All or Nothing: Federal Court Decides Exclusion from ‘Some’ Patients Insufficient for Refusal to Deal Claim

A federal district court in the Eighth Circuit dismissed claims brought against a physician-hospital organization and an insurer alleging that the defendants violated federal antitrust laws by refusing to deal with certain providers. An ambulatory surgery center (ASC) and two physicians asserted that the defendants harmed competition by blocking referrals to the ASC and preventing the ASC from contracting with insurers. The U.S. District Court for the Eastern District of Arkansas, however, held that the plaintiffs failed to define the market allegedly harmed by the defendants’ actions.

One defendant, Health Choice, is a joint venture physician-hospital organization between MetroCare Physicians and Methodist LeBonheur Healthcare, a large hospital system in Memphis. The two plaintiff physicians are members of MetroCare. Health Choice contracts with insurers, such as defendant Cigna, to provide networks of medical providers.

Under an agreement between the two defendants, Health Choice and Cigna mutually decide which Health Choice doctors should be included in Cigna’s provider network. The plaintiff ASC, Tri State Advanced Surgery Center, is considered out-of-network for Cigna’s members.

In 2013, according to the plaintiffs, Cigna demanded that physicians who treated patients at Tri State either refer Cigna patients to in-network facilities or else Cigna would re-evaluate the physicians’ continued participation with Cigna. The plaintiff physicians refused to agree to Cigna’s demand. A few months later, the plaintiff physicians were terminated by Cigna from its network under the “without cause” termination provision in their agreements. But the plaintiff physicians allege they were terminated for refusing to sign a pledge to end referrals to Tri State.

The physicians and Tri State sued in federal court, asserting, among other claims, that the defendants’ concerted refusal to deal violated Section 1 of the Sherman Act. Using a rule of reason analysis, the court dismissed the action.

First, the court held that the plaintiffs failed to demonstrate actual detrimental effects:  Tri State is still open for business; there has been no decline in the number of ASCs in the market; Cigna members can still receive services from Tri State, albeit out-of-network; and patients can obtain ambulatory surgical services elsewhere in the market.

Second, the plaintiffs failed to show that the defendants wielded a dominant market share, because the plaintiffs could not adequately define the product market. The court ignored the plaintiffs’ stated product market definition – the market for surgical services that require hospitalization – and held instead that the market for which the plaintiffs seek to make an antitrust claim is limited to the market for surgical services obtained by patients covered by Cigna health insurance and requiring hospitalization. After all, the plaintiffs complain that they have been shut out of referrals only for Cigna members, not all patients in the market.

Reading the allegations with the plaintiffs’ “revised” product market definition, the court dismissed the claims due to insufficient allegations. The court held that the plaintiffs impermissibly circumscribed their product market definition according to Eight Circuit precedent:  the relevant market must include all patients available to the plaintiffs and not limit the market based on how a patient pays for services. In other words, the plaintiffs must plead that Cigna and Health Choice colluded to exclude the plaintiffs from all patients, not just Cigna members.

The case is Tri State Advanced Surgery Ctr., LLC v. Health Choice, LLC, Civil Action No. 3:14-cv-00143 (E.D. Ark. Apr. 16, 2015).

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