Antitrust Law Daily Wrap Up, ANTITRUST—S.D. Cal.: Health care services provider fails to assert antitrust claims against Kaiser, SEIU, (Jul 29, 2013)

By Tobias J. Gillett, J.D., LL.M.

California health care services provider Prime Healthcare Services, Inc. (Prime) failed to adequately allege that its competitor Kaiser and the Service Employees International Union (SEIU) conspired to restrain trade in and monopolize certain healthcare markets in parts of California, the federal district court in San Diego has ruled (Prime Healthcare Services, Inc. v. Service Employees International Union, July 25, 2013, Curiel, G.).

Kaiser Foundation Health Plan, Inc., Kaiser Foundation Hospitals, and Southern California Permanente Medical Group (collectively, “Kaiser”) provide healthcare services to Kaiser health plan member patients. SEIU, through its local affiliate SEIU - United Healthcare Workers West, represents healthcare workers at California hospitals.

Prime, a provider of healthcare services on a fee-for-service basis, filed suit against the SEIU and Kaiser, alleging that they had conspired to eliminate Prime and other competing hospitals from the markets for hospital emergency care services, general acute-care hospital services, and services provided by healthcare workers in California’s San Bernardino, San Diego, Los Angeles, and Orange counties, as well as several subregional geographic markets.

The court concluded that evidence proffered by Prime from written and verbal agreements, circumstantial evidence, and parallel conduct between Kaiser and SEIU was insufficient to demonstrate conspiracy for purposes of claim under Section 1 of the Sherman Act.

Five labor agreements between Kaiser and SEIU between 1997 and 2010 did not by themselves constitute contracts “intended to harm or restrain trade,” according to the court. Provisions to “increase Kaiser’s membership in current and new markets,” “market Kaiser Permanente to new and existing unions,” and “increase enrollment in the Kaiser Foundation Health Plan” suggested that the SEIU and Kaiser had “sought to grow membership in Kaiser’s Healthcare plan, a mutual benefit for Kaiser and its union employees,” rather than that they had sought to obtain “market dominance,” in the court’s view. The court declined to read an illegal purpose into the provisions based on Prime’s allegation that the provisions were written in “code language,” finding that argument “conclusory.” Furthermore, the court “refuse[d] to infer the existence of an illegal agreement simply because the labor partnership agreements may be innovative or on a larger scale than local collective bargaining agreements.”

Moreover, Prime’s allegations that Kaiser and SEIU had engaged in a series of meetings and negotiations resulting in verbal agreements to harm Kaiser’s competitors also failed to show the existence of an illegal agreement, according to the court. The complaint failed to identify the dates, locations, or participants at the meetings, the court observed. Given the “vast” 15-year conspiracy involving “numerous alleged participants, agreements, and meetings,” Prime had not pled sufficient facts to “demonstrate[e] a verbal conspiracy, the persons involved in the illegal agreement, and the roles that each person undertook.”

Finally, Prime’s allegations regarding various actions taken by Kaiser and SEIU that were allegedly against their independent self-interest did not sufficiently tend “to exclude the possibility of independent action” to provide evidence of a conspiracy to restrain trade, according to the court. Although Prime alleged that Kaiser and SEIU had formed a Labor Partnership Trust under which Kiser transferred over $50 million to SEIU in violation of the Tart-Hartley Act, the court observed that “the Taft-Hartley Act provides an exemption for payments by employers through an authorized labor management committee,” and that Prime had provided no more than “conclusory allegations” that the trust went beyond “the explicit purposes encouraged by the Labor Management Agreement.”

Kaiser’s endorsement of a proposal to increase nurse staffing ratios, although apparently against its business interests, ultimately did not result in legislation increasing the ratios, and Prime did not plausibly show that the endorsement was against Kaiser’s self-interest or resulted from an illegal agreement to restrain trade, given the endorsement’s “surrounding context.”

Finally, the SEIU’s negotiation of the termination of approximately 1,350 SEIU-represented employees, although apparently against its self-interest, could be explained by “the normal give and take that is part of the employer/union relationship,” under which each side makes concessions to obtain an agreement. Moreover, the negotiated terminations were “an isolated action” occurring twelve years into an alleged fifteen-year conspiracy, insufficient to “prove the existence of a huge antitrust conspiracy with multiple objectives and goals.”

Per se vs. rule of reason. The court rejected Prime’s argument that the alleged conspiracy should be evaluated under the per se rule “because it consists of a horizontal conspiracy among union members, their leadership, and the entities themselves and is facilitated by a vertical agreement with Kaiser.” Prime failed to allege the kind of “manifestly anticompetitive” conduct or effects that warranted application of the per se rule, nor did it allege that the defendants’ activities fell into the categories generally subject to the per se rule. Further, Prime did not allege that the union defendants were “a horizontal combination of competitors organized to exclude direct competition.”

Relevant markets. The court concluded that Prime adequately pled relevant product markets consisting of “hospital emergency care services,” “general acute-care hospital services,” and “the services provided by healthcare workers,” and relevant geographic markets including “San Bernardino, San Diego, Los Angeles, and Orange Counties, California,” as well as “several subregional geographic markets.”

Injury to competition. Prime failed to show that Kaiser and SEIU intended to harm trade or that their actions caused an injury to competition overall, according to the court. Kaiser’s filing of purportedly “sham” counterclaims in Prime-initiated litigation did not show an intent to restrain trade, and a SEIU publicity campaign against Prime suggested traditional union attempts to pressure an employer into unionization. Moreover, Prime failed to allege actual injury to competition, such as competitors injured or pushed out of the market, higher prices, reduced quality of care or quantity of services, or reduced choice. Alleged injury to Prime itself did not show injury to competition as a whole, the court observed.

Monopolization—market power. Prime also did not sufficiently allege that Kaiser possessed a dominant share of the relevant markets to support its Sherman Act Section 2 monopolization claims, in the court’s view. Prime did not allege any facts regarding Kaiser’s market share beyond the bare assertion that it was the “dominant force in the alleged relevant hospital markets, with substantial market share and power,” the court noted. Although Prime alleged that Kaiser had the power to control prices, it failed to allege that Kaiser had in fact controlled prices. Without facts from which it could plausibly infer a restriction in output or supracompetitive prices, the court could not find that Kaiser possessed market power. Prime also failed to plead claims for attempted monopolization or conspiracy to monopolize, according to the court.

The case is Civil Action No. 11-cv-2652-GPC-RBB.

Attorneys: Amanda Catherine Fitzsimmons (DLA Piper LLP) for Prime Healthcare Services, Inc. Constance Hsiao (Rothner, Segall & Greenstone) for Service Employees International Union. Theodore Franklin (Weinberg Roger and Rosenfeld) for Service Employees International Union - United Healthcare Workers West. Arthur N. Lerner (Ryley Carlock & Applewhite) for Kaiser Foundation Health Plan, Inc.

Companies: Prime Healthcare Services, Inc.; Service Employees International Union; Service Employees International Union - United Healthcare Workers West; Kaiser Foundation Health Plan, Inc.

Cases: Antitrust CaliforniaNews