Fifth Circuit Rejects Hospital Operator’s Antitrust Claims Against Dominant Medical Provider In Shreveport, Louisiana
10/11/2022On September 19, 2022, the United States Court of Appeals for the Fifth Circuit held that the operator of a hospital in Shreveport, Louisiana had failed to adequately plead Sherman Act § 1 and § 2 claims against the dominant medical provider in the Shreveport market. BRFHH Shreveport, LLC v. Willis-Knighton Medical Center, No. 21-30622 (5th Cir. Sep. 19, 2022).
Louisiana State University’s (LSU) medical school in Shreveport, Louisiana owned one of six hospitals in the city. In 2013, LSU hired BRFHH Shreveport (BRF) to operate its hospital in Shreveport. But by 2015, LSU was no longer happy with the way that BRF was managing the hospital and tried unsuccessfully to terminate the relationship.
According to BRF, LSU experienced a budget crisis in 2016. LSU apparently asked BRF for a $100 million donation, but BRF could not provide that much money. BRF claimed that Willis-Knighton Medical Center — which controlled four of the five Shreveport hospitals not owned by LSU — took advantage of this crisis and offered to help LSU with its deficits. But Willis-Knighton allegedly said that it would help only if LSU would retreat from its cooperation with BRF. If LSU did not comply, then Willis-Knighton allegedly hinted that it would withdraw the sizeable donations that it was already making to LSU. LSU allegedly complied with Willis-Knighton’s demands, and in 2018 the relationship between BRF and LSU dissolved.
BRF brought an antitrust lawsuit against Willis-Knighton (but not LSU) in federal court. BRF alleged that Willis-Knighton and LSU had entered into a conspiracy in restraint of trade in violation of § 1 of the Sherman Act. It also alleged that Willis-Knighton had committed both actual and attempted monopolization in violation of § 2 of the Sherman Act. The United States District Court for the Western District of Louisiana dismissed BRF’s claims, and the Fifth Circuit affirmed the dismissal.
The Fifth Circuit first held that BRF’s § 1 claim failed because BRF had not plausibly alleged an agreement between Willis-Knighton and LSU. BRF alleged that Willis-Knighton’s threats to withdraw donations, coupled with LSU’s compliance with Willis-Knighton’s demands, constituted an anticompetitive agreement. The Court recognized that such a situation could amount to an agreement under § 1. However, the Court explained that to successfully plead a threat-and-accession agreement, a plaintiff must plausibly allege (1) that A threatened B; (2) that B complied with A’s demands; and (3) that B did so because of A’s threat and not for some independent, self-serving reason. Thus, Willis-Knighton’s threat could give rise to an agreement with LSU only if LSU had done as Willis-Knighton demanded because of Willis-Knighton’s threats.
The Fifth Circuit held that BRF had failed to plausibly allege the third element. Even assuming that BRF’s other allegations were completely correct — that Willis-Knighton had threatened to withdraw its donations if LSU did not pull back from its relationship with BRF and that LSU did, in fact, get rid of BRF — BRF had not alleged that LSU did so because of Willis-Knighton’s threats. LSU had been trying to get rid of BRF since 2015. But according to BRF’s complaint, Willis-Knighton’s threats could not have been effective before 2016, when LSU experienced its financial crisis. LSU’s attempts to cut ties with BRF could not have been a result of Willis-Knighton’s coercion, meaning that BRF had failed to allege all the necessary elements of an agreement.
The Court also rejected BRF’s § 2 claims. A monopolization claim requires that the defendant (1) has market power and (2) has engaged in anticompetitive (or exclusionary) conduct. An attempted monopolization claim requires that the defendant (1) has engaged in predatory or anticompetitive conduct (2) with the specific intent to monopolize and (3) a dangerous probability of achieving monopoly power. Under either claim, anticompetitive conduct is required. But that’s just what BRF failed to plausibly allege.
BRF relied on a conditional-refusal-to-deal theory to plead its § 2 claim against Willis-Knighton. According to BRF, Willis-Knighton refused to deal with LSU (i.e., donate to LSU) unless it stopped working with BRF. This would allegedly decrease BRF’s supply of LSU-trained physicians and exclude BRF from the Shreveport healthcare market.
The Fifth Circuit addressed this theory using the same framework as an exclusive-dealing claim. An exclusive-dealing claim requires a plaintiff to show a substantial foreclosure of the relevant market. BRF had properly alleged both relevant product and geographic markets — “the market for general acute care inpatient hospital services for commercially insured patients” and the market for “general acute outpatient services” in “the Shreveport-Bossier City area.”
But BRF had not alleged that Willis-Knighton either had or was dangerously close to foreclosing a substantial portion of its alleged market. BRF’s complaint contained several conclusory allegations that Willis-Knighton’s agreement with LSU had decreased BRF’s ability to challenge Willis-Knighton’s market share or decreased BRF’s volumes while increasing its costs. But the Fifth Circuit held that those statements did not sufficiently allege that Willis-Knighton’s agreement with LSU had meaningfully foreclosed BRF’s ability to serve any portion of its alleged market. Moreover, the Fifth Circuit reasoned BRF had alleged that the exclusive-dealing arrangement between Willis-Knighton and LSU affected the upstream market for physician services. It had not alleged a proper connection between that market and the market BRF had identified — a downstream market for medical services. Without an allegation of substantial market foreclosure, BRF’s § 2 claim failed.
This case serves as a reminder that to survive a motion to dismiss, monopoly and attempted monopoly claims must adequately allege that the defendant engaged in some kind of anticompetitive conduct. Conclusory statements suggesting that things might have been better or more competitive absent the defendant’s conduct do not satisfy that standard.