even if there were anticompetitive effects for the subset of patients focused on by Deborah, "such a showing is insufficient to demonstrate the type of anticompetitive effects on the overall market necessary to prove a Section 1 claim" (emphasis added). The court also found that a "significant minority" of CGPA patients continued to be treated at Deborah even after the allegedly anticompetitive arrangement. As the Third Circuit concluded, "Deborah staked its ground for the instant dispute and its failure to occupy enough of that ground is fatal to its claims."

Conclusion

In the health care field, policy makers and antitrust enforcers have been supportive, in the absence of market power, of exclusive, limited, and tiered networks as mechanisms to restrain health care expenditures. Sometimes, the courts have taken different views of such initiatives, as evidenced by the checkered history of the FTC's challenges to hospital mergers. Here, the Third Circuit's decision is another strong precedent, similar, for example, to the result in Stop & Shop Supermarket Co. v. Blue Cross & Blue Shield of R.I., 373 F.3d 57 (1st Cir. 2004). In Stop & Shop, plaintiffs had argued that Blue Cross's creation of a closed pharmacy network was a per se violation of the antitrust laws. The First Circuit upheld the district court's directed verdict for defendants, finding that the closed network was an exclusive dealing arrangement entitled to a rule of reason analysis, and that plaintiffs had not met their burden to establish the relevant product and geographic markets. Cases along these lines continue to raise the bar for plaintiffs attempting to challenge tiered or otherwise restricted networks as illegal exclusive dealings where the relevant market is likely to be broad, and consequently establishing anticompetitive harm in those markets as a whole is challenging.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Bruce D. Sokler
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions