Health Care Antitrust Alert
06.05.2017

A federal district court denied summary judgment motions brought by both sides in the government’s antitrust suit against a Michigan hospital alleging an agreement not to compete in violation of Section 1 of the Sherman Act. U.S. v. Hillsdale Community Health Center, 5:15-cv-12311 (E.D. Mich. May 31, 2017). The government had moved for summary judgement, arguing that a market allocation agreement existed between defendant W.A. Foote Memorial Hospital, d/b/a Allegiance Health (“Allegiance”), and a competing hospital that was per se unlawful or illegal under a “quick look” rule of reason analysis. Allegiance Health had moved for partial summary judgment, arguing for application of the full rule of reason analysis, rather than the abbreviated per se antitrust principles and the “quick look” test.

The original complaint was filed by the Department of Justice and the Michigan Attorney General in 2015 against Allegiance, Hillsdale Community Health Center (“HCHC”), Community Health Center of Branch County (“Branch”), and ProMedica Health System, Inc. (“ProMedica”), alleging that HCHC orchestrated agreements among the hospitals not to advertise or otherwise market in each other’s territories for competing health care services. HCHC, Branch and ProMedica each settled. See our alert on the complaint here.

Motions for Summary Judgment

In its motion for summary judgment, the government argued that the evidence demonstrated that (1) an agreement exists; (2) the agreement amounts to a horizontal market allocation that is per se unlawful; and (3) the agreement is illegal under a “quick look” rule of reason analysis. Allegiance argued in its motion for partial summary judgement that the full rule of reason analysis should be used because the per se principles and the “quick look” test are not applicable as a matter of law since the evidence did not demonstrate (1) the alleged agreement clearly has substantial adverse effects on competition; and (2) an observer with a rudimentary understanding of economics would readily conclude the alleged conduct has substantial anticompetitive effects and no plausible procompetitive justification.

In response to the government’s allegation of an illegal agreement, Allegiance contended that no market allocation agreement exists, but rather it engaged in unilateral conduct foregoing certain types of marketing as part of a business strategy to obtain referrals from other hospitals for its higher acuity services. Allegiance is a general acute-care hospital offering several higher acuity services in Jackson County, Michigan. HCHC, located in neighboring Hillsdale County, is also a general acute-care hospital without the higher acuity services offered by Allegiance.

The government presented several documents in support of its allegation that since 2009 Allegiance and HCHC had an agreement that limited Allegiance’s marketing for competing services in Hillsdale County. For example, in one document written after Allegiance marketing materials were sent to Hillsdale County, Allegiance’s CEO stated that she told HCHC’s CEO “that we specifically agreed to screen out Hillsdale zip codes [and] that we would find out what happened and be sure the appropriate apologies are send [sic].” In another document, Allegiance’s manager of physician recruitment characterized Allegiance as having a “gentlemans [sic] agreement with [HCHC’s CEO].”

In contrast, Allegiance’s CEO attempted to explain away many of the documents presented by plaintiffs in deposition testimony, explaining that the documents did not show an agreement but rather demonstrated how Allegiance operationalized its strategy of developing a relationship with HCHC through which Allegiance hoped to obtain referrals that were necessary to maintain its higher acuity services. For example, Allegiance’s CEO testified that the apology to HCHC’s CEO was a way of “building the referral relationships,” and stated that any decision to limit marketing in Hillsdale County was a unilateral Allegiance decision.

District Court’s Decision

The district court’s opinion did not take issue with the DOJ’s legal claim. Instead, the decision turned entirely on facts. Although the court found that the government presented a “compelling argument” that an agreement existed, it also found that Allegiance presented evidence—largely through deposition testimony—sufficient to raise a question of material fact as to whether its actions were a legitimate business strategy instead of an agreement to unreasonably restrain trade. As a consequence, the government’s motion for a pre-trial victory failed. On Allegiance’s motion, because the court could not determine whether an agreement exists, it also could not determine which antitrust principle should be used to analyze the legality of any such agreement, so its motion was denied as well.

Referrals are the lifeblood of many providers’ viability. The area is fraught with legal complications, not the least of which are the federal anti-kickback statutes. This case could provide an important antitrust component to the referral equation, but we will now have to wait for the results of the bench trial, currently set to begin October 17, 2017.