Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Hospital bed manufacturer charged with using exclusive bundling agreements to gain monopoly, (Jan 14, 2015)

By Linda O’Brien, J.D., LL.M.

A leading manufacturer of hospital beds has leveraged its monopoly power to gain control of the patient handling equipment rental market through the use of exclusionary bundling agreements with hospital networks and hospital/physician group purchasing organizations, according to a complaint filed in the federal district court of San Antonio, Texas (Universal Hospital Services, Inc. v. Hill-Rom Holdings, Inc., January 13, 2015).

Universal Hospital Services is the leading provider of patient handling equipment (PHE) and moveable medical equipment (MME) rentals to hospitals and alternate site providers. Hill-Rom Holdings is a worldwide manufacturer of medical technologies and related services for the health care industry, including the sale and rental of standard hospital beds, PHE, and MME to medical providers. Standard hospital beds typically have heavy duty metal frames that can be adjusted to different positions by handheld controls, have adjustable side rails, and contain a system that facilitates electronic communications to a nurse’s station.

The complaint alleges that Hill-Rom has a monopoly in the sales market for standard hospital beds. Its products are protected by a variety of patents that it enforces aggressively, and hospital staffs are widely trained in the use of Hill-Rom’s standard hospital bed technology.

In 1995, Kinetic Concepts, Inc. (KCI) filed suit against Hill-Rom, claiming that Hill-Rom used its monopoly power to gain control of the standard hospital bed and PHE markets through exclusionary bundling services. After a jury verdict in favor of KCI, Hill-Rom settled the case for $250 million. In 2003 Spartanburg Regional Healthcare System sued Hill-Rom for similar anticompetitive conduct. The case was ultimately settled for $337.5 million. Hill-Rom also agreed to a voluntary injunction that prevented the company from leveraging its monopoly power in the market for the sale of standard hospital beds into the market for the rental of certain PHE for three years and forced Hill-Rom to unbundle and separate price each product.

In 2009, the injunction expired. Hill-Rom returned to its old strategy of leveraging its monopoly power and recognized an opportunity to increase its market share in the rental markets for medical equipment by offering customers bundled deals on the sale of standard hospital beds that no other company could match. Hill-Rom began by negotiating sole-source agreements with national group purchasing organizations and hospital networks that contain steep discounts and rebates on the sale of standard hospital beds bundled with commitments to use Hill-Rom for their PHE and MME rental needs. No matter how aggressively its competitors price their products, they cannot compete with Hill-Rom’s steep discounts because they do not sell standard hospital beds, the complaint charges.

According to the complaint, the result of the monopoly leveraging and exclusionary bundling strategy was Hill-Rom’s rapid growth in market power in the PHE and MME rental markets, allowing it to acquire an additional 12 to 15 percent market share almost overnight. If not enjoined immediately, Hill-Rom’s anticompetitive actions will force competitors to leave the industry or downsize operations that are no longer profitable, Universal Hospital claimed. The elimination of competition allegedly will result in increased prices, reduced output, and less choice in the health care system.

Barriers to entry and barriers to expansion are high in the market, the plaintiff alleged. The provision of products and services to meet customers’ rental demands requires well developed, well supplied, and accessible regional distribution networks. The development of these distribution networks requires the significant investment of time and money before they can be profitable and self-sufficient. Moreover, hospitals have invested substantial time and money in learning to use Hill-Rom’s standard hospital beds. As a result, they are reluctant to adopt another manufacturer’s technology, even if it has a better product or service, according to the complaint.

Additionally, Hill-Rom interfered with existing and prospective asset management service (AMS) agreements of Universal, the plaintiff charged. Hospitals and medical facilities have AMS agreements with suppliers to manage and repair their medical equipment that is purchased or rented. Universal has over 200 active AMS programs with hospitals and medical facilities across the country. Hill-Rom allegedly has intentionally misled current and prospective Universal customers that Hill-Rom’s agreements with two large hospital networks require network members to exclusively use Hill-Rom’s AMS program even though the terms of those agreements do not cover AMS programs. If the customer is deemed noncompliant by Hill-Rom with those network agreements, the customer could lose millions of dollars in discounts and rebates. The mere threat of noncompliance is enough to dissuade customers from contracting with Universal, the complaint alleges.

The plaintiff asserts claims for tortious interference with business relationships and monopolization, attempted monopolization, and exclusive bundling in violation of Sections 1 and 2 of the Sherman Act. The action seeks declaratory and injunctive relief; actual, treble, and punitive damages; pre- and post-judgment interest; costs of suit; attorney fees; and any other just and proper relief.

The cases are No. 5:15-cv-00032.

Attorneys: R. Laurence Macon and Janie A. Shannon (Akin Gump Strauss Hauer & Feld LLP) and Richard L. Wyatt, Jr. and Ryan P. Phair (Hunton & Williams LLP) for Universal Hospital Services, Inc.

Companies: Universal Hospital Services, Inc.; Hill-Rom Holdings, Inc.; Hill-Rom Company, Inc.; Hill-Rom Services, Inc.

News: Antitrust TexasNews