Cascade Health Solutions v. PeaceHealth

• Decision Date: 04 September 2007
• Docket Number: 05-35640,05-36153,05-36202.,No. 05-35627,05-35627
• Citation: 502 F.3d 895
• Parties: CASCADE HEALTH SOLUTIONS fka McKenzie-Willamette Hospital, an Oregon nonprofit corporation, Plaintiff-Appellant, v. PEACEHEALTH, a Washington State nonprofit corporation, Defendant-Appellee, and PacificSource Health Plans, Defendant, Regence BlueCross BlueShield of Oregon; Providence Health Plan; McKenzie-Willamette Regional Medical Center Associates, LLC, Defendants-Intervenors. McKenzie-Willamette Hospital, Plaintiff-Appellee, v. PeaceHealth, a Washington State nonprofit corporation, Defendant-Appellant, and PacificSource Health Plans, Defendant, Regence BlueCross BlueShield of Oregon; Providence Health Plan; McKenzie-Willamette Regional Medical Center Associates, LLC, Defendants-Intervenors. McKenzie-Willamette Hospital, Plaintiff-Appellee, v. PeaceHealth, a Washington State nonprofit corporation, Defendant-Appellant. McKenzie-Willamette Hospital, an Oregon nonprofit corporation, Plaintiff-Appellant, v. PeaceHealth, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

502 F.3d 895

CASCADE HEALTH SOLUTIONS fka McKenzie-Willamette Hospital, an Oregon nonprofit corporation, Plaintiff-Appellant, v. PEACEHEALTH, a Washington State nonprofit corporation, Defendant-Appellee, and PacificSource Health Plans, Defendant, Regence BlueCross BlueShield of Oregon; Providence Health Plan; McKenzie-Willamette Regional Medical Center Associates, LLC, Defendants-Intervenors.

McKenzie-Willamette Hospital, Plaintiff-Appellee, v. PeaceHealth, a Washington State nonprofit corporation, Defendant-Appellant, and PacificSource Health Plans, Defendant, Regence BlueCross BlueShield of Oregon; Providence Health Plan; McKenzie-Willamette Regional Medical Center Associates, LLC, Defendants-Intervenors.

McKenzie-Willamette Hospital, Plaintiff-Appellee, v. PeaceHealth, a Washington State nonprofit corporation, Defendant-Appellant.

McKenzie-Willamette Hospital, an Oregon nonprofit corporation, Plaintiff-Appellant, v. PeaceHealth, Defendant-Appellee.

Nos. 05-35627, 05-35640, 05-36153, 05-36202.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 6, 2007.

Filed September 4, 2007.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

M. Laurence Popofsky, Heather N. Leal, and Adam J. Gromfin, Heller Ehrman LLP, San Francisco, CA, James H. Sneed and Linda M. Holleran, McDermott, Will & Emery, Washington, D.C., Peter H. Glade, Markowitz, Herbold, Glade & Mehlhaf, P.C., Portland, OR, for defendant-appellant and cross-appellee PeaceHealth.

Thomas M. Triplett, Kelly T. Hagan, William B. Crow, Nancy M. Erfle, and Michael T. Garone, Schwabe, Williamson & Wyatt, P.C., Portland, OR, Laurence E. Thorp, Thorp, Purdy, Jewett, Urness & Wilkinson, P.C., Springfield, OR, for plaintiff-appellee and cross-appellant Cascade Health Solutions.

Jerrold J. Ganzfried, James F. Rill, Scott E. Flick, and Thomas J. Dillickrath, Howrey LLP, Washington, D.C., John Thorne and Paul J. Larkin, Jr., Verizon Communications, Inc., Arlington, VA, Douglas S. Grandstaff, Caterpillar, Inc., Peoria, IL, for amici curiae Verizon Communications Inc. and Caterpillar Inc.

Aidan Synnott, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY, for amici curiae law professors Daniel A. Crane, Thomas A. Lambert, Thomas D. Morgan, D. Daniel Sokol, and Richard C. Squire.

Michael Barnes, Sonnenschein Nath & Rosenthal LLP, San Francisco, CA, for amicus curiae Catholic Healthcare Association of the United States.

Craig E. Stewart and Brian M. Hoffstadt, Jones Day, San Francisco, CA, Sharon Douglass Mayo, Arnold & Porter LLP, San Francisco, CA, for amici curiae Pacific Bell Telephone Co. and Visa U.S.A. Inc.

David T. McDonald, Kirkpatrick & Lockhart Preston Gates Ellis LLP, Seattle, WA, for amicus curiae Microsoft Corp.

Thomas H. Tongue, Brian R. Talcott, and David P. Rossmiller, Dunn Carney Allen Higgins & Tongue, LLP, Portland, OR, for amicus curiae Pacific Source Health Plans.

Michael E. Kipling, Kipling Law Group PLLC, Seattle, WA, for amicus curiae Regence BlueCross BlueShield of Oregon.

Jonathan M. Jacobson, Wilson Sonsini Goodrich & Rosati Professional Corporation, New York, NY, Scott A. Sher, Wilson Sonsini Goodrich & Rosati Professional Corporation, Washington, D.C., Deborah L. Galvin, Kraft Foods, Inc., Northfield, IL, Brian R. Henry, The Coca-Cola Company, Atlanta, GA, Debra A. Valentine, United Technologies Corp., Hartford, CT, for amici curiae Genentech, Inc., Honeywell International Inc., Kimberly-Clark Corp., Kraft Foods, Inc., The Coca-Cola Company, and United Technologies Corp.

Thomas A. Miller, Robins Kaplan Miller & Ciresi L.L.P., Los Angeles, CA, K. Craig Wildfang and Andrew M. Kepper, Robins Kaplan Miller & Ciresi L.L.P., Minneapolis, MN, David A. Balto, Washington, D.C., for amici curiae American Antitrust Institute, Consumer Federation of America, and Consumers Union.

Before: RONALD M. GOULD, RICHARD A. PAEZ, and JOHNNIE B. RAWLINSON, Circuit Judges.

GOULD, Circuit Judge:

McKenzie-Willamette Hospital ("McKenzie") filed a complaint in the district court against PeaceHealth asserting seven claims for relief. Five of the claims arose under the federal antitrust laws: monopolization, attempted monopolization, conspiracy to monopolize, tying, and exclusive dealing. The other two claims arose under Oregon state law: price discrimination and intentional interference with prospective economic advantage.

Before trial, the district court granted summary judgment in favor of PeaceHealth on McKenzie's tying claim. After a two-and-a-half-week trial, the jury rendered a verdict in favor of PeaceHealth on McKenzie's claims of monopolization, conspiracy to monopolize, and exclusive dealing. However, the jury found in favor of McKenzie on McKenzie's claims of attempted monopolization, price discrimination, and tortious interference. The jury awarded McKenzie $5.4 million in damages, which the district court trebled for a final award of $16.2 million. The district court also awarded McKenzie $1,583,185.57 in attorneys' fees, costs, and expenses.

We vacate the jury's verdict in favor of McKenzie on the attempted monopolization, price discrimination, and tortious interference claims, and we vacate the district court's summary judgment in favor of PeaceHealth on the tying claim. We also vacate the district court's award of attorneys' fees, costs, and expenses. We remand for further proceedings.

I

A

McKenzie and PeaceHealth are the only two providers of hospital care in Lane County, Oregon. The jury found and, for the purposes of this appeal, the parties do not dispute, that the relevant market in this case is the market for primary and secondary acute care hospital services in Lane County. Primary and secondary acute care hospital services are common medical services like setting a broken bone and performing a tonsillectomy. Some hospitals also provide what the parties call "tertiary care," which includes more complex services like invasive cardiovascular surgery and intensive neonatal care.

In Lane County, PeaceHealth operates three hospitals while McKenzie operates one. McKenzie's sole endeavor is McKenzie-Willamette Hospital, a 114-bed hospital that offers primary and secondary acute care in Springfield, Oregon. McKenzie does not provide tertiary care. In the time period leading up to and including this litigation, McKenzie had been suffering financial losses, and, as a result, merged with Triad Hospitals, Inc.¹ so that it could add tertiary services to its menu of care.

The largest of PeaceHealth's three facilities is Sacred Heart Hospital, a 432-bed operation that offers primary, secondary, and tertiary care in Eugene, Oregon. PeaceHealth also operates Peace Harbor Hospital, a 21-bed hospital in Florence, Oregon and Cottage Grove Hospital, an 11-bed hospital in Cottage Grove, Oregon. In Lane County, PeaceHealth has a 90% market share of tertiary neonatal services, a 93% market share of tertiary cardiovascular services, and a roughly 75% market share of primary and secondary care services.

To understand the antitrust issues in this case, it is necessary to appreciate the structure of the market in which this case arises. The market for hospital services and medical care is complex. However, based on the record, there appear to be three major participants in the market for hospital services: hospitals, insurers, and patients. Hospitals, like those operated by PeaceHealth and McKenzie, provide services to patients and sell services to insurers. Insurers are usually commercial health insurance companies that seek to buy medical services from hospitals on the best terms possible. The insurers in turn sell insurance services to patients and employers. Patients buy health insurance from insurers (often through their employers) and sometimes buy services from hospitals.

In the transaction between a hospital that sells care services and an insurer that buys care services, the price agreed upon is often referred to as a "reimbursement rate." For example, in a hospital-insurer contract, the agreed upon price might be "a 90% reimbursement rate." A 90% reimbursement rate price means that, when the insurer must purchase services from the hospital, the insurer gets a 10% discount off the hospital's regular price, also called the charge master or list price. It follows that hospitals prefer high reimbursement rates and insurers prefer low reimbursement rates, as each group pursues its own economic interest.

B

Before trial, the district court granted summary judgment to PeaceHealth on McKenzie's tying claim, concluding that McKenzie had not presented any evidence that PeaceHealth "coerced" insurers into purchasing primary and secondary services from it in order for the insurers to obtain tertiary services. The district court let the remainder of McKenzie's claims proceed to trial before a jury. On McKenzie's monopolization and attempted monopolization claims, McKenzie's primary theory was that PeaceHealth engaged in anticompetitive conduct by offering insurers "bundled" or "package" discounts. McKenzie asserted that PeaceHealth offered insurers discounts of 35% to 40% on tertiary services if the insurers made PeaceHealth their sole preferred provider for all services— primary, secondary, and tertiary. McKenzie introduced evidence of a few specific instances of PeaceHealth's bundled discounting practices.

For example, in 2001, PeaceHealth was the only preferred provider of hospital care under the preferred provider plan ("PPP") of Regence BlueCross BlueShield of Oregon ("Regence").² At that time, Regence was paying PeaceHealth a 76% reimbursement rate for all of PeaceHealth's medical services, including primary, secondary, and tertiary services. Around that time, pursuant to McKenzie's request, Regence considered adding McKenzie to the PPP as a preferred provider of primary and secondary services. When Regence's contract with PeaceHealth came up for its...