Antitrust Law Daily Wrap Up, ANTITRUST—C.D. Ill.: Exclusive dealing, monopolization claims against hospital system can proceed, (Mar 26, 2015)

By Linda O’Brien, J.D., LL.M.

A Peoria hospital alleged sufficient facts to pursue claims against a large hospital system for engaging in anticompetitive conduct aimed at monopolizing the markets for the sale of general acute-care inpatient hospital services and outpatient surgical services to commercial health insurers in a three-county area in Illinois, the federal district court in Peoria, Illinois has decided (Methodist Health Services Corporation v.OSF Healthcare System, March 25, 2015, Darrow, S.).

OSF Healthcare System, doing business as Saint Francis Medical Center (Saint Francis), is the fourth largest medical center in Illinois and the only provider of certain essential medical services in a three-county area. Because Saint Francis is the largest hospital in the region and provides certain essential medical services, most health insurance companies doing business in the area consider Saint Francis a “must have” participating hospital in their health insurance networks. Methodist Health Services operates an acute care hospital that does not offer several of the essential services Saint Francis provides.

In February 2012, Methodist filed a complaint against Saint Francis, alleging exclusive dealing, monopolization, and attempted monopolization in violation of Sections 1 and 2 of the Sherman Act and the Illinois Antitrust Act. Specifically, Methodist asserted that Saint Francis used its dominant position to monopolize the markets for the sale of general acute-care inpatient hospital services and outpatient surgical services to commercial health insurers in the three-county area by threatening to withdraw from the insurers’ networks. Saint Francis moved for judgment on the pleadings, contending Methodist failed to plead plausible relevant product markets or substantial foreclosure in those markets.

Relevant product markets. The court determined that Methodist plausibly alleged defined product markets. Saint Francis argued that Methodist’s alleged product markets arbitrarily excluded government payers, which buy inpatient hospital and outpatient surgical services like commercial health insurers. In this case, the parties agreed that access to privately-insured patients was critical to a healthcare provider’s long-term sustainability, in light of the comparatively lower prices that providers are required to charge patients covered by government plans for the same services. Moreover, Methodist alleged that government reimbursements do not constrain healthcare providers’ pricing to commercial health insurers. Considering the admissions and allegations, the court could not find as a matter of law that sales of inpatient hospital and outpatient surgical services to commercial health insurers were interchangeable with sales of the same services to government payers.

Substantial foreclosure. Methodist contended that, by entering into exclusive provider agreements with four of the largest commercial health insurance companies in the area, Saint Francis effectively foreclosed Methodist and other competitors from over 60 percent of the fully-insured commercial health insurance market. In rejecting Saint Francis’ argument that Methodist only alleged foreclosure of a subset of patients covered by commercial health insurance plans, the court noted that Methodist will be able to show the extent to which it was foreclosed from the self-funded portion of the commercial health insurance market after discovery. It observed that Saint Francis cited no authority to show that the plaintiff’s claims should be dismissed for failure to allege an exact percentage foreclosure. Thus, Methodist’s allegations were sufficient to survive a motion for judgment on the pleadings, the court concluded.

The case is No. 1:13-cv-01054-SLD-JEH.

Attorneys: Andrew R. Woltman (McGuire Woods LLP) for Methodist Health Services Corp. Alexander L. Harris (Pepper Hamilton LLP) for OSF Healthcare System.

Companies: Methodist Health Services Corp.; OSF Healthcare System

Cases: Antitrust IllinoisNews