Doctor's Hospital of Jefferson, Inc. v. Southeast Medical Alliance, Inc.

• Citation: 123 F.3d 301
• Decision Date: 25 September 1997
• Docket Number: D,No. 2,No. 96-30220,2,96-30220
• Parties: 1997-2 Trade Cases P 71,933 DOCTOR'S HOSPITAL OF JEFFERSON, INC., Plaintiff-Appellant, v. SOUTHEAST MEDICAL ALLIANCE, INC. and Jefferson Parish Hospital Service Districtefendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 301

123 F.3d 301

1997-2 Trade Cases P 71,933

DOCTOR'S HOSPITAL OF JEFFERSON, INC., Plaintiff-Appellant, v. SOUTHEAST MEDICAL ALLIANCE, INC. and Jefferson Parish Hospital Service District No. 2, Defendants-Appellees.

No. 96-30220.

United States Court of Appeals Fifth Circuit.

Sept. 25, 1997.

Gene W. Lafitte, Sr., Marie J. Breaux, George W. Denegre, Jr., Liskow & Lewis, New Orleans, LA, for Plaintiff-Appellant.

Peter J. Butler, Jr., Richard G. Passler, Breazeale Sachse & Wilson, New Orleans, LA, for Southeast Medical Alliance Inc., Defendant-Appellee.

Howard E. Sinor, Jr., Katy W. Kimbell, Jones, Walker, Waechter, Ppitevent, Carrere & Denegre, New Orleans, LA, for Jefferson Parish Hospital Service District No. 2, Defendant-Appellee.

Appeal from the United States District Court for the Western District of Louisiana.

Before JONES and WIENER, Circuit Judges, and FURGESON, District Judge. ¹

EDITH H. JONES, Circuit Judge:

Doctor's Hospital of Jefferson, Inc. ("DHJ") filed suit against a competing hospital located next door in suburban New Orleans and the preferred provider organization ("PPO") which welcomed the competitor into membership and booted out DHJ. The district court granted summary judgment to the PPO, Southeast Medical Alliance, Inc. ("SMA"), and the competing hospital, Jefferson Parish Hospital Service District No. 2 ("East Jefferson"). The court reasoned that DHJ lacked standing to bring an antitrust suit against appellees because it had failed to demonstrate antitrust injury. Although we disagree with the district court's analysis of the standing issue, we affirm the grant of summary judgment on other grounds. Plaintiff failed to establish injury to competition as required for a Section 1 claim, and its Section 2 monopoly claims fail for want of an appropriate relevant market.

I. Background

Since the district court granted summary judgment against DHJ, we view the facts and all reasonable inferences therefrom in favor of DHJ. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986).

East Jefferson, a non-profit, 556-bed hospital, opened in 1968 in Metairie, Louisiana, to serve the East Bank of Jefferson Parish. In 1984, DHJ opened as a for-profit, 138-bed hospital next door to East Jefferson. The hospitals are so close that doctors on staff at both facilities routinely walk between them.

SMA was formed by DHJ and other hospitals in 1988. SMA is a not-for-profit PPO consisting of member hospitals, which have two seats each on the board of SMA, and participating hospitals, which contract to provide services to SMA but have no ownership interest in SMA. SMA markets a package of discount services at its member and participating hospitals to employers, insurance companies, professional associations and other purchasers of group health benefits. An individual consumer covered by SMA is free to see any doctor or use any health-care facility that he chooses, but the consumer must pay more to use a provider outside the network.

DHJ was a member hospital of SMA until January 1990, when DHJ canceled its membership because it had received virtually no revenues from SMA. However, DHJ continued to serve SMA customers, and in February 1991, DHJ and SMA entered into a participating hospital contract terminable by either party upon ninety days written notice.

From 1989 through 1992, SMA grew rapidly, increasing its New Orleans area enrollment from 6,700 in February 1990 to 233,000 in 1993. By 1993, there were 14 PPOs in the greater New Orleans area. American LIFECARE had the largest enrollment, followed by SMA and Healthcare Advantage. ²

Managed care revenues grew to represent 21 percent of DHJ's total revenues as of June 1993. Revenues from SMA approached $200,000 per month, or 6 percent of DHJ's total revenues.

In 1992, SMA's member hospitals were Tulane Medical Center, Southern Baptist Hospital, West Jefferson Hospital, Lakeside Hospital, and Slidell Memorial Hospital. Although SMA officials had approached East Jefferson about affiliating with the PPO as early as 1989, while DHJ was still a member, negotiations began in earnest to attract East Jefferson sometime in 1992. Prior to and during this time, DHJ also expressed interest in once again becoming an SMA member hospital. Responding to a letter on this subject from DHJ's president, the Executive Director of SMA assured DHJ in August 1992 that DHJ's request would be "on the agenda" at SMA's October board meeting. Instead of considering the DHJ request, however, in November, SMA entered into a contract calling for East Jefferson to join SMA, first as a participating hospital and later as a member. At its March 1993 meeting, SMA's board of directors decided to accept East Jefferson as a member hospital and terminate DHJ as a participating hospital. DHJ was given written notice of termination.

By August 31, 1992, DHJ was under contract to provide services to Healthcare Advantage. Including Healthcare Advantage, DHJ was affiliated with six PPOs after its termination by SMA in 1993. ³

Upon its termination by SMA, DHJ filed suit alleging federal and state antitrust violations as well as other state claims. DHJ asserted that East Jefferson and SMA illegally restrained trade in violation of Section 1 of the Sherman Act by conspiring to restrict competition through exclusion of DHJ from the SMA network. DHJ likened this restraint to a concerted refusal to deal or a group boycott by competitors. DHJ's Section 2 claims rested on the allegation that East Jefferson had attempted to monopolize and conspired to monopolize the hospital services market on the East Bank of Jefferson Parish by using its market power to condition its entrance into SMA on the exclusion of DHJ. DHJ asserted damages from the loss of SMA revenues and damage to its ability to compete effectively in the marketplace.

DHJ's expert economist, Dr. Henry Zaretsky, defined the relevant product market for both claims as general-acute inpatient services and hospital-based outpatient services (collectively "hospital services") and the relevant geographic market as the East Bank of Jefferson Parish. Dr. Zaretsky described the six hospitals within the East Bank as the relevant competitors. ⁴ Within those parameters, East Jefferson was the largest competitor, with a 42 percent share of patient days and a 39 percent share of patient discharges. ⁵ East Jefferson was followed by Ochsner, with 30 percent of patient days, and St. Jude and DHJ, each with a 9 percent share of patient days. As a result of the exclusion of DHJ from affiliation with SMA, Dr. Zaretsky suggests that East Jefferson can monopolize hospital services on the East Bank.

Dr. Zaretsky pointed to three anticompetitive effects that could result from the appellees' actions: 1) actual increased prices to SMA subscribers combined with an environment conducive to further price increases, 2) a reduction in consumer choice, in that SMA customers' ability to use DHJ is restricted, and 3) the weakening of DHJ as an effective competitor in the market. DHJ also offered evidence of East Jefferson's alleged anticompetitive intent, such as attempts to discourage physician groups from admitting patients to DHJ, East Jefferson's strategic reports highlighting the weaknesses of DHJ and other competitors, and various statements by Peter Betts, chief executive of East Jefferson, to the effect that East Jefferson would not join SMA unless DHJ was excluded.

Reviewing this evidence after substantial discovery, the district court granted the defendants' motion for partial summary judgment on the federal and state antitrust claims on the grounds that DHJ had not demonstrated antitrust injury as required to establish its standing to sue. Upon a motion for reconsideration by DHJ, the district court clarified its reasoning, but reaffirmed the grant of summary judgment for the defendants. The district court granted final judgment on the dismissal of the federal and state antitrust claims pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, and DHJ filed a timely notice of appeal.

II. Standing and Antitrust Injury

DHJ contends that the district court erred in its analysis of the antitrust injury component of standing and erroneously required proof of injury to competition as an element of standing. We review the district court's grant of summary judgment de novo. Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir.), cert. denied, 506 U.S. 825, 113 S.Ct. 82, 121 L.Ed.2d 46 (1992).

Standing to pursue an antitrust suit exists only if a plaintiff shows: 1) injury-in-fact, an injury to the plaintiff proximately caused by the defendants' conduct; 2) antitrust injury; and 3) proper plaintiff status, which assures that other parties are not better situated to bring suit. McCormack v. National Collegiate Athletic Ass'n, 845 F.2d 1338, 1341 (5th Cir.1988) (citations omitted). The first and third elements of the standing inquiry are not here in dispute.

Antitrust injury must be established for the plaintiff to have standing under section 1 or section 2 of the Sherman Act. Bell v. Dow Chem. Co., 847 F.2d 1179, 1182 (5th Cir.1988). ⁶ This requirement is inferred from section 4 of the Clayton Act, which affords a remedy to any person injured in his business or property "by reason of" an antitrust violation. 15 U.S.C. § 15(a). In Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S.Ct. 690, 697, 50 L.Ed.2d 701 (1977), the Supreme Court described antitrust injury as

... injury of the type the antitrust laws were intended to prevent and that flows from that which makes the defendants' acts unlawful. The injury should reflect the anticompetitive effect either of the violation or of anticompetitive acts made possible by the violation. It should, in short, be "the type of loss that the claimed violations ... would be likely to cause."

Id. (citing Zenith Radio Corp. v. Hazeltine...