Large hospitals in relatively small health care markets risk antitrust exposure if they use their market power to compete against upstart ambulatory surgical centers and their investor physicians. A classic case in point is the recent decision by U.S. District Court Judge David N. Hurd in Rome Ambulatory Surgical Center, LLC vs. Rome Memorial Hospital, Inc. and Greater Rome Affiliates, Inc., 5:01-cv-23, (N.D. N.Y, 2004) issued in lated December, 2004 granting in part and denying in part the hospital's motion for summary judgment.
The plaintiff, a now defunct ambulatory surgical center (the "Surgical Center"), centers its case upon alleged illegal exclusive contracts between Blue Cross and Blue Shield and MVP Health Plan and the defendant, Rome Memorial Hospital (the "Hospital")as well as alleged acts of intimidation by the Hospital to interdict physician referrals to the Surgical Center. The court granted a number of tying, leveraged monopolization and state law claims, but is ordering a trial on several important claims in the action.
Perhaps the biggest hurdle achieved by the Surgical Center was the court's ruling that the injury that it complained of was the type of injury that the antitrust laws were designed to prevent: that is, injury to competition and not just to competitors. The court found that the Surgical Center demonstrated a prima facie case that the Hospital had sufficient market power to cause an adverse effect on competition as a whole in the relevant product and geographic markets. There was no dispute that the relevant product market was the market for ambulatory surgery services. The geographic market is disputed.
The court held that the Surgical Center was unable to directly link the insurance plans admitted need to use the Hospital to do business in the market to the "exclusive contracts" they entered into with the Hospital, but Blue Cross Blue Shield testimony that it viewed the advent of the surgical center as an opportunity to negotiate lower rates with the Hospital helped demonstrate that the Hospital had market power in support of the Surgical Center's claim of attempted monopolization under Section 2 of the Sherman Act. (The parties continue to have a war of experts over the proper application of the Eliza-Hagarty method of market definition.)
The court found that the Surgical Center had demonstrated a prima facie case that the Hospital engaged in illegal exclusive contracts in violation of Section 1 of the Sherman Act. It demonstrated anti-competitive market effects in the elimination of the Surgical Center and its lower prices, higher patient satisfaction and broader choice of consumer options. It showed that the exclusive conracts foreclosed a significant degree of trade. The court rejected the Hospital's defense that it was acting in self defense to compete against physician owner "cherry picking" of the best patients at the Surgical Center as being not a recognized defense to an illegal exclusive contract claim.
Interestingly, the Surgical Center was able to use the Hospital's conduct in opposing the Center's certificate of need application as a basis of showing conspiratorial intent on the part of the Hospital and several "affiliated" physician groups. The Hospital actively solicited letters of opposition to the Surgical Center from its physicians and received a high number of responses from its favored physicians. The Hospital also passed a bylaw that made ownership in a competitor a factor to be considered in the application for new or renewing privileges. Although the bylaw was never used the message to upstart physicians was clearly there.
The conduct of the insurance companies in this pagent, from the facts stated in the opinion, seem to be less than admirable. They presumably have a significant interest in maintaining open and competitive markets for medical and surgical services on behalf of their subscribers. It appears as though here they may have been seduced by short term advantage in favor of long term subjugation by the hospital. There are many more of these stories to come and most of them will be from the small and medium sized markets.
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