Laughlin v. Evanston Hosp.

• Decision Date: 24 January 1990
• Docket Number: No. 66431,66431
• Citation: 133 Ill.2d 374,140 Ill.Dec. 861,550 N.E.2d 986
• Parties: , 140 Ill.Dec. 861, 58 USLW 2450, 1990-1 Trade Cases P 68,903 Walter LAUGHLIN et al., Appellees and Cross-Appellants, v. EVANSTON HOSPITAL, et al., Appellants and Cross-Appellees.
• Court: Illinois Supreme Court

Page 986

550 N.E.2d 986

133 Ill.2d 374, 140 Ill.Dec. 861, 58

USLW 2450,

1990-1 Trade Cases P 68,903

Walter LAUGHLIN et al., Appellees and Cross-Appellants, v. EVANSTON HOSPITAL, et al., Appellants and Cross-Appellees.

No. 66431.

Supreme Court of Illinois.

Jan. 24, 1990.

John T. Cusack, Peter J. Meyer, Mary Beth Cyze, Gardner, Carton & Douglas; Richard William Austin, Kevin J. Egan, Winston & Strawn; Jack R. Bierig, David F. Graham, James C. Dechene, David B. Johnson, Sidley & Austin; Gary Senner, Jeffrey P. Lennard, Steven M. Levy, Sonnenschein, Carlin, Nath & Rosenthal; Kenneth B. Drost, Michael R. Callahan, Katten, Muchin & Zavis; Michael A. Haber, Chicago, for appellants and cross-appellees.

Robert F. Coleman, Kenneth Philip Ross, Eugene J. Schiltz, Robert F. Coleman & Associates, Eugene I. Pavalon, Michael C. Greenfield, Steven Feinberg, Asher, Pavalon, Gittler & Greenfield, Ltd., Chicago, for appellees and cross-appellants.

Mark Damian Deaton, Daniel J. Mulvanny, John T. Bomher, Naperville, for amici curiae Illinois Hospital Association et al.

Justice WARD delivered the opinion of the court:

The trustees of Masonry Institute, Welfare Fund of Bricklayers Local 21 and the trustees of Chicago Truck Drivers, Helpers and Warehouse Workers Union Health and Welfare Fund (the trustees), on their own behalf and on behalf of a class of similarly situated third-party payors who indemnify or insure patients for the cost of hospital services, filed a two-count complaint in the circuit court of Cook County against 10 Chicago-area hospitals. The complaint alleged that the defendants' pricing practices are an unfair method of competition and violate the Illinois Consumer Fraud and Deceptive Business Practices Act (Ill.Rev.Stat.1985, ch. 121 1/2, par. 261 et seq.) (the Consumer Fraud Act) and are an unreasonable restraint of trade in violation of the Illinois Antitrust Act (Ill.Rev.Stat.1985, ch 38, par. 60-1 et seq.) (the Antitrust Act). The trial court dismissed both counts for failure to state a cause of action. The appellate court affirmed the dismissal of the count alleging violation of the Consumer Fraud Act and reversed the dismissal of the antitrust claim, remanding to the trial court for consideration of whether the hospitals' conduct amounted to an unreasonable restraint of trade. (163 Ill.App.3d 10, 114 Ill.Dec. 313, 516 N.E.2d 468.) We granted the hospitals' petition for leave to appeal under our Rule 315 (107 Ill.2d R. 315). The plaintiffs also cross-appeal under Rule 318(a) (107 Ill.2d R. 318(a)).

The plaintiffs challenge existing contracts between each of certain named hospitals and Health Care Services Corporation, the administrator of the Illinois Blue Cross Plan (Blue Cross). The contracts, which are all similar in terms, provide for an annual reconciliation of accounts between the hospitals and Blue Cross. The complaint states that Blue Cross is the only third-party payor with such an arrangement. The contracts between Blue Cross and each of the hospitals were negotiated as early as 1952 and were reviewed and approved by the Illinois Department of Insurance pursuant to the Non-Profit Health Care Service Plan Act. (Ill.Rev.Stat.1985, ch. 32, par. 555.) The approved contracts are a matter of public record.

All third-party payors, including Blue Cross, are charged the same for all provided services according to each hospital's posted charges. Blue Cross makes periodic payments to each hospital based on the posted charges. According to the terms of the contract, however, if the total amount received by a hospital in interim payments from Blue Cross during the course of a year exceeds 105% of the hospital's actual cost for that year for services provided, the amount in excess will be returned to Blue Cross at the end of the year. Thus, the profit to the hospital is fixed at 5%. The plaintiffs allege as a sample year, in 1982, approximately $50 million was returned to Blue Cross pursuant to the contracts.

Count I of the plaintiffs' complaint alleges that the hospitals' contracts with Blue Cross violate section 2 of the Consumer Fraud Act, which prohibits unfair methods of competition and unfair and deceptive practices. According to the complaint, the reconciliation payments provided for in the Blue Cross contracts were not disclosed to other third-party payors or to individual patients. Further, because the hospitals did not extend the same price terms to other third-party payors, the trustees claim the hospitals' conduct has required them to pay the defendants greater amounts for hospital services.

Count II alleges that the hospitals' failure to voluntarily provide similar price reductions for services rendered to other third-party payors gives Blue Cross a substantial competitive advantage and constitutes an unreasonable restraint of trade in violation of section 3(2) of the Illinois Antitrust Act. As stated, the circuit court dismissed both counts of the plaintiffs' complaint.

The appellate court affirmed the dismissal of count I, holding that it did not state a cause of action under section 2 of the Consumer Fraud Act because it did not show that the defendants' conduct was unfair and because the contracts calling for the return of moneys to Blue Cross were matters of public record involving no deception. The court further held that the hospitals' conduct was not unfair under the Consumer Fraud Act because the Act does not incorporate the prohibition against differential pricing appearing in the Federal Clayton Act or its Robinson-Patman amendments. (163 Ill.App.3d at 12-13, 114 Ill.Dec. 313, 516 N.E.2d 468.) The appellate court reversed the dismissal of count II, stating that although the Illinois Antitrust Act does not incorporate the Clayton Act and its Robinson-Patman amendments, price discrimination can constitute a cause of action under section 3(2) of the antitrust statute if it unreasonably restrains trade. 163 Ill.App.3d at 14, 114 Ill.Dec. 313, 516 N.E.2d 468.

The issues before the court, therefore, are: (a) whether count I, which alleges that each hospital charges all third-party payors according to its posted charges but then conducts an annual reconciliation of Blue Cross' account only without providing such an accounting to competing third-party payors, alleges an unfair or deceptive act or practice, or an unfair method of competition, and thus a cause of action under section 2 of the Consumer Fraud Act; and (b) whether count II, which alleges each hospital's failure to voluntarily provide other third-party payors with the same reduced charges for their services, states a cause of action under section 3(2) of the Illinois Antitrust Act as an unreasonable restraint of trade.

The Antitrust Claim

The plaintiffs contend that the hospitals' payment of "rebates" to Blue Cross alone and their failure to offer like terms to other third-party payors constitutes an unreasonable restraint of trade in violation of section 3(2) of the Illinois Antitrust Act. The Act, in part, provides:

"Every person shall be deemed to have committed a violation of this Act who shall:

* * * * * *

(2) By contract, combination, or conspiracy with one or more other persons unreasonably restrain trade or commerce * * *." (Ill.Rev.Stat.1985, ch. 38, par. 60-3.)

The plaintiffs argue that the conduct involved here constitutes price discrimination. Price discrimination has been prohibited under Federal antitrust law by sections 2(a) and 2(c) of the Clayton Act as amended by the Robinson-Patman Act. Section 2(a) prohibits discrimination in price between competing buyers where the effect of such discrimination may be to substantially lessen or destroy competition. (15 U.S.C. § 13(a) (1988).) Section 2(c) prohibits indirect means of price discrimination such as rebates or discounts. (15 U.S.C. § 13(c) (1988).) The plaintiffs, citing section 11 of our statute, which provides that our courts can look to Federal interpretations of similar laws in construing our statute, argue that conduct which is considered unreasonable under section 2(a) and section 2(c) of the Clayton Act should also be considered an unreasonable restraint of trade in violation of section 3(2) of the Illinois antitrust statute.

We would observe that basically the plaintiffs' only complaint is that they were not afforded the same pricing terms as Blue Cross. Because only Blue Cross is given such terms, the plaintiffs argue that the trade of providing hospitalization insurance has been restrained. They contend that because of the "rebates" they have been and continue to be required to pay the defendants higher prices for hospital services than Blue Cross is required to pay for identical services. Because no other third-party payor receives the benefit of such "rebates," the plaintiffs say they are unable to effectively compete with Blue Cross. Although the hospitals did not voluntarily make like terms available to third-party payors other than Blue Cross, it appears that each plaintiff was free to bargain on an individual basis with each of the hospitals so as to obtain more advantageous terms. Not only is there no indication in the complaint that the plaintiffs or any other third-party payor could not have negotiated similar price reductions from the hospitals, there is no suggestion that the plaintiffs attempted to obtain similar terms. It is also clear that the pricing terms were not predatory (below the hospitals' costs). The plaintiffs argue that they, nonetheless, have stated a cause of action because it was the defendants' responsibility to advise all of their "customers" of the availability of discounts and to offer all of them the same opportunity to obtain the same or comparable terms. The plaintiffs cite decisions under section 2 of the Clayton Act, and equivalent State statutes, for the proposition that the defendants are required to take affirmative action to inform all customers of the availability of rebates or similar...