The recent growth of direct competition between hospitals and members of their medical staff is a result of many factors including the contraction of the economic pie shared by both, the dramatic cost reduction in scanning and other equipment available to physicians, the rush by hospitals several years ago to acquire physician practices to build economic muscle to combat managed care and, the growth of physicians and public interest in specialty hospitals unencumbered by offset losses for necessary but financially unsupportable services.
Some hospitals have undertaken aggressive strategies to maintain or even increase market share that nudge against the proper limits of anti-competitive conduct. Many of the hospitals are political subdivisions of a state, including county hospitals, special district hospitals created under state law and public corporations controlled by county and municipal entities. In some, but not all circumstances, these public and quasi public hospitals enjoy absolute immunity for conduct which would create treble damage liability if undertaken by a private for-profit or even not-for-profit institution.
In the recent 6th Circuit Court of Appeals case of Jackson, Tennessee Hospital Co. v. West Tennessee Healthcare, Inc., Madison County General Hospital District and Blue Cross and Blue Shield of Tennessee, Inc., the plaintiff alleged that the defendants engaged in anti-competitive conduct to monopolize the relevant health care market. The plaintiff cited the exclusive contracting with doctors and insurance companies to squeeze out the plaintiff, the acquisition of real estate around the plaintiff to freeze expansion, discriminatory pricing and bundling of services among others as restricting competition.
In 1943 the United States Supreme Court in Parker v. Brown, 317 U.S. 341 (1943) announced the so-called “state action” exceptions to antitrust liability which as a matter of comity, excludes antitrust liability for states acting as “sovereigns.” The state immunity rule, however, does not automatically apply to political subdivisions of the state. See City of Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365, 370 (1991). State action immunity applies only where state political subdivisions act pursuant to “clearly expressed state policy.”
The State of Tennessee enacted a statute providing broad specific and general powers for local public hospital authorities, which included a phrase at the end, authorizing the exercise of such powers “regardless of the competitive consequences thereof.” The plaintiff argued that the statue must be read in context of the state antitrust statute and state public policy expressions favoring free and open competition among competitors and that this otherwise innocuous phrase did not express a “clearly expressed state policy approving of anti-competitive practices by hospital authorities.”
Relying on the plain meaning of the language and the interpretive device that the specific abrogation of anti-competitive conduct trumps the general state policy in favor of protection of competition, the court held that the State of Tennessee had articulated a clearly expressed state policy of permitting hospital authorities to engage in anti-competitive conduct and dismissed the case. While it is a pleasure to see a court hold a state legislature accountable for the apparent meaning of its statutory language, it would have been more satisfying to have such a momentous decision based upon some showing that the state legislature clearly considered and understood the implications of inclusion of that language in the act. I suspect that most of the legislators who voted for the passage of the statute had no idea of the implications of the language. If they had, they could have used more explicit language authorizing anti-competitive conduct rather than this back door reference.
In the recent 6th Circuit Court of Appeals case of Jackson, Tennessee Hospital Co. v. West Tennessee Healthcare, Inc., Madison County General Hospital District and Blue Cross and Blue Shield of Tennessee, Inc., the plaintiff alleged that the defendants engaged in anti-competitive conduct to monopolize the relevant health care market. The plaintiff cited the exclusive contracting with doctors and insurance companies to squeeze out the plaintiff, the acquisition of real estate around the plaintiff to freeze expansion, discriminatory pricing and bundling of services among others as restricting competition.
In 1943 the United States Supreme Court in Parker v. Brown, 317 U.S. 341 (1943) announced the so-called “state action” exceptions to antitrust liability which as a matter of comity, excludes antitrust liability for states acting as “sovereigns.” The state immunity rule, however, does not automatically apply to political subdivisions of the state. See City of Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365, 370 (1991). State action immunity applies only where state political subdivisions act pursuant to “clearly expressed state policy.”
The State of Tennessee enacted a statute providing broad specific and general powers for local public hospital authorities, which included a phrase at the end, authorizing the exercise of such powers “regardless of the competitive consequences thereof.” The plaintiff argued that the statue must be read in context of the state antitrust statute and state public policy expressions favoring free and open competition among competitors and that this otherwise innocuous phrase did not express a “clearly expressed state policy approving of anti-competitive practices by hospital authorities.”
Relying on the plain meaning of the language and the interpretive device that the specific abrogation of anti-competitive conduct trumps the general state policy in favor of protection of competition, the court held that the State of Tennessee had articulated a clearly expressed state policy of permitting hospital authorities to engage in anti-competitive conduct and dismissed the case. While it is a pleasure to see a court hold a state legislature accountable for the apparent meaning of its statutory language, it would have been more satisfying to have such a momentous decision based upon some showing that the state legislature clearly considered and understood the implications of inclusion of that language in the act. I suspect that most of the legislators who voted for the passage of the statute had no idea of the implications of the language. If they had, they could have used more explicit language authorizing anti-competitive conduct rather than this back door reference.
I have an example of the only two major hospital systems (95% of market) coordinating the market (keeping others out)conspiring with 3 payors (also owning 95% of market) behind closed doors. A formal USDOJ investigation is in progress. This is an obvious antitrust violation that can be made into a model for how market concentration results in market abuse.
Posted by: Jerry Behar | November 16, 2005 at 07:42 AM