Antitrust Law Daily Wrap Up, ANTITRUST—W.D. Pa.: Conspiracy claims proceed against Pittsburgh health care provider, insurer, (Sep 2, 2015)

By Greg Hammond, J.D.

A purchaser of small group health insurance coverage adequately alleged conspiracy claims against the Pittsburgh area’s largest health care and health insurance providers. In denying most of the providers’ motions to dismiss the third amended complaint, the federal district court in Pittsburgh determined that the purchaser sufficiently demonstrated injury in fact and that common issues predominate over any individualized inquiry regarding issues of injury and concerted action (Cole’s Wexford Hotel, Inc. v. UPMC, September 1, 2015, Conti, J.).

Cole’s Wexford Hotel, Inc. purchased small group health insurance coverage from Highmark, Inc. and its subsidiaries, including Highmark Health Insurance Co. (HHIC). Cole’s alleges that it suffered damages as a result of a sustained and orchestrated anticompetitive conspiracy entered into by the University of Pittsburgh Medical Center (UPMC)—the area’s largest health care provider—and Highmark, the area’s largest health insurance provider. Specifically, Cole’s claims that UPMC had market power in two product markets: (1) the market for inpatient services; and (2) the market for tertiary and quaternary acute care inpatient services. Similarly, Highmark purportedly had market power in the health insurance and/or health care financing and administration for small group private employers market. Cole’s asserts that UPMC and Highmark conspired, agreed, and acted in an organized, orchestrated, and deliberate fashion to control, divide, and/or monopolize both the market for medical care and the market for health insurance in the Western Pennsylvania area. Cole’s further claimed that the conspiracy’s effects are still occurring.

Both UPMC and Highmark moved to dismiss Cole’s third amended complaint, which includes claims for (1) conspiracy in restraint of trade; (2) conspiracy to monopolize; (3) willful acquisition and maintenance of a monopoly in the relevant market for health care services; (4) willful acquisition and maintenance of a monopoly in the relevant market for private health insurance; and (5) willful attempted monopolization.

Highmark’s arguments. In support of its motion to dismiss, Highmark argued that Cole’s failed to plead injury in fact. The court disagreed, noting that Cole’s sufficiently alleged it suffered monetary harm in the form of overcharges it paid for health insurance caused by the allegedly anticompetitive conspiracy entered into between UPMC and Highmark. Specifically, Cole’s claimed that UPMC and Highmark had market power in the relevant markets; the two companies entered into an anticompetitive conspiracy to protect each other’s market power and created steep barriers to entry; and Cole’s Wexford was charged and ended up paying artificially inflated, supracompetitive premiums for health insurance. The court concluded that these allegations were sufficient to show Cole’s suffered an actual, concrete, and particularized invasion of a legally protected interest. Highmark’s motion to dismiss was therefore denied.

Highmark additionally requested that the class allegations be stricken from the third amended complaint, arguing that it was clear on the face of the complaint that individualized inquiry concerning issues of injury in fact and damages would predominate over any common issues in this case. However, the proper consideration under the predominance requirement of Federal Rule of Civil Procedure 23, according to the court, is whether questions of law or fact common to class members predominate over any questions affecting only individual members. Cole’s, in its third amended complaint, alleges that UPMC and Highmark engaged in an anticompetitive conspiracy to exclude Highmark’s competitors so that UPMC could charge Highmark exorbitant rates that Highmark could pass on to its consumers. At the current stage of litigation, the allegations with regard to the anticompetitive actions of UPMC and Highmark were found common to all members of the putative class. Highmark’s request for the court to strike the class action allegations was consequently denied.

UPMC’s arguments. UPMC first asserted that Cole’s failed to allege an antitrust claim because it did not plausibly allege that the conspiracy between UPMC and Highmark existed when Highmark “unilaterally” transferred Cole’s and other members of the putative class to HHIC to charge them supracompetitive rates without oversight from the Pennsylvania Insurance Department. The court disagreed, finding that the allegations in the third amended complaint were sufficient to plausibly show that at the time Highmark transferred Cole’s and other class members to HHIC, UPMC received high reimbursement rates from Highmark under the ten-year provider agreement, which the parties entered into as part of the conspiracy. The court also found that, the allegations were sufficient to show that Highmark and UPMC were actively engaged in the alleged UPMC-Highmark conspiracy. The motion to dismiss was therefore denied with regard to the conspiracy argument.

UPMC further claimed, however, that Cole’s lacked standing under the indirect purchaser rule in Illinois Brick. The court agreed that counts three and five of the complaint—which allege willful acquisition and maintenance of a monopoly in the relevant market for health care services and attempted monopolization—are barred by the indirect purchaser rule, because the plaintiffs were indirect purchasers of health care from UPMC and the co-conspirator exception did not apply to those claims.

The first two claims, alleging conspiracies to restrain trade and to monopolize, were not barred by the indirect purchaser rule, the court found, because Cole’s sufficiently alleged a conspiracy existed when Highmark transferred Cole’s and other members of the class to HHIC to charge it supracompetitive rates. Specifically, the court determined that the co-conspirator exception applied because Cole’s claimed that Highmark used HHIC to overcharge Cole’s and other members of the class in order to recoup costs associated with paying UPMC high reimbursement rates. Consequently, the underlying policy considerations of the indirect purchaser rule would not be offended by permitting Cole’s to sue UPMC based upon the overcharges it paid to HHIC under Highmark’s direction and pursuant to the alleged UPMC-Highmark conspiracy, the court concluded.

The court also rejected UPMC’s argument that Cole’s class allegations should be stricken for failure to plead commonality and typicality. Specifically, the court found Cole’s allegations—that Cole’s and the putative class members paid Highmark for health insurance, and Highmark transferred them to HHIC to charge them supracompetitive prices for health insurance—were sufficient to present the common issues of law and fact that justify class treatment.

Lastly, Cole’s claims were not barred by the statute of limitations, the court found, because the allegations in the third amended complaint and the reasonable inferences drawn therefrom were sufficient to plausibly show that at least at the time Highmark transferred Cole’s and other members of the putative class to HHIC to charge them supracompetitive rates, UPMC was acting upon the alleged UPMC-Highmark conspiracy by refusing to competitively contract with Highmark’s health insurance competitors.

The case is No. 1:10-cv-01609-JFC.

Attorneys: Andrew M. Stone (Stone Law Firm, LLC), Kathleen S. Kiernan (Boies, Schiller & Flexner LLP), Patrick K. Cavanaugh (Del Sole Cavanaugh Stroyd LLC), and Scott Michael Hare for Royal Mile Company, Inc. and Cole's Wexford Hotel, Inc. Keith E. Whitson (Schnader, Harrison, Segal & Lewis) and Paul M. Pohl (Jones Day) for UPMC. Alexander W. Saksen (Gordon & Rees) for Highmark, Inc.

Companies: Royal Mile Company, Inc.; Cole's Wexford Hotel, Inc.; UPMC; Highmark, Inc.

Cases: Antitrust PennsylvaniaNews