Antitrust Law Daily Healthcare providers sued for fixing prices could not raise ‘weakened competitor’ defense
Wednesday, February 20, 2019

Healthcare providers sued for fixing prices could not raise ‘weakened competitor’ defense

By E. Darius Sturmer, J.D.

Healthcare providers who allegedly unlawfully conspired to negotiate reimbursement rates were precluded from arguing weakened competitive status as an affirmative defense; defense not shown to apply outside of merger context.

Healthcare providers Franciscan Health System, Franciscan Medical Group, and The Doctors Clinic could not assert an affirmative ‘weakened competitor’ defense to a lawsuit brought by the State of Washington alleging that they had violated Section 1 of the Sherman Act by conspiring to jointly negotiate reimbursement rates. No relief could be granted under an affirmative weakened competitor defense to a Sec. claim because the defense applied only to Clayton Act merger challenges. The federal district court in Tacoma, Washington, granted the state’s motion for judgment on the pleadings as to the clinic’s weakened competitor defense (State of Washington v. Franciscan Health System, February 19, 2019, Settle, B.).

In the August 2017 lawsuit, the state alleges that Franciscan and TDC engaged in horizontal price fixing that was illegal per se or otherwise constituted an unreasonable restraint of trade under federal antitrust law by entering into a series of agreements to jointly negotiate the prices for the services they provide to the public. TDC and Franciscan asserted numerous affirmative defenses to the charges.

Last July, the court granted the state’s motion to strike the defendants’ failing-company defense to the price fixing claims, reasoning that the defense "has been applied successfully only in the context" of merger challenges brought under Sec. 7 of the Clayton Act. The doctrine did not justify allowing a failing business to continue operating through a price-fixing restraint on trade, the court explained.

Merger analysis. Franciscan and TDC contended that the weakened competitor defense "should remain available in the event the State decides to allege their conduct constituted a merger violating section 1 of the Sherman Act." The court disagreed. Any argument that the State’s experts were evaluating the case using analytical concepts inappropriate for a Sec. 1 restraint of trade claim was "beyond the scope of the instant motion, and may be addressed in a motion to exclude," the court stated.

Weakened competitor defense. The defendants’ averment that they should be able to affirmatively defend rule of reason claims on the basis that TDC was a weakened competitor was similarly without merit, in the court’s view. Their argument that they could present information about the defense to aid the court’s "understanding of the alleged conduct’s impact on competition under the rule of reason" would not constitute an affirmative defense, the court noted.

TDC and Franciscan were free to put forward any relevant evidence as part of their burden to show procompetitive effects justifying otherwise anticompetitive conduct, if the case were judged under the rule of reason. However, the defendants offered no rebuttal to the court’s prior holding, in the July 2018 order concerning the failing-company defense, that "restraint of trade claims under the Sherman Act are not defeated by affirmative defenses based on the competitive losses of a market participant."

None of the authorities they cited for that proposition involved a court’s application of an affirmative weakened-competitor defense to a Sec. 1 restraint of trade case, or even discussed how such a defense would be established. The cases did not hold that a discrete weakened competitor affirmative defense existed or applied to a Sec. 1 claim, according to the court. Rather, they merely supported the notion that the weak financial condition of TDC was relevant to analysis under the rule of reason. Ninth Circuit precedent left no opening for an affirmative defense based on competitive weakness in a Sec. 1 restraint of trade claim, the court concluded.

This case is No. 3:17-cv-05690-BHS.

Attorneys: Erica Ann Koscher and Amy Nicole Linscheid Hanson, Attorney General's Office, for State of Washington. Alex Bartko (Polsinelli PC) for Franciscan Health System d/b/a Chi Franciscan Health, Franciscan Medical Group and Westsound Orthopaedics PS. David Maas (Davis Wright Tremaine LLP) for The Doctors Clinic.

Companies: Franciscan Health System d/b/a Chi Franciscan Health; Franciscan Medical Group; WestSound Orthopaedics PS; The Doctors Clinic

MainStory: TopStory Antitrust WashingtonNews

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