Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Palmetto Health charged with anticompetitive conduct in orthopedic surgery services market, (Aug 19, 2016)

By Edward L. Puzzo, J.D.

Palmetto Health, the largest provider of inpatient acute care hospital services in the Midlands of South Carolina, unlawfully acquired the profitable inpatient orthopedic surgery business of its competitor Providence to gain a dominant market share of orthopedic surgery services and orthopedic physician services for residents in the area, according to a complaint filed by Providence in the federal district court in Columbia, South Carolina (SCPH Legacy Corp. v. Palmetto Health, August 17, 2016).

The plaintiff Providence—consisting of SCPH Legacy Corporation, formerly known as Sisters of Charity Providence Hospitals, and POD Legacy, LLC, formerly known as Providence Orthopaedic Group, LLC—allege various antitrust violations by Palmetto Health and certain individuals employed by Providence. The complaint alleges that the defendants' actions violated Sections 1 and 2 of the Sherman Act, Section 7 of the Clayton Act, and South Carolina's Unfair Trade Practices Act.

The defendant Palmetto Health, with annual net patient revenue exceeding $1 billion, was described as having monopoly power in the relevant geographic market of the South Carolina Midlands for inpatient acute care hospital services covered by commercial health plans. Providence alleged that, despite Palmetto's monopoly power over inpatient acute care hospital services generally, Providence had been successful in developing and expanding its inpatient orthopedic surgery business which, by 2014, had become its most profitable line of business. It was critical to its long-term survival and ability to compete in the market dominated by Palmetto Health’s monopoly.

Conspiracy alleged. To stem Providence's ability to expand further, and to foreclose the possibility of another competitor gaining access to the market through the acquisition of Providence, it is alleged, beginning in 2014, Palmetto embarked on a secret conspiracy with certain individual defendants to acquire Providence's inpatient orthopedic surgery business. The complaint alleges that Palmetto—while in discussions with Providence about the potential acquisition of Providence—secretly approached Providence’s orthopedic physicians, their health care consultant, and other employees to induce them to bring their orthopedic business, including their staff and their patients, to Palmetto. They were successful in doing so, resulting in substantially lessened competition for orthopedic services in that market. The availability and number of alternative providers is the primary source of a health plan’s bargaining power to negotiate competitive rates on behalf of its members, the complaint states.

The defendants were alleged to have pursued a conspiracy, in violation of their fiduciary duties to Providence, the effect of which was to: (a) irreparably cause injury to Providence and its ability to compete with Palmetto Health; (b) prevent a third party competitor from entering the market or, failing that, to weaken any potential competition from such a third party competitor; (c) maintain and enhance Palmetto Health’s monopoly power in the acute inpatient hospital services market; (d) eliminate competition and acquire monopoly power for Palmetto Health and the Providence Physicians in the inpatient orthopedic surgery services and orthopedic surgery physician services markets; and (e) benefit their own self-interests.

The complaint alleges that Providence's damages include a $50 million reduction in the value of their hospital operations. Providence seeks an award of treble damages, punitive damages, and attorney fees.

The case is No. 3:16-cv-02863-TLW.

Attorneys: John C. Moylan (Wyche, PA).

Companies: SCPH Legacy Corp.; POD Legacy, LLC; Palmetto Health; Practice Partners in Healthcare, Inc.

News: Antitrust StateUnfairTradePractices SouthCarolinaNews