Holland & Hart Healthcare Law Blog

FEDERAL COURT IN CALIFORNIA REFUSES TO DISMISS ANTITRUST AND STATE LAW CLAIMS AGAINST HCA HOSPITAL AFFILIATES FOR CHANGING COVERAGE RULES TO EXCLUDE PHYSICIAN.

The magistrate Judge in Fox v. William Piche et al.,, No. C08-1098 RS (D.C. N.Cal., San Jose Div. 2008) refused to dismiss antitrust and some state court actions brought by a critical care pediatrician against a number of officers of HCA Good Samaritan Hospital in San Jose, California. Dr. Fox’s specialty involved the treatment of critically ill children who require mechanical ventilation. In 1999, the Good Samaritan adopted a rule requiring any physician practicing at the hospital designate two backup physicians with “identical” privileges. Prior to 1999 the hospital only required backups to have “appropriate” privileges. Dr. Fox alleged that the defendants changed the rules to exclude his back up physicians; retaliated against him in 2006 because he refused to sign a corporate loyalty oath; terminated his privileges by refusing to send him his reappointment letter; interfered with business relations between Dr. Fox and his referral services and disregarded the hospital and medical staff privileging bylaws. Fox alleged a conspiracy to prompt his suspension after he spoke out against transfering Pediatric Intensive Care (“PICU”) patients to another HCA facility and Good Samaritan entered into an agreement with another group to provide PICU services at Good Samaritan. The Court, while noting the heightened antitrust pleading standards set forth by the Supreme Court in Bell Atl. Corp. v. Twombly 127 S.Ct. 1955 (2007), (“[f]actual allegations must be enough to raise a right to relief above a speculative level)., denied the motion to dismiss the antitrust claims based on the alleged running of the four year statute of limitations, holding that Dr. Fox was entitled to reapply for privileges every two years and each “ensuing denial operated as a separate process even if the result seemed predictable in light of past practice. “Each denial inflicted new and accumulating injury on Fox in that the denial was not immutable or automatic.” The Court also refused to dismiss Dr. Fox’s claim of conspiracy in restraint of trade under Section 1 of the Sherman Act based on the Defendant’s claim of unilateral conduct. Under Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984) “[O]fficers or employees of the same firm do not provide the plurality of actors imperative for a §1 conspiracy.” Although the Court doesn’t explain his finding that the conspiracy claim is sufficiently pled against the employees of the hospital, he seems to rely on the defendant’s service on various medical staff committees as grounds. Hospitals and their medical staffs are separate legal entities in California. The Court upheld Dr. Fox’s pleading of a Section 2 Sherman Act claim as well. To plead a Section 2 claim a plaintiff must allege (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident. The relevant market is defined as a pool of services that are reasonably interchangeable so as to be economic substitutes for each other. Dr. Fox alleges that Good Samaritan, because of the uniqueness of its pediatric intensive care unit is its own separate geographic market and children treated there constitute their own economic “aftermarket,” which they can only exit at significant switching cost. Dr. Fox asserts that PICU services constitute a separate product market because the patients are unable to substitute services from other providers and their parents and physicians do not price shop PICU services. He maintains that by controlling and manipulating the backup physician criteria at Good Samaritan, the Defendants have successfully excluded Dr. Fox in the market and created a monopoly for one PICU group at the facility. This case is still in the early stages of development and Dr. Fox’s allegations will be subject to a vigorous demand for proof, but is underscores the value, at least at the pleading stage, of being excluded from a narrow niche market.

Illinois Alleges “Price Fixing” Violation in Medicaid Boycott

Illinois Medicaid payments, by many accounts, are substantially below reasonable remuneration and doctors taking Medicaid patients do so at their personal cost.  Last month the Illinois Attorney General, Lisa Madigan, filed an antitrust action under the Illinois Antitrust Act against two physician groups representing ninety percent (90%) of the primary care market in Champaign County, Illinois for boycotting new Medicaid patients.  The case, The People of the State of Illinois ex rel. Lisa Madigan v. Carle Clinic Association, P.C.; Christie Clinic, P.C. (No. 07h115) is pending in the Sixth Judicial Circuit, Campaign County, Illinois, and asserts two counts under the state statute, which makes it illegal to:

make any contract with, or engage in any combination or conspiracy with, any person who is, or but for a prior agreement would be, a competitor of such person:
a.  for the purpose or with the effect of fixing, controlling or maintaining the price or rate charged for any commodity sold or bought by the parties thereto, or the fee charged or paid for any service performed or received by the parties thereto;
b.  fixing, controlling, maintaining, limiting, or discontinuing the production, manufacture, mining, sale or supply of any commodity, or the sale or supply of any service, for the purpose or with the effect stated in paragraph a. of subsection (1).

California Court Hold State Antitrust Immunity For PPOs Valid.

In Lori Rubenstein Physicial Therapy, Inc.,et al v. PTPN, Inc. et al, (Cal. App. 2007),the plaintiffs challenged legislation adopted by the State of California in (1982) that provided anti-trust immunity for preferred provider organizations ("PPOs") formed from groups of independent physicians to contract with health care insurers for alternative rates for their services. The defendants were PTPN, a physical therapy practice and Blue Cross of California, which gave PTPN an exclusive contract for physical therapy services. The plaintiffs were providers of physical therapy services who could not contact with Blue Cross. The suit alleged that PTPN's limitations on membership unlawfully restrains competition for Blue Cross insured patients and have foreclosed actual and potential competitors of PTPN from competing on the merits for patients with private health insurance. The California statute seems to be one of those "provider cooperation laws" passed by a number of states following California Liquor Dealer's Association v. Midcal Aluminum, Inc., 445 U.S. 97 (1980), wherein the Supreme Court held that states could provide a blanket of antitrust immunity over private action if 1) the state policy was clearly articulated and 2) the activity was actively supervised by the state.  These statutes were never widely used perhaps because of concern over the "state supervision" requirements.

Price Fixing Along I-94

I-94 is the largely industrial highway linking Chicago and Detroit. Recent public and private actions assert price fixing activity in both cities. In metropolitan Chicago Advocate Health Partners, a “super physician hospital organization,” resolved its FTC investigation for price fixing and refusal to deal by agreeing to a proposed order which essentially prohibits using further negotiation with health plans on behalf of approximately 3,000 physicians in the area. See In Re Advocate Health Partners, FTC File No. 0310021 (12/29/06). Advocate Health Partners apparently undertook to negotiate private contracts with health insurers on behalf of a network of related PHO organizations which included pods of independent physicians and a subsidiary corporation of the Advocate Health Care Network Hospital System.

Supreme Court's Rejection of Writ in Schering-Plough Case Leaves Contentious Issue of Reverse Payment Patent Settlements Undecided.

Late Last June the United States Supreme Court rejected an opportunity to review the decision of the 11th Circuit Court of Appeals in Schering-Plough Corporation v. Federal Trade Commission, 402 F. 3d 1056 (11th Cir. 2005). In that case the Circuit Court overturned the decision by the FTC finding that several settlements entered into by Schering-Plough with generic drug competitors that involved "reverse payments" by S-P to the generic producers as part of a settlement limiting the generics entry into the market to compete with S-P's K-Dur 20, timed release potassium Chloride tablets, but also granting S-P licenses for certain of the generic companies' products were not restraints of trade in violation of federal antitrust statutes.  The Circuit Court reinstated a similar initial finding by an administrative law judge, which had in turn been reversed by the FTC. The Circuit Court, while noting that the issues in the case were at the clashing intersection of intellectual property law and antitrust law, held that patent cases are different and not subject to either the per se or rule of reason analysis.

Optometrists Eye Antitrust Loss Against Intermoutain Health Care in Utah.

Intermountain Health Care, Inc.("IHC"), and its vertically integrated affiliates, is the 900 pound gorilla of Utah Healthcare. It operates 19 acute care hospitals and 6 surgical centers in Utah (9 Hospitals and 5 surgical centers on the Wasatch front) and 4 managed care plans. The managed care plans through IHC Health Plans, Inc., now called "SelectCare", have enrolled approximately 60% of the managed care market on the Wasatch front. IHC controls  approximately 51 to 55% of the market for hospital and surgical facilities on the front.

In Anderson et al. v. Intermountain Health,Inc. et al,   __F. 3d. ____( 10th Cir. 2006), a group of optometrists who have been excluded from IHC managed care plan panels by IHC brought and antitrust suit against IHC and its affiliates claiming that IHC and a group of ophthalmologists had engaged in a horizontal boycott of the optometrists, that IHC illegal tied its managed care plans to surgical and nonsurgical eye care services offered by the ophthalmologists and that IHC had developed a monopoly in hospital and surgical services on the Wasatch front in Utah. The Case was dismissed on summary judgment by the trial court and the plaintiffs appealed to the federal 10th Circuit Court of Appeals.

When Public Hospitals Enjoy Antitrust Immunity

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.

New Mexico IPA Consents to Price Fixing Cease and Desist Order.

The Southeastern New Mexico Physicians IPA in Roswell, New Mexico recently accepted a cease and desist order from the Federal Trade Commission with respect to its negotiations for physician services agreements with third party payers. Two of the IPA's employees directly negotiated fees on behalf of the physicians in the IPA who represented about 73% of the physicians in the Roswell market with Healthsmart, Presbyterian Health Plan, Beech Street and others. SNMP physicians refused to negotiate services except through SNMP, which refused to accept contracts for reimbursement which were less than prices dictated and approved by the membership.

114 Bed McKenzie-Willamette Hospital wins $25M Antitrust Suite Against PeaceHealth System

McKenzie Willamette Hospital, a small, 114 bed, hospital located in Lane County, Oregon won the first round in its struggle for survival against the competitive onslaught of the Washington based, Peace Health System, in Oregon District Court on October 31st. PeaceHealth operates 469 beds in its Oregon region. A jury awarded the smaller facility $5.4M in compensatory damages, (tripled under antitrust law) and $9.2M in Exemplary Damages. M-W charged, among other things, that the large hospital system utilized its market power and predatory conduct to destroy competition with M-W.

North Texas Specialty Physicians slapped with FTC Complaint. (The Sherman Act arrives in Texas)

North Texas Specialty Physicians is a non profit corporation representing 600 physicians near Ft. Worth which engaged in direct negotiations with health plans. The FTC charged that NTSP "often has sought to negotiate for, and often has obtained higher fees and other more advantageous terms than its individual physicians could obtain by negotiating individually with payers," which of course is the point of group contracting. Its all about leverage. The FTC alleges that the NTSP frequently refused to accept proposals from health plans than failed to meet pre-identified minimum fee levels specified by the doctors. The FTC asserts that NTSP lacks the financial and clinical integration that might lead to market efficiencies including lower cost and higher quality. The Commission voted 5-0 to file the complaint.