Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—D. Haw.: Air ambulance’s unfair competition claim against Kaiser making only bare assertions of economic harm dismissed, (Apr 28, 2017)

By Carol E. Potaczek, J.D.

An air ambulance service’s unfair competition claim against Kaiser Foundation Health Plan, Inc. was dismissed by the federal district court in Hawaii because the air ambulance service had failed to allege that Kaiser’s conduct was unfair and its allegations regarding injury to competition were insufficient. The dismissal was without prejudice and with leave to amend the claim. The air ambulance service had filed counterclaims against Kaiser in an effort to recover its billed charges for air ambulance services in Hawaii (Kaiser Foundation Health Plan, Inc. v. Hawaii Life Flight Corp., April 27, 2017, Kay, A.).

HLF and Kaiser terminate agreement. Hawaii Life Flight Corporation (HLF) entered into contracts with many Hawaiian hospitals to provide air ambulance services, and these contracts contained First Call Agreements (FCAs) in exchange for HLF placing aircraft near the hospitals. Under the FCAs, the hospitals would generally call HLF first. Under another contract between Kaiser and HLF, HLF agreed to accept lower than usual reimbursement rates. When HLF’s rates increased, Kaiser contracted with American Medical Response (AMR), a competitor of HLF, and HLF then apparently terminated its contract with Kaiser.

HLF claimed that Kaiser had improperly made written and oral demands that hospitals arrange for emergency transportation as designated by Kaiser and had implemented procedures requiring hospitals to use AMR for air ambulance service. HLF further claimed that Kaiser refused to pay many of its full charges, and, instead, decided to pay 200% of the allowable Medicare payment per transport. Kaiser’s plan documents provide that Kaiser would pay 80% of "applicable charges" for ambulance services deemed necessary by a physician.

An "applicable charge," under the Kaiser plans, is a negotiated rate for contracted medical groups or health plan facilities, and it is the actual billed charge for non-contracted facilities and providers. Therefore, HLF asserted that, because they did not have a current negotiated rate, Kaiser was obligated to pay no less than 80% of HLF’s actual billed charges. Kaiser responded that the portion of plan documentation referred to by HLF did not apply to transports between facilities.

Unfair competition claim. HLF’s amended counterclaim contained four counterclaims, the first of which was an unfair competition claim under Hawaii Revised Statutes §480-2(a), based on Kaiser’s requirement that hospitals obtain authorization from Kaiser before arranging emergency transport. In support of its unfair competition claim, HLF accused Kaiser of violating the Patient Protection and Affordable Care Act (ACA) and the Emergency Medical Treatment & Active Labor Act (EMTALA). HLF contended that Kaiser had used its economic power to cause hospitals to breach the FCAs with HLF and utilize inferior air transport services offered by HLF’s competitor.

EMTALA and illegality. Kaiser first asserted that HLF had no actionable claim against it under EMTALA. The court noted that Hawaii’s unfair competition law targets conduct that is either anticompetitive or that offends public policy and also pointed out that previous decisions from the Hawaii Supreme Court suggested that, for unfair competition claims based on illegality, "the reason why the conduct is illegal must relate to competition."

EMTALA was not enacted in order to protect competition or business interests, the court continued. It was, instead, meant to address hospitals’ failure to adequately treat indigent patients, and the court found that the ACA did not necessarily have a business interest purpose, either.

EMTALA and public policy. HLF had also argued that Kaiser’s conduct was contrary to the public policy of putting patients’ needs first, as set forth in EMTALA. However, the court pointed out that HLF’s complaint did not indicate that any patients were harmed as a result of the use an alternate transportation service. In the absence of any evidence that patients were harmed by Kaiser’s actions, the court held that EMTALA’s public policy provisions had not been violated. Kaiser’s apparent breach of contract would be insufficient to sustain a claim for unfair competition, the court said, adding that HLF had failed to allege that KAISER’s conduct was unfair.

Injury to competition. Kaiser then argued that HLF had failed to allege injury to competition. HLF had asserted that Kaiser’s actions had allowed its competitor to gain more transports that it would have without Kaiser’s interference. The court advised that the fact that HLF apparently had only one competitor increased the chances that injury to HLF could unite with injury to competition. However, the court then said that HLF had fallen short in its allegations by failing to provide evidence of anticompetitive effects, such as output decreases, price increases, or other possible anticompetitive effects or harm to consumers. Such market allegations were critical if the court were to conclude that injury to HLF joined with injury to the market.

The court conceded that Kaiser’s arrangement might have harmed HLF, but then said that HLF had not alleged that any loss in profits threatened to drive it from the market and it had failed to detail how much market power Kaiser had. And, even though HLF suggested that air transport service quality had declined because patients had to wait longer for transportation to a hospital, nothing in HLF’s complaint alleged there had been any actual injuries to any patients. The court concluded that HLF had failed to plausibly state a claim for unfair competition under HRS §480-2. The court dismissed HLF’s unfair competition claim, but did so without prejudice and with leave to amend the claim.

Intentional interference with contract. HLF also made a claim for tortious interference with contract, based on the fact that Kaiser supposedly knew about the FCAs between HLF and the Hawaiian hospitals and caused the hospitals to breach the FCAs and use the competitor, AMR, instead. Kaiser moved to dismiss this claim, arguing that HLF had failed to sufficiently allege intentional inducement and that HLF admitted that Kaiser’s actions were justified. The court held that the counterclaim had failed to state the intent element of HLF’s tortious interference with contract claim and that Kaiser had a justification for attempting to enforce its contract with HHSC. This claim was dismissed without prejudice.

ERISA benefits. Kaiser argued that HLF’s claim for ERISA benefits under 502(a)(1)(B) were collaterally estopped by the court’s own decision in a related action. The court granted Kaiser’s motion to dismiss, except that it denied the motion as to the rate of reimbursement (for air ambulance services), so that HLF was not collaterally estopped from pursuing that portion of its ERISA claim.

Breach of contract claim. Finally, HLF claimed that Kaiser breached its indemnification promises to assignors and HLF asserted that Kaiser was obligated to pay all of the amounts that were still unpaid. Kaiser asserted that the breach of contract claim was barred for ripeness, and thus was also barred by collateral estoppel. The court found that HLF had not stated a claim for breach of the indemnification agreement because HLF could not yet allege that it was legally entitled to full reimbursement and the claim was not ripe.

Kaiser then asserted that HLF was never properly assigned indemnification rights and therefore lacked standing to assert a claim for breach of contract. The court stated that the indemnification rights were obtained sometime after the assignment was made, and those subsequently obtained rights were not part of the transfer of rights, meaning that HLF lacked standing to bring a breach of contract action based on KHFP’s promises of indemnification. Kaiser had also argued that the breach of contract claim was preempted by ERISA, and the court granted Kaiser’s motion to dismiss without leave to amend the claim, based on the court’s refusal to find that Kaiser’s indemnity promises were part of an ERISA benefits plans. HLF was given 30 days from April 27, 2017 to file its next amended counterclaim.

The case is No. 1:16-cv-00073-ACK-KSC.

Attorneys: Alana Peacott-Ricardos (Goodsill Anderson Quinn & Stifel) and Alison H. Hong (Seyfarth Shaw LLP) for Kaiser Foundation Health Plan, Inc. Andrew James Lautenbach (Starn O'Toole Marcus & Fisher) for Hawaii Life Flight Corp. and Air Medical Resource Group, Inc.

Companies: Kaiser Foundation Health Plan, Inc.; Hawaii Life Flight Corp.; Air Medical Resource Group, Inc.

Cases: StateUnfairTradePractices HawaiiNews