Hospital wins antitrust appeal.

Byline: Tim Christie The Register-Guard

In 2003, McKenzie-Willamette Medical Center and PeaceHealth spent countless hours in pretrial negotiations, millions of dollars on attorney fees and 13 days in a Portland courtroom to determine whether PeaceHealth was competing unfairly against its smaller rival. A jury sided with McKenzie-Willamette, ordering PeaceHealth to pay $16.2 million.

On Tuesday, in a major victory for PeaceHealth, the 9th U.S. Circuit Court of Appeals overturned the jury's verdict and award, and sent the case back to the trial judge in U.S. District Court in Portland.

The three-judge panel also overturned U.S. District Judge Ancer Haggerty's decision to grant a summary judgment in favor of PeaceHealth on one key point before the trial, as well as the $1.6 million in attorney fees that PeaceHealth was ordered to pay McKenzie-Willamette.

PeaceHealth spokesman Brian Terrett said Tuesday that lawyers are still poring over the opinion, "but at first blush we're pleased with how the court has ruled."

"In some ways we feel vindicated," he said. "We've been trying to make the argument all along that we weren't engaged in antitrust activities."

McKenzie-Willamette is no longer involved in the litigation and referred inquiries to Cascade Health Solutions, a Eugene nonprofit organization created when McKenzie-Willamette became part of Triad Hospitals Inc. The jury award was owed to Cascade, which owns 20 percent of McKenzie-Willamette.

Cheryl Boyum, chief executive of Cascade Health Solutions, was out of the office Tuesday and no other company officials were available for comment.

Whether the two sides will do battle again at a retrial or will settle their differences over a conference table is not yet known.

Since a three-judge panel decided the case, Cascade Health Solutions could ask the full 9th Circuit Court of Appeals to hear the case. And the case ultimately could be appealed to the U.S. Supreme Court.

If no appeal is filed, the case would go back to U.S. District Court in Portland, where Haggerty could order a retrial. If the parties don't want to undergo the expense and risk of a second trial, they could attempt to reach a settlement.

"Our hope is that we can come to some kind of successful conclusion and close the book," Terrett said. "The conditions that led to this are a lot different now, and the relationship has improved. Ultimately what we're looking to do is figure out a way to work together and serve the health care needs of the community."

McKenzie-Willamette was an independent community hospital on the brink of financial ruin when it filed suit against PeaceHealth in 2002, but it was bought by Texas-based Triad Hospitals before the trial. Earlier this year, Triad was acquired by Tennessee-based Community Health Systems Inc.

At issue in the case is the conduct of PeaceHealth, the Bellevue-based owner of Sacred Heart Medical Center in Eugene and five other hospitals in the Northwest.

McKenzie-Willamette alleged in its 2002 lawsuit that PeaceHealth used its dominant market power to unlawfully exclude McKenzie-Willamette from lucrative contracts with health insurers in violation of federal antitrust law.

After a 13-day trial in October 2003, a jury found that PeaceHealth tried to monopolize the local health care market, engaged in price discrimination and unlawfully interfered with McKenzie-Willamette's relationships with health insurers.

Since the trial, Oregon's two largest insurers, Regence BlueCross BlueShield of Oregon and Providence Health Plans, have admitted McKenzie-Willamette to their preferred-provider health plans. The 58-page opinion filed Tuesday by the three-judge panel delves deeply into the arcane arena of federal antitrust law.

The appeals court looked first at the issue of bundling - the common business practice of offering discounts when a buyer purchases two or more products together, such as season tickets, fast food meals and home theater systems.

Depending on how the bundled discount is structured, it can be fair competition or illegal predatory conduct. Simply put, if the seller is selling the bundled products at below cost to harm a smaller competitor, it's illegal, the judges said.

In the hospital case, the PeaceHealth bundling involved primary care - the nuts and bolts services offered by both hospitals, such as delivering babies and setting broken bones - and tertiary care, which are specialty services offered at the time only by Sacred Heart, such as cardiovascular surgery and neonatal intensive care. (McKenzie-Willamette has since opened a cardiovascular surgery unit.)

McKenzie-Willamette alleged that PeaceHealth offered health insurers discounted prices if they purchased primary and tertiary care services as a package and excluded McKenzie-Willamette.

The 9th Circuit judges found that Haggerty incorrectly instructed the jury on what constitutes illegal bundling.

Because it vacated the jury's verdict on the bundling claim, the appellate court said it must also vacate the jury's findings that PeaceHealth engaged in price discrimination in its negotiations with health insurers, and that it interfered with McKenzie-Willamette's business relationships with insurers.

On another issue, the 9th Circuit judges also vacated Haggerty's pretrial ruling that granted a PeaceHealth request to throw out McKenzie-Willamette's allegation that PeaceHealth engaged in illegal tying - similar to bundling.