A Florida federal court recently denied summary judgment to an integrated hospital system hoping to exit a multicount antitrust and unfair trade lawsuit. Four days later, the Third Circuit Court of Appeals upheld summary judgment for a health care system and cardiology practice facing similar antitrust challenges. 

The first case is Omni Healthcare Inc., et al. v. Health First, Inc. (M.D.Fla. Aug. 13, 2016), which presents a group of independent physicians and their free-standing surgery and pain clinics challenging a merger and veritable stew of exclusive provider contracts and exclusive referral policies of Health First, an integrated hospital system in South Brevard County, Florida. Health First is the parent corporation of a system of four hospitals, a private insurance plan called Health First Health Plans, Inc. (HFHP), and a large multispecialty physicians group. Plaintiffs alleged that Health First exercised substantial market power in several interrelated health care markets in South Brevard County, and used that power to exclude rivals with a host of unlawful merger, exclusive dealing, tying, and group boycott activities. 

The second case is Deborah Heart & Lung Center v. Virtua Health, Inc. and The Cardiology Group, P.A.(3d Cir. Aug. 17, 2016), which involved a far narrower challenge to an agreement whereby defendants transferred certain cardiac patients to Penn Presbyterian if necessary for certain procedures. Plaintiff’s hospital had been the beneficiary of a similar agreement with defendant, and its cardiac referrals were largely displaced by the new agreement it challenged.  

The difference maker in these cases was the scope of anticompetitive conduct alleged, and the defendants’ markedly different positions in the relevant geographic markets at issue in the two cases.

Omni Healthcare/Health First Antitrust Case Survives Summary Judgment.

Plaintiffs’ sued the Health First system in 2013, alleging that it attempted to create a “vertically integrated, self-reinforcing, illegally-maintained healthcare monopoly” that foreclosed plaintiffs from successfully competing in several health care markets in Southern Brevard County. Plaintiffs claim that defendants erected and maintained this monopoly through a series of anticompetitive mergers, exclusive provider contracts, and policies that prohibited Health First physicians from referring patients to the plaintiffs and their facilities.

Among other things, plaintiffs asserted that Health First (1) acquired monopoly power through a series of hospital mergers in the mid-1990s; (2) achieved dominance in a variety of “clustered” physician services markets by acquiring the county’s largest multispecialty physicians group, Melbourne Internal Medicine Associations (MIMA); (3) mandated exclusive referral and admission practices within the Health First system; (4) excluded from HFHP all medical practices and providers who refused to participate in the exclusive referral policy; and (5) prevented Health First system providers from referring patients to “blacklisted” providers, or risk being blacklisted themselves. The complaint alleges that defendant’s anticompetitive acts monopolized and adversely affected competition in the South Brevard County markets for (1) acute care inpatient hospital services; (2) physician services; (3) ancillary services; and (4) Medicare Advantage markets.  Defendants moved for summary judgment in early 2016.

Health First’s Challenged Acquisition of MIMA Physician Group

In its summary judgment motion, Health First challenged plaintiffs claim that its acquisition of MIMA violated the Clayton Act Section 7 prohibition against corporate acquisitions that “may substantially lessen competition” or “tend to create a monopoly.” Emphasizing that the statute speaks in terms of “probabilities, not certainties,” the court ruled that sufficient facts supported plaintiffs’ claim that the defendant health system’s acquisition of MIMA substantially lessened competition by requiring former MIMA physicians to refer patients exclusively to Health First hospitals, physicians, and ancillary services, and to no longer accept Medicare Advantage plans not offered by Health First, thereby forcing patients to switch to defendant’s HFHP plans. The court credited expert testimony that Health First’s acquisition of MIMA plus the challenged exclusive referral and HFHP Medicare Advantage policies foreclosed more than 25% of the physician services market in South Brevard County. 

Inpatient Hospital and Physician Services Monopolization Claims

The court also allowed claims about defendants’ monopolization of an acute care inpatient hospital services market to proceed to trial. The court found sufficient facts on which a jury could find that Health First enjoyed a 70% share in the relevant South Brevard County market, and had the power to exclude rival providers of inpatient hospital services and raise prices to third-party payors above competitive levels. The court credited plaintiffs’ expert for the proposition that defendant’s exclusionary conduct (exclusive referral policy, precluding non-HFHP Medicare Advantage plans, and threats of retaliation and group boycott against non-compliant physicians) resulted in the diversion of referrals from plaintiffs in multiple markets, including acute-care inpatient services. 

Also surviving summary judgment were plaintiffs’ related monopolization claims about the impact of defendants’ acquisitions and policies in the physician services and ancillary services markets. Defendants argued that its less-than 50% share of the South Brevard County market for physician services, combined with low entry barriers in that market and lack of evidence about any specific intent to monopolize physicians services in that region, doomed plaintiffs’ case. But the court found defendants’ intent to monopolize could reasonably be inferred from the “unfair or predatory nature of their tactics,” to wit: “coercing market participants to maximize referrals within the Health First system and minimize referrals outside of it.” The court also deemed it significant that all Health First physicians terminated all Medicare Advantage plans not offered by Health First, observing that “unilateral termination of a voluntary (and thus presumably profitable) course of dealing” may suggest “a willingness to forsake short-term profits to achieve an anticompetitive end.” (citing Supreme Court Trinko and Aspen Skiingprecedents).

The court also rejected defendants’ argument that a market share under 50% precluded Section 2 monopolization liability as a matter of law, and ruled that the claim may survive summary judgment if “other reasons” make a monopoly dangerously probable despite the defendant’s minority market shares. Notwithstanding Health First’s modest 27% share of the physician services market in South Brevard County, the court cited expert testimony that markets for specialist physicians are significantly concentrated, involve substantial entry barriers, and defendant’s share in several of these specialties is substantially higher than its share in the physician services market overall.

The court also credited expert testimony that Health First’s vertical integration, combined with its dominance in the acute inpatient hospital market, allowed it to impair (leverage) competition in other health care service markets through exclusionary tactics that facilitated its exercise of monopoly power in downstream physician and ancillary services markets. The court concluded that “Health First’s 86% market share in inpatient hospital services market, and its ability to exclude competitors throughout is sufficient to create a jury question” about defendants’ dangerous probability of achieving market power. 

The Florida federal court also found plaintiffs’ evidence supported claims that Health First attempted to monopolize a South Brevard County market for ancillary services. Plaintiffs defined “ancillary services” as “axillary or supplemental services provided by a licensed physician or medical practice to support diagnosis and treatment,” including such things as imaging and lab tests, medical equipment, radiology and dialysis therapies, and outpatient surgeries. The court again relied on plaintiffs’ expert to find sufficient evidence that defendant foreclosed 39% of radiologists in the region through its exclusive dealing arrangement with a radiology practice, which presumably harmed competition.

The court relied as well on a plaintiff declaration (Dr. Dowdell) asserting that during his tenure as an HFHP participating provider, Health First officials advised him to bring all of his insured patients to defendant’s facilities and perform all of his surgical procedures exclusively at Health First ambulatory surgery centers. Plaintiff alleged that defendant’s policy applied to all physicians participating in HFHP plans, and that it “greatly inconvenienced” his patients and resulted in delayed diagnosis and treatment. Dowdell testified that Health First terminated his contract – and threatened to do likewise to any HFHP provider who joined Dowdell’s practice – because Dowdell refused to comply with the hospital system’s exclusivity requirements. 

The court found that similar expert testimony and evidence sufficed to present plaintiffs’ Medicare Advantage market monopolization claim to the jury.  Among other things, the record demonstrated Health First’s policy requiring all of its employed physicians to reject non-HFHP Medicare Advantage plans, and that defendant’s exclusion of one of its “must-have” hospitals in the region from all competing Medicare Advantage plans evidenced defendants anticompetitive exclusive dealing. The court acknowledged evidence that HFHP’s market share had actually declined during the relevant period – from 100% in 2005 to 50-60% currently – but emphasized that its remaining share was sufficiently large to create a genuine dispute about whether its conduct posed a dangerous probability of monopolization. 

Section 1 Conspiracy Claims

Plaintiffs alleged that much of the foregoing conduct was pursued as part of unlawful agreements between Health First and all physicians and medical practices who complied with Health First’s alleged exclusive dealing, tying, and concerted refusals to deal with non-complying physicians and practices. Plaintiffs claimed that as a result of the alleged conspiracy, their provider contracts were terminated and they were denied access to the Health First network and HFHP enrollees, thereby sharply reducing their referral sources and stunting their growth opportunities in South Brevard County. Defendants argued that impermissible inferences from vague, circumstantial evidence could not be considered to support plaintiffs’ claims, but the court was unwilling to discount such evidence.

The decision gives particular emphasis to an email from a MIMA physician to a Health First manager that referenced a “political relationship” between the two, and which claimed that “MIMA physicians do not have any choice in consulting radiologists for health plan patients” and complaining that they “cannot refer to anyone but these physicians.”  Further evidence demonstrated that only one percent of MIMA hospital admissions went to the lone competing hospital in South Brevard County. The court acknowledged defendants’ argument that MIMA physicians had independent quality concerns about admitting patients to the competing hospital, but ruled that this dispute presented a genuine issue of material fact for the jury to decide.

Deborah/Virtua Antitrust Case Dismissed on Summary Judgment

Plaintiff Deborah Heart & Lung Center (DHLC) is a charity hospital located in Browns Mills, New Jersey and, for many years, it enjoyed an arrangement with defendant Cardiology Group P.A. (CGPA) whereby the latter transferred to DHLC those patients who needed advanced cardiac interventions (ACI), which neither CGPA nor another hospital in the area – Virtua Memorial Hospital (VMH) could provide. But in 2005, CGPA entered into an exclusive provider agreement with VMH, resulting in reduced ACI procedure referrals to plaintiff.  Those referrals dropped still further when CGPA (with or without Virtua’s alleged involvement) contracted with Penn Presbyterian in Philadelphia to handle ACI referrals that defendants could not perform at their facilities, and plaintiff sued. Plaintiff initially asserted Section 1 and 2 claims, but its monopolization claims were dismissed for failure to state a claim – which plaintiff did not appeal. After discovery, defendants obtained summary judgment on grounds that plaintiff was unable to demonstrate the challenged agreement’s anticompetitive effects or defendants’ market power in a relevant market crowded with competing providers and facilities.

Upholding summary judgment for the defendant hospital system, the Third Circuit emphasized that unless defendant has market power in the relevant market, actual anticompetitive effects are “often impossible” to demonstrate. In DHLC’s case, plaintiff’s own expert conceded that the relevant market for ACI procedures (five New Jersey counties and portions of Philadelphia) was populated by multiple competing hospitals and hundreds of cardiologists. Nonetheless, plaintiff attempted to survive summary judgment by demonstrating adverse impact of the challenged agreements on CGPA’s patients and plaintiff’s own hospital rather than the market as a whole. 

Based on its own and Supreme Court precedent, the appellate court reasoned that “[t]here is no evidence in the record indicating that CGPA or Virtua Memorial were sufficiently unique to warrant reducing the size of the geographic market to only those entities [and] assuming arguendo that [plaintiff] presented sufficient evidence that CGPA and Virtua’s agreement caused some anticompetitive effects to the patients of those entities, such a showing is insufficient to demonstrate the type of anti-competitive effects on the overall market necessary to prove a Section 1 claim.”    

ANALYSIS

In Health First, the survival of plaintiffs’ antitrust claims on summary judgment is part of a troubling – albeit nascent – body of adverse health care antitrust case developments aimed at integrated health system conduct that is more often viewed as vertical, unilateral, and pro-competitive conduct susceptible of resolution at the pleading stage or on summary judgment.  The Virtua Health case demonstrates the typical litigation outcome when competing providers challenge a hospital system’s exclusive dealing arrangements, without proving up a tighter market definition dominated by the defendant and without developing evidence of more substantial exclusionary practices to accompany the exclusive provider agreements. 

The Health First decision presents some challenging elements, including a tendency to refer to plural “defendants” when referencing what appears to be a unified health system operating under common ownership and control.  The decision also embarks on a monopoly leveraging analysis of “clustered” health care service markets, and seems to treat hospital-employed physicians as independent economic actors under the antitrust laws. But there will be no appeal to test the decision: a settlement was announced within 48 hours of the decision’s issuance. 

We can expect the Health First decision to be cited by plaintiff attorneys as a benchmark in future health care antitrust litigation challenging integrated hospital system practices. As the Health First court emphasized throughout this decision, the analysis is quite fact-specific, so defense practitioners should be able to identify several points of departure and further market analysis to avoid the same outcome. 

Harder to ignore is the general milieu in which a new wave of health care antitrust cases are arising. Enforcement agencies are challenging hospital mergers and health care integrations with renewed vigor, prompting legislative counter-proposals. State and federal antitrust enforcers are also policing unilateral conduct by health care delivery systems, such as “anti-steering” and “anti-tiering” provisions in hospital/payor contracts.

All of this enforcement activity encourages more private plaintiffs to launch health care suits in antitrust waters that seem more navigable than before. And this attempted reckoning plays out in the most complex, dynamic and uncertain market in the nation:  health care services. Both the Health First andVirtua Health decisions emphasize the need for ongoing antitrust compliance efforts and keen vigilance by all participants – integrated systems, professionals, stand-alone health care facilities, payors, and ancillary service providers – in the complex health care marketplace.