Lifewatch Servs., Inc. v. Highmark, Inc.

• Decision Date: 28 December 2020
• Docket Number: CIVIL ACTION NO. 12-5146
• Citation: 509 F.Supp.3d 356
• Parties: LIFEWATCH SERVICES, INC., Plaintiff, v. HIGHMARK, INC., et al., Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

509 F.Supp.3d 356

LIFEWATCH SERVICES, INC., Plaintiff,

v.HIGHMARK, INC., et al., Defendants.

CIVIL ACTION NO. 12-5146

United States District Court, E.D. Pennsylvania.

Filed December 28, 2020

Benjamin E. Sedrish, Ian M. Hansen, Gary M. Elden, John R. McCambridge, Shook Hardy & Bacon, L.L.P., Chicago, IL, Joseph H. Blum, Shook Hardy & Bacon, L.L.P., Philadelphia, PA, for Plaintiff.

Daniel E. Laytin, David J. Zott, Kate Guilfoyle, Sarah J. Donnell, Stacy Pepper, Kirkland & Ellis LLP, Chicago, IL, Leah Dimatteo, Sheryl L. Axelrod, the Axelrod Firm LLC, Stephen A. Loney, Jr., Hogan Lovells US LLP, Philadelphia, PA, for Defendant Blue Cross and Blue Shield Association.

Craig A. Hoover, E. Desmond Hogan, Elizabeth Jose, Justin W. Bernick, Hogan Lovells US LLP, Washington, DC, David Newmann, Stephen A. Loney, Jr., Hogan Lovells US LLP, Sheryl L. Axelrod, the Axelrod Firm LLC, Philadelphia, PA, Emily M. Yinger, Hogan Lovells US LLP, Tysons, VA, for Defendants Wellpoint, Inc., Horizon Blue Cross Blue Shield of New Jersey, Blue Cross Blue Shield of South Carolina, Blue Cross Blue Shield of Minnesota.

MEMORANDUM

EDUARDO C. ROBRENO, District Judge

I. INTRODUCTION

This is an antitrust action brought by LifeWatch Services, Inc. ("LifeWatch"), a seller of telemetry monitors, against the Blue Cross Blue Shield Association and five of its plan administrators¹ (collectively, "Blue Cross"). LifeWatch claims Blue Cross violated federal antitrust laws by conspiring to deny coverage of its telemetry monitors. LifeWatch seeks a permanent injunction and treble damages, inter alia. Blue Cross moves to dismiss the Third Amended Complaint, claiming immunity from antitrust liability under the McCarran-Ferguson Act.

After almost eight years of litigation, including a stop at the multidistrict litigation panel, litigation before this Court, a substitution of counsel, a visit to the Third Circuit, and a further hearing before this Court on remand, the case comes down to one issue: Does the McCarran-Ferguson Act immunize Blue Cross from antitrust liability under the circumstances of this case? For the reasons set forth below, the Court concludes that it does.²

II. BACKGROUND³

The parties, facts, and procedural history are set forth fully in prior opinions of the Court and the Third Circuit. See LifeWatch Servs. Inc. v. Highmark Inc., 248 F. Supp. 3d 641, 650 (E.D. Pa. 2017), rev'd and remanded, 902 F.3d 323 (3d Cir. 2018). The Court assumes familiarity with the history of this action and sets forth only those facts relevant to the instant Motion to Dismiss.

Plaintiff LifeWatch is a large seller of telemetry monitors, one of several types of outpatient cardiac monitors that detect changes in the heart's normal rate or rhythm. Defendant Blue Cross Blue Shield Association owns the rights to Blue Cross/Blue Shield trade names and trademarks. The Association licenses those trade names and trademarks to approximately thirty-six insurance plans and maintains a model medical policy recommending which medical devices to cover, inter alia.

The model policy recommends against covering prescriptions for telemetry monitors. For more than ten years, at least thirty Blue Cross/Blue Shield licensed insurance plans have adopted a policy denying telemetry coverage. The insurers reached this decision despite multiple medical studies concluding that telemetry monitors are effective and, in some cases, superior to other cardiac monitoring devices. Medicare, Medicaid, and other private insurers cover telemetry monitor prescriptions.

In the instant action, LifeWatch alleges that the Blue Cross Blue Shield Association and five of its plan administrators violated the Sherman Act, 15 U.S.C. § 1, by conspiring to deny coverage of telemetry monitors. LifeWatch refers to this allegedly collusive agreement as the "Uniformity Rule." TAC ¶ 56, ECF No. 90.

In May of 2016, Blue Cross moved to dismiss the Third Amended Complaint for failure to state a claim. See Fed. R. Civ. P. 12(b)(6). Blue Cross argued: (1) the Complaint failed to allege either an agreement or anticompetitive effects; (2) LifeWatch lacked antitrust standing; and (3) Blue Cross is immune from antitrust liability under the McCarran-Ferguson Act. Defs.' Mot. Dismiss, ECF No. 95.

The Court granted the Motion to Dismiss for failure to allege anticompetitive effects and did not reach the antitrust standing or immunity arguments. LifeWatch, 248 F. Supp. 3d at 650. The Third Circuit reversed, holding that LifeWatch stated a claim and had antitrust standing. LifeWatch, 902 F.3d at 343. The Third Circuit remanded the issue presently before the Court: whether Blue Cross is immune from antitrust liability under the McCarran-Ferguson Act.

III. LEGAL STANDARD

A party may move to dismiss a complaint for failure to state a claim. Fed. R. Civ. P. 12(b)(6). When reviewing such a motion, the Court is "required to accept as true all allegations in the complaint and all reasonable inferences that can be drawn from [the allegations] after construing them in the light most favorable to the non-movant." Conard v. Pa. State Police, 902 F.3d 178, 182 (3d Cir. 2018) (quoting Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994) ). However, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). To survive a motion to dismiss for failure to state a claim, a complaint must "contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Id. (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955 ).

IV. DISCUSSION

Section 1 of the Sherman Act provides that "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal." 15 U.S.C. § 1. After the Supreme Court found the Sherman Act applicable to the insurance industry, Congress passed the McCarran-Ferguson Act to clarify that regulation of "the business of insurance" should be preserved for the states. See SEC v. Nat'l Sec., Inc., 393 U.S. 453, 458, 89 S.Ct. 564, 21 L.Ed.2d 668 (1969). Congress' primary concern with respect to the antitrust exemption was that "cooperative ratemaking efforts be exempt from the antitrust laws" because of "the widespread view that it is very difficult to underwrite risks in an informed and responsible way without intra-industry cooperation." Grp. Life & Health Ins. Co. v. Royal Drug Co., 440 U.S. 205, 221, 99 S.Ct. 1067, 59 L.Ed.2d 261 (1979).

Accordingly, McCarran-Ferguson exempts from the Sherman Act conduct that: (1) "constitutes the business of insurance," (2) is "regulated by state law," and (3) does not "amount to a boycott, coercion, or intimidation." Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 124, 102 S.Ct. 3002, 73 L.Ed.2d 647 (1982) ; see also 15 U.S.C. §§ 1012(b), 1013. "It is well settled that exemptions from the antitrust laws are to be narrowly construed." Royal Drug, 440 U.S. at 231, 99 S.Ct. 1067. A defendant "bears the burden of establishing its immunity from antitrust liability" under McCarran-Ferguson. Lifewatch Servs. Inc. v. Highmark Inc., 902 F.3d 323, 343 (3d Cir. 2018).

The parties concede that Blue Cross' alleged conduct does not amount to a boycott, coercion, or intimidation but disagree about whether the conduct constitutes the business of insurance and whether it is regulated by state law.

A. The Business of Insurance

Two Supreme Court opinions inform this Court's analysis of whether the challenged conduct constitutes the "business of insurance" under the McCarran-Ferguson Act.

In Group Life & Health Insurance Co. v. Royal Drug Co., 440 U.S. 205, 99 S.Ct. 1067, 59 L.Ed.2d 261 (1979), independent pharmacies alleged that Blue Shield of Texas and several pharmacies violated the Sherman Act by agreeing to fix the retail prices of drugs and pharmaceuticals. If a policyholder chose to fill a prescription at a pharmacy with which Blue Shield had such an agreement, she paid only $2 for every prescription drug, and Blue Shield paid the remaining cost directly to the pharmacy. Id. at 209, 99 S.Ct. 1067. But if she selected a pharmacy that had not entered into such an agreement, she paid the full price charged by the pharmacy and could subsequently obtain reimbursement from Blue Shield for part of the difference between that price and $2. Id.

The Court concluded that the challenged pharmacy agreements did not constitute the "business of insurance" within the meaning of the McCarran-Ferguson Act because they did not underwrite or spread risk. Id. at 214, 99 S.Ct. 1067. "The fallacy of the [defendants'] position," the Court noted, "is that they confuse the obligations of Blue Shield under its insurance policies, which insure against the risk that policyholders will be unable to pay for prescription drugs during the period of coverage," with the pharmacy agreements, "which serve only to minimize the costs Blue Shield incurs in fulfilling its underwriting obligations." Id. at 213, 99 S.Ct. 1067. Such cost-savings arrangements, the Court concluded, were not the "business of insurance." Id. at 214, 99 S.Ct. 1067.

In reaching this conclusion, the Court underscored that, in enacting the McCarran-Ferguson Act, Congress was concerned with "[t]he relationship between insurer and insured, the type of policy which could be issued, its reliability, interpretation, and enforcement—these were the core of the ‘business of insurance.’ " Id. at 215-16, 99 S.Ct. 1067 (quoting SEC v. Nat'l Sec., Inc., 393 U.S. 453, 460, 89 S.Ct. 564, 21 L.Ed.2d 668 (1969) ). Congress' clear focus "was on the relationship between...