St. Luke's Hosp. v. Promedica Health Sys., Inc.
| Decision Date | 29 December 2020 |
| Docket Number | Case No. 3:20 CV 2533 |
| Citation | 510 F.Supp.3d 529 |
| Parties | ST. LUKE'S HOSPITAL, et al., Plaintiffs, v. PROMEDICA HEALTH SYSTEM, INC., et al., Defendants. |
| Court | U.S. District Court — Northern District of Ohio |
David A. Ettinger, Honigman Miller Schwartz and Cohn, Detroit, MI, Denise M. Hasbrook, Roetzel & Andress, Toledo, OH, Ron N. Sklar, Honigman, Chicago, IL, for Plaintiffs.
Adam S. Sieff, Davis Wright Tremaine, Los Angeles, CA, Christopher G. Renner, Douglas E. Litvack, Davis Wright Tremaine, Washington, DC, Mark D. Wagoner, Jr., Matthew T. Kemp, Shumaker, Loop & Kendrick, Toledo, OH, for Defendants.
JACK ZOUHARY, U. S. DISTRICT JUDGE
Plaintiffs St. Luke's Hospital, d/b/a McLaren St. Luke's ("St. Luke's"), and Wellcare Physicians Group, LLC. ("Wellcare"), bring this action for injunctive relief and damages against Defendants ProMedica Health System, Inc. ("ProMedica") and their wholly-owned health-insurance subsidiaries ("Paramount"). ProMedica sent notices of termination of insurance and Medicare Advantage contracts with St. Luke's and its physicians, effective January 1, 2021 (Doc. 1 at 3). These and eight other contracts with St. Luke's were simultaneously terminated by ProMedica on the heels of the acquisition of St. Luke's by McLaren Health Care Corporation ("McLaren") (id. ). St. Luke's alleges these actions violate antitrust laws and will cause immediate and irreparable harm (id. ).
Plaintiffs move for a preliminary injunction (Doc. 22); Defendants oppose (Doc. 39). This Court held oral argument on December 21, 2020 (Docs. 63–65).
There are four major hospital systems in Lucas County — ProMedica, Mercy Health, St. Luke's, and the University of Toledo Medical Center ("UTMC"). ProMedica is the largest of these organizations and briefly grew even larger when it acquired St. Luke's in 2010. The Federal Trade Commission ("FTC") successfully challenged that transaction on antitrust grounds. In the Matter of ProMedica Health Sys., Inc. , 2012 WL 1155392 (F.T.C. 2012) ; F.T.C. v. ProMedica Health Sys., Inc. , 2011 WL 1219281 (N.D. Ohio 2011) ; ProMedica Health Sys., Inc. v. F.T.C. , 749 F.3d 559 (6th Cir. 2014). After the acquisition, but before the merger litigation was resolved, ProMedica took steps to eliminate much of St. Luke's back-office operations, transfer St. Luke's employees responsible for these operations to ProMedica, scale back clinical services at St. Luke's, and recruit physicians away from St. Luke's (Doc. 22-6 at 2–4). The FTC mandated a divestiture of St. Luke's, after which ProMedica offered to sell St. Luke's to Capella Health — a company with a weak balance sheet and a track record of shifting newly acquired hospitals to a "bare bones" operation, often leasing those hospitals back to an operating entity at a steep cost (id. at 4–5). St. Luke's protested the planned sale and, following negotiations, ProMedica agreed not to sell to Capella if St. Luke's agreed to proposed terms in the divestiture agreement (id. ). These terms included paying $35 million to ProMedica for investments made to St. Luke's following the acquisition, and a "Change in Control" provision which allowed Paramount to immediately terminate its agreements with St. Luke's if it was later acquired by another entity (id. at 5–6).
Partly due to the onerous terms of the divestiture agreement, but also due to ProMedica neglecting its obligations under the agreement, St. Luke's was left in a precarious financial situation following the divestiture (id. at 6–7). St. Luke's successfully sought acquisition by McLaren — who agreed to make a substantial investment in St. Luke's (id. ). Immediately following the acquisition, Defendants terminated nearly all their longstanding service agreements with both St. Luke's and McLaren, many of which predated the divestiture (id. at 7). Following the cancellation of the Paramount commercial-insurance and Medicare Advantage contracts at issue here, Defendants promptly issued letters to Paramount customers informing them that St. Luke's and its doctors were now out of network, and identified other hospitals and doctors those patients could utilize (id. ). St. Luke's then initiated this lawsuit (Doc. 1), including a request for preliminary injunctive relief (Doc. 22).
To determine whether to grant a preliminary injunction, courts generally consider four factors:
Ne. Ohio Coal. for Homeless v. Husted , 696 F.3d 580, 590–91 (6th Cir. 2012) (citation omitted). Each factor will be discussed in turn.
Plaintiffs must demonstrate they have a "strong likelihood of success on the merits" to satisfy the first factor. Certified Restoration Dry Cleaning Network, L.L.C. v. Tenke Corp. , 511 F.3d 535, 543 (6th Cir. 2007) (citation omitted). This does not mean Plaintiffs must prove their case in full, but rather "it is ordinarily sufficient if the plaintiff has raised questions going to the merits so serious, substantial, difficult, and doubtful as to make them a fair ground for litigation and thus for more deliberate investigation." Six Clinics Holding Corp., II v. Cafcomp Sys., Inc. , 119 F.3d 393, 402 (6th Cir. 1997).
Plaintiffs base their claims on two primary grounds. First, they allege the "Change in Control" provision is an unreasonable restraint of trade in violation of Section 1 of the Sherman Act and the Ohio Valentine Act (Doc. 22 at 21). Establishing an unreasonable restraint of trade requires proof of a contract, combination, or conspiracy which either harms competition, or is engaged in by an entity with market power and has the potential to harm competition. Realcomp II, Ltd. v. FTC , 635 F.3d 815, 827 (6th Cir. 2011). The same legal standard applies under the Ohio Valentine Act. Erie Cty. v. Morton Salt, Inc. , 702 F.3d 860, 867 (6th Cir. 2012).
Next, Plaintiffs allege the Paramount termination notices are part of a scheme of monopolization or attempted monopolization in violation of Section 2 of the Sherman Act (Doc. 22 at 21). Monopolization requires the possession of monopoly power and the willful maintenance or enhancement of that power through exclusionary conduct. United States v. Grinnell Corp. , 384 U.S. 563, 570–71, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966) ; Potters Med. Ctr. v. City Hosp. Ass'n , 800 F.2d 568, 574 (6th Cir. 1986). "An attempted monopolization occurs when a competitor, with a ‘dangerous probability of success,’ engages in anticompetitive practices the specific design of which are, to build a monopoly or exclude or destroy competition." Id. (citing Times-Picayune Publishing Co. v. United States , 345 U.S. 594, 627, 73 S.Ct. 872, 97 L.Ed. 1277 (1953) ). This Court must therefore review whether Plaintiffs meet these necessary elements.
Plaintiffs must first establish the relevant market within which their claims may be assessed. There is a strong likelihood Plaintiffs will be able to show, at minimum, "general acute care inpatient hospital services sold to commercial health plans, excluding tertiary and quaternary services," in Lucas County, is one of the relevant markets (Doc. 22 at 22). This is the same conclusion reached by the FTC, Judge David Katz, and the Sixth Circuit in the antitrust merger litigation between ProMedica and St. Luke's. In the Matter of ProMedica Health Sys., Inc. , 2012 WL 1155392, at *20–23 ; F.T.C. v. ProMedica Health Sys., Inc. , 2011 WL 1219281, at *54–55 ; ProMedica Health Sys., Inc. , 749 F.3d at 568. The data shows that very few patients leave Lucas County for these services, further supporting the argument that this is a relevant market (Doc. 22-4 at 3). Also, actions involving St. Luke's or ProMedica's wholly-owned subsidiaries — such as Wellcare and Paramount — can likewise be the subject for injunctive relief if they are also targets of a conspiracy, under the "inextricably intertwined doctrine." See Province v. Cleveland Press Pub. Co. , 571 F. Supp. 855, 866–67 (N.D. Ohio 1983). Additional relevant markets may be further defined pending discovery.
Plaintiffs have shown that ProMedica has the requisite market power necessary to sustain these claims at this stage. In the merger litigation, the FTC concluded that, even before its merger with St. Luke's, "ProMedica, as the dominant hospital system in Lucas County, had significant bargaining leverage which allowed it to command among the highest rates, not only in Lucas County but also the entire state of Ohio," which the Commission attributed to its "market power." In the Matter of ProMedica Health Sys., Inc. , 2012 WL 1155392, at *32. These higher prices are unlikely attributed to better services, given that several of its quality scores were found to be "subpar." ( id. at *7 ).
Plaintiffs provide additional evidence that, since the merger litigation, ProMedica's market share has only grown stronger, while competitors such as St. Luke's and UTMC have weakened (Doc. 22-4 at 2–3). Such evidence suggests, in the market consisting of inpatient general acute-care services (not including tertiary or quaternary services), offered to commercially insured patients by hospitals located in Lucas County, ProMedica has a 56 percent market share (id. ). This is sufficient to establish at least an attempted monopolization claim. Defiance Hosp. v. Fauster-Cameron, Inc. , 344 F. Supp. 2d 1097, 1112, 1116–17 (N.D. Ohio 2004) (...
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