ANTITRUST AND HEALTH LAW - COURT OVERLOOKING STRICTER STANDARDS IN ANALYSIS OF SHERMAN ACT CLAIMS: METHODIST HEALTH SERVS. CORP. V. OSF HEALTHCARE SYS.
OSF Healthcare System operates SFMC located in Peoria, Illinois. (7) SFMC, a Level 1 trauma center with 616 beds, is the largest hospital in the area and is the exclusive provider of some inpatient services including some organ transplants and neonatal intensive care. (8) The Illinois Children's Hospital also operates within the pediatric unit at SFMC. (9) By comparison Methodist operates the second largest hospital in the area and is approximately half the size of SFMC, with 330 beds. (10)
As the exclusive provider of many essential services, SFMC is considered a "must-have" hospital for insurance companies. (11) When negotiating contracts with commercial insurers in the area SFMC leveraged this status into exclusive contracts with those insurers which classify SFMC as an "in-network" hospital and Methodist an "out of network" hospital. (12) This distinction makes seeking treatment more expensive for patients at Methodist and can even bar treatment outright under the terms of the exclusivity agreements between SFMC and insurers. (13) This case focuses on four contracts that favor SFMC, three between SFMC and commercial health insurers and one that dealt with healthcare for Caterpillar employees. (14) The exclusive contracts at issue here all take the form of either a preferred provider organization ("PPO") or health maintenance organization ("HMO") and a majority are from commercial insurers. (15)
Methodist's antitrust claims rest on both sections 1 and 2 of the Sherman Act. (16) Methodist alleged that SFMC's market power was used to coerce commercial insurers into excluding Methodist from insurer's provider networks by using threats that SFMC would withdraw from the payers' network to increase prices for its services. (17) SFMC, on the other hand, argued that Methodist had not been foreclosed from the market and that Methodist was still free to compete for patients covered by commercial insurers. (18) The court held that Methodist was not the representative of any insurer and therefore they did not have standing for their claim that SFMC's contracts forced consumers and insurers to pay substantially more. (19) The Seventh Circuit also found no evidence that Methodist could not have adapted to offer the exclusive service that SFMC offers in order to be competitive when the exclusive contracts expired. (20) Furthermore, the court found no evidence that the exclusive contracts between SFMC and commercial insurers had a significant exclusionary impact on Methodist. (21) The exclusive contracts were not held to be the long-term contracts which might foster the type of claim, and the court refused to interject in a situation where there is no evidence that SFMC did anything more than employ productive business tactics. (22)
In 1890, Congress passed the Sherman Act, recognizing the importance of legislating to address the growing problem of oppressive cartel and monopoly activity 23 Since its enactment, the Sherman Act has been the preeminent basis for antitrust regulation in the United States and represents the societal goal of striking a balance between fostering competitive behavior and protecting the players within those markets. (24) Although Congress sought balance, the Sherman Act looms as an omnipresent enforcer with a deliberately large net and harsh enforcement measures. (25) Avenues for private civil action, enforcement by the Department of Justice with fines up to $100 million for corporate violators, and the looming threat of treble damages certainly leaves little doubt about the statement Congress hoped to make on the importance of regulating monopolistic activity. (26)
Section 1 of the Sherman Act encompasses a wide range of conduct and prohibits any business conduct that unreasonably restrains trade. (27) Though deliberately broad in nature, Section 1 does not punish actors who engage in smart business practices but rather targets business entities that exhibit unreasonable, predatory conduct that results in a restraint of trade. (28) The United States Court of Appeals for the Seventh Circuit articulated this goal in Roland Machinery Co. v. Dresser Industries, Inc. (29) where the court held that even exclusion of multiple competitors over a lengthy period is not automatically unreasonable, especially considering that the purpose of a contract is to set limits or restrain trade to some degree. (30) The fear that this type of conduct would leave competitors without the ability to conduct business during the life of the agreement led to the reliance on "foreclosure" as an essential component of a court's evaluation of exclusive dealings arrangements and quest for balanced enforcement. (31) Courts, however, have been quick to clarify foreclosure alone is not enough and that "competition for the contract" is the type of dealing that should not be discouraged by antitrust laws. (32) The recognition of the vital economic role that fierce competition plays, in combination with the need to evaluate each claim on a case-by-case basis, has pushed the development of the "rule-of-reason" standard under which most Section 1 claims are evaluated. (33) This general standard employs a holistic, case-by-case evaluation of Section 1 claims and a balancing of pro-competitive effects against anticompetitive effects to determine whether the conduct in question violates the Sherman Act. (34)
In drafting Section 2 of the Sherman Act, Congress left the language intentionally ambiguous to allow adaptation to societal and economic changes, consistent with its common-law roots. (35) Section 2 of the Sherman Act is enforced similarly to Section 1, though it differs significantly in that it extends to unilateral conduct involving a single actor. (36) Section 2 makes actual or attempted monopolization illegal, with cases generally falling into four separate categories: (1) actual monopolization (37), (2) attempted monopolization (38), (3) joint monopolization (39), and (4) incipient conspiracies to monopolize (40). (41) The general standards for showing a violation of Section 2 of the Sherman Act are considerably more restrictive on a court's analysis than Section 1 standards. (42) However, both standards are more permissive than the per se rules that govern other conduct under Section 1. (43)
The conduct deemed to warrant per se analysis by courts have been given this designation reflects a recognition that such conduct is distinctly harmful. (44) Though most of these situations present themselves relatively infrequently, "bundling discounts" are often presented to courts in claims arising under the Sherman Act. (45) When evaluating bundling discounts, courts have primarily been concerned with the "discounters" syphoning business from more efficient businesses for no reason other than the "discounters" offering products or services that the other businesses do not (46) Because of this danger, the need to scrutinize bundling conduct more closely has been consistently recognized, though courts have struggled to settle on a single standard that best strikes the necessary balance between economic freedom and protective regulation. (47)
In Methodist Health Servs. Corp. v. OSF Healthcare Sys., the Seventh Circuit affirmed the district court's grant of summary judgment in favor of SFMC after finding that Methodist failed to show that the exclusive contracts in question had a significant exclusionary impact. (48) Methodist's main argument is that SFMC violated Sections 1 and 2 of the Sherman Act by persuading insurance providers to enter into exclusive contracts with them. (49) Methodist claimed that because of the exclusive nature of these contracts it was prevented from contracting with those insurers and, as a result, prevented from obtaining a sufficient volume of patients needed to invest in improvements which would have allowed Methodist to compete more effectively with SFMC. (50) The Seventh Circuit held that it was the extensive services offered by SFMC, not the predatory-type conduct that rises to a Sherman Act violation, that predictably attracted more commercial insurers however did not tailor their analysis to reflect this difference. (51) Additionally, the court reasoned that the short length of the contracts indicated that dire consequences on the market were not likely. Additionally, there was no evidence of the necessary exclusionary impact to show a breach of the Sherman Act based on the standard applied by the court. (52)
In Methodist, the Seventh Circuit, like the district court, correcdy identified and applied the "rule of reason" standard based on the alleged facts. (53) The facts, as they were presented by the district court, categorized the health care services provided by SFMC as one product. (54) Because of this categorization, the Court was not required to consider and correctly did not apply other stricter standards for conduct typically labeled more inherently dangerous than conduct that requires the application of the standard rules. (55) Though the application of the standards by the Court was facially correct, this decision represents a concerning view of a potential violator's conduct which essentially insulates the violator stricter, per se standards of review under the Sherman Act. (56)
The concern that per se standards are not being applied in this instance, where such standards would seemingly apply, stems mainly from the framing of products that SFMC and Methodist offer. (57) Both the district court and the Seventh Circuit highlight the different services provided by Methodist and SFMC as a relevant factor to explain the origin of Methodist's claims but both fail to account for these differences. (58) By erroneously considering all the services offered by the hospitals as one product the Court removes the essential element needed to invoke the perse standard that governs "bundling discounts" in which two or more products are involved. (59) Similar antitrust cases have categorized healthcare into three levels based on complexity with primary and secondary care representing relatively common medical procedures, like the type offered by both parties to this case, and the more complex tertiary care like that offered by SFMC. (60) The reluctance by the court to group similar products together permeates throughout other industries as well. (61) For example, cable companies often offer phone and internet services in addition to television service as a bundle, while courts that take on these cases consider the products separately. (62)
Correct consideration of Methodist's claims would have yielded multiple benefits, first affording Methodist the protections that the Sherman Act was designed to provide. (63) Additionally, and more importantly, correct use of a per se standard would shield future Sherman Act enforcement from being cited by violators to avoid being evaluated under those stricter, per se standards. (64) In classifying "bundling discounts" as inherently dangerous to the competitive landscape, numerous court decisions and scholarly articles have emphasized the need to analyze situations more strictly when there is a potential that they exist. (65) The way this case is framed, and the lack of consideration by the court on a crucial issue represents the need for clarification regarding when these standards should apply. (66) Swift legislative action or future judicial action contrary to the Methodist opinion is unlikely as it would open the door to a huge amount of litigation as these exclusive dealings and bundled discounts are widespread throughout the healthcare industry. (67) Opening the floodgates would certainly contradict the policy preferences of the healthcare industry, a major contributor of political funding, and likely deterring legislators from such action. (68)
Methodist represents a critical gap in guidance that can result courts missing their mark on analysis of antitrust cases. (69) The Sherman Act is in place to protect the overall health of the competitive marketplace, a quest for a balance, which becomes remarkably more difficult to achieve when courts are given such wide leeway in making crucial determinations, which can result in inconsistent enforcement. (70) Court decisions that fail to recognize the potential existence of uniquely harmful conduct, like "bundling discounts", or decisions that apply standards in an inconsistent manner seriously jeopardize courts' ability to mold the Sherman Act in the necessary fashion to ensure balanced enforcement. (71)
Andrew Hadeka *
* J.D. Candidate, Suffolk University Law School, 2019; B.A., State University of New York at Albany, 2016. Mr. Hadeka can be contacted at email@example.com.
(1) R. Hewitt Pate, Antitrust Law in the U.S. Supreme Court, U.S. dl.pt. of justice (May 11, 2004), https://www.justice.gov/atr/speech/antitrust4aw-us-supreme-court.
(2) Id. (providing brief description of Sherman Act development).
(3) 15 U.S.C. [section]1 (2012). The statute provides "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal." Id.
(4) 15 U.S.C. [section]2 (2012). The statute provides "[e)very person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony...." Id.
(5) Methodist Health Servs. Corp. v. OSF Healthcare Sys., 859 F.3d 408 (7th Cir. 2017) (finding no evidence of a Sherman Act violation). St. Francis entered into exclusive contracts with health insurance companies, preventing those same companies from contracting with Methodist Health Services, giving rise to this Sherman Act suit. Id. at 409.
(6) See id. at 411 (affirming the lower court's decision). The court state Methodist is competing with another hospital that offers more health care to insured patients. Id.
(7) See Peoria Area, OSF HEALTHCARE, https://www.osfhealthcare.org/saintfrancis/about/peoria/ (last visited May 1, 2018). "Peoria, the largest Illinois metropolitan area outside Chicago and St. Louis, is the home to a variety of commercial and industrial businesses including the world headquarters of Caterpillar, Inc. The Peoria region tri-county area consists of Tazewell, Woodford, and Peoria Counties." Id.
(8) See Methodist Health Servs. Corp. v. OSF Healthcare Sys., No. 1:13-cv-01054-SLD-JFH, 2016 U.S. Dist. LEXIS 136478, at *7-*8 (C. D. Ill. Sept. 30, 2016) (describing SFMC's resources and their importance in the local market). SFMC's main advantage is in their offering of "tertiary services", which involve advanced or specialized procedures when compared to primary or secondary care. Patient Care: About Your Medical Bills, johns hopkins Medicine, https://www.hopkinsmedicine.org/patient_care/billing4nsurance/insurance_footnotes.html (last visited May 1, 2018) (defining tertiary care services). Tertiary Care is defined as, "Specialized consultative care, usually on referral from primary or secondary medical care personnel, by specialists working in a center that has the personnel and facilities for special investigation and treatment." Id.
(9) Id. at 8 (stating that 136 of the beds at SFMC are dedicated to the Illinois Children's Hospital).
(10) See id. at 7 (giving size statistics for Methodist).
(11) See Methodist, 859 F.3d at 410. A "must-have" hospital is a term used within the healthcare industry which essentially indicates that insurers must contract with that hospital to stay competitive within the industry because of the level and type of services that are provided are considered essential. See generally Trauma Program, ILL. DEPT. OF PUB. HEALTH, http://www.dph.illinois.gov/topics-services/emergency-preparedness-response/ems/traumaprogram (last visited May 1, 2018) (explaining the essential characteristic of services Level 1 trauma center provides).
(12) See Methodist, 859 F.3d at 409-10 (illustrating the different designations of SFMC and Methodist within healthcare industry). The court articulated that "a 'must have' hospital [is] a hospital with which the insurer must have a contract to provide hospital services, because it provides certain inpatient services that the other hospitals in the tri-county area do not provide...." Id.
(13) See Andrew Ruskin, Unbridled Managed Care: When Consumers Experience Antitrust Welfare Loss from Exclusionary Contracts Between HMO Insurers and Health Care Providers, 6 health matrix 391, 393-95 (1996) (explaining background and development of HMO plans). See also James C. Dechene, Preferred Provider Organisation Structures and Agreements, 4 Ann. Health L. 35 (1995) (explaining PPO network development and characteristics). See also What's the Difference Between In-Network and Out-of-Network Benefits?, Blue Cross Blue Shield Blue Care Network, http://www.bcbsm.com/index/health-insurance-help/faqs/topics/how-health-insuranceworks/difference-between-in-network- out-of-network-benefits.html (last visited May 1, 2018) (describing in-network and out-of-network differences from insurer viewpoint). SFMC's exclusive contracts come in the form of either a PPO or HMO. See OSF Healthcare, 2016 U.S. Dist. LEXIS at *9-*13. These plans are common within the billion-dollar healthcare industry, which holds major fiscal power within the United States' economic and political spheres. See Jennifer Liberto, $600 Million Spent to Influence Health Care Debate, CNN MONEY (NOV. 18, 2009, 9:37 AM), http://money.cnn.com/2009/11 /18/news/economy/health_care_lobbying/.
(14) See OSF Healthcare, 2016 U.S. Dist. LEXIS at *9-*15. The three companies with which SFMC entered into exclusive contracts are Blue Cross Blue Shield, Humana, and Health Alliance. Id. Blue Cross Blue Shield is the largest commercial health insurer in the market, making up thirty-four percent of all payments at SFMC and Methodist in 2012. Id. at *9-*10. Humana is the second largest commercial insurer in the market making up ten percent of commercial payments. Id at *11. The third commercial insurer, Health Alliance, while considerably smaller than the top two, was still responsible for six percent of commercial payments in 2012. Id. Caterpillar is the largest employer in the tri-county area and has an exclusive "PPO" contract with SFMC. Id. at *9. Caterpillar offers employee health insurance plans through BCBS and United Healthcare, both of which are "self-funded" meaning Caterpillar pays for the plans while the insurance companies merely administer the medical claims. See Medical: Management, Support & Non-Bargained Hourly Employees & UAW-represented Employees, caterpillar, https://benefits.cat.com/en/healthcare/employee-medical.html (last modified Apr. 16, 2018).
(15) See Ruskin, supra note 13. All HMO's provide for prepayment for medical services with patients limited in their choices of medical providers. See OSF Healthcare, 2016 U.S. Dist. LEXIS at *9. Unlike the traditional fee-for-service model, HMO insurers are assuming a large portion of the risk and which leads them to attempt to lower prices. Id. The basic feature of a PPO is a limited panel of health care providers selected to control costs. See Dechene, supra note 13. Additionally, commercial insurers are the most lucrative for healthcare providers and because of this economic reality they are the focus of the Plaintiffs claims. See OSF Healthcare, 2016 U.S. Dist. LEXIS at *5.
(16) See Methodist, 859 F.3d at 408.
(17) OSF Healthcare, 2016 U.S. Dist. LEXIS at *16-*17 (summarizing basis for Methodist's claims).
Methodist alleged that St. Francis wielded market power because it is the only area hospital that provides certain essential services and was therefore what is known in the healthcare industry as a must-have hospital. It used that market power, according to Methodist, to coerce commercial payers into excluding Methodist from their provider networks and to pay greater than competitive rates by threatening to withdraw from the payers networks, thus making the payers' products less competitive in their marketplace.
Id. at *17.
(18) See id at *17-*20 (summarizing argument why Methodist was not foreclosed from the market). "(M]any Peoria employers offer their employees a choice between a St. Francis exclusive plan and a Methodist exclusive plan, meaning the exclusive contracts do not prevent employees from choosing Methodist." Id. SFMC also points out Methodist's "match program". Id. Since 2006, Methodist has operated this "match program" which waives all charges to "out-of-network" commercially insured patients above what they would have to pay if they received the same treatment at SFMC. Id. "The effect of the matching program is that care received out of network at Methodist is not more expensive to BCBS PPO insureds than care received in network at St. Francis...." OSF Healthcare, 2016 U.S. Dist. LEXIS at *20. Since the implementation of this program Methodist has seen annual increases in revenue from Blue Cross Blue Shield's "PPO" program, at a rate of between 5 and 10 percent annually. Id. at *17. Blue Cross Blue Shield's "PPO" plan had been exclusive to SFMC and overwhelmingly the most widely used plan in the market at roughly twenty times larger than Blue Cross Blue Shield's "HMO" program, which is the program that is exclusive to Methodist. Id. at *9-10.
(19) See id. (explaining Methodist's argument about effects to consumers). See also Methodist, 859 F.3d at 411 (rejecting Methodist's argument for lack of standing).
(20) Methodist, 859 F.3d at 410.
(21) See id. at 410-11 (explaining avenues of competition Methodist could use to win contracts).
(22) See id. (explaining characteristics of contracts which support court's holding). "Methodist has made its own exclusive contracts with insurance companies.... As we've said before, 'competition-for-the-contract' is a form of competition that antitrust laws protect rather than proscribe, and it is common." Id.
(23) See 15 U.S.C. [section]1 (2012); Legal Information Institute, Sherman Antitrust Act, Cornell L. Sch., https://www.law.cornell.edu/wex/sherman_antitrust_act (last visited May 1, 2018).
(24) See The Antitrust Lam, Fed. Trade Commission, https://www.ftc.gov/tipsadvice/competition-guidance/guide-antitrust- laws/antitrust-laws (last visited May 1, 2018) (describing general significance and scope of Sherman Act).
(25) See Robert H. Bork, legislative Intent and the Policy of the Sherman Act, 9 J. Law Econ. 7 (1966) (describing legislative intent as a balancing act between efficiency and restriction).
(26) See Legal Information Institute, supra note 23 (describing maximum penalties under the Sherman Act).
(27) See 15 U.S.C. [section]1. The extremely broad inclusion of "unreasonable" has been held to include a wide range of practices deemed anticompetitive including horizontal/vertical price fixing, and competitively motivated group boycotts. See Holmes & Mangiaracina, infra note 37, at [section]2:2. Interpreted on its face, the language of the statute could include nearly any business activity, however, courts have limited it to activity that is "unreasonably restrictive of competitive conditions". Board of Trade of City of Chicago v. U.S., 246 U.S. 231 (1918).
(28) See Board of Trade of City of Chicago, 246 U.S. at 231, 238 (denying a straightforward interpretation of what level of restraint constitutes violation). "Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence." Id. at 238.
(29) See Roland Machinery Co. v. Dresser Industries, Inc., 749 F.2d 380, 381 (7th. Cir. 1984) (analyzing the appropriate standard of review dealings under the Clayton Act).
(30) See Dresser, 749 F.2d at 394 (clarifying that exclusivity is not automatically illegal). See also Copperweld Corp. v. Independence Tube Corp., 104 S. Ct. 2731, 2739-40 (1984) (determining legality of relationship between parent and subsidiary corporations competing with similar corporations). While it is recognized that strong competition may leave the impression of a Sherman Act violation, this is certainly not the type of activity that it is intended to regulate. Id. The court in Copperweld stated that an efficient firm may take customers from an inefficient entity with the latter experiencing economic harms this result is simply how an efficient market operates. Id. See also Standard Oil Co. v. United States, 221 U.S. 1, 2 (1911) (finding a restraint of trade and monopoly in the oil industry). "The original doctrine that all contracts in restraint of trade were illegal was long since so modified in the interest of freedom of individuals to contract ...." Id.
(31) See Albert M. Kales, The Sherman Act, 31 Harv. L. Rev. 412, 414-15 (1918) (explaining the differing viewpoints about the judiciary's role in enforcing the Sherman Act). The difficulty with interpreting the Sherman Act does not necessarily lie within its terms, but instead in determining the threshold for violation under those terms. Id. See also U.S. v. Microsoft, 253 F.3d 34, 69-70 (D.C. Cir. 2001) (labeling the quantitative foreclosure threshold as "prudent"). Generally, courts will require a showing of between 30 and 40 percent foreclosure to proceed with a claim under the Sherman Act. E.g., Stop & Shop Supermarket Co. v. Blue Cross & Blue Shield of R.I., 373 F.3d 57, 68 (1st Cir. 2004).
(32) See Paddock Publ'ns. v. Chicago Tribune Co., 103 F.3d 42, 45 (7th Cir. 1996) (discussing importance and prevalence of competition for contracts). The court uses the example of the annual or biannual competition between tire manufacturers for the exclusive right to put their tires on new vehicles. Id. The actual result of this brand of competition is lower prices and consumer benefit. Id. See also Benjamin Klein, Exclusive Dealing as Competition for Distribution "On the Merits", 12 Geo. Mason L. Rev. 119 (2003) (analyzing the concept of competition "on the merits").
(33) See Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877, 881 (2007) (stating that "rule-of-reason" is accepted standard for evaluating claims under Section 1). See also, e.g., Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006) (stating that the "rule-of-reason" is the standard that is presumptively applied); Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717, 718 (1988) (explaining "rule-of-reason" standard is applied on a case-by-case basis to evaluate possible violation). See generally Jonathan M. Jacobson, Exclusive Dealing, "Foreclosure," and Consumer Harm, 70 ANTITRUST L.J. 311 (2002) (breaking down analysis of exclusive dealing arrangements under the rule of reason).
(34) See Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 49-50 (1977) (discussing application of "rule-of-reason" standard). "Under this rule, the fact-finding weighs all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition." Id. at 49; see also Robert A. Skitol & Kenneth m. Vorrasi, FTC v. Ac/avis: Inviting a More Nimble Rule of Reason, 28 Fall ANTITRUST 51 (2013) (discussing the continuous evolution of the rule-of-reason). Courts have differed on whether a quick-look approach is sufficient or whether more evidentiary development is necessary to properly enforce the Sherman Act. Id. at 52. Evidence suggests that courts may be opening the door for necessitating higher evidentiary requirements. Id.
Under the Mass. Board analysis, which is the essence of the quick-look idea, a restraint is presumed unlawful if it appears likely, absent an efficiency justification, to restrict competition and reduce output; if complaint counsel make a facial showing of likely anticompetitive effects, the burden shifts to the respondents to offer a plausible competitive justification for the restraint, and further inquiry of anticompetitive effect is unnecessary if respondents fail to do so.
Id. at 54.
Compare Mass. Bd. of Registration in Optometry, 110 F.T.C. 549, 603-04 (1988) (stating no bright line test separating per se rule from "rule of reason" analysis) with Polygram Holding, Inc. v. F.T.C., 416 F.3d 29, 33-34 (2005) (advocating the continued development of a nuanced, case-specific evaluation).
(35) See The Purpose of Section 2 and Its Important Role in Sound Antitrust Enforcement, U.S. Dep't of Justice 5, 7, available at https://www.justice.gov/sites/default/files/atr/legacy/2008/09/12/236681_chapterl.pdf (last visited May 1, 2018). The drafting and unchanged language of Section 2 show the reliance that the drafters placed on judicial interpretation to form the meaning of the Sherman Act. Id. at 8. This reliance shows the critical nature of judicial precedent and the focus that judicial opinions are correct. Id. at 15.
(36) See 15 U.S.C. [section] 2. See generally Antitrust Enforcement Guidelines for International Operations, U.S. Dep't of Justice & Federal Trade Comm'n (Apr. 1995), https://www.justice.gov/atr / antitrust-enforcement-guidelines-international-operations. "Conduct that the Department prosecutes criminally is limited to traditional per se offenses of the law, which typically involve price-fixing, customer allocation, bid-rigging or other cartel activities." Id.
(37) See William Holmes & Melissa Mangiaracina, antitrust L. handbook [section] 3.3 (2017). The offense of actual monopolization under Section 2 includes: (1) the possession of monopoly power in the relevant market, and (2) the willful acquisition or maintenance of that power. Id.
(38) See id. Attempted monopolization includes four basic elements. Id. First, it is necessary to establish the product and geographic scope of the relevant market. Id. Second, it must be shown that the defendant has engaged in predator)' conduct likely to result in monopolization of the market. Id. Third, the plaintiff must prove that the defendant intended to acquire monopoly power within the market. See Holmes & Mangiaracina, supra note 37, [section] 3.3. Fourth, the defendant's actions and market position must have reached the stage such that there is a dangerous probability of success in acquiring monopoly power. Id.
(39) See id. Joint monopolization occurs when firms combine, and the combination creates or furthers monopoly power in a certain market. Id.
(40) Id. "Joint monopolization occurs when firms that together possess shared monopoly power combine to further enhance or maintain their power through competitively unreasonable means." Id.
(41) See Holmes & Mangiaracina, supra note 37, [section] 3.2 (outlining the applicable standards for a section 2 anti-trust claim).
(42) See Diaz Aviation Corp. v. Airport Aviation Services, Inc., 716 F.3d 256, 265 (1st Cir. 2013). The elements of attempted monopolization under the Sherman Act are (1) that the defendant has engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power. Id.
(43) See id. at 256 (highlighting the relative permissive nature of non-perse standards).
(44) See Thomas A. Lambert, Evaluating Bundled Discounts, 89 Minn. L. Rev. 1688, 1700-1701 (2005) (discussing application of perse analysis in bundling cases).
(45) See Lambert, supra note 44, at 1701. "A 'bundled discount' occurs when a seller offers a collection of different goods for a lower price than the aggregate price for which it would sell the constituent products individually." Id at 1689. like the exclusive dealing provisions discussed previously, bundling discounts are widely found throughout the modern economy. Id. See also LePage's Inc. v. 3M, 324 F.3d 141, 155 (2003). The type of bundling discounts which are generally prohibited are those that allow a monopolist to foreclose significant portions of the market to a potential competitor merely because that competitor does not offer such a diverse product line. Id. Courts typically apply similar, stricter criteria for bundling discounts under both Sections 1 and 2 in an effort to deter conduct that violates the Sherman Act. Tying Arrangements, Practical Law Practice Note w-001-4073 (WestLaw 2017).
(46) See LePage, 324 F.3d at 155 (discussing the evil that bundling discounts can produce).
(47) See International Travel Arrangers v. NWA, Inc., 991 F.2d 1389, 1394 (8th Cir. 1993) (employing a more rigid per se standard of illegality). The Third Circuit Court of Appeals pushed back on the Eighth Circuit's analysis by holding that the standard used in International Travel applied to an "oligopoly" market. Id. See also LePage, 324 F.3d at 151. The Third Circuit distinguished the facts in LePage, holding that it was a "monopoly" situation had "unconstrained market power" which would allow them to drastically raise prices once its smaller competitors had been pushed out of the market. Id at 15. Five years later the Ninth Circuit rejected the LePage analysis, arguing that it was overly subjective and said:
To prove that a bundled discount was exclusionary or predatory for purposes of a monopolization or attempted monopolization claim under [section] 2 of the Sherman Act, the plaintiff must establish that, after allocating the discount given by the defendant on the entire bundle of products to the competitive product or products, the defendant sold the competitive product or products below its average variable cost of producing them.
Cascade Health Solutions v. PeaceHealth, 515 F.3d 883, 910 (9th Cir. 2008). See also Lambert, supra note 44 (discussing difficulty in articulating one concrete standard). See generally Evaluating Bundled Discounts, supra note 45 (discussing the dichotomy of court decisions and disagreement over different schemes of analysis) Philip E. Areeda et al., Antitrust Law (1978) (proposing one possible standard to evaluate "bundling discounts"). The struggle with striking a balance between underdeterrence and overdeterrence is the crucial struggle facing judicial interpretation. Concern with Underdeterrence and Overdeterrence, U.S. DEPT. OF JUSTICE, https://www.justice.gov/atr/competition-and-monopoly-single-firm-conduct-under-section-2sherman-act-chapter-1 (last visited May 1, 2018).
(48) See Methodist, 859 F.3d at 410-11.
(49) See id. at 409 (summarizing Methodist's claims). "Methodist had pleaded state-law claims as well, which the district judge also rejected." Id.
(50) See id. at 409-10 (describing damages claimed by Methodist because of exclusive contracts).
(51) See id. at 410 (explaining the prevalence and importance of exclusive dealings contracts). The Seventh Circuit, drawing from its earlier decision in Paddock Publications, Inc. v. Chicago Tribune Co., stated "competition-for-the-contract is a form of competition that antitrust laws protect rather than proscribe, and it is common." Id. at 411. This Reinforced the idea that Sherman Act enforcement must be balanced with economic considerations. See Methodist, 859 F.3d at 410. See also Coppenveld Corp., 467 U.S. at 752. In Copperweld, the court determined that "better" businesses may draw customers away from lesser businesses and this is not only not in violation of the Sherman Act but is in-fact a positive contribution to competition. Id.
(52) See Methodist, 859 F.3d at 410-11. The Court conceded that some exclusivity agreements do violate the Sherman Act however declined Methodist's argument that this situation warranted that finding. Id. In its reasoning, the court applied the two-part Roland test to analyze exclusive dealing arrangements. Id. at 410. See also Roland Machinery Co., 749 F.2d at 380. In Roland, the court states that a plaintiff must show "that it is likely to keep at least one significant competitor of the defendant from doing business in a relevant market". Id. Without this element the court reasons that there cannot possibly be any harm from competitors. Id. at 394. If this element can be shown, the Seventh Circuit then states that a plaintiff must show that the probable effect of the exclusion is a raise in prices above the "competitive level", essentially weighing the anticompetitive effects with any potentially beneficial effects. Id. at 394. The Seventh Circuit points to the relatively short length of the contracts, namely the BCBS PPO contract which accounted for half of the commercially insured patients covered by SFMC, and the annual opportunity for Methodist to compete for these contracts to deny Methodist's contention that it satisfied the first element of the test. Methodist, 859 F.3d at 410-11. The court continues by acknowledging that Methodist failed to offer any theory of how the exclusive contracts by SFMC could have caused prices to raise, meaning that neither of the elements existed to show a violation. Id. at 411.
(53) See Methodist, 859 F.3d at 410. See also Methodist Health Servs. Corp. v. OSF Healthcare Sys., No. 1:13CV01054-SLD-JEH, 2016 U.S. Dist. LEXIS 136478, at *8-*10 (C.D. Ill. Sept. 30, 2016).
(54) See Methodist, 859 F.3d at 410 (categorizing health services offered by hospitals as one product despite Methodist offering different services). Methodist "provides certain inpatient services that the other hospitals in the tri-county area do not provide, such as solid-organ transplants, neonatal intensive care and other sophisticated pediatric care, and, probably most important, a Level 1 trauma center, certified by the state." Id. See also Methodist, 2016 U.S. Dist. LEXIS 136478, at *8*10.
(55) See Cont'l T.V., Inc., et al. v. GTE Sylvania Inc., 433 U.S. 36, 49-50 (1977). Per se rules of illegality require the court to make broad generalizations about particular commercial conduct. Id. at n.15. The probability that anticompetitive consequences will result from a practice and the severity of those consequences must be balanced against its procompetitive consequences, which makes analyzing some conduct under these rules inappropriate. Id. See also Lambert, supra note 44. A "collection of goods" is necessary to warrant evaluation under the per se standards. Id.
(56) See supra notes 46-47 and accompanying text.
(57) See Methodist, 859 F.3d at 410 ("[T]he destruction of competition in health services might result in sky-high prices for such services and the bankruptcy of the other hospitals in the market, such as Methodist"). See also OSF Healthcare, 2016 U.S. Dist. LEXIS 136478 at *8-*10. The district court also classifies the relevant market as "inpatient medical services." Id. at *1.
(58) See OSF Healthcare, 2016 U.S. Dist. LEXIS 136478 at *8-*10. In laying out the facts, the district court confirms that SFMC offers some health services that no other hospitals in the area offer. Id. See also Patient Care: About Your Medical Bills, supra note 8 (discussing classifications of medical services).
(59) See Lambert, supra note 44. "Bundled discounts come in a variety of forms. The simplest form is the 'package discount,' in which a seller charges a lower price for a group of disparate goods sold together than for the same collection of goods purchased separately." Id. at 1693-94. A defining characteristic of "bundling discounts" are the multi-product factor which excludes single-product situations. Id. The main purpose for this is that multi-product discounts may drive more efficient sellers out of the market only because they do not offer the same variety of products. Id. at 1695.
(60) See PeaceHealth, 515 F.3d at 901-02 (describing differences between three care levels). See Patient Care: About Your Medical Bills, supra note 8 (differentiating care levels with regards to medical bills and insurance).
(61) See e.g., Ortho Diagnostic Sys., Inc. v. Abbott Labs., Inc., 920 F. Supp. 455, 467 (S.D.N.Y. 1996); LePage's Inc. v. 3M, 324 F.3d 141,154 (3d Cir. 2003); SmithKline Corp. v. Eli Lilly & Co., 575 F.2d 1056,1062 (3d Cir. 1978).
(62) See Ken Belson, Dial M for Merger, N.Y. times (Jan. 28, 2005), http://www.nytimes.com/2005/01/28/business/dial-m-for-merger.html.
(63) See Lambert, supra note 44. A notedly pro-protectionist scheme of evaluation is advocated by a leading antitrust treatise, which has gained traction following some controversial antitrust decisions. Id at 1731. This treatise also carries a lot of weight as U.S. Supreme Court Justice, Stephen Breyer, once noted the prominence it carried throughout the legal community. Mehta, Jal, Eangdell's West Wing Renamed in Honor of Areeda, Harv. Crimson (Apr. 27, 1996), http://www.thecrimson.com/article/1996/4/27/langdell-west-wing-renamed-to-honor/. The treatise would essentially require Methodist to show that a hypothetically efficient competitor would not be able to compete, not necessarily that Methodist themselves would not have been able to compete, a more lenient objective standard. See Philip E. Areeda et al., antitrust Law (2nd ed. 1978). This is a relatively low bar Methodist would have to reach in order to attain relief and, based on the facts, would likely have been successful in making this argument. Id.
(64) See The Purpose of Section 2 and Its Important Role in Sound Antitrust Enforcement, supra note 35 (discussing the importance of judicial precedent in development of Sherman Act).
(65) See Methodist, 859 F.3d at 411. The district court, in laying out the alleged facts of the case, makes it clear that their analysis hinges on the "rule of reason" standard of review. Id. This general standard of review for claims under the Sherman Act permits a more comprehensive approach than what the analysis for "bundling discounts" would be evaluated under. See supra notes 44-46 and accompanying text (describing characteristics of bundling discounts). As previously discussed, there are stricter standards in place for conduct that is considered more dangerous, which includes bundling discounts. See supra note 45 and accompanying text (highlighting importance of stricter standard based on possible harms). Furthermore, on appeal the Seventh Circuit does not recognize the erroneous scope of the alleged facts and affirms the lower court decision. Methodist, 859 F.3d at 409-10.
(66) See Lambert, supra note 44. While it is recognized that "bundling discounts" can be found throughout our economic system there is a fine line which separates legal conduct with illegal conduct. Id. In, 2002 a $519 million antitrust judgement was levied against a hospital bed maker because of impermissible bundling conduct and later the Third Circuit hit the 3M Corporation with a $68 million antitrust judgement for the same conduct. Id. It is clear, based on these two prominent examples that courts have not shied away from applying "bundling discount" standards to find corporate action illegal. Id. There are multiple approached which courts have undertaken when evaluating "bundling discounts". Id. One approach, finding bundling discounts illegal if the plaintiff is equally efficient and still unable to compete is often alleged by potential plaintiffs. Id. at 1726. Another, though notedly pro-protectionist, scheme of evaluation is advocated by a leading antitrust treatise which has gained traction following some controversial antitrust decisions. Lambert, supra note 44. "Failure to make proper distinctions will either unnecessarily perpetuate a monopoly harming consumers or disrupt the dynamic process of competition that is so vital to economic growth and prosperity." Concern with Underdeterrence and Overdeterrence, supra note 47. There has historically been concern that once a court fails to act and monopoly power subsequent destroys competition, it can be nearly impossible to repair it. Id. This further adds to the necessity that courts thoroughly and correctly evaluate claims of Sherman Act violation. Id.
(67) See Lambert, supra note 44, at 16-17 (describing slow pace of legislative action on clarifying application of "bundling discounts"). After the LePage decision, both the business and judicial communities showed concerns with this decision. Id. The Supreme Court refused to take up the case after the Solicitor General suggested that the court stand fast until the academic community had been able to look at more thoroughly at the issues. Id. at 2. To muddy the waters even further, the health care industry is pulled in numerous directions to the tune of hundreds of millions, if not billions, of dollars in political influence. Jennifer Liberto, $600 Million Spent to Influence Health Care Debate, CNN MONEY (Nov. 18, 2009), http://money.cnn.com/2009/ll/18/news/economy/health_care_lobbying/ (describing the immense lobbying efforts to influence the new healthcare bill drafted in 2009).
(68) See Liberto, supra note 67 (illustrating the scope of healthcare industry's political contributions). Lobbying by drug companies makes up nearly half of all health sector lobbying. Id. Many health industry executives are defending their spending because, they argue, a large sector of the economy is being reformed. Id.
(69) See Sean P. Gates, Antitrust By Analogy: Developing Rules For Loyalty Rebates and Bundled Discounts, 79 Antitrust L.J. 99, 115-116 (2013) (describing unsure state of standard for evaluating bundling discounts). The Third Circuit compared the LePage and Concord Boat cases and found conflicting standards when dealing with monopolistic behavior. Id. LePage focuses on letting the jury decide, while Concord Boat disagrees and proclaims that leaving it to a jury is a waste of time and resources because the appellate court may find that no jury issue exists here. Id.
(70) See supra note 35, at 6. When the text of the Sherman Act is left intentionally ambiguous and relies mostly on judicial interpretation for enforcement, all inconsistencies within judicial evaluations are felt on a magnified scale. Id. Additional legislative guidance is important to avoid irreparable harm to competitive environments and maintain the essential economic balance. Id. at 13.
(71) See Gates, supra note 69, at 114 (explaining the Ninth Circuit's view that bundled discounts are not considered exclusionary conduct). The Ninth Circuit noted LePage's dissent and concluded that a suitable test was not set in determining what is permissible price competition in the retail market. Id. at 117. The Ninth Circuit would go on and adopt a predatory pricing model for bundled discounts, and that the exclusionary conduct element of a claim that falls under [section] 2 of the Sherman Antitrust Act cannot be resolved by referring to bundled discounts unless the discounts themselves result in prices that are lower than the defendant's costs. Id.
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|Publication:||Journal of Health & Biomedical Law|
|Date:||Sep 22, 2018|
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