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THE LATEST: Rate-for-Volume Payer Contract Provision Should Be Analyzed under Rule of Reason

District Judge Walter H. Rice of the Southern District of Ohio granted three pretrial motions brought by the Defendants on the eve of trial in The Medical Center at Elizabeth Place, LLC v. Premier Health Partners, et al., Case No. 3:12-cv-26, 2017 WL 3433131 (S.D. Ohio Aug. 9, 2017), and denied as moot eleven remaining pretrial motions. Judge Rice dismissed the entire case with prejudice because he ruled the contracts that Plaintiff, a competitor hospital, challenged should be analyzed under the rule of reason, but Plaintiff had failed to plead a rule of reason case. Plaintiff’s decision not to do so doomed the case to failure.

WHAT HAPPENED:

  • Judge Rice’s key decision related to the Defendants’ pretrial challenge of District Judge Black’s (who was previously assigned to the case) order holding that the per se rule applied.

  • The Defendants include four hospital systems in the Dayton, Ohio area that formed the Premier joint venture. The hospitals “are owned, controlled and operated independently” but “their income streams are consolidated, and Premier manages many of their business functions, including the negotiation of each hospital’s managed care contracts with insurers.” 2017 WL 3433131, at *13.

  • The Plaintiff challenged two types of agreements Premier negotiated on behalf of the hospitals: (1) agreements with insurance companies (payers) that included a “rate-for-volume clause”—that is, a provision wherein payers agreed to give Premier the option to terminate or renegotiate rates should the payers add other hospitals to their network; and (2) non-compete agreements with physicians in which physicians agreed to refer patients internally.

  • Judge Rice held that the agreements should be analyzed under the rule of reason, whether viewed as activities of a legitimate joint venture or as a “group boycott.” The court reasoned:

    • If viewed as legitimate joint venture activities, the payer and physician agreements are “core activity” and thus subject to the rule of reason under Texaco, Inc. v. Dagher, 541 U.S. 1 (2006). The Medical Ctr. at Elizabeth Place, LLC, 2017 WL 3433131, at *15, *17.

    • Even if not a “core activity,” the limitations in Premier’s payer agreements and with physicians are vertical restraints, not horizontal, and are not “naked restraints” on trade, and thus should be analyzed under the rule of reason. at *16-17.

    • Even if viewed as a “group boycott,” the agreements are not the type deemed per seThe Medical Ctr. at Elizabeth Place, LLC, 2017 WL 3433131, at *19 (citing Stop & Shop Supermarket Co. v. Blue Cross & Blue Shield of Rhode Island, 373 F.3d 57 (1st Cir. 2004) and Levine v. Central Florida Medical Affiliates, Inc., 72 F.3d 1538 (11th Cir. 1996), and agreeing that contract clauses excluding certain providers from a multi-provider health care network should be analyzed under exclusive dealing principles and thus the rule of reason).

  • Judge Rice also rejected Plaintiff’s theories of two additional horizontal conspiracies—one among the payers and another among physicians—because Plaintiff failed to plead those alleged conspiracies or amend its complaint to include them.

WHAT THIS MEANS:

  • The opinion supports the principles that, “as a general matter, no court has held rate-for-volume pricing to be per se illegal” and these types of clauses in payer agreements are “prevalent in managed care contracting in the Dayton area and elsewhere across the United States.” at *14. The court’s finding in this regard is in line with a nationwide trend rejecting antitrust challenges to “short-term” exclusive or rate-for-volume agreements between hospitals and payers. Id. at *16.

  • Judge Rice’s opinion also reaffirms the principle that a plaintiff’s failure to plead a rule of reason case in favor of the more lenient standard of the per se rule may turn out to be one they ultimately regret because a court will dismiss a case that is not properly pled.

© 2017 McDermott Will & Emery

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About this Author

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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