Shearman & Sterling LLP | Antitrust Blog | Northern District Of California Dismisses Monopolization Claims By Hospital Operators For Failure To State A Claim  <br >  
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  • Northern District Of California Dismisses Monopolization Claims By Hospital Operators For Failure To State A Claim  
     
    12/19/2017
    On December 7, 2017, Magistrate Judge Laurel Beeler of the United States District Court for the Northern District of California dismissed a conspiracy to monopolize claim brought by two local hospital operators against Kaiser Foundation Health Plan, Inc., Kaiser Foundation Hospitals, Inc., and Permanente Medical Group, Inc.  Northbay Healthcare Grp., Inc., et al. v. Kaiser Found. Health Plan, Inc., et al., No. 17-cv-05005-LB, 2017 WL 6059299 (N.D. Cal. Dec. 7, 2017).  The plaintiffs, who operate two hospitals in Solano County, California, alleged that defendants conspired to monopolize the healthcare insurance and services market in Solano County by (1) terminating their rate agreements with plaintiffs, and (2) steering patients to or away from defendants’ hospital emergency rooms based on the defendants’ financial incentives.  The Court dismissed the complaint, holding that plaintiffs did not adequately allege (1) a combination or conspiracy to monopolize, (2) specific intent to monopolize, or (3) a causal antitrust injury.  Finding these elements lacking, the Court did not address whether plaintiffs alleged an overt act in furtherance of the alleged conspiracy, the fourth element of the claim. 

    First, the Court found that while plaintiffs had alleged the existence of agreements between or among the defendants to provide healthcare services, there “is nothing inherently wrongful in creating an integrated healthcare delivery system,” and without more, plaintiffs had not pleaded an agreement between defendants to monopolize.  The Court rejected plaintiffs’ argument that an agreement to monopolize should be inferred because the defendants’ conduct was purportedly against their own economic interest in the absence of a conspiracy.  Instead, the Court found that defendants’ decision to terminate the agreement with plaintiffs and pay lower prices was plainly in defendants’ economic self-interest and that the allegations of patient steering were too conclusory to give rise to an inference of conspiracy.  Second, the Court held that plaintiffs’ allegations of intent amounted to no more than that defendants acted with the intent to increase their revenues and reduce their costs by paying plaintiffs less, and did not support that conclusory allegation that the defendants acted with a specific intent to monopolize.  Third, the Court found that plaintiffs alleged injury only to themselves and not an antitrust injury or harm to competition generally.  The plaintiffs’ claim that the defendants’ conduct impaired their ability to invest in newer service and technologies necessary for competition, the Court found, did not amount to an injury to competition.  Therefore, the Court found that plaintiffs lacked standing to bring their claims under the antitrust laws. 

    After dismissing all claims over which it had original jurisdiction, the Court declined to exercise supplemental jurisdiction over plaintiffs’ remaining claims.  The Court did, however, grant plaintiffs leave to file an amended complaint. 

    This case again illustrates the difficulty of bringing an antitrust case against a dominant firm or group of firms based on the firms’ unilateral imposition of unfavorable commercial terms on the plaintiffs.  As the Court here recognized, it is implausible to infer either anticompetitive agreement or intent based solely on the imposition of commercial terms that increase the defendant’s revenues or reduce its costs because they are almost by definition in the unilateral self-interest of the defendant.

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