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Antitrust Not Always Available in Competitor Disputes in the Healthcare Sector

The antitrust injury and antitrust standing defenses/doctrines are alive and well in healthcare.  A recent case, SCPH Legacy Corp. et al. v. Palmetto Health et al., shows that a competitor is not always the most legally appropriate plaintiff to bring an antitrust case, especially when the competitor’s alleged harm stems from increased competition.  This article explains the court’s reasoning and makes some predictions for similar arguments in the future.

On February 24, 2017, Judge Joseph F. Anderson of the District of South Carolina, granted a motion to dismiss all federal antitrust claims brought by a small hospital chain against its larger competitor for lack of antitrust injury and antitrust standing.  The court held that poaching a group of doctors is not the type of injury that the antitrust laws are designed to protect when the suit is brought by a competitor, and that more direct plaintiffs exist.

Providence Hospitals, which operates a small hospital system in the midlands of South Carolina, alleged that Palmetto Health was a monopoly that secretly recruited employees of Providence’s orthopedic services business—the only competitive advantage that Providence had over Palmetto.  Palmetto allegedly orchestrated for 300 orthopedic physicians, executives and staff to simultaneously quit Providence and move to Palmetto in mid-2015.

Antitrust injury

Providence claimed that it suffered $50 million in damages because its purchase price to a third party fell by that amount after Palmetto acquired the majority of the orthopedic practice.  In other words, if the orthopedic practice had not left, Providence would have sold the company for $50 million more.

The Court equated this situation to the seminal Supreme Court case Brunswick v. Pueblo Bowl-O-Mat, where a bowling center operator could not recover against a company that saved a defaulting bowling alley and increased completion, hurting the smaller operator’s profits, because the antitrust laws were enacted to protect competition, not competitors.

Judge Anderson concluded that Providence would have lost $50 million in value “no matter what organization acquired [the orthopedic group], or if the [orthopedic group] simply removed itself and operated as an independent orthopedic service provider.  Palmetto Health’s increased size and market presence did not compound or add to any injury that Providence would have suffered.”  Providence’s alleged “diminished ability to compete,” therefore, “did not occur because of the size of Palmetto Health.”

Antitrust standing

Providence lacked antitrust standing because it was not the proper party to bring the suit.  There exist a number of more direct potential plaintiffs, including “health plans, patients, and their employers,” as well as the third party that ultimately purchased Providence.  These parties would be “directly responsible for paying higher prices in the form of increased procedural costs and insurance premiums should Palmetto Health’s market presence allow it to unilaterally raise prices (which, as of now, is a speculative injury with no factual support).”

Because more direct plaintiffs exist, allowing Providence to bring antitrust claims “creates the possibility of duplicative recoveries along with problems apportioning damages among those directly and indirectly injured.”  Providence thus does not have the necessary antitrust standing to bring this case.

Conclusion and Analysis

Defendants often (unsuccessfully) assert that plaintiffs lack proper antitrust standing and antitrust injury, but this case shows that these defenses still have teeth in the healthcare arena.  Here, the plaintiff did not have its own capacity to be able to be hurt by additional competition.  In fact, if the Palmetto (the merged entity) had the capacity to raise prices, that would not have necessarily harmed Providence.

It would not be surprising to see these arguments used more frequently and effectively in future antitrust litigation brought by healthcare competitors.  We would also expect to see courts engage in a more nuanced factual analysis of the highly complex healthcare industry before ruling on a plaintiff’s antitrust injury and antitrust standing.

The case is SCPH Legacy Corp. et al. v. Palmetto Health et al., Case No. 3:16-cv-02863 (D. S.C.).

Copyright © 2017, Sheppard Mullin Richter & Hampton LLP.

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About this Author

Nadezhda Nikonova, Antitrust and Trade Regulation Attorney, Sheppard Mullin
Associate

Nadezhda Nikonova is an associate in the Antitrust and Trade Regulation Practice Group in the firm's San Francisco office. Her practice focuses on high-technology cartel and monopolization cases. She has special experience working with expert witnesses and applying sophisticated economic analysis to antitrust law.

Ms. Nikonova earned her J.D. from the University of California, Berkeley School of Law (Boalt Hall), where she was awarded the Certificate in Business Law. During law school, she was the Editor-in-Chief of the...

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David Garcia Sheppard Mullin complex civil litigation attorneyantitrust law
Partner

David Garcia is a partner in Sheppard, Mullin, Richter & Hampton LLP's Century City office, where he is also the Office Managing Partner. He is a litigator with a broad background in complex civil litigation for major U.S. companies, including extensive class action and multidistrict litigation experience. His practice focuses  principally on antitrust litigation and counseling with particular emphasis on the entertainment industry, provider side healthcare mergers and the intersection between antitrust and intellectual property in litigation and joint ventures.

Areas of Practice

Mr. Garcia's antitrust litigation experience includes price fixing cartel defense, patent related monopolization claims and representation of clients in connection with civil and criminal investigations by the Federal Trade Commission and the antitrust division of the U.S. Department of Justice.  He counsels extensively on joint ventures, mergers and acquisitions and competitor collaborations in healthcare, for a broad range of hospitals and doctor groups throughout the U.S. including second requests and divestiture negotiations with both the FTC and DoJ.  His broad ranging antitrust litigation background also includes major matters involving standard setting, state action immunity, and contested mergers. He also counsels and litigates in a variety of vertical distribution situations, including dealer termination, vertical pricing restrictions, franchise termination disputes and counseling and litigation involving multilevel marketing organizations.  Finally he counsels joint ventures in the formation stage and through ongoing antitrust monitoring.

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