The California Court of Appeal recently released for publication its unanimous decision in Marsh v. Anesthesia Medical Group, --- Cal. App. ---, Super. Ct. No. 37-2007-00082724-CU-BT-CTL (Nov. 1, 2001). After Marsh, it will be more difficult for individual physicians to bring antitrust and unfair competition claims against California hospitals based on alleged harm arising from a hospital's medical staff rules and standards.
Marsh is notable because it incorporates into California law, for the first time, the reasoning of a number of federal cases decided under the federal Sherman Antitrust Act.
The policy underlying the Marsh decision is a welcome reluctance by the judicial branch to interfere with legitimate hospital administrative and staffing decisions. In particular, the Court of Appeal signals to trial courts across California that in analyzing antitrust and unfair competition claims brought by individual practitioners against hospitals and other medical groups, courts must carefully search the allegations to determine not only that the individual doctor has been harmed, but also that market-based harm has occurred—at the very least, in the form of overall reduced quality of health care, or a market-wide increase in prices attributable to the actions alleged in the complaint. This means, for example, that a physician suing a hospital because he believes an exclusive or "closed" clinical department arrangement has harmed that physician competitively must allege, plainly in his complaint, more than just harm to that physician.
Background: Dr. Marsh's Grievance Against the Hospital
In her complaint, Plaintiff M. Lou Marsh—an anesthesiologist—made allegations all too familiar to medical staff and hospital leaders, alleging that she had been kept from practicing at Scripps Memorial Hospital—La Jolla by its policies regarding emergency call duties and meeting attendance. Dr. Marsh claimed that the Hospital and its anesthesiology medical group (with which the Hospital contracted to provide anesthesia services on a non-exclusive basis) combined to implement certain policies that rendered her unable to practice at the Hospital. The Hospital, for example, implemented a policy requiring all doctors in the anesthesiology department—including Dr. Marsh—whose activity met a certain threshold to be responsible for a certain amount of emergency call, which she alleged she was not able or qualified to fulfill. In her complaint, Dr. Marsh contended that the Hospital's adoption of these policies amounted to a "horizontal group boycott" in which "entities at the same level combine to deny a competitor at their level the benefits enjoyed by members of the group."
The Court of Appeal's Decision: A Higher Threshold for Physician Antitrust Claims
The Court of Appeal determined that even under the legal standard favoring plaintiffs at the demurrer stage, the trial court correctly determined that Dr. Marsh had failed to properly allege an antitrust claim. In doing so, it established the following legal principles in California law:
- Merely conclusory allegations of "manifestly anticompetitive" conduct are insufficient, as a matter of law, to allege a per se antitrust violation.
- Where plaintiffs allege a vertical conspiracy or boycott, the alleged conduct must be analyzed under the "rule of reason."
- Because the "rule of reason" is the proper analysis, plaintiffs must factually allege "antitrust injury"—that is, the injury cannot be suffered by the plaintiff individually, but must reflect some "anticompetitive effect in the larger, interbrand market."
- To prove "antitrust injury" in the relevant market, a plaintiff must allege what the factual market is, and how the market has been harmed as a result of the alleged anticompetitive acts.
- When alleging anticompetitive behavior in the medical field, a plaintiff must allege actions that have market-wide anticompetitive effects, including "negative impacts upon overall prices, quantity or quality of medical services, resulting from the plaintiff's absence as an available provider at the facility." Alleging individualized harm to the plaintiff alone will not do.
- A plaintiff must allege more than "a [hospital's] staffing decision" to allege antitrust injury. Instead, a plaintiff must demonstrate that the "effect of the conduct . . . is to deny patients reasonable access to any health care."
- Judicial deference must be paid to managerial decisions concerning operation of a hospital because hospitals "have special expertise in promoting quality of care and in making workable administrative arrangements."
- As such, "before a court will interfere with how one hospital staffs its physician needs, a strong showing would be required that the purpose and effect of the anticompetitive conduct . . . was outside of reasonable professional standards."
The Court of Appeal also sustained the lower court's ruling on Dr. Marsh's unfair competition claims brought under California Business & Professions Code Section 17200. It concluded that she failed to demonstrate an "incipient violation of antitrust laws," particularly given the courts' historical reluctance to interfere with how "hospital contracting and staffing policies may be applied to individual practitioners." The court also held that the relief Dr. Marsh sought—including an injunction against hospital policies regarding emergency call duties—was inappropriate.
In addition to ruling in the Hospital's favor on Dr. Marsh's antitrust and unfair competition claims, the Court of Appeal affirmed the trial court's dismissal of all of Dr. Marsh's tort claims against the Hospital, including intentional and negligent interference with prospective business advantage, and intentional and negligent infliction of emotional distress. The Hospital thus prevailed on all claims brought against it in the lawsuit. Dr. Marsh was granted leave to amend the complaint to pursue limited contract and tort claims against the Hospital's co-defendant, the anesthesiology group of which Dr. Marsh was formerly a member.
The Marsh decision adds a necessary layer of protection for hospitals and medical groups that exercise sound business judgment pursuant to "reasonable professional standards." To that end, future courts should be skeptical of complaints that contain individualized claims rooted in professional judgments that are regularly made by medical professionals.