Key Enterprises of Delaware, Inc. v. Venice Hosp.

• Decision Date: 28 December 1990
• Docket Number: No. 89-3086,89-3086
• Citation: 919 F.2d 1550
• Parties: , 1990-2 Trade Cases 69,280 KEY ENTERPRISES OF DELAWARE, INC., Plaintiff-Appellant, v. VENICE HOSPITAL, Sammett Corporation and Medicare Patient Aids Center, Defendants-Appellees, Gulf Area Diversified Services, et al., Defendants.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1550

919 F.2d 1550

59 USLW 2406, 1990-2 Trade Cases 69,280

KEY ENTERPRISES OF DELAWARE, INC., Plaintiff-Appellant, v. VENICE HOSPITAL, Sammett Corporation and Medicare Patient Aids Center, Defendants-Appellees Gulf Area Diversified Services, et al., Defendants.

No. 89-3086.

United States Court of Appeals Eleventh Circuit.

Dec. 28, 1990.

Christopher K. Kay, Michael J. Beaudine, Orlando, Fla., Anthony Diresta, Morris, Manning & Martin, Atlanta, Ga., for Key Enterprises of Delaware, Inc.

Herbert T. Schwartz, Reinman, Harrell, Graham, Mitchell & Wattwood, Melbourne, Fla., for Venice Hosp. & Medicare Patient Aids Center.

Lynn Snyder, William G. Kopit, Washington, D.C., for Sammett Corp. & Medicare Patient Aid Center.

William Bell, Tallahassee, Fla., for amicus curiae Florida Hosp. Assoc.

C. Scott Sykes, Irving, Tex., for amicus curiae, Voluntary Hospitals of America, Inc.

Appeal from the United States District Court for the Middle District of Florida.

Before KRAVITCH and CLARK, Circuit Judges, and ATKINS ^*, Senior District Judge.

CLARK, Circuit Judge:

FACTS

This case concerns the rental and sale of durable medical equipment (DME) to home users in the Venice, Florida area. DME includes such things as prosthetic devices, hospital beds, oxygen equipment, wheelchairs and walkers. DME suppliers receive customers from many sources, including self-selection, referrals from hospitals, nursing homes and intermediate care facilities, home health agencies, physicians and physical therapists. The plaintiff, Venice Convalescent Aids Medical Supply (VCA), is one of several competing retailers of DME to non-institutionalized patients in the Venice, Florida area. The defendant Medicare Patient Aid Centers (MPAC) is also a DME supplier and is jointly owned by the Sammett Corporation and an affiliate of Venice Hospital.

In May 1984, the defendant Sammett established the defendant MPAC to provide DME equipment to the Venice, Florida DME market. About the same time, Venice Hospital began investigating the possibility of establishing a DME supply business and of entering into a joint venture with a home health care agency. ¹ Venice Hospital contacted several pre-existing DME suppliers, including MPAC, regarding a possible joint venture. Venice Hospital also contacted several local home health agencies to discuss the home health care joint venture. Ultimately, in April 1985, an affiliate of Venice Hospital, Gulf Area Diversified Services (GADS), purchased from Sammett a one-half interest in Sammett's MPAC facility in Venice and thus established MPAC as a joint venture between Sammett and Venice Hospital's affiliate GADS. Venice Hospital is a not for profit subsidiary of Gulf Area Medical Programs which has another subsidiary, the for profit corporation, GADS.

During the course of these negotiations, the chief operating officer at Venice Hospital, Gary Bebow received a letter dated January 25, 1985 from Sam Shapiro, the president of Sammett Corp. In that letter, discussing Sammett's marketing strategy, Shapiro stated that the company "do[es] not set [its] sights only on the skimming off of captive referrals" in a highly regulated market, but that it intended to "market directly to patients and medical professionals." Shapiro testified at trial that captive referrals "refers to situations where the patients do not have the freedom of choice." He also stated that once he learned Venice Hospital was considering going into the DME business, he "thought it would be a good idea if [they] could put [their] energies together and have one less competitor in the area." Although Venice Hospital had not contacted VCA, upon learning of the possible joint venture, VCA contacted the hospital and suggested they discuss the matter. The hospital declined, noting that it had already entered into a joint venture with MPAC.

Venice Hospital is one of two existing hospitals in the Venice area and is a 312 bed acute care facility. The only other hospital in the area, Englewood, is a 100 bed facility which opened in December 1985. Venice Hospital has 76% of the available beds; patient records show it has 80% of patient admissions and 81% of the patient days in the Venice area. Venice Hospital has facilities to support most of the area residents' needs; its records show that 80% of the hospital's patients come from the Venice area. Patient records from the closest hospitals outside the Venice area show few Venice area residents going to those neighboring hospitals. The boundaries of the hospital's certificate of need correlate to the above defined area which provides 80% of the hospital's patients. Plaintiff's expert ² concluded that Venice Hospital has monopoly power for acute care in the relevant geographic market.

Expert testimony adduced at trial shows that Venice Hospital patient DME referrals represent a significant portion of the total DME referral market in the Venice area. Plaintiff's expert opined that 64% of MPAC's current business comes from the hospital. The statistics showed that for the 1986-87 time frame, MPAC had 60.7% of the total DME business in Venice. This means that MPAC has garnered 39% of the total area DME market simply by capturing an indeterminate percentage of Venice Hospital's DME referrals. Plaintiff's expert noted that MPAC is now receiving approximately 85% of all referrals from Venice Hospital. Assuming MPAC's share of business generated by hospital referrals is in equilibrium with MPAC's share of new referrals, then Venice Hospital discharges represent 46% of the total DME market in the Venice area. ³ Plaintiff's expert testified, however, that MPAC's current business from the hospital had not reached equilibrium with its share of new referrals from the hospital, indicating that MPAC's current business generated by the hospital is something less than 85%. This supports the conclusion that Venice Hospital's total DME referrals represent greater than 46% of the total area DME market. Plaintiff's expert concluded that the hospital represented an essential facility in terms of DME referrals. Defendant's expert contradicted this by saying that Venice Hospital DME referrals represent only 19% of the total area market.

Before the joint venture, it was common practice in the Venice DME market for home health care nurses to assist the patient in choosing the DME vendor who would supply the patient's DME needs. The home health care nurses have had training in DME usage and are capable to select DME equipment for patients. Home health care nurses are not employees of the hospital and are granted hospital privileges (access to patients) once they complete certain application and screening procedures. The plaintiff concentrated its sales efforts on the home health care nurses and physicians. Consequently, VCA received much of its DME business from hospital discharges and relatively little business from the other available sources. To ensure equal access among those home health agencies which have hospital privileges, ⁴ the hospital uses a rotation system. Several days before a patient requiring some form of follow-on care is discharged from the hospital, the hospital notifies whichever home health agency is next in the rotation. This allows a home health nurse from the agency to visit the patient and plan whatever follow-on care is needed. Pre-planning is essential to ensure that needed facilities are in place when the patient arrives home from the hospital. The home health care agencies rely on access to patients to remain in business.

The nurses testified that they would first inquire whether the patient had a choice of DME vendor; if the patient expressed no preference, the nurse would recommend a vendor based on the equipment the patient needed and the nurse's past experience with DME companies. All nurses who testified stated that only rarely did a patient or a patient's family have a preference for a particular DME vendor.

After the joint venture was created, Venice Hospital instituted a new policy encouraging home health care nurses to select MPAC as their DME supplier. The social services director at Venice Hospital held two meetings with the home health care nurses to impress on them the fact that the hospital would prefer they use MPAC. In an interoffice memorandum, Ronald Scherra then the senior vice president of the hospital told the social services director to "refer all patients to these hospital affiliated organizations [MPAC] unless the attending physician specifically refers the patient to a different supplier." Scherra testified that the memo was strictly interoffice correspondence and did not represent hospital policy. Mark Bowers an employee of MPAC became the patient equipment coordinator in the Venice Hospital's discharge planning department; his duties included meeting with the patients with anticipated needs for DME. Prior to his employment at Venice Hospital, Bowers worked as a DME salesman and as a sales supervisor for Sammett. When he became patient equipment coordinator, Bowers had no training in follow-on health care.

Initially, the hospital structured its policy in order to prevent the home health care nurses from consulting with patients as to their DME requirements. Only after several home health care nurses complained did the hospital change its policy to allow the nurses to discuss DME requirements with patients. Thereafter, the home health nurse performed the DME assessment, that is, they determined which equipment the patient required. Nevertheless, it was Bowers who actually discussed with the patient which company would supply the needed equipment. The parties stipulated, however, that Bowers both performed the assessment and arranged the equipment rental. Thus, there seems to be some conflict between the evidence and the stipulation. The parties also stipulated that if a patient, home health nurse or physician made a request for a particular DME vendor in a particular...