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By Paul Sullivan 
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The Third Circuit’s recent decision in West Penn Allegheny Health System, Inc. v. UPMC, 627 F.3d 85 (3d Cir. 2010), represents a positive development for plaintiffs seeking standing to challenge the anti-competitive business practices of dominant healthcare providers and insurers. There, the Third Circuit held that allegations of a conspiracy between a dominant healthcare provider and dominant insurer to artificially depress reimbursement rates paid to the plaintiff health care provider were sufficient to give rise to an antitrust injury. Id. at 105.

Market concentration in healthcare has created an environment where there is a significant risk of abuse of market power. For example, Competition Law360 recently reported that the Department of Justice reached a settlement with a Texas provider, United Regional, accused of maintaining a local monopoly by “bullying” health insurers into not working with its competitors. The DOJ’s challenge to the most favored nation clauses in Blue Cross Blue Shield of Michigan’s contracts with hospitals also has received considerable attention.

In a March 2010 report, the Massachusetts Attorney General found that reimbursement rates paid to health care providers were not correlated to quality of care (as measured by the insurers themselves), but instead to the market position of the hospital or provider group. Office of Att’y Gen. Martha Coakley, Examination of Health Care Cost Trends and Cost Drivers, REP. FOR ANN. PUB. HEARING, Mar. 16, 2010. The report concluded that absent reform, the healthcare provider market will become “dominated by very expensive ‘haves’ as the lower and more moderately priced ‘have nots’ are forced to close or consolidate with higher paid systems.”

In this challenging market environment, the “have nots” need to consider all available options, including remedies available to them under antitrust laws. In recent years, smaller healthcare providers have pursued antitrust actions against larger competitors and dominant insurers under a number of different theories,  including abuse of monopoly power, attempted monopolization, tying and bundling. Even if an antitrust violation can be established, the antitrust injury requirement poses a significant hurdle to plaintiffs seeking to challenge the anti-competitive business practices of its competitors.

In order to establish antitrust injury, it is not enough for a private plaintiff to show injury causally related to an antitrust violation.  Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 334 (1990). Antitrust injury does not arise “until a private party is adversely affected by an anticompetitive aspect of the defendant's conduct."  Id. at 339. Courts frequently remind plaintiffs that the antitrust laws “protect competition, not competitors.” Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962). “A competitor 'may not complain of conspiracies that . . . set minimum prices at any level'” because higher prices harm the intended beneficiaries of antitrust laws, consumers. Atl. Richfield, 495 U.S. at 337.

In Palmyra Park Hospital v. Phoebe Putney Memorial Hospital, 604 F.3d 1291, 1303-07 (11th Cir. 2010), the Eleventh Circuit held that Palmyra Park Hospital had antitrust standing to assert claims against Phoebe Putney Memorial Hospital. Palmyra Park alleged that Phoebe Putney leveraged a state-granted monopoly to tie favorable reimbursement rates for those services to a refusal to include Palmyra in the insurance company provider network. Id. at 1294. The Court determined that Palmyra Park’s “all but inevitab[le]” loss of income resulting from the hospital’s out of network status was not too speculative to permit it to have standing. Id. at 1304.

The Palmyra Court clearly reached the proper result. It seems obvious that once a hospital is out of network it will get few, if any, patients from policyholders of the insurance company at issue. The exclusion of a competitor from the market means fewer choices and higher prices for consumers, which is exactly the type of harm the antitrust laws seek to avoid. See id. at 1303.

A tougher question is presented where a provider complains that its reimbursement rates are artificially low because of the anticompetitive actions of its competitors or a combination of its competitors and a dominant health insurer. In West Penn Allegheny Health System v. UPMC, No. 09-CV-0480, 2009 U.S. Dist. LEXIS 100935, at *66-70(W.D. Pa. Oct. 29, 2009), plaintiff argued that but for the alleged conspiracy between UPMC and Highmark, it would have received millions of dollars in additional reimbursement from Highmark. Id. at 67. The trial court held that allegations that a plaintiff would have received higher reimbursement rates, and thus would have been more profitable, were not an injury the antitrust laws were designed to protect. Id. at 72. In reaching this decision, the court concluded that the relief requested by the plaintiff — ending any discrimination in reimbursement vis-à-vis the dominant hospital group — was likely to increase the costs of health care in Western Pennsylvania. Id. at 69-70.

The Third Circuit reversed the ruling of the lower court, finding that West Penn had indeed alleged an antitrust injury. West Penn, 627 F.3d at 101-05. The court rejected defendants’ argument that Highmark’s alleged payment of artificially depressed reimbursement rates to West Penn did not constitute antitrust injury because the result was lower insurance rates for consumers. Id. at 104. The court reasoned that even if Highmark offered lower premiums, the premium reduction may not have benefitted consumers because it was achieved only by “taking action that tends to diminish the quality and availability of hospital services.” Id. Although the court noted that it was alleged that Highmark did not pass on savings to its insureds, the court’s opinion focuses on the injury to competition in the relevant market. See id.

A Boston Globe investigation published shortly before the Massachusetts Attorney General’s report noted that the healthcare providers that did not have market leverage were struggling to retain doctors and stay current with medical technology. Scott Allen and Marcella Bombardieri, A Health Care System Badly Out of Balance, THE BOSTON GLOBE, Nov. 16, 2008. Under the Third Circuit’s well-reasoned decision, the inability to compete to retain quality people and obtain state of the art equipment due to inadequate revenue would be sufficient to meet the antitrust injury requirement if there is a nexus to an alleged antitrust violation. The decision recognizes that hospitals making less money for the same services cannot remain competitive, leaving dominant providers as the only game in town. See West Penn, 627 F.3d at 92 (“[T]he more dominant UPMC becomes, the more leverage it gains to demand greater reimbursements from Highmark.”).

If it is true that, “[u]nfettered competition among hospitals is vital to ensuring that patients receive high-quality-low cost health care” as Assistant Attorney General Christine Varney proclaimed in a statement announcing the United Regional settlement, then West Penn is a positive development not only for potential plaintiffs, but for consumers as well. The case is stayed pending the defendants’ petitions for writ of certiorari before the United States Supreme Court. West Penn Allegheny Sys. v. UPMC, No. 09-CV-0480, 2011 U.S. Dist. LEXIS 8903, at *4-9 (W.D. Pa. Jan. 31, 2011).  The Supreme Court has not been a favorable venue for plaintiffs in antitrust cases. In granting the conditional stay requested by the defendants, the district court noted that nearly every antitrust decision issued by the Supreme Court in the past five years favors the defendant. Id. at *6-7. Smaller healthcare providers and consumers hope that this trend does not continue in West Penn.