Seventh Circuit Affirms Dismissal Of Antitrust Claims Against Hospital And Insurance Provider
07/28/2022On July 15, 2022, the United States Court of Appeals for the Seventh Circuit affirmed a magistrate judge’s conclusion that a health clinic, located within an Illinois hospital, did not suffer a cognizable antitrust injury by a hospital and insurance provider for agreeing to in-network status. Marion HealthCare, LLC v. Illinois Hosp. Servs., No. 20-1581, 2022 WL 2763502 (7th Cir. July 15, 2022).
Marion HealthCare (the “Clinic”), a health clinic performing outpatient procedures within an Illinois hospital, sued Southern Illinois Hospital Services (the “Hospital”) and Health Care Service Corporation (the “Blues”) for allegedly violating both the Sherman Act and the Clayton Act by contracting for preferred or in-network status. According to the complaint, the preferred pricing arrangement between the Hospital and the Blues led to patients choosing to receive services at the Hospital as opposed to the Clinic. The Clinic argued some patients chose the Hospital over the Clinic due to lower copayments and a higher rate of reimbursement. Notably, the Clinic did not allege that preferred pricing arrangement between the Hospital and the Blues reduced output or resulted in monopoly prices being charged at the Hospital. Instead, the Clinic argued that the Hospital received 77% of patient admissions in the two counties where the Clinic has facilities. The Clinic also argued that the preferred pricing arrangement between the Hospital and the Clinic amounted to impermissible exclusive dealing.
The Seventh Circuit rejected the Clinic’s arguments. First, the Court held that all the Clinic alleged was that the Hospital had a large market share in the two counties in which the Clinic had a presence. According to the Court, alleging market share in two counties (out of many) was a poor proxy to show the Hospital had the ability to implement monopoly prices. Second, the Court noted that the Clinic’s exclusive dealing claims must fail. In reaching this conclusion, the Court noted that the Hospital accepts payments from many insurers while the Blues reimburse all manner of providers. While the amount of reimbursement may differ, there was no outright exclusive deal with the Hospital by the Blues. Importantly, the Court noted that even if the Blues offered a preferred pricing agreement with the Clinic, the Clinic would have refused the deal as the arrangement would produce “more patients than it could handle.” In short, the preferred pricing arrangement between the Hospital and the Blues did not foreclose the Clinic from participating in any part of the market in which it cared to participate. The Court then went on to explain that preferred pricing agreements, like the one here between the Hospital and the Blues, has significant procompetitive effects. Specifically, the Court explained that the insurer can use the inducement of preferred provider status to “haggle down” the prices charged by a healthcare provider in the marketplace. This benefits the consumer of medical services by lowering the cost of healthcare while also counteracting a hospital’s ability to raise prices.
Although not raised by the Clinic, the Seventh Circuit also rejected a theory that the Blues’ preferred-provider network was an essential facility that every medical provider must access in order to survive in the marketplace. The Seventh Circuit also noted that Pacific Bell Telephone Co. v. linkLine Communications, Inc., 555 U.S. 438 (2009) significantly limited the scope of the essential-facility doctrine.
This case shows that it takes more than invoking antitrust buzzwords and a complaint that a party would have more business in the absence of a preferred pricing arrangement to successfully state an antitrust claim.