Federal Court Allows Hospital’s Antitrust Claims to Proceed on Narrow Market Definition

Winning an antitrust lawsuit hinges on defining the “relevant market,” and this case may prove the point. Methodist Health Services Corporation notched the first win in its battle against Saint Francis Medical Center as a federal court allowed Methodist’s suit to proceed despite a narrow market definition that excluded government payers.

Defendant Saint Francis is the fourth largest medical center in Illinois, and the only provider of certain essential medical services—such as solid organ transplants and Level 1 trauma care—in the relevant geographic area. Methodist is one of five other hospital systems in the area. Because Saint Francis is the largest hospital in the region and the only provider of certain essential medical services, Methodist alleges that health insurance companies consider Saint Francis a “must-have” participating hospital in their networks.

According to Methodist, Saint Francis is leveraging its dominant market power to prevent health insurers with whom it has provider agreements from also entering into provider agreements with Methodist or other competitors. These exclusionary provider agreements effectively foreclose Methodist from over 60 percent of the fully insured commercial health insurance market in the relevant geographic area. Without access to privately-insured patients, Methodist claims the long-term survival of itself and the other competitor hospitals is at risk.

The crux of Methodist’s argument turns on whether government payers must also be included in the relevant market. If the definition of the “relevant market” includes all payers of hospital services, then the alleged exclusionary agreements would block Methodist from only a small percentage of the market and thus may not be a “substantial foreclosure” of competition. After all, Saint Francis is not able to use its market position to negotiate exclusive agreements with government payers.

Saint Francis based its argument on Eighth Circuit precedent holding that patients covered by private insurance and patients covered by government insurance are reasonably interchangeable from the provider’s perspective. For the provider, both sets of patients are able to pay the medical bill.

However, the federal court here concluded that, as a matter of law, the sales of certain hospital services to commercial health insurers are not interchangeable with sales of the same services to government payers. Methodist sufficiently asserted that access to privately-insured patients is critical to a provider’s long-term sustainability in light of the comparatively low prices providers must charge patients covered by government plans. According to Methodist, prices charged to government payers may often be at or below cost, and government prices do not significantly constrain prices charged to private insurers.

If this contention is upheld at trial, a narrower market definition could open the door to many more antitrust suits by squeezed competitors looking to break up exclusionary provider agreements.

The case is Methodist Health Serv. Corp. v. OSF Healthcare Sys., Civil Action No. 1:13-cv-01054 (C.D. Ill. Mar. 25, 2015).

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