The Medical Center at Elizabeth Place, LLC v. Atrium Health System, 032216 FED6, 14-4166
| Opinion Judge | MERRITT, Circuit Judge. |
| Party Name | The Medical Center at Elizabeth Place, LLC, Plaintiff-Appellant, v. Atrium Health System, et al., Defendants-Appellees. |
| Attorney | Richard A. Ripley, HAYNES AND BOONE, LLP, Washington, D.C., for Appellant. Charles J. Faruki, FARUKI IRELAND & COX P.L.L., Dayton, Ohio, for Appellees. Richard A. Ripley, HAYNES AND BOONE, LLP, Washington, D.C., James Alan Dyer, SEBALY, SHILLITO & DYER, Dayton, Ohio, Anne M. Johnson, Ryan Paulsen... |
| Judge Panel | Before: MERRITT, DAUGHTREY, and GRIFFIN, Circuit Judges. GRIFFIN, Circuit Judge, dissenting. |
| Case Date | March 22, 2016 |
| Court | United States Courts of Appeals, U.S. Court of Appeals — Sixth Circuit |
Argued: October 8, 2015
Appeal from the United States District Court for the Southern District of Ohio at Dayton. No. 3:12-cv-00026-Timothy S. Black, District Judge.
ARGUED:
ON BRIEF:
OPINION
Section 1 of the Sherman Act broadly prohibits "combinations in restraint of trade."1 Plaintiff claims that defendants conspired to deny it access to managed care contracts that plaintiff needed to compete in the hospital market in Dayton, Ohio. The question in this case is whether defendants, four previously independent hospitals now operating as a hospital "network" under the name "Premier Health Partners, " is a "combination" subject to liability under § 1 of the Sherman Act, or whether it should be characterized as a single entity competing in the marketplace for hospital services in the Dayton area. The four hospitals entered into a joint operating agreement that merged2 some of their healthcare functions, but retained control of others, and they continued to compete with each other. The district court held that the Premier group was a single entity and dismissed this antitrust case on summary judgment without adjudicating the question of whether the behavior of the Premier group of hospitals constitutes impermissible anticompetitive conduct. We disagree and reverse and remand for further proceedings under the Sherman Act.
I. Background
Plaintiff, The Medical Center at Elizabeth Place, opened in 2006 and operates a 26-bed, for-profit, physician-owned hospital in Dayton, Ohio.3 Plaintiff specializes in acute-care surgical services. Its competitors for surgical patients in the Dayton market include the defendant hospitals. Defendant Premier Health Partners was formed in 1995 when two Dayton-area hospitals entered into a joint operating agreement. Over the next 13 years, several additional hospital corporations in the area entered into Premier's joint operating agreement.4 Premier Health Partners, through the joint operating agreement, operates four hospitals: Good Samaritan Hospital, Miami Valley Hospital, Atrium Medical Center, and Upper Valley Medical Center. See Second Amended and Restated Joint Operating Agreement of Premier Health Partners (executed Feb. 2008). Premier is not a hospital, does not provide any health care itself, and has no assets of its own. Instead, Premier handles much of the financial business of the hospitals through the joint operating agreement, including negotiating managed-care contracts with insurance carriers. The defendant hospitals share revenues and losses through an agreed-upon formula set forth in the joint operating agreement, but each defendant maintains separate ownership of its assets. Defendant hospitals file separate tax returns and other corporate forms and documents filed with the government.
Plaintiff claims that the hospital defendants are not a single entity, but instead a group of hospitals capable of concerted action to keep plaintiff from competing in the market. Plaintiff offers proof that the group engaged in concerted action in three principal ways: (1) to coerce commercial health insurers that collectively represent at least 70% of the insured consumers in Dayton to refuse to negotiate contracts for managed care with plaintiff and to otherwise deny it access to their networks, thereby depriving plaintiff of the ability to serve a large segment of the Dayton consumer market; (2) by threatening punitive financial consequences to physicians who affiliated with plaintiff, including terminating leases that physicians had with defendant hospitals for office space or terminating or evicting physicians already leasing from defendant facilities, and threatening to withhold referrals; and (3) by compelling physicians, either through threats of punitive measures or through financial incentives, to refuse to admit their patients to plaintiff hospital.
The question cannot be answered in the abstract as to whether a joint venture like the one here constitutes a single entity incapable of conspiring with itself in an anticompetitive manner, or whether, instead, it becomes a vehicle to facilitate separate entities to conspire illegally to restrain trade. In American Needle, Inc. v. National Football League, 560 U.S. 183, 203 n.10 (2010), the Supreme Court relied on Justice Brandeis's multi-factored test in Board of Trade of Chicago v. United States, 246 U.S. 231, 238 (1918), to determine whether a joint venture constitutes a "combination" under Section 1:
The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint is imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts. This is not because a good intention will save an otherwise objectionable regulation or the reverse; but because knowledge of intent may help the court to interpret facts and to predict consequences.
(Emphasis added.)5 The summary judgment record leaves little doubt on the question of the intent of the network to prevent plaintiff hospital from entering the Dayton healthcare market. The deposition of the eventual head of plaintiff hospital contains the following testimony about a phone conversation he had with Thomas Arquilla, Executive Vice President of the Premier group of hospitals, one afternoon before the plaintiff hospital opened:
The conversation started with him asking me the question, John, I understand that you are an investor in this new Regent Hospital [plaintiff hospital]. And I said yes, Tom, that's true. I also understand that you are the chairman of the board of the hospital. Is that true? I said yes, it's true. He said I want you to know that you are the enemy and that this is war, and you are not going to open this hospital. I replied to him are you going to kick me off of staff at Miami Valley Hospital? And he said John, I'm not going to tell you what we are going to do to you, but there are many things that we can do to you, and we are going to do them. I said Tom, are you going to blow the facility up? And he laughed, and he said I already told you, John, there's lots of things that we can do to you, and we are going to do them. You are not going to open this hospital. He then went on to say that our facility would suck off good paying patients, that we were going to be cherry pickers, and that we would suck off good patients.
Fleishman Dep. at 118:12-119:10 (Oct. 22, 2013).
American Needle sets out the framework we are to follow in deciding the "single entity" versus "concerted activity" question at issue in this appeal. Based on defendants' stated intent to keep plaintiff out of the Dayton market, the evidence of coercive conduct threatening both physicians and insurance companies with financial loss if they did business with plaintiff, evidence of continued actual and self-proclaimed competition among the defendant hospitals, and evidence that the defendant hospitals' business operations are not entirely unitary, we conclude that there is a genuine issue of material fact as to whether the defendant hospitals' network constitutes a single entity or concerted action among competitors for purposes of Section 1 of the Sherman Act.
II. Analysis
The Sherman Antitrust Act is based on an often-difficult distinction between concerted and independent, unilateral action. Concerted activity is scrutinized more closely than unilateral behavior because "ʻ[c]oncerted activity inherently is fraught with anticompetitive risk' insofar as it 'deprives the marketplace of independent centers of decisionmaking that competition assumes and demands.'" Am. Needle, 560 U.S. at 190 (quoting Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752, 768-69 (1984)). Specifically, Section 1 regulates concerted activity between two or more entities, outlawing "[e]very contract, combination . . . or conspiracy, in restraint of trade, " 15 U.S.C. § 1, a provision that has subsequently been limited to target only "unreasonable" restraints of trade. To prevail on a claim under § 1, a plaintiff must prove: (1) a contract, combination, or conspiracy; (2) producing adverse, anticompetitive effects in the relevant market; and (3) resulting in injury. See Expert Masonry, Inc. v. Boone Cty., Ky., 440 F.3d 336, 342 (6th Cir. 2006). This appeal looks only at the element addressed by the district court, which is the first element: whether defendants' conduct is the result of two or more entities acting in concert or whether defendants, based on their participation in the joint operating agreement, function as a single entity in the market place. Our analysis is guided by American Needle, which sets out the standard to apply in distinguishing concerted from unilateral action.
In American Needle, the Court looked...
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