Ohio Hospital's Antitrust Claims Revived by 6th Cir.

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By Matthew Loughran

March 22 — A physician-owned hospital in Ohio will get another chance at proving that a group of hospitals breached federal antitrust laws by conspiring to keep it from opening, a federal appeals court ruled March 22.

In a split decision, the U.S. Court of Appeals for the Sixth Circuit ruled that four Dayton-area hospitals didn't necessarily create a single unit for antitrust law purposes when they entered into a joint venture agreement combining some of the hospitals' health-care and management functions.

A dissenting opinion argued that the provisions of the agreement made clear that the hospitals were giving up much of their individual identities when forming the joint venture, thus creating a single entity that was incapable of conspiring with itself to violate antitrust laws.

Antitrust and health law practitioners were watching the outcome of this case because the joint venture agreement entered into by the hospitals involved a hospital owned by Catholic Health Initiatives and thus appeared to provide a guide for religious and secular hospitals to structure their affiliations in such a way as to avoid antitrust liability and to allow the institutions to keep their religious or secular identities intact. However, the Sixth Circuit's decision casts doubt on the utility of the joint venture agreement in avoiding the federal antitrust laws.

An attorney says the decision by the appeals court “could put in doubt the legality under the antitrust laws of many joint operating agreements that hospitals have entered into.”

“This is a very disturbing opinion,” Douglas Ross, a partner with Davis Wright Tremaine LLP in Seattle, told Bloomberg BNA March 22.

“It could put in doubt the legality under the antitrust laws of many joint operating agreements that hospitals have entered into, believing that by doing so they were creating a vehicle to avoid liability under Section 1” of the Sherman Antitrust Act, he added.

Hospital Alleges Concerted Action

The case was originally brought by the Medical Center at Elizabeth Place, LLC (MCEP), a majority physician-owned hospital in Dayton that claimed that its main competitors formed a joint venture network, Premier Health Partners, and were working in concert specifically to eliminate MCEP from the Dayton market.

In addition to claims related to the operations of the joint venture itself, the MCEP claimed that the four hospitals—Good Samaritan Hospital, Miami Valley Hospital, Atrium Medical Center and Upper Valley Medical Center—structured their managed care agreements with most major insurers in such a way as to prohibit those insurers from entering into a similar managed care contract with MCEP.

A federal judge ruled against MCEP in 2014, finding that the joint venture agreement created a single entity and thus Section 1 of the Sherman Act, which prohibits conspiracy between two or more entities to suppress competition, didn't apply.

MCEP appealed to the Sixth Circuit, which reversed and remanded in a published split decision.

Majority Points to Bad Intent

The majority opinion, written by Judge Gilbert S. Merritt and joined by Judge Martha Craig Daughtrey, focused on the intent of the hospitals in forming the joint venture as well as their apparent maintained separation.

The appeals court found that the creation of Premier Health Partners didn't eliminate the competition between the hospitals sufficiently to make the joint venture a single entity. In particular, the appeals court pointed to a strategic plan report commissioned by Premier that concluded after talking to each hospital's top administrators that they actually competed with each other for market share.

Additionally, the court pointed to the intent of the hospitals in forming the joint venture, saying that statements by a Premier executive officer to the chairman of MCEP exhibited a desire to keep MCEP from ever opening. The court also cited evidence of coercive behavior on the part of Premier members to convince physicians and insurers to avoid working with MCEP.

Among those coercive behaviors, the court cited efforts to retaliate against physicians who worked with MCEP and pushing insurers to avoid adding MCEP to their managed care networks.

Dissent: Not Competitors

In dissent, Judge Richard Allen Griffin argued that the very terms of the joint venture agreement precluded finding that the members of Premier were individual competitors.

The judge pointed to the provisions that required the hospitals to share revenues and that turned over many management and control operations from each individual hospital to the executives of Premier.

The dissent asserts that the majority's emphasis on intent skips the question of whether Premier was a single entity even capable of antitrust conspiracy and instead jumps right to whether Premier has taken anticompetitive action.

For Ross, this is the main failing of the majority's opinion. “The dissent nails the antitrust analysis,” he said.

He added, “the question the court should have considered was whether the hospitals in Premier had ceded sufficient control to Premier and aligned their interests so that they should be considered a single entity; the answer to that question, on the evidence presented, should have been yes—it was a single entity.”

The case is now sent back to the district court to rule on the merits of the antitrust claim.

MCEP was represented by Richard Arthur Ripley of RuyakCherian LLP in Washington; Sally Lee Day Dahlstrom, Anne McGowan Johnson, and Ryan Paulsen, of Haynes & Boone in Dallas; and James Alan Dyer of Sebaly, Shillito & Dyer in Dayton, Ohio.

The Premier hospitals were represented by attorneys including Charles J. Faruki and Laura A. Sanom of Faruki, Ireland & Cox PLL in Dayton, Ohio, and Thomas Demitrack of Jones Day in Cleveland.

To contact the reporter on this story: Matthew Loughran in Washington at mloughran@bna.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bna.com