In a closely watched private antitrust case, Saint Francis Hospital and Medical Center, Inc. (“St. Francis”) sued its rival, the Hartford Healthcare Corporation (“HHC”), and on February 13, 2023, the litigation survived a motion to dismiss. [1]  United States District Judge Sarala V. Nagala allowed Saint Francis to proceed with three of four antitrust claims: (1) acquiring physician practices, (2) controlling physician referrals, and (3) negotiating an exclusive agreement for the Mako robot, a tool used by orthopedic surgeons to perform knee and hip replacements. St. Francis additionally alleged that HHC and its provider network, Integrated Care Partners, LLC (“ICP”), recruit practitioners to participate in the network by “offering attractive terms to the physicians made possible by HHC’s dominant market power” and ensuring that “independent physicians in its network refer to other ICP-network or HHC physicians.”[2]  This last claim failed to state an antitrust claim.  This ruling illustrates that health systems may be vulnerable to private antitrust suits brought by competitors, and such actions can make it past a motion to dismiss.  Additionally, firms with a dominant market share may face scrutiny or potential suit for allegedly anticompetitive conduct that is otherwise practiced regularly throughout the health care industry.  The case is also notable because the conduct alleged to be illegal is common in the industry.

Specifically, St. Francis alleged that HHC engaged in a course of conduct that includes threatening physicians who refer patients to other hospitals, scoring physicians on their level of referrals and tying financial compensation accordingly, requiring physicians to explain every referral outside of HHC, and even retaliating against a physician who referred outside of HHC with termination.[3]  This conduct was alleged to have an anticompetitive effect in the adult acute inpatient healthcare services and adult professional specialist healthcare services markets in Hartford County.  The combined shares, as alleged, were indeed high enough to meet the legal definition of market power, for instance, 75% of cardiology services, 70% of oncology services, and so on.[4]

The court found that St. Francis had plausibly alleged antitrust injury sufficient to survive a 12(b)(6) motion to dismiss and had antitrust standing to bring suit as HHC’s primary competitor because it “has a natural self-interest in prosecuting antitrust claims against it” and its “injury is ‘inextricably intertwined’ with the injuries allegedly suffered by the physicians, the insurers, and the patients as a result of HHC’s conduct.”[5]

The court also found that St. Francis has plausibly alleged that HHC’s vertical integration practices constituted unlawful vertical expansion, rather than the asserted defense of merely hiring rival talent, under Section 7 of the Clayton Act.[6]  We are following this part of the case closely since the court’s “unlawful vertical expansion” discussion on a motion to dismiss did not address any of the difficult issues of efficiency and coordinated care inherent in such arrangements.  Moreover, the court will be in a difficult position to order relief beyond damages since the conduct itself would be difficult to regulate.  This ruling comes against a backdrop of increased scrutiny of physician practice group acquisitions by antitrust regulators.  We are still awaiting the final report of a 6(b) study on the effects of consummated physician group and healthcare facility mergers, which is being conducted by the Bureau of Economics at the Federal Trade Commission.

The court also limited the relevant antitrust product market to commercially insured patients.[7]  St. Francis plead this product market because hospital systems and providers compete to be included in commercial plans as in-network providers, and “commercially insured patient cases are essential to the financial sustainability of a hospital system. . .”  The court allowed St. Francis to proceed on its market definition theory that “commercial insurers reimburse for patient services at a ‘margin over cost’ necessary to support the financial health of the hospital system, whereas Medicaid and Medicare typically do not.”[8]  The market definition is consistent with the FTC’s view of hospital markets in its merger cases.

The order dismisses only one of the four antitrust claims—St. Francis’s assertion that HHC violated the antitrust laws by refusing to participate in state “tiered networking” programs—as failing to state a plausible antitrust injury.  While the competitive merits of each of the remaining claims were not definitively decided at the motion to dismiss stage, note that the use of exclusive arrangements and other restrictive conduct regarding physician referrals, in combination with a certain degree of market power in the relevant market, was enough to withstand defendants’ motion to dismiss.

This case represents some of the key antitrust issues presented by physician group acquisitions and affiliations – whether hospital/physician alignment may foreclose rival health care providers or harms consumers (e.g., requiring physicians to keep referrals in-house at the expense of cost and clinical considerations, amassing distorted bargaining leverage with managed care plans, and charging prices above competitive levels).  As a side note, the opinion hints that the physicians are paid above market rates for the de facto exclusivity with the defendant, raising important questions of how the Anti-Kickback and Stark laws intersect with the antitrust laws.  

FOOTNOTES

[1] Ruling and Order on Defendants’ Motion to Dismiss (“Order”), Saint Francis Hospital & Medical Center, Inc., v. Hartford Healthcare Corporation et al., No. 3:22-CV-00050-SVN (D. Conn. Feb. 13, 2023), ECF No. 100.

[2] Id. at 07.

[3] Id. at 07-08.

[4] Id. at 08-09.

[5] Id. at 25, 27.

[6] Id. at 34.

[7] Ruling and Order, supra note 01, at 44.

[8] Id. at 06.