Antitrust Law Daily Peoria hospital failed to state a claim against competitor based on insurance contracts
Friday, June 9, 2017

Peoria hospital failed to state a claim against competitor based on insurance contracts

By Jody Coultas, J.D.

An Illinois district court properly concluded that Methodist Health Services Corp. failed to state a Sherman Act claim against competitor OSF Healthcare System d/b/a Saint Francis Medical Center based on exclusive contracts signed with insurance companies, according to the U.S. Court of Appeals in Chicago. Saint Francis’s contracts with the health insurance companies were a form of requirements contract, requiring the insurance companies to limit the network of providers from which they obtain the health care that their insurance contracts obligate them to obtain for their insureds (Methodist Health Services Corp. v. OSF Healthcare System, June 9, 2017, Posner, R.).

While Methodist and Saint Francis are the two largest hospitals in Peoria, Illinois, Saint Francis is considerably larger and more profitable than Methodist. Methodist alleged that Saint Francis was able to persuade insurance companies to enter into exclusive contracts with it. The contracts involve health insurance plans that use restricted-provider networks. Each plan encourages its members to use its in-network hospitals, with "encouragement" taking the form either of charging the members higher prices for treatment at out-of-network hospitals or by not covering treatment at such hospitals at all. The contracts covered more than half of all commercially-insured patients in the area.

Methodist alleged that Saint Francis’ contracts violated the Sherman Act, and prevented Methodist from obtaining a sufficiently high volume of patients to enable it to invest in quality-improving projects it otherwise would have undertaken.

A district court granted Saint Francis summary judgment on the Sherman Act and related state law claims.

The court concurred with the district court that Methodist failed to state an antitrust claim against Saint Francis. Insurers regard Saint Francis as a hospital with which the insurer must have a contract to provide hospital services, because it provides certain inpatient services that the other hospitals in the tri-county area do not provide. While some exclusive-dealing arrangements violate the Sherman Act, such was not the case here. Saint Francis did not sign long-term exclusive contracts with all the health insurance companies serving the relevant market that might destroy competition in the market. Methodist could duplicate the special services that make Saint Francis a "must have" hospital, especially given that Methodist was able to raise hundreds of millions of dollars for new investments. There was also no evidence that Saint Francis’s exclusive contracts had a significant exclusionary effect, since most of the contracts expire every year or two.

Methodist argued that Saint Francis’s exclusive contracts "forced insurers and ultimately consumers to pay nearly $30 million more than they would have paid in a competitive market." However, Methodist is not the representative of any insurer or of any consumer. Also, Methodist does not have any theory of how Saint Francis’s exclusive contracts could have caused prices to rise. Therefore, Methodist failed to state a claim.

The case is No. 16-3791.

Attorneys: Benjamin J. Christenson (McGuireWoods LLP) for Methodist Health Services Corp. Barak Bassman (Pepper Hamilton LLP) and Ian H. Fisher (Hahn Loeser & Parks LLP) for OSF Healthcare System, d/b/a Saint Francis Medical Center.

Companies: Methodist Health Services Corp.; OSF Healthcare System, d/b/a Saint Francis Medical Center

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