Blue Cross Takes Rare Loss on Monopoly Claim With Trial Pending

Stay current on the latest developments from agencies including the CFPB, Federal Reserve, FDIC, and OCC to advise clients on real-life regulatory situations.

By Eleanor Tyler

Blue Cross Blue Shield of Rhode Island is facing a jury trial on claims it shut a hospital out of its network and quit reimbursing for care there to thwart a competing insurer that was slated to buy the hospital.

U.S. District Court for the District of Rhode Island Judge William E. Smith’s April 23 opinion denied Blue Cross’s summary judgment motion on all 18 counts, all of which will be tried to a jury.

Smith’s opinion is a 180-degree turnaround from what was expected based on a notice he issued in November. In that earlier notice, Smith said he “tentatively” intended to rule in favor of Blue Cross after hearing argument. He expected “to grant Blue Cross’s motion on all counts.”

It’s rare for monopolization claims to go to trial and even rarer among claims of this type — that one competitor violated the law by refusing to deal with another. Christopher Sagers, antitrust professor at Cleveland State University Cleveland-Marshall College of Law, told Bloomberg Law that the case is “not only very rare, as a private monopolization claim that will actually go to trial, but potentially very important in its larger legal significance.”

The Supreme Court limited cases based on this theory to a thin set of facts in 2004 when it decided that Verizon Communications Inc. didn’t have to share its network with competing telecommunications carriers in Verizon Comm. Inc. v. Trinko LLP.

After Trinko, there is substantial disagreement about the right test to determine anticompetitive intent in refusal to deal cases, Jarod Bona of Bona Law PC in San Diego, told Bloomberg Law. “Any future case will be citing this” if the opinion holds up, he said, given that it confronts the issue head on and there are very few positive decisions on refusal to deal.

“If it results in a final judgment on the merits, and especially if it gets [appellate] review, it could significantly affect the law,” Sagers agreed. “Even if it doesn’t get appellate review, Judge Smith’s opinion is extremely scholarly and careful and expresses important points of law, as well as sympathy for antitrust plaintiffs from a judge who is by no means some left-wing radical.”

Smith’s recent experience shows mixed outcomes for plaintiffs in his two antitrust cases, according to Bloomberg Law’s Litigation Analytics. He granted a motion to dismiss in a multidistrict case charging the makers of Loestrin birth control pills with blocking generic competition for the drug. The U.S. Court of Appeals for the First Circuit reversed that holding and revived the plaintiffs’ case.

The Blue Cross case that Smith is taking to trial is the only other antitrust case that he has recently ruled on. Smith denied a motion to dismiss the complaint in 2014.

Refusal to Deal

The plaintiff Steward Health Care System said that Blue Cross abused its power both as a monopolist, a dominant single seller in the market, and as a monopsonist, a dominant single buyer, in the complex health care arena.

Steward agreed in 2011 to acquire Landmark Medical Center, a financially troubled hospital in Woonsocket, R.I. Steward planned to invest $35 million in improvements and physician recruitment and use the hospital as a base from which to offer limited network insurance plans, as it had already successfully done in Massachusetts.

Blue Cross threatened Steward’s entry into the Rhode Island market by embarking on a series of anticompetitive actions, the complaint said. Critically, Blue Cross axed Landmark from its network. The insurer filed with the Department of Health (DOH) to end its relationship with Landmark and, before getting approval, sent letters to all Blue Cross subscribers announcing that the hospital would be out of network very shortly, “if DOH approves.”

In his opinion, Smith noted that Blue Cross hadn’t ever sent such a letter to subscribers warning them of an impending network removal. In fact, Smith said, “never before or since” had the insurer followed through on an application to the DOH for permission to cut a network hospital and then actually ended its relationship with the hospital.

True Motivation

There is ample evidence that the move had serious short-term costs for Blue Cross, Smith said. Those are enough facts for a reasonable juror to conclude that Blue Cross’s motivation in cutting Landmark was keeping Steward from gaining a foothold in the Rhode Island market.

Once Steward was forced to drop its bid for the hospital and another bidder bought Landmark, Blue Cross agreed to terms it had refused to consider when dealing with Steward, Smith said.

Blue Cross argued that it had no prior relationship with Steward that it terminated, so no “refusal to deal” claim can arise. But Smith rejected the argument, holding instead that ending a profitable prior relationship is just a shortcut to showing anticompetitive conduct.

Douglas Ross, a Seattle antitrust partner with Davis Wright & Tremaine LLP, agreed with the court that a plaintiff doesn’t have to show a prior commercial relationship with a monopolist to successfully make a refusal to deal claim.

However, Ross predicted that one part of Smith’s decision “will be controversial.” Smith may have extended the law under Trinko in effectively holding that Blue Cross had to take steps not to hurt Steward as a potential market entrant. Just preferring another buyer of Landmark, which didn’t exit the market at all, shouldn’t cross the line under Trinko, he said.

Conspiracy?

Steward claims that Blue Cross had lots of help in keeping it out of Rhode Island and driving Landmark out of several markets. In particular, the case focuses on Blue Cross’s dealings with another hospital system, Lifespan. Lifespan’s nearby hospital, Thundermist Health Center, stood to gain from a transfer of patients away from Landmark, the court said.

Smith found ample evidence to create a question of fact about whether Blue Cross actually conspired with Lifespan and Thundermist to increase patient numbers at Thundermist at Landmark’s expense.

The case is Steward Health Care Sys., LLC v. Blue Cross & Blue Shield of R.I. , 2018 BL 142644, D.R.I., 13-405 WES, 4/23/18 .

To contact the reporter on this story: Eleanor Tyler in Washington at etyler@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com

Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Antitrust on Bloomberg Law