Despite expressed concerns that antitrust lawsuits by competitors often are unjustified because the defendant may be a more efficient or innovative competitor, according to an April Eleventh Circuit decision, a competing hospital was an appropriate plaintiff to pursue an antitrust tying claim against a rival hospital.1 Palmyra Park Hospital, a 248-bed hospital in Georgia, claimed that its rival Phoebe Putney Memorial Hospital, a 443-bed hospital in the same city, unlawfully leveraged a state-granted monopoly in certain medical services to tie favorable insurance reimbursement rates for those services to a refusal to include Palmyra in the insurer’s provider network.2 The district court had ruled that Palmyra, as a competing hospital, was not an “efficient enforcer” of the antitrust laws and thus lacked standing. The district court so ruled because it deemed that the hospital’s damages would be indirect, remote and highly speculative, and allowing Palmyra to pursue its claims would create a risk of duplicative recovery with insurance companies and policy holders also potentially injured by the illegal tie. However, a three-judge panel for the U.S. Court of Appeals for the Eleventh Circuit reversed. Noting that the alleged tying scheme could decrease consumers’ hospital options and cause them to pay slightly higher insurance premiums, as a competitor of Phoebe Putney, Palmyra was “perhaps best suited to efficiently enforce the antitrust laws,” and Palmyra’s damages, primarily lost revenue from diverted business, were not “highly speculative.”
Background
In Georgia, hospitals are required to obtain a Certificate of Need (CON) from the state in order to provide certain services. Phoebe Putney had a CON in acute-care obstetrics, neonatology, and a cardiac catheterization laboratory. Palmyra, which was Phoebe Putney’s largest and chief competitor for acute-care services, did not possess such CONs, nor did any other hospital that meaningfully competed with Phoebe Putney. Both Palmyra and Phoebe Putney competed for in-network status with insurance companies. Having in-network status makes a hospital a more-desirable option to potential consumers wishing to pay in-network costs for hospital services. At the same time, private insurers have an incentive to offer a network of hospitals that provide a comprehensive range of services in order to attract policy holders. Palmyra alleged that Phoebe Putney threatened to demand significantly higher reimbursement rates from insurer Blue Cross Blue Shield of Georgia for those services for which Palmyra lacked CONs (the tying products), and thus was not providing, unless Blue Cross refused to contract with Palmyra for the services it was providing (the tied products). In 2000, Palmyra lost its in-network status with Blue Cross, allegedly because of Phoebe Putney’s threat. Palmyra claimed this resulted in fewer choices for medical services for consumers and contributed to “the region’s higher-than-average healthcare costs.”3
The Eleventh Circuit’s Decision
In July 2008, Palmyra brought suit against Phoebe Putney in the United States District Court for the Middle District of Georgia. The district court dismissed the claim, holding that Palmyra lacked antitrust standing.4 On April 29, 2010, the Eleventh Circuit overturned the district court’s decision.
The Clayton Act permits private plaintiffs to bring a claim for damages if they are injured “by reason of anything forbidden in the antitrust laws,” and permits treble damages.5 Because the statutory language is broad enough to permit suits for entirely speculative claims that do not necessarily further the goals of antitrust laws, courts have narrowed the statute by requiring parties specifically have “antitrust standing” to bring a claim; that is, a private plaintiff must show he or she is the proper plaintiff to vindicate the public’s interest in enforcing the antitrust laws.6 This involves employing a two-pronged test: first, the plaintiff must allege an antitrust injury and second, the plaintiff must “be an efficient enforcer of the antitrust laws.”7 Courts analyze a number of factors when determining whether a plaintiff is an efficient enforcer, including “the directness or indirectness of the injury, the remoteness of the injury, whether other potential plaintiffs were better suited to vindicate the harm, whether the damages were highly speculative, the extent to which the apportionment of damages was highly complex and would risk duplicative recoveries, and whether the plaintiff would be able to efficiently and effectively enforce the judgment.”8
Antitrust Injury.
Here, Palmyra’s alleged injury was that it lost approximately $18 million in revenue from Blue Cross policy holders when it lost its in-network status with Blue Cross. The Eleventh Circuit determined that this injury was of the type the antitrust laws intended to prevent and “flows from that which makes the defendants’ acts unlawful.”9 Specifically, the court noted that the exclusivity arrangement prevented Palmyra from competing in the market for the services it provided--the tied products--resulting in higher prices and fewer choices for consumers, “precisely the type of harm that we allow plaintiffs to vindicate through the antitrust laws.”10
“Efficient Enforcer.”
Next, the court examined the list of factors used to determine whether a plaintiff is an efficient enforcer of the antitrust laws. The court disagreed with the district court’s characterization of Palmyra’s injuries as indirect and remote. Rather, the Eleventh Circuit stated, although several steps had to occur before Palmyra suffered an injury due to the alleged tying arrangement, “once Phoebe Putney starts the ball rolling . . . Palmyra’s injury all but inevitably follows.”11 The court also dismissed the district court’s criticism that Palmyra was “‘merely seek[ing] the opportunity to increase its profits,’” noting this is true of nearly every situation where a competitor alleges an antitrust violation.12 The court then declared Palmyra was “probably better suited” to sue than either the insurance companies, which were likely able to pass a large percentage of higher reimbursement rates on to policy holders and thus may have less incentive to sue, and policy holders, who likely only saw small increases in premiums and could be difficult to certify because of the individualized nature of the damages calculations.13
The court disagreed with the district court’s characterization of Palmyra’s damages as “highly speculative,” stressing it would be possible for a lower court to determine lost revenue from the diversion of patients.14 Likewise, the court did not believe there was a risk of duplicative recoveries, because the hospital alone suffered the damages resulting from diverted patients.15 Finally, Palmyra would “certainly be able to efficiently and effectively enforce any judgment it obtained,” due to its significant financial and legal resources and its incentive to recoup lost profits.16
Because the Eleventh Circuit determined that Palmyra suffered an antitrust injury and qualified as an efficient enforcer of the antitrust laws, it held that Palmyra met the requirements to seek damages under the Clayton Act, as well as the less-demanding standard to seek an injunction.17
Conclusion
Although courts are sometimes wary of rivals using antitrust laws against their competitors, as motivations for such suits could be at odds with the goals of antitrust law, the Eleventh Circuit was willing to parse through the market in which the hospitals and insurance companies were operating in order to determine who ultimately would bear the costs of an illegal tying arrangement. Here, the court determined that although Palmyra would suffer a unique injury in the way of lost business, consumers likely would also feel an effect. Thus, the court was willing to extend standing to the rival hospital. Such a decision could open the door to similar challenges in other states with CON requirements, particularly in areas with limited healthcare competition.18
