Palmyra Park Hosp. Inc v. Phoebe Putney Mem'l Hosp.

• Decision Date: 29 April 2010
• Docket Number: No. 09-11818.,09-11818.
• Citation: 604 F.3d 1291
• Parties: PALMYRA PARK HOSPITAL, INC., Plaintiff-Appellant,v.PHOEBE PUTNEY MEMORIAL HOSPITAL, Phoebe Putney Health System, Inc., Hospital Authority of Albany/Dougherty County, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

604 F.3d 1291

PALMYRA PARK HOSPITAL, INC., Plaintiff-Appellant,v.PHOEBE PUTNEY MEMORIAL HOSPITAL, Phoebe Putney Health System, Inc., Hospital Authority of Albany/Dougherty County, Defendants-Appellees.

No. 09-11818.

United States Court of Appeals, Eleventh Circuit.

April 29, 2010.

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J. Scott Ballenger, Maureen E. Mahoney, Drew C, Ensign, Gregory G. Garre, Latham & Watkins, Jeffrey S. Spigel, Washington, DC, Christine A. Hopkinson, M. Russell Wofford, Jr., King & Spalding, Atlanta, GA, for Plaintiff-Appellant.

Michael B. Terry, Frank M. Lowrey, IV, Emmet J. Bondurant, Bondurant, Mixson & Elmore, LLP, Amy J. McCullough, Kenneth B. Hodges, III, Baudino Law Group, PLC, Atlanta, GA, John P. Passarelli, James M. Sulentic, Amber Allred, Kutak Rock, LLP, Omaha, NE, Karin Allen Middleton, Baudino Law Group, PLC, Albany, GA, David J. Darrell, Robert J. Baudino, Jr., Baudino Law Group, PLC, Des Moines, IA, for Defendants-Appellees.

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

Before TJOFLAT, PRYOR and MARTIN, Circuit Judges.

TJOFLAT, Circuit Judge:

This is an antitrust case between two competing Georgia hospitals. Palmyra Park Hospital, Inc. (“Palmyra”) claims that Phoebe Putney Memorial Hospital (“Phoebe Putney”) leveraged a state-granted monopoly in certain medical services to tie favorable insurance reimbursement rates for those services to a refusal to include Palmyra, who competes with Phoebe Putney for the other medical services, in insurance companies' provider networks. The district court dismissed Palmyra's claims due to lack of antitrust standing. Specifically, the district court held that Palmyra was not an efficient enforcer of the antitrust laws. We disagree; Palmyra has antitrust standing to pursue its claims. We accordingly reverse the district court's judgment and remand the case for further proceedings.

I.

We begin in subpart A by setting out the basic facts, as they are alleged in Palmyra's complaint, viewing them in the light most favorable to Palmyra, as we must at this juncture in the litigation. See Glover v. Liggett Group, Inc., 459 F.3d 1304, 1308 (11th Cir.2006) (per curiam). In subpart B, we detail the proceedings in the district court.

A.

Palmyra operates a 248-bed hospital in Albany, Georgia, which is located in Dougherty County. The hospital, built in 1971, is a for-profit institution. Phoebe Putney operates a not-for-profit, 443-bed hospital in Albany. Built in 1911, this hospital is the largest in the region. Phoebe Putney is a wholly owned subsidiary of Phoebe Putney Health Systems, Inc., also a not-for-profit institution. Phoebe Putney's assets are owned by the Hospital Authority of Albany/Dougherty County, which leases the assets to Phoebe Putney on a long-term basis,¹ but has no control over Phoebe Putney's operations. Palmyra is Phoebe Putney's largest and chief competitor for acute-care services in the region.²

The two hospitals offer a number of the same acute-care services-cardiology, gastroenterology, general surgery, gynecology, medicine, oncology, pulmonary care, and urology. To provide certain services, a hospital must obtain a Certificate of Need (“CON”) from the state. Phoebe Putney has a CON for acute-care obstetrics, neonatology, and a cardiac catheterization laboratory. Palmyra does not possess these CONs and thus does not provide these services. The few other hospitals in the region that do provide them do so on such a smaller scale that they do not meaningfully compete with Phoebe Putney.

Hospitals like Palmyra and Phoebe Putney derive a large amount of their revenue from private insurers. Hospitals negotiate contracts with private insurers that set the rates the insurers will pay for services the hospital provides the insured patients. A hospital with such a contract is considered an in-network provider, and an insurer provides its policy holders with strong financial incentives-usually in the form of lower co-payments or lower insurance premiums-to procure medical services from in-network instead of out-of-network providers. These incentives are strong enough that policy holders tend to choose only in-network hospitals, and hospitals can expect an increase in the number of an insurer's policy holders who choose it for medical services when the hospital becomes an in-network provider for that insurer. The converse also holds true: hospitals can expect to lose much of the business of an insurer's policy holders if the hospital loses its status as an in-network provider for that insurer.³

To attract policy holders, private insurers must offer a network of hospitals that provides a comprehensive range of services. Therefore, Phoebe Putney's position as the only large area hospital possessing CONs to provide acute-care obstetrics and neonatology services and to operate a cardiac catheterization laboratory means that a private insurer wishing to compete for policy holders in any meaningful way in southwest Georgia must include Phoebe Putney in its network.

Prior to 2000, Palmyra was an in-network provider for Blue Cross Blue Shield of Georgia (“Blue Cross”), which is the largest private insurer in the region. Sometime in 2000, Palmyra lost its in-network status with Blue Cross. According to Palmyra, this happened because Phoebe Putney leveraged its monopoly power over the medical services requiring CONs to force Blue Cross (and other insurers) to exclude Palmyra from their provider networks. Specifically, Phoebe Putney threatened to demand significantly higher reimbursement rates for those services in its contracts with Blue Cross if Blue Cross included Palmyra in its provider network. Palmyra attempted to contract with Blue Cross on several occasions after 2000, but each time Blue Cross informed Palmyra that Blue Cross could not include Palmyra as an in-network provider because of Blue Cross's contract with Phoebe Putney.

B.

In July 2008, Palmyra brought this action in the United States District Court for the Middle District of Georgia against Phoebe Putney, Phoebe Putney Health Systems, Inc., and the Hospital Authority of Albany/Dougherty County. Palmyra's complaint alleges that Phoebe Putney has illegal tying agreements with Blue Cross and a local Public Employees' Plan in violation of §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2,⁴ and that Phoebe Putney Health Systems, Inc. and the Hospital Authority are conspiring with Phoebe Putney in its execution of those tying agreements.⁵ The complaint also alleges several related state-law claims.⁶

The complaint sets out the facts described in part I.A. It identifies the geographic market as a ten-county area in southwestern Georgia including Dougherty, Calhoun, Worth, Baker, Mitchell, Randolph, Terrell, Lee, Sumter, and Crisp counties. According to Palmyra, Phoebe Putney is the only hospital in this region with the CONs necessary to provide obstetrics, neonatology, and cardiovascular services, and it would be too costly, time-intensive, or risky for patients seeking those services to travel outside the region. The few other hospitals in this region that provide those services (presumably because they also have the requisite CONs) are not authorized to provide enough hospital beds to compete with Phoebe Putney in any meaningful way; Phoebe Putney thus has market power for medical services requiring a CON in this geographic market.

The complaint identifies three separate medical-services product markets in which Phoebe Putney possesses market power due to its CONs: acute-care obstetrics, neonatology, and cardiovascular catheterization services provided to privately insured patients.⁷ These three markets constitute the tying-products markets. Palmyra identifies eight separate markets for medical services in which it competes with Phoebe Putney: acute-care cardiology, gastroenterology, general surgery, gynecology, medicine, oncology, pulmonary care, and urology services provided to privately insured patients. These eight markets constitute the tied-products markets. According to Palmyra, there is no cross-price elasticity of demand for any of the separate markets because none of the services are substitutes for each other; a patient seeking neonatology care, for example, will not turn instead to oncology care if the price is low enough.

Palmyra alleges that even though hospitals can provide the tying and tied services separately from each other, Phoebe Putney illegally tied purchase of the tied products to purchase of the tying products. In its negotiations with Blue Cross, for example, Phoebe Putney allegedly threatened to demand significantly higher reimbursement rates for the tying products if Blue Cross contracted with Palmyra for the tied products. Palmyra alleges that Phoebe Putney made the same threats during negotiations with CIGNA Health Care of Georgia, Inc.⁸ Phoebe Putney negotiated a similar agreement with the local Public Employees' Plan, which ostensibly precludes that insurer from contracting with any hospital within 60 miles of Albany but then excepts several hospitals, leaving Palmyra as the primary hospital excluded. Palmyra alleges that Phoebe Putney generally pursued these tactics in negotiations with insurers even though Phoebe Putney offered no real discount in exchange for these insurers' refusals to deal with Palmyra. Nor, alleges Palmyra, do patients benefit from these contracts. In fact, patients have fewer choices for medical services, and Palmyra claims that the tying arrangements contribute to the region's higher-than-average healthcare costs.

Palmyra distills these allegations into six counts: Count I alleges that the tying arrangement constitutes a per-se violation of § 1 of the Sherman Act, 15 U.S.C. § 1; Count II alleges that the tying arrangement also constitutes a violation of § 1 of the Sherman Act under a rule-of-reason analysis; Count III alleges that the conduct amounts to monopolization as prohibited...