Four Michigan hospital groups were reminded recently that agreements restricting forms of competition, even if no price agreement was reached, can cause antitrust problems. The action by federal and state antitrust enforcers serves as a useful reminder to business people and lawyers alike.
Hillsdale Community Health Center, Community Health Center of Branch County, and Allegiance Health each operate a hospital in separate but adjacent counties along Michigan’s southern border. ProMedica Health System operates two hospitals in a different adjacent Michigan county. Each of these entities is the largest or only hospital in its respective county and the largest (or close to largest) employer. On June 25, the Department of Justice Antitrust Division and the Michigan Attorney General sued all four in a civil complaint alleging an agreement to “unlawfully allocate territories for the marketing of competing healthcare services and limit competition among Defendants.”
The complaint does not allege an agreement on specific prices for competitive services; rather, it alleges a series of agreements to limit the marketing of competing healthcare services. Hillsdale Community is alleged to be at the center of these agreements, just as Hillsdale County is in the center of the four relevant counties. Each of the other four defendants allegedly agreed not to market in Hillsdale County—and did not try to hide their agreement. The complaint describes a 2013 Allegiance oncology marketing plan that says “an agreement exists with [Hillsdale] to not conduct marketing activity in Hillsdale County.” Allegiance executives apologized for inadvertently marketing in Hillsdale — “it isn’t our style to purposely not honor our agreement” — and referred to Hillsdale County as “Switzerland,” that famously-neutral country, when discussing its marketing plans.
Similarly, ProMedica executives sought permission from Hillsdale before offering or even advertising certain services in Hillsdale County — and did not object when those requests were rejected. Finally, Branch’s CEO testified at deposition that “there’s a gentleman’s agreement [with Hillsdale] not to market services other than new services” in their respective counties.
The complaint alleges that these agreements harmed consumers and doctors in the markets by depriving them of information about their healthcare choices, reducing free health screenings and other healthcare education, and generally harming the competitive process. While making no admissions, Hillsdale, Branch, and ProMedica agreed to settle the claim. In public statements, each disputed that there was any anticompetitive agreement but agreed to settle to avoid “the very large expense and significant distraction” necessary to fight “the vastly greater resources” of the enforcers. Allegiance chose to fight the suit, saying the enforcers “misinterpreted Allegiance’s conduct” and “the number of patients from Hillsdale County seen at Allegiance has significantly increased over time across our entire spectrum of services.”
The settling defendants paid no large fines and avoided criminal prosecution, but the process was hardly costless. The Michigan Attorney General insisted on a $5,000 payment from each to partially cover investigative costs. Press reports describe a year-long investigation with depositions and document productions. Their executives must cooperate with the enforcers in the ongoing suit against Allegiance. Each must appoint an antitrust compliance officer who must take certain actions and file reports with the enforcers for the next five years. Of course, the settling defendants agreed to stop any discussions with one another regarding marketing of services except in limited circumstances. Finally, private damages suits on behalf of customers are possible.
Joint marketing and other collaborations with competitors can often pass antitrust muster; however, naked agreements to limit forms of competition or “stay out of each other’s market,” as alleged in this complaint, will always cause the antitrust problems displayed here. Businesspeople must remember that mere avoidance of the word “price” will not save an agreement with a competitor from antitrust problems. For general counsel and other lawyers, the complaint serves as a reminder that smaller organizations and satellite offices can also create antitrust issues; a truly effective compliance program requires deep knowledge of their actions. (For more on effective compliance programs, be sure to check out Designing an Effective Antitrust Compliance Program by Bill Hannay and published by Thomson Reuters.)