Antitrust Law Daily Wrap Up, ANTITRUST—NDCal: Tying, Exclusive Dealing Claims Against Sutter Health Dismissed, (Jun 5, 2013)

By Jeffrey May, J.D.

Sutter Health, Northern California's largest hospital chain and health care services provider, was entitled to dismissal of tying and exclusive dealing claims brought by health care plan purchasers, a magistrate judge in the federal district court in San Francisco has decided. The court, however, granted leave to amend the complaint (Sidibe v. Sutter Health, June 3, 2013, Beeler, L.).

The action was brought by two individuals who were enrolled in health care plans that had contractual relationships with Sutter Health on behalf of a class of similarly situated health care plan purchasers. The plaintiffs alleged that Sutter Health imposed (1) all-or-nothing tying arrangements that required health plans to use Sutter Health providers or affiliated physicians or lose contracted access to any of them and (2) exclusive dealing arrangements between plans and Sutter providers or affiliated entities that required health plans to “actively encourage” patients who used a Sutter Health provider to use other Sutter Health providers. The plaintiffs sought injunctive relief under the Sherman Act and treble damages under the California Cartwright Act.

The court rejected Sutter Health's argument that the plaintiffs lacked antitrust standing to pursue their claims under the Sherman Act. Sutter Health contended that the plaintiffs did not plead sufficient facts to establish their connection with Sutter Health and that they were “indirect purchasers,” because they were not parties to the contracts between Sutter Health and their health plans and because they did not pay money to Sutter Health.

At the pleadings stage, the allegations were sufficient to establish standing for purposes of seeking injunctive relief. The plaintiffs alleged that, as a result of the challenged conduct, they incurred inflated health care expenses in the form of higher premiums, co-payments, and out-of-pocket costs for other services. Without deciding the issue of standing to pursue damages under the Cartwright Act, the court noted that it would likely find standing if the plaintiffs were able to state a claim.

The court ruled that the plaintiffs failed to state tying or exclusive dealing claims. With respect to the tying allegations, there was no requirement that patients could choose only Sutter Health providers, and there were no facts about anticompetitive effect resulting from the alleged tie. The court also concluded that the exclusive dealing allegations did not show substantial foreclosure or a requirement to purchase services only from service providers with an exclusive contract.

In addition, the court questioned the plaintiffs' relevant market—“the provision of health care and related services” in 22 counties in Northern California. Because the allegations about the relevant market did not identify the services that competed with each other or the geographic area where competition took place, they were facially unsustainable.

The case is No. C 12-04854 LB.

Attorneys: Azra Z. Mehdi (The Mehdi Firm) for Djeneba Sidibe. Lin W. Kahn (Jones Day) for Sutter Health.

Companies: Sutter Health

Cases: Antitrust CaliforniaNews