Dojslamshospital Chain in Surgerycenter's Antitrust Row

DOJSlamsHospital Chain In SurgeryCenter's Antitrust Row

ByRyan Boysen

Law360 (February 9, 2018, 8:32 PM EST) -- TheU.S. Department of Justicehas gone to bat for Marion HealthCare LLC in the surgery center’s antitrust suit against Southern Illinois Healthcare, telling an Illinois federal court SIH is wrong to argue that an appeals court ruling means its disputed insurance contracts are legal “as a matter of law.”
Marion is suing health care system SIH, which operates a handful of hospitals in Southern Illinois, for allegedly negotiating insurance contracts that carve competitors like Marion out of provider networks, making their services impossible to afford on an out-of-network basis.
In its motion for summary judgment, SIH leans heavily on the Seventh Circuit’s ruling last year in Methodist Health Services v. OSF Healthcare System to argue that because its contracts are short-term and don’t result in out-and-out “bankruptcy” or “sky-high prices” for patients, they are legal “as a matter of law.”
But in a statement of interest filed Thursday, the DOJ told the court Methodist did not lay down a precedent that’s as cut-and-dry as SIH makes it out to be. The Seventh Circuit also looked at a number of other factors to determine whether “exclusive” contracts with health insurance companies are anti-competitive, the government said, and the court should do the same here.
“Southern Illinois is wrong to argue that the Seventh Circuit has held that short-term exclusive contracts are legal ‘as a matter of law,’” the DOJ writes. “The Supreme Court has long held that exclusive contracts are evaluated under the rule of reason, and may be condemned if their ‘practical effect’ is to foreclose a substantial portion of the market to competition.”
The so-called rule of reason comes from the high court’s ruling in Tampa Electric v. Nashville Coal Co., and lists a number of factors for analyzing whether exclusive dealing contracts violate antitrust law. Those include the parties’ market power and the “degree of foreclosure,” among other things, as well as the length of the contracts at issue.
In Methodist, the titular hospital system sued the Saint Francis hospital system for allegedly strong-arming insurance companies into cutting its competitors, like Methodist, out of provider networks.
The Seventh Circuitfoundthat Methodist was on equal enough footing with Saint Francis that it could compete for the same type of contracts itself, especially since each contract only lasted a year or two.
SIH argues in its motion for summary judgment that the Seventh Circuit’s ruling in Methodist should allow the court to easily dispatch Marion’s claims that its own short-term contracts with insurers run afoul of antitrust statutes. SIH also argues that its contracts aren’t even “exclusive” in the first place, since patients can still go out of network to access services at Marion.
Just “like the plaintiff [in Methodist, Marion] complains about too much competition, not too little,” SIH says. “Based on the Methodist case alone, this court should grant summary judgment for SIH.”
The DOJ says it doesn’t matter if SIH’s contracts are short term, however. The court should consider all of the factors that go into the rule of reason analysis, the government says.
“The duration of an exclusive contract may be an important factor in determining an exclusive agreement’s ‘practical effect,’” the DOJ says, but “the formal duration of a contract is not dispositive of its potential for market foreclosure.”
Marion makes roughly the same argument in its ownresponseto SIH’s summary judgment bid, but adds some meat to the bones of its legal analysis by explaining the market it operates in.
Marion is a small outpatient center that can perform some less risky procedures at a lower cost than SIH’s hospitals, it says, but it can’t compete with SIH’s “must have” services like inpatient facilities and tricky surgical procedures if SIH uses those as leverage to lock down exclusive contracts.
Methodist was fought between two hospital systems, but Marion says the lopsided power dynamic in its own case should force the court to look beyond the length of the contract to find that SIH’s deals are “exclusive” and anti-competitive.
“Consumers are not, strictly speaking, foreclosed by SIH’s contracts from seeking out-of-network services at other [ambulatory surgery centers], such as MHC,” Marion says. “But they are substantially more expensive for consumers.”
“Given these market realities, for SIH to claim that the contracts at issue are not exclusive because patients can ‘choose’ to seek services out of network elevates (illogical) theory over reality,” Marion adds.
Representatives for Marion declined to comment on Friday, and representatives for SIH did not respond to requests for comment.
Marion is represented by Thomas J. Pliura of the Law Offices of Thomas J. Pliura and Richard Wolfram.
SIH is represented by Terrence J. Dee, Stephen Y. Wu, Michelle S. Lowery, Katharine M. O’Connor and Kaitlin P. Sheehan ofMcDermott Will & Emory LLP.
The case is Marion HealthCare LLC v. Southern Illinois Healthcare, case number3:12-cv-00871, in the U.S. District Court for the Southern District of Illinois.
--Additional reporting by Adam Rhodes and Lauraann Wood. Editing by Kelly Duncan.