US v. North Dakota Hosp. Ass'n

• Decision Date: 30 July 1986
• Docket Number: Civ. No. A2-83-131.
• Citation: 640 F. Supp. 1028
• Parties: UNITED STATES of America, Plaintiff, v. NORTH DAKOTA HOSPITAL ASSOCIATION; the Bismarck Hospital Association of Bismarck, North Dakota; Dakota Medical Foundation; Garrison Memorial Hospital; McKenzie County Memorial Hospital; Mercy Hospital of Devils Lake; the Mercy Hospital of Williston; Rolla Community Hospital; St. Alexius Medical Center; St. John's Hospital; St. Joseph's Hospital of Dickinson; St. Joseph's Hospital Corporation; St. Luke's Hospital Association; Trinity Medical Center; and United Hospital, Defendants.
• Court: U.S. District Court — District of South Dakota

640 F. Supp. 1028

UNITED STATES of America, Plaintiff, v. NORTH DAKOTA HOSPITAL ASSOCIATION; the Bismarck Hospital Association of Bismarck, North Dakota; Dakota Medical Foundation; Garrison Memorial Hospital; McKenzie County Memorial Hospital; Mercy Hospital of Devils Lake; the Mercy Hospital of Williston; Rolla Community Hospital; St. Alexius Medical Center; St. John's Hospital; St. Joseph's Hospital of Dickinson; St. Joseph's Hospital Corporation; St. Luke's Hospital Association; Trinity Medical Center; and United Hospital, Defendants.

Civ. No. A2-83-131.

United States District Court, D. North Dakota, Northeastern Division.

July 30, 1986.

COPYRIGHT MATERIAL OMITTED

Richard S. Martin, Marybeth McGee, Special Litigation Section, Antitrust Div., U.S. Dept. of Justice, Washington, D.C., for plaintiff.

William G. Kopit, Washington, D.C., for defendants.

MEMORANDUM AND ORDER

VAN SICKLE, District Judge.

I. INTRODUCTION

This is a civil antitrust action brought by the United States against the North Dakota Hospital Association (NDHA) and fourteen North Dakota hospitals. The United States charges that defendants violated the antitrust laws by agreeing to deny the Indian Health Service (IHS) a contractual price discount. Defendants deny that they violated the antitrust laws. This action is presently before the court on the parties' cross-motions for summary judgment.

In support of their motion for summary judgment, the defendants argue: 1) the evidence in the record is insufficient to meet the jurisdictional requirement of interstate commerce under the Sherman Act; 2) the Government is estopped from claiming the defendants violated the Sherman Act; 3) their actions are immune from antitrust scrutiny under the Noerr-Pennington doctrine; and 4) their actions do not constitute a substantive violation of the Sherman Act.

In opposition to defendants' motion for summary judgment and in support of its countermotion for summary judgment the Government contends: 1) defendants' refusal to grant a discount is in and affects interstate commerce; 2) an agreement not to grant discounts is per se illegal under the Sherman Act; 3) the Noerr-Pennington doctrine is inapplicable to this case; and 4) estoppel in not an available defense.

II. FACTS

The IHS is an agency of the United States Department of Health and Human Services. The IHS is responsible for providing medical and hospital care to eligible Native Americans.

IHS' facilities within the state of North Dakota include clinics, ambulatory care centers, and two hospitals. IHS facilities, however, have not been sufficient to meet the health care needs of Native Americans. Therefore, IHS provides hospital care to eligible Native Americans either on a contract or open market basis at private North Dakota hospitals selected by IHS. In order for the private hospitals to receive reimbursement from IHS for the cost of health care services rendered to a Native American, the Native American receiving the services must meet IHS' eligibility requirements. The service rendered must also meet certain IHS requirements; for example, IHS may refuse to pay for a service if it determines that the service could have been provided in an IHS facility.

Defendant NDHA is a nonprofit corporation with its principal place of business in Grand Forks, North Dakota. The NDHA is a trade association for hospitals and nursing homes in North Dakota. It provides its fifty-two member hospitals with various services, including education, information, and technical assistance.

Defendant hospitals are all nonprofit, charitable institutions. In general, many of these hospitals compete against other defendant hospitals for patients and revenue.

Defendant hospitals provide hospital services to IHS patients. Aberdeen IHS is an area IHS office with jurisdiction over health care services provided to eligible Native Americans in North Dakota, South Dakota, Nebraska, Iowa, Minnesota, Wisconsin, and Michigan. Aberdeen IHS pays hospitals within this seven state region through checks drawn on the United States Treasury that are mailed from outside North Dakota. Aberdeen IHS' total expenditure of funds to defendant hospitals in fiscal year 1983 was approximately 2.7 million dollars. Also, in fiscal year 1983 IHS service units outside North Dakota paid certain defendant hospitals $266,872.00 for services provided to seventy-eight patients. Close to ten percent of defendant United Hospital's IHS patients are from reservations located in Minnesota.

The defendant hospitals purchase substantial quantities of drugs, equipment, and supplies from out-of-state suppliers. These goods are used in providing medical services to all patients, including IHS patients.

Prior to fiscal year 1983, Aberdeen IHS contracted with defendant hospitals and reimbursed them according to each hospital's published billed charges. The billed charges differ from hospital to hospital and are developed independently by the hospitals. The published billed charges consist of each hospital's estimate of its costs, revenues, and required operating margin. The average operating margin for North Dakota hospitals is two to three percent above cost.

On August 10, 1982, Aberdeen IHS sent new proposed contracts to defendant hospitals and three other hospitals in North Dakota. These proposed contracts were to replace the existing contracts, which were to expire September 30, 1982. Among other changes, the proposed contracts contained new payment provisions. A hospital could elect to be paid either on the basis of its Medicaid rate or on a flat per diem rate, in which case the hospital would have to propose a per diem rate for IHS' consideration. The defendant hospitals lacked the data to develop the comprehensive per diem rate and the Medicaid rate was the only method of payment realistically presented to North Dakota hospitals in the proposed contracts. The cover letter informed the recipients that without a signed contract the hospital would be limited to a $10,000 maximum payment for each admission.

At the time the proposed contracts were presented to defendant hospitals, the North Dakota Medicaid program provided for reimbursement of hospitals on the basis of the Medicare cost-based reimbursement principles. Under Medicare cost-based reimbursement principles each hospital was reimbursed at the lesser of its published billed charges or its "reasonable costs." Certain costs actually incurred by hospitals were excluded from "reasonable costs" for reimbursement purposes. As a result, Medicare reimbursement to a hospital was necessarily less than that hospital's actual costs. The Medicare cost-based reimbursement methodology has been replaced in the Medicare system, in part, because it was anticompetitive. The cost-based reimbursement methodology destroyed the incentive for hospitals to be efficient and keep prices low; high cost hospitals were paid more than low cost hospitals for the same services.

The NDHA was informed of the new proposed contracts by member hospitals who sought NDHA's advice concerning the reimbursement method in the contract. On September 2, 1982, the NDHA sent a memorandum to NDHA members warning the hospitals that the IHS proposed contract could have an adverse effect on the hospitals' level of reimbursement and advised the hospitals not to take any action until further advised by the NDHA.

On September 3, 1982, Mr. Harvey Hanson, President of the NDHA, telephoned Mr. Reuben Baybars, Contract Specialist of the Contract Health Service Branch of the Aberdeen Area IHS, and invited him to meet with the association to discuss the proposed contract. Mr. Baybars accepted the invitation.

On September 22, 1982, the NDHA sent another memorandum to hospital officials. The memorandum informed members of a special meeting to be held in Bismarck on September 30, 1982, to discuss the IHS proposed contracts. The memorandum recommended that the hospitals "meet and work collectively and take a determined position" on the IHS proposed contract.

In response to an inquiry from a North Dakota hospital on September 17, 1982, Mr. Baybars indicated that most of the provisions in the contract were negotiable.

On September 29, 1982, Mr. Baybars informed Mr. Hanson that he would not be able to attend the NDHA special meeting because of a travel freeze. Mr. Baybars also reiterated the IHS position that most contract terms were negotiable and stated that the IHS would not accept a contract unless it provided a monetary benefit for the Government.

On September 28, 1982, Aberdeen Area IHS sent a memorandum to IHS headquarters in which Aberdeen Area IHS informed IHS that after the end of November it would impose Medicaid rates on all hospitals and asked IHS' help in obtaining Medicaid rates. In the memorandum, Aberdeen Area IHS also informed IHS that it had not been able to meet with the NDHA or the South Dakota Hospital Association (SDHA) but that a tentative meeting was set for mid-October with the SDHA and that it planned on arranging a meeting with the NDHA within the next month. IHS instructed Aberdeen Area IHS to "push hard" to receive contractual Medicaid rates.

All but three of the defendant hospitals sent a representative to the September 30th special meeting. Two of the non-attending hospitals, however, had previously agreed to comply with whatever the group decided. At the meeting, over which Mr. Hanson presided, the hospitals discussed the proposed IHS contracts. Three options were discussed: 1) request an extension of sixty to ninety days to have further negotiations with the IHS, similar to what had transpired between IHS and the Montana Hospital Association; 2) return the contracts unsigned and inform IHS to negotiate individually with the hospitals; and 3) sign modified contracts and return them to IHS along with a letter expressing the hospitals' unanimity. The third option was selected.

The defendants agreed to modify the IHS proposed...