9th Circuit Finds Market Allegations Sufficient, Overturns Dismissal in Sutter Health Tying Case

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9th Circuit Finds Market Allegations Sufficient, Overturns Dismissal in Sutter Health Tying Case

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Steven J. Cernak

Last week, a 9th Circuit panel overturned the dismissal of plaintiffs’ tying and steering antitrust claims in the putative class action of Sidibe, et. al. v. Sutter Health. While the panel designated it as not for publication, the short opinion demonstrates the minimalist geographic market allegations antitrust plaintiffs can make to avoid dismissal.

Sutter Health controls the largest network of hospitals in Northern California. In some geographic areas, Sutter owns the only acute care hospital. Plaintiffs are patients who purchased (indirectly through certain insurance plans) inpatient hospital services from Sutter Health since September 2008. Plaintiffs claim that Sutter’s anticompetitive actions caused the insurance companies and, therefore, the class members to pay higher prices in violation of Sherman Act Sections 1 and 2, California’s Cartwright Act and other state laws.

Plaintiffs describe those anticompetitive actions as “tying” and “steering.” Sutter requires the insurance companies to “designate ALL Sutter Health care providers . . . as participating providers…” According to the plaintiffs, this requirement to include the entire Sutter network ties “must have” geographic areas where Sutter owns the only hospital (tying markets) with others where Sutter faces competition from other hospitals (tied markets). In addition, Sutter allegedly prevents the insurance companies from steering patients to other hospitals through contractual provisions that require them to “actively encourage members obtaining medical care to use Sutter Health providers … through the use of . . . reduced co-payments” and other incentives.

The parties agreed that these claims required the allegation of both a proper product and geographic market. Sutter accepted the product market definition of Inpatient Hospital Services for purposes of the motion to dismiss; however, it challenged the plaintiffs’ geographic market definition.

Plaintiffs alleged the geographic markets were Hospital Service Areas (HSAs) as defined by the Dartmouth Atlas of Health Care. According to the plaintiffs, the Dartmouth Atlas is “a well-established industry source . . . [that] policy makers and other[s] . . . have looked [to] . . . to assess the economics of hospital markets.” An HSA is “a collection of ZIP codes whose residents receive most of their hospitalizations from the hospitals in that area.” In this case, the HSAs ranged from 4 zip codes to 160, including 9 tying markets where Sutter was the only hospital and 5 “tied markets.”

Sutter attacked the market definition as improperly focusing on where an unspecified majority of residents get treatment now instead of estimating where patients could go in the event of a price increase. Specifically, the HSAs did not account for the extent to which patients outside the HSA used or could use hospitals inside the HSA and vice versa. The lower court agreed, saying that HSAs might be useful for some purposes but that “does not mean that they define relevant markets for antitrust purposes.” According to the lower court, the plaintiffs needed to allege more to explain why HSAs were congruent with geographic markets:

 

[Plaintiff failed to allege facts plausibly establishing] why the fact that most of the people in the HSAs seek treatment within those boundaries means that they could not seek substitutes elsewhere or that a health plan could not contract with a substitute hospital from outside the HSA.

 

Also, plaintiff could not cite any antitrust case in which HSAs were accepted as market definitions.

The 9th Circuit disagreed and found the geographic market allegations “sufficiently detailed” to survive a motion to dismiss.

 

At the pleading stage, plaintiffs were not required to allege evidentiary facts such as what percentages of patients from inside and outside a particular HSA use the hospitals in that HSA, or to otherwise rebut every purported flaw in the Dartmouth Atlas of Healthcare’s methodology.

 

Similarly, the panel found that it was not “inherently implausible” that patients residing within an HSA would not seek treatment elsewhere, and so insurance companies would not seek to purchase hospital services outside the HSA. The case was remanded for further proceedings, including discovery.

Antitrust defendants often file motions to dismiss in hopes of avoiding the expense and distraction of discovery. Just as in this case, the plaintiff’s market definition and support for it often are the main targets for such motions. Anticipating that attack, plaintiffs sometimes buttress their claimed market definitions with industry expertise specific to the case or input from antitrust economists. Here, the putative plaintiff class survived the motion by relying on readily available industry information usually used for other purposes. While not for publication and so with little formal precedential value, the opinion might embolden other plaintiffs to repurpose other easy-to-find industry information when alleging antitrust markets.

The Schiff Hardin Antitrust Group has extensive experience with market definition arguments, both in the monopolization and collusion contexts and on behalf of both defendants and plaintiffs. Contact Bill Hannay, Bob Wierenga, Steve Cernak, or any member of the team to discuss your issues.