By Jeffrey May, J.D.
The State of Washington was not entitled to a finding as a matter of law that health care providers Franciscan Health System, Franciscan Medical Group, and The Doctors Clinic (TDC) were separate entities capable of conspiring to negotiate reimbursement rates in violation of Sec. 1 of the Sherman Act, as opposed to a single economic unit shielded from scrutiny for fixing prices. The federal district court in Tacoma, Washington, rejected the state’s argument that the Franciscan and TDC defendants’ lack of common ownership alone established that they were subject to Sec. 1 (State of Washington v. Franciscan Health System, July 24, 2018, Settle, B.).
The unity of TDC’s and Franciscan’s economic interests and centers of decisionmaking remained a question of fact precluding partial summary judgment, according to the court. There was competing testimony regarding whether Franciscan was authorized to, or actually exerted control over, the operations of TDC through the implementation and enforcement of Franciscan policies and standards. In this case, a larger competitor (Franciscan) appeared to have gained a stake in and significant control over a smaller competitor (TDC), potentially unifying their economic interest into a single center of financial decisionmaking, the court explained. Franciscan was leasing all of TDC’s assets with the exception of a few specific exclusions. It could appear to a reasonable person that Franciscan had contracted for all of TDC’s healthcare services to be packaged and offered under Franciscan’s name, as well as ultimate control and decisionmaking of the standards involved with such services.
The court noted, however, that despite the business arrangement between TDC and Franciscan, the companies continued to compete for patients. Further, there was potential for future competition if TDC and Franciscan were to end their agreement. Therefore, the functional relationship and economic unity between TDC and Franciscan had to be resolved at trial.
Failing-company defense. The court granted the state's motion to strike the defendants' failing-company defense to the price fixing claims. The failing-company doctrine arises in merger challenges, where the claims are focused on a test of whether the effect of an acquisition "may be substantially to lessen competition, or to tend to create a monopoly," the court noted. However, the doctrine did not justify allowing a failing business to continue operating through a price-fixing restraint on trade.
The case is No. 3:17-cv-05690-BHS.
Attorneys: Erica Ann Koscher, Washington Attorney General's Office, for State of Washington. Alex Bartko (Polsinelli PC) for Franciscan Health System. David Maas (Davis Wright Tremaine) for The Doctors Clinic.
Companies: Franciscan Health System; Franciscan Medical Group; The Doctors Clinic
MainStory: TopStory Antitrust WashingtonNews
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