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Federal Court Opinion Reminds Health Care Providers to Assess the Antitrust Risks of Competitor Affiliations

The Attorney General of the State of Washington (the State) scored another victory last week in its federal antitrust challenge to Franciscan Health System’s (Franciscan) affiliations with two competing physician practices, Washington v. Franciscan Health System, Case No. C17-5690 (W.D. Wa.), pending in the United States District Court for the Western District of Washington. Specifically, the district court ruled that Franciscan cannot assert as an affirmative defense that its affiliations are legal because the competing physician practices with which it affiliated would have been financially weakened without them.

WHAT HAPPENED

  • The Washington case arises out of two transactions that Franciscan and the Franciscan Medical Group (FMG) entered with competitors in the Kitsap Peninsula immediately west of Seattle, one of which was with The Doctors Clinic (TDC), a 54-physician practice.

  • After reviewing Franciscan’s contractual relationship with TDC, the district court ruled in an Order granting the State’s Motion for Partial Judgment on the Pleadings that the Defendants cannot assert the so-called “weakened competitor” defense. The court held that whether TDC was financially weak absent Franciscan’s affiliation can be evidence at trial under certain circumstances, but is not an affirmative defense justifying what is otherwise allegedly illegal price-fixing.

  • This decision comes on the heels of a prior decision in July 2018 in which the district court struck the defendants’ related affirmative defense that TDC was a “failing company.”

WHAT THIS MEANS

  • Together, the district court’s decisions indicate that parties entering affiliations without a complete unity of economic interests should be wary of relying on arguments or defenses that can carry greater weight in the merger context. The only way to defeat a price- or wage- fixing claim on the pleadings is to show either that 1) the parties achieved sufficient unity of economic interests to be considered one entity for antitrust purposes, or 2) the complaint did not sufficiently allege any agreement to restrain trade.

  • Health care providers should be careful to comply with the antitrust laws even in situations where the parties believe an affiliation will result in real benefits for patients, efficiencies, higher quality of care or other improvements specific to the health care industry. These factors play no role when providers have engaged in price- or wage-fixing—for example, through joint payor contracting or jointly implementing employee salaries—without having achieved a full unity of economic interests.

© 2019 McDermott Will & Emery

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About this Author

Partner

Stephen Wu is a partner in the law firm of McDermott Will & Emery and is based in the Firm’s Chicago office. He focuses his practice on complex litigation, mergers and acquisitions, and counseling clients on pricing and distribution issues. Stephen has represented clients in a wide variety of industries including: aerospace, biotechnology, consumer products, energy, food, and health care.

Stephen has defended clients in private litigation against federal and state antitrust and unfair competition claims, and represented...

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Katharine O'Connor, McDermott Law Firm, Antitrust
Associate

Katharine O’Connor is an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office.  She focuses her practice on antitrust and competition. She has tried cases before juries, judges, and arbitration panels, presented evidentiary hearings in federal and administrative courts, and argued before the Seventh Circuit Court of Appeals and state courts.

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