Antitrust Law Daily Wrap Up, TOP STORY—N.D. Cal.: Unsupported market definitions require rejection of tying, monopolization claims against Sutter Health, (Nov 8, 2013)

By Jeffrey May, J.D.

A putative class of health care plan purchasers failed to state antitrust claims against Sutter Health, Northern California’s largest hospital chain and health care services provider, a magistrate judge in the federal district court in San Francisco has decided. In dismissing a second amended complaint, the court noted that the plaintiffs failed to properly define the relevant geographic markets to support their tying and monopoly claims. The court, however, granted the plaintiffs leave to file a third amended complaint (Sidibe v. Sutter Health, November 7, 2013, Beeler, L.).

The action was brought by two individuals who were enrolled in health care plans that had contractual relationships with Sutter Health on behalf of a class of similarly situated health care plan purchasers. The plaintiffs alleged that Sutter Health imposed (1) all-or-nothing tying arrangements that required health plans to use Sutter Health providers or affiliated physicians or lose contracted access to any of them and (2) exclusive dealing arrangements between plans and Sutter providers or affiliated entities that required health plans to “actively encourage” patients who used a Sutter Health provider to use other Sutter Health providers.

Initially, the plaintiffs alleged a relevant market consisting of “the provision of health care and related services” in 22 counties in Northern California. In June, the court dismissed the claims without prejudice.

The plaintiffs amended their complaint with modified market definitions. In their latest complaint, the plaintiffs alleged that Sutter Health used its market power to maintain and enhance its monopolies over inpatient hospital services in Northern California. They alleged multiple “local relevant geographic markets” that “include[d] all of the local geographic markets in which Sutter-controlled hospitals and physicians provide services.”

The tying and monopolization claims were based on the existence of a relevant market for “Inpatient Hospital Services.” The term “Inpatient Hospital Services” was defined as the “sale of general acute-care inpatient hospital services” and it “consist[s] of the cluster of services consumed by patients who spend one or more nights in the hospital.”

In its motion to dismiss, Sutter Health did not dispute the product market. However, it challenged the plausibility of the corresponding geographic markets.

The plaintiffs’ allegations failed to plausibly define the relevant inpatient hospital services geographic markets, the court ruled. It was unclear whether the claims were based on a single local market, six county-wide markets, or an indeterminate number of markets bounded by the areas in which Sutter hospitals operate, in the court’s view. With regard to the six county-wide markets, the plaintiffs failed to support drawing lines at county borders, with the exception of Alameda County. The court also noted that, if the claims were based on tying in all of the local markets in which Sutter hospitals operate, they needed to identify those markets (in reasonably concrete geographic terms), rather than just describing methodologies for drawing market boundaries. The court rejected the plaintiffs’ assertions that the proposed market definitions comported with Department of Justice Antitrust Division/FTC Horizontal Merger Guidelines.

For purposes of the “tied market” in the tying claims—”Specialty

Provider Services” product and geographic markets—the allegations also were implausible, the court decided. The court noted that the plaintiffs failed to actually identify the geographic markets that corresponded to the Specialty Provider Services markets.

The tying claims could alternatively be dismissed because the plaintiffs failed to plead facts showing any negative impact on competition in the tied markets. Under either the per se or rule of reason tests, the plaintiffs did not plead any factual allegations showing an effect on a “not insubstantial volume of commerce” in a defined market, according to the court.

The case is No. C 12-04854 LB.

Attorneys: Azra Z. Mehdi (The Mehdi Firm) for Djeneba Sidibe. Lin W. Kahn (Jones Day) for Sutter Health.

Companies: Sutter Health

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