Doctor's Hospital of Jefferson, Inc. v. Southeast Medical Alliance, Inc.

United States Court of Appeals,

Fifth Circuit.

No. 96-30220.

DOCTOR'S HOSPITAL OF JEFFERSON, INC., Plaintiff-Appellant,

v.

SOUTHEAST MEDICAL ALLIANCE, INC. and Jefferson Parish Hospital
Service District No. 2, Defendants-Appellees.

Sept. 25, 1997.

Appeal from the United States District Court for the Western
District of Louisiana.

Before JONES and WIENER, Circuit Judges, and FURGESON, District
Judge.1

EDITH H. JONES, Circuit Judge:

Doctor's Hospital of Jefferson, Inc. ("DHJ") filed suit

against a competing hospital located next door in suburban New

Orleans and the preferred provider organization ("PPO") which

welcomed the competitor into membership and booted out DHJ. The

district court granted summary judgment to the PPO, Southeast

Medical Alliance, Inc. ("SMA"), and the competing hospital,

Jefferson Parish Hospital Service District No. 2 ("East

Jefferson"). The court reasoned that DHJ lacked standing to bring

an antitrust suit against appellees because it had failed to

demonstrate antitrust injury. Although we disagree with the

district court's analysis of the standing issue, we affirm the

grant of summary judgment on other grounds. Plaintiff failed to

establish injury to competition as required for a Section 1 claim,

1
District Judge of the Western District of Texas, sitting by
designation.

1
and its Section 2 monopoly claims fail for want of an appropriate

relevant market.

I. Background

Since the district court granted summary judgment against DHJ,

we view the facts and all reasonable inferences therefrom in favor

of DHJ. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.

574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986).

East Jefferson, a non-profit, 556-bed hospital, opened in 1968

in Metairie, Louisiana, to serve the East Bank of Jefferson Parish.

In 1984, DHJ opened as a for-profit, 138-bed hospital next door to

East Jefferson. The hospitals are so close that doctors on staff

at both facilities routinely walk between them.

SMA was formed by DHJ and other hospitals in 1988. SMA is a

not-for-profit PPO consisting of member hospitals, which have two

seats each on the board of SMA, and participating hospitals, which

contract to provide services to SMA but have no ownership interest

in SMA. SMA markets a package of discount services at its member

and participating hospitals to employers, insurance companies,

professional associations and other purchasers of group health

benefits. An individual consumer covered by SMA is free to see any

doctor or use any health-care facility that he chooses, but the

consumer must pay more to use a provider outside the network.

DHJ was a member hospital of SMA until January 1990, when DHJ

canceled its membership because it had received virtually no

revenues from SMA. However, DHJ continued to serve SMA customers,

and in February 1991, DHJ and SMA entered into a participating

2
hospital contract terminable by either party upon ninety days

written notice.

From 1989 through 1992, SMA grew rapidly, increasing its New

Orleans area enrollment from 6,700 in February 1990 to 233,000 in

1993. By 1993, there were 14 PPOs in the greater New Orleans area.

American LIFECARE had the largest enrollment, followed by SMA and

Healthcare Advantage.2

Managed care revenues grew to represent 21 percent of DHJ's

total revenues as of June 1993. Revenues from SMA approached

$200,000 per month, or 6 percent of DHJ's total revenues.

In 1992, SMA's member hospitals were Tulane Medical Center,

Southern Baptist Hospital, West Jefferson Hospital, Lakeside

Hospital, and Slidell Memorial Hospital. Although SMA officials

had approached East Jefferson about affiliating with the PPO as

early as 1989, while DHJ was still a member, negotiations began in

earnest to attract East Jefferson sometime in 1992. Prior to and

during this time, DHJ also expressed interest in once again

becoming an SMA member hospital. Responding to a letter on this

subject from DHJ's president, the Executive Director of SMA assured

DHJ in August 1992 that DHJ's request would be "on the agenda" at

SMA's October board meeting. Instead of considering the DHJ

request, however, in November, SMA entered into a contract calling

for East Jefferson to join SMA, first as a participating hospital

and later as a member. At its March 1993 meeting, SMA's board of

2
However, as of 1994, Healthcare Advantage had become the
second largest PPO and SMA had dropped behind to third.

3
directors decided to accept East Jefferson as a member hospital and

terminate DHJ as a participating hospital. DHJ was given written

notice of termination.

By August 31, 1992, DHJ was under contract to provide services

to Healthcare Advantage. Including Healthcare Advantage, DHJ was

affiliated with six PPOs after its termination by SMA in 1993.3

Upon its termination by SMA, DHJ filed suit alleging federal

and state antitrust violations as well as other state claims. DHJ

asserted that East Jefferson and SMA illegally restrained trade in

violation of Section 1 of the Sherman Act by conspiring to restrict

competition through exclusion of DHJ from the SMA network. DHJ

likened this restraint to a concerted refusal to deal or a group

boycott by competitors. DHJ's Section 2 claims rested on the

allegation that East Jefferson had attempted to monopolize and

conspired to monopolize the hospital services market on the East

Bank of Jefferson Parish by using its market power to condition its

entrance into SMA on the exclusion of DHJ. DHJ asserted damages

from the loss of SMA revenues and damage to its ability to compete

effectively in the marketplace.

DHJ's expert economist, Dr. Henry Zaretsky, defined the

relevant product market for both claims as general-acute inpatient

services and hospital-based outpatient services (collectively

"hospital services") and the relevant geographic market as the East

Bank of Jefferson Parish. Dr. Zaretsky described the six hospitals

3
In 1994, DHJ was affiliated with five of fourteen PPOs in the
New Orleans area and with three of ten Health Maintenance
Organizations ("HMO") in the area.

4
within the East Bank as the relevant competitors.4 Within those

parameters, East Jefferson was the largest competitor, with a 42

percent share of patient days and a 39 percent share of patient

discharges.5 East Jefferson was followed by Ochsner, with 30

percent of patient days, and St. Jude and DHJ, each with a 9

percent share of patient days. As a result of the exclusion of DHJ

from affiliation with SMA, Dr. Zaretsky suggests that East

Jefferson can monopolize hospital services on the East Bank.

Dr. Zaretsky pointed to three anticompetitive effects that

could result from the appellees' actions: 1) actual increased

prices to SMA subscribers combined with an environment conducive to

further price increases, 2) a reduction in consumer choice, in that

SMA customers' ability to use DHJ is restricted, and 3) the

weakening of DHJ as an effective competitor in the market. DHJ

also offered evidence of East Jefferson's alleged anticompetitive

intent, such as attempts to discourage physician groups from

admitting patients to DHJ, East Jefferson's strategic reports

4
In addition to DHJ and East Jefferson, Ochsner Foundation
Hospital, AMI St. Jude Medical Center, Elmwood Medical Center, and
Lakeside Hospital all are located in the East Bank of Jefferson
Parish. East Jefferson and Lakeside hospitals have since entered
into an agreement consolidating all obstetrics services to Lakeside
hospital. In addition, Baptist Hospital, although not located in
the East Bank and not included in the relevant market by DHJ's
expert, enjoys 8.22% market share in the East Bank, behind only
East Jefferson and Ochsner. For further discussion of the
participants in the relevant market, see the discussion of the
Section 2 claims, infra.
5
The share of patient days was calculated only among the six
hospitals actually located in the East Bank, while the share of
patient discharges was calculated as a percentage of all New
Orleans hospital discharges of East Bank residents.

5
highlighting the weaknesses of DHJ and other competitors, and

various statements by Peter Betts, chief executive of East

Jefferson, to the effect that East Jefferson would not join SMA

unless DHJ was excluded.

Reviewing this evidence after substantial discovery, the

district court granted the defendants' motion for partial summary

judgment on the federal and state antitrust claims on the grounds

that DHJ had not demonstrated antitrust injury as required to

establish its standing to sue. Upon a motion for reconsideration

by DHJ, the district court clarified its reasoning, but reaffirmed

the grant of summary judgment for the defendants. The district

court granted final judgment on the dismissal of the federal and

state antitrust claims pursuant to Rule 54(b) of the Federal Rules

of Civil Procedure, and DHJ filed a timely notice of appeal.

II. Standing and Antitrust Injury

DHJ contends that the district court erred in its analysis of

the antitrust injury component of standing and erroneously required

proof of injury to competition as an element of standing. We

review the district court's grant of summary judgment de novo.

Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir.), cert. denied,

506 U.S. 825, 113 S.Ct. 82, 121 L.Ed.2d 46 (1992).

Standing to pursue an antitrust suit exists only if a

plaintiff shows: 1) injury-in-fact, an injury to the plaintiff

proximately caused by the defendants' conduct; 2) antitrust

injury; and 3) proper plaintiff status, which assures that other

parties are not better situated to bring suit. McCormack v.

6
National Collegiate Athletic Ass'n, 845 F.2d 1338, 1341 (5th

Cir.1988) (citations omitted). The first and third elements of the

standing inquiry are not here in dispute.

Antitrust injury must be established for the plaintiff to

have standing under section 1 or section 2 of the Sherman Act. Bell

v. Dow Chem. Co., 847 F.2d 1179, 1182 (5th Cir.1988).6 This

requirement is inferred from section 4 of the Clayton Act, which

affords a remedy to any person injured in his business or property

"by reason of" an antitrust violation. 15 U.S.C. § 15(a). In

Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97

S.Ct. 690, 697, 50 L.Ed.2d 701 (1977), the Supreme Court described

antitrust injury as

... injury of the type the antitrust laws were intended to
prevent and that flows from that which makes the defendants'
acts unlawful. The injury should reflect the anticompetitive
effect either of the violation or of anticompetitive acts made
possible by the violation. It should, in short, be "the type
of loss that the claimed violations ... would be likely to
cause."

Id. (citing Zenith Radio Corp. v. Hazeltine Research, Inc., 395

U.S. 100, 125, 89 S.Ct. 1562, 1577, 23 L.Ed.2d 129 (1969));7 see

also Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328,

6
"Antitrust injury is a component of the standing inquiry, not
a separate qualification." Bell, 847 F.2d at 1182.
7
In Brunswick, several bowling alley operators sued a bowling
equipment manufacturer that had bought failing bowling alleys and
provided cash to keep the operations afloat. Id. at 479-80, 97
S.Ct. at 692-93. The plaintiffs alleged that the defendant's
purchase of the failing bowling alleys gave the defendant
significant market power in violation of the antitrust laws, and
alleged lost profits resulting from the failing bowling alleys
staying in business. Id. The court held that the plaintiffs had
failed to demonstrate antitrust injury: they were injured by
increased, not decreased, competition. Id.

7
342-44, 110 S.Ct. 1884, 1893-94, 109 L.Ed.2d 333 (1990).

The district court believed that the antitrust injury

component of standing embodies a showing of injury to competition

in the marketplace as well as appropriate injury to the plaintiff.

Consequently, the court dwelt at length on DHJ's evidence of

substantive Section 1 violations and, finding it insufficient for

summary judgment purposes, denied standing. The court's treatment

of Section 2 standing cursorily incorporated the same logic.

It is unfortunate that considerable judicial resources were

spent barking up the wrong tree. Brunswick, supra, and this

circuit's precedents have tolerably clearly explained antitrust

standing for some years in a series of decisions that the appellees

and district court overlooked or misunderstood. The Brunswick rule

was stated earlier. Since 1983, we have pointed out a distinction

between antitrust injury and injury to competition, the latter of

which is often a component of substantive liability. Multiflex,

Inc. v. Samuel Moore & Co., 709 F.2d 980, 986 n. 6 (5th Cir.1983).

And in 1984, this court explained, albeit in a motion for

rehearing, that the antitrust laws do not require a plaintiff to

establish a market-wide injury to competition as an element of

standing. Walker v. U-Haul Co., 747 F.2d 1011, 1016 (5th Cir.),

modifying, 734 F.2d 1068 (5th Cir.1984) [hereinafter Walker II ].

DHJ is therefore correct in observing that antitrust injury

for standing purposes should be viewed from the perspective of the

plaintiff's position in the marketplace, not from the

merits-related perspective of the impact of a defendant's conduct

8
on overall competition. So viewed, DHJ's alleged losses and

competitive disadvantage because of its exclusion from SMA fall

easily within the conceptual bounds of antitrust injury, whatever

the ultimate merits of its case. DHJ is a would-be provider of

services for SMA and a direct competitor of East Jefferson, the

alleged monopolist. DHJ has asserted that SMA and East Jefferson

conspired to remove DHJ from SMA in response to East Jefferson's

market power and in order to weaken it as a competitor for East

Jefferson. Although these theories of antitrust violations arise

from the complex and rapidly evolving health care "market," they

are hardly novel, and DHJ is no remote or indirect victim of the

alleged scheme. DHJ's alleged injury flows from the allegedly

exclusionary conduct of its competitor East Jefferson and is

exactly the kind of anticompetitive effect that East Jefferson

sought. To require summary judgment proof of the substantive

violations as a prerequisite to antitrust injury and therefore

standing to sue in a case such as this is inefficient and

confusing.8

Another way to explain the standing inquiry is that it ensures

8
In Walker II, 747 F.2d at 1016 n. 9, we said that "[t]o
demonstrate antitrust injury, [the plaintiff] must "formulate a
plausible substantive claim sufficient to survive summary
disposition.' " Too much should not be made of this statement,
however, for at the same time, the opinion acknowledged that the
plaintiff there had standing, and it granted summary judgment on
the merits. More importantly, Walker II was clarified in Bell,
supra, which avoided an antitrust injury inquiry by resorting to
the easy conclusion that the plaintiff's damage claim was too
speculative. Bell, 847 F.2d at 1183 (citing Associated Gen.
Contractors v. Carpenters, 459 U.S. 519, 103 S.Ct. 897, 74 L.Ed.2d
723, (1983)).

9
that the plaintiff's demand for relief ultimately serves the

purposes of antitrust law to increase consumer choice, lower prices

and assist competition, not competitors. Because the lure of

treble damage recovery for otherwise ordinary tort and contract

actions has inspired "antitrust" lawsuits that do not fulfill these

goals, the standing test is often a useful filter at an early stage

of litigation. Standing analysis can be most helpful in the

atypical antitrust case if the court assumes an antitrust violation

has occurred and then determines whether the plaintiff has suffered

injury-in-fact, is a proper plaintiff and has experienced

"antitrust injury" from the violation. See 2 Areeda and Hovenkemp,

Antitrust Law ¶ 360f, at 204 (1995 ed.). But standing should not

become the tail wagging the dog in "classical" antitrust cases such

as this one by an allegedly excluded competitor.

If the plaintiff does not eventually produce evidence to

create a material fact issue concerning an antitrust violation,

then summary judgment should be granted on that basis. Although

summary judgment could theoretically be based on standing, since

without the showing necessary for an antitrust violation, a

plaintiff cannot show that his injuries are of the type the

antitrust laws were designed to prevent, the better path is to

grant summary judgment for defendants on the merits. In urging

this approach, we follow the Eleventh Circuit citing the advice of

Professors Areeda and Hovenkamp:

When a court concludes that no violation has occurred, it has
no occasion to consider standing.... An increasing number of
courts, unfortunately, deny standing when they really mean
that no violation has occurred. In particular, the antitrust

10
 injury element of standing demands that the plaintiff's
alleged injury result from the threat to competition that
underlies the alleged violation. A court seeing no threat to
competition in a rule-of-reason case may then deny that the
plaintiff has suffered antitrust injury and dismiss the suit
for lack of standing. Such a ruling would be erroneous, for
the absence of any threat to competition means that no
violation has occurred and that even suit by the
government—which enjoys automatic standing—must be dismissed.

Levine v. Central Fla. Med. Affiliates, Inc., 72 F.3d 1538, 1545

(11th Cir.), cert. denied, --- U.S. ----, 117 S.Ct. 75, 136 L.Ed.2d

34 (1996) (quoting Phillip E. Areeda & Herbert Hovenkamp, ANTITRUST

LAW ¶ 360f, at 202-03 (rev. ed.1995)).9

The district court erred in holding that injury to competition

in the market was a prerequisite of DHJ's antitrust injury and in

denying standing rather than addressing the claims' merits for

summary judgment purposes. To that task we turn.

III. Alternative grounds for summary judgment

The grant of summary judgment may still be affirmed if DHJ's

evidence is insufficient to create a genuine issue of material fact

concerning substantive violations of the antitrust laws. A

district court's grant of summary judgment may be affirmed on

grounds supported by the record other than those relied on by the

court. Forsyth v. Barr, 19 F.3d 1527, 1534 n. 12 (5th Cir.), cert.

denied, 513 U.S. 871, 115 S.Ct. 195, 130 L.Ed.2d 127 (1994).10

9
Accord Aladdin Oil Co. v. Texaco, Inc., 603 F.2d 1107, 1109
n. 2 (5th Cir.1979) (assuming standing and affirming summary
judgment on grounds that plaintiff failed to show antitrust
violation); Hardwick v. Nu-Way Oil Co., 589 F.2d 806, 807 n. 3
(5th Cir.), cert. denied, 444 U.S. 836, 100 S.Ct. 70, 62 L.Ed.2d 46
(1979).
10
As an initial matter, DHJ argues that since only the standing
issues were addressed by the district court Order granting motions

11
A. Section 1 violation

The question at the heart of the district court's order is

whether DHJ has shown harm to competition sufficient to demonstrate

a Section 1 violation because of its exclusion from SMA.11 DHJ's

theory is that SMA and East Jefferson entered into a concerted

refusal to deal which wrongfully foreclosed competition for the

contract to provide services to SMA subscribers in the East Bank of

Jefferson Parish.

As DHJ does not allege on appeal that the defendants' actions

were per se unlawful,12 it must show that the complained-of actions

for partial summary judgment and Order denying motion for
reconsideration, only these orders were certified as final pursuant
to Rule 54(b), and because these are the only two orders referenced
in its Notice of Appeal, this court lacks jurisdiction to consider
any of the alternative grounds for affirmance raised by appellees.
DHJ relies on United Industries v. Eimco Process Equip. Co., 61
F.3d 445, 448 (5th Cir.1995), which held that in an interlocutory
appeal certified under 28 U.S.C. § 1292(b), the court lacked
jurisdiction to consider district court orders outside the scope of
certification.

DHJ's reliance on Eimco is misplaced. This is not an
appeal of an interlocutory order certified under section
1292(b), but a partial summary judgment certified as final
under Rule 54(b) and over which jurisdiction exists under
section 1291. As such, a notice of appeal identifying the
district court's order dismissing DHJ's antitrust claims
properly confers jurisdiction on this court over all
interlocutory orders on the way to that partial final
judgment.
11
Section 1 of the Sherman Act provides that "[e]very contract,
combination in the form of trust or otherwise, or conspiracy, in
restraint of trade or commerce among the several states, or with
foreign nations, is declared to be illegal." 15 U.S.C. § 1.
12
In its memorandum opinion, the district court rejected DHJ's
claim of per se liability, and DHJ does not here contend that this
part of the decision was incorrect. We agree with the district
court that this is not a case appropriate for per se treatment.
See Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 50

12
unreasonably restrained trade. Multiflex, 709 F.2d at 986. To

prove a Section 1 violation under rule of reason analysis, DHJ must

show that the defendants' activities caused an injury to

competition. See Roy B. Taylor Sales, Inc. v. Hollymatic Corp., 28

F.3d 1379, 1385 (5th Cir.1994), cert. denied, 513 U.S. 1103, 115

S.Ct. 779, 130 L.Ed.2d 673 (1995). Thus,

Under the rule, the anticompetitive evils of a restrictive
practice must be balanced against any procompetitive benefits
or justifications within the confines of the relevant market.
Proof that the defendant's activities, on balance, adversely
affected competition in the appropriate product and geographic
markets is essential to recovery under the rule of reason.

Hornsby Oil Co. v. Champion Spark Plug Co., 714 F.2d 1384, 1392

(5th Cir.1983).

As their principal answer to each of DHJ's alleged harms to

competition, the appellees contend that this case is governed by

the substitution of dealer cases which hold that a manufacturer has

a virtually absolute right to choose to whom it sells its goods.

See, e.g., Burdett Sound, Inc. v. Altec Corp., 515 F.2d 1245, 1249

(5th Cir.1975); H & B Equip. Co. v. International Harvester Co.,

577 F.2d 239, 246 (5th Cir.1978). Even where the dealer

substitution occurs at the insistence of the new dealer, and even

when the new dealer and the manufacturer agree before the

termination of the old dealer that the substitution will occur,

there is no antitrust violation. Burdett Sound, 515 F.2d at 1249.

DHJ distinguishes such precedents because, unlike the typical

dealer substitution case where the manufacturer is acting

n. 16, 97 S.Ct. 2549, 2557 n. 16, 53 L.Ed.2d 568 (1977); see also
discussion of DOJ guidelines, infra.

13
unilaterally in its best interests or pursuant to a vertical

agreement with the new supplier, this case involves horizontal

action by East Jefferson and other hospitals to remove a

competitor. See Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S.

752, 764-66, 104 S.Ct. 1464, 1471, 79 L.Ed.2d 775 (1984).13 DHJ

argues that substantial evidence tends to prove that East Jefferson

and the SMA hospitals "had a conscious commitment to a common

scheme designed to achieve an unlawful objective." Monsanto, 465

U.S. at 768, 104 S.Ct. at 1473.14

Although a provider-controlled PPO generally embodies elements

of a horizontal restraint of trade simply by "preferring" the

members which are its providers, no adverse antitrust consequences

follow from this characteristic alone. Subsidiary PPO agreements

to divide markets or fix prices might pose troubling antitrust

issues, but DHJ advances no such claims here. And it is generally

recognized that PPOs can, in the proper circumstances, lower the

cost of medical care to consumers by allowing negotiation of lower

prices through consumers' representatives, such as employers or

insurance companies. In conceding this possibility, DHJ concedes

that the impact of particular decisions by any PPO must be

13
DHJ also contends that a dealer substitution caused by a
rival with substantial market power in order to establish market
dominance is illegal. See Lorain Journal Co. v. United States, 342
U.S. 143, 72 S.Ct. 181, 96 L.Ed. 162 (1951). This argument relates
to a claim of monopolization or attempted monopolization and is
addressed below with DHJ's Section 2 claims.
14
Inconsistently, DHJ considers the members of SMA competitors
in this context, but only lists East Jefferson and one other SMA
member, Lakeside Hospital, among those hospitals competing in what
it defines as the relevant market.

14
considered in light of general market conditions.

Thus, while this case presents almost the exact converse of

most substitution of dealer cases, rule of reason analysis is the

same for both. In the paradigm cases, the manufacturer substitutes

one dealer (who sells the manufacturer's product) for another at

the insistence of a competing dealer, while here, the PPO (which

sells a mix of providers' products as a separate product) has

substituted one provider for another allegedly at the insistence of

a competing provider. Nonetheless, unless affiliation with the

particular PPO is necessary to enable DHJ to compete, this

substitution, like the substitution of a dealer, should not be

expected to injure competition.

A critical element in analyzing the antitrust impact of PPO

actions is the level of competition among PPOs and with other forms

of managed and non-managed health care.15 The purchasers of managed

care services are the employers, insurance companies and other

entities who control which plan a group of individuals will join.

The necessity of competing for the "covered lives" controlled by

purchasers ensures that, in a marketplace with alternative health

care networks available, the effect of substituting one provider

for another in a particular PPO is limited. Competition among

managed-care plans checks any anticompetitive effects of market

power achievable from aggregating providers of hospital services in

15
Competition among PPOs may not be considered in isolation
from HMOs or other traditional or non-traditional vehicles for
delivery of health services; all of which are substitutable. Blue
Cross and Blue Shield United v. Marshfield Clinic, 65 F.3d 1406,
1409-10 (7th Cir.1995).

15
much the same way as interbrand competition "provides a significant

check on the exploitation of intrabrand market power because of the

ability of consumers to substitute a different brand of the same

product." Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S.

36, 51 n. 19, 97 S.Ct. 2549, 2558, 53 L.Ed.2d 568 (1977). Just as

vertical location restrictions imposed by manufacturers on dealers

have the potential for "simultaneous reduction of intrabrand

competition and stimulation of interbrand competition," id. at 51,

97 S.Ct. at 2558, restricting the number of health care providers

affiliated with a PPO can simultaneously reduce competition among

them and stimulate competition between health service networks.

The Department of Justice guidelines relating to PPOs reflect

this understanding:

A rule of reason analysis usually is applied in judging the
legality of excluding providers from a multiprovider network.
The focus of the analysis is not on whether a particular
provider has been harmed by the exclusion, but rather whether
the exclusion reduces competition among providers in the
market and thereby harms consumers. Therefore, exclusion may
present competitive concerns if providers are unable to
compete effectively without access to the network, and
competition is thereby harmed. The Agencies also recognize,
however, that there may be procompetitive reasons associated
with the exclusion, such as the provider's competence or
ability and willingness to meet the network's cost-containment
goals. In addition, in certain circumstances network
membership restrictions may be procompetitive by giving
non-member providers the incentive to form other networks in
order to compete effectively with the network.

DOJ Enforcement Policy, 1994 WL 642477 at *42.

Applying the rule of reason here, DHJ has not presented

evidence that affiliation with SMA was necessary to compete in the

marketplace or that its exclusion from SMA somehow reflected injury

to competition generally. Although we assume for present purposes

16
that DHJ was damaged as a result of its termination by SMA, that

managed care revenues are of growing importance to DHJ, and that

East Jefferson intended to harm DHJ by insisting upon its

termination from SMA, DHJ cannot show that it was rendered unable

to compete because of the termination. Soon after leaving SMA, DHJ

affiliated with Healthcare Advantage, a larger PPO which East

Jefferson had left in order to join SMA. Further, the number of

providers available to the ultimate consumers was not reduced. The

ability of purchasers to choose managed care plans based upon DHJ's

allegedly lower costs was unchanged, as DHJ's services remained

available to consumers through several other managed care networks.

See Coffey v. Healthtrust, Inc., 955 F.2d 1388, 1393 (10th

Cir.1992) (switching hospital's exclusive anesthesiologist provider

was mere reshuffling of competitors that does not affect market

from consumers' point of view); Balaklaw v. Lovell, 14 F.3d 793,

798-99 (2d Cir.1994) (same).16

Initial skepticism about DHJ's ability to create a fact issue

concerning injury to competition is reinforced by examining DHJ's

specific contentions.

1. Increased prices. First, DHJ alleges that as a result of

its removal from SMA and the admission of East Jefferson, prices

for hospital services in the East Bank of Jefferson Parish have

16
See also BCB Anesthesia Care, Ltd. v. Passavant Memorial Area
Hosp. Ass'n, 36 F.3d 664, 667-68 (7th Cir.1994) (collecting cases
involving a hospital's decision to terminate or substitute
providers and noting that the "hundreds or thousands of pages" in
West publications addressing this topic "almost always come to the
same conclusion: the staffing decision of a single hospital was
not a violation of Section 1 of the Sherman Act").

17
increased and there is a substantial threat that they will continue

to increase in the future. DHJ argues that although PPOs can in

theory negotiate better prices with providers by reducing the

number of hospitals in a single territory and thereby assuring

greater volume to the provider, that has not occurred here. DHJ

asserts that the rates SMA negotiated with East Jefferson were

higher than DHJ and other hospitals in the SMA network had been

charging. DHJ's expert theorized that because SMA had not taken

bids on the contract to provide hospital services in the East Bank

area and had decided to negotiate only with East Jefferson, East

Jefferson exhibited the leverage necessary to charge higher rates.

SMA, according to Dr. Zaretsky, needed East Jefferson more than

East Jefferson needed SMA.17

Even if East Jefferson's prices are higher than DHJ's prices

to SMA, as Dr. Zaretsky asserted, that only shows that prices have

increased for individuals covered by the SMA plan. It does not

demonstrate injury in the East Bank market as defined by DHJ.

Contrary to the appellees' assertions, however, evidence that

17
The parties vehemently dispute whether East Jefferson
actually negotiated higher prices with SMA. Although East
Jefferson's contract with SMA clearly calls for higher rates for a
number of procedures, determining which hospital charged SMA more
for actual patient visits is a complicated inquiry. The provider
contracts contain provisions capping the maximum discount for
billed services, giving different discounts for different
procedures, and otherwise confusing the inquiry into the price
charged on PPO business. Dr. Zaretsky's report concluded that
DHJ's charges were cheaper in practice, while East Jefferson
produced a Deloitte & Touche report concluding that East
Jefferson's charges were cheaper in practice. For purposes of this
appeal, we assume that East Jefferson was able to negotiate a
contract with SMA that paid it a higher price for its services than
DHJ's contract.

18
their actions have created the potential for anticompetitive

effects could under some circumstances support finding a Section 1

violation. See Federal Trade Comm'n v. Indiana Fed'n of Dentists,

476 U.S. 447, 460-61, 106 S.Ct. 2009, 2019, 90 L.Ed.2d 445 (1986);

Levine, 72 F.3d at 1551. To demonstrate the potential for adverse

effects in the market, DHJ is required to define the relevant

market and establish that the defendants possessed market power.

Levine, supra. For reasons which will be articulated below in

connection with the Section 2 claims, DHJ has failed to establish

East Jefferson's market power in any meaningful geographic market.

Divorced from the context provided by a relevant geographic market,

DHJ's argument that price increases could result from increased

concentration in the East Bank of Jefferson Parish is unavailing.

Further, DHJ's analysis of the risk of increased prices is

belied by the lack of evidence and by common sense. In medical

care, it must be remembered, a provider's higher prices are not

necessarily indicative of a less competitive market; they may

correlate with better services or more experienced providers. See

Blue Cross and Blue Shield, 65 F.3d at 1411. DHJ argues that East

Jefferson's inflated prices to SMA will be imposed upon customers

of other plans because "most favored nations" clauses in plan

agreements to which East Jefferson is a party prevent the hospital

from charging lower prices to any other plan. DHJ has offered no

evidence, however, that the prices East Jefferson negotiated with

SMA were higher than those it was already charging its other plans.

19
Without that evidence, DHJ's suspicions are unverified.18 As for

DHJ's fears that the higher prices of East Jefferson could be

transmitted to other plans because managed service plans share

price information, this is irrelevant to any condemnation of the

conduct of East Jefferson.

DHJ also argues that SMA's structure as a provider-controlled

PPO makes its actions inherently suspect, since the purpose of such

an organization is not to drive down prices, but to benefit the

member hospitals. This contention ignores the effect of

competition between managed care plans. The other members of SMA,

which also provide hospital services to the greater New Orleans

area, have no incentive to enable East Jefferson to charge

supra-competitive prices at the risk of losing purchasers who

prefer a cheaper East Bank hospital. SMA's members are not making

the decisions to include or dismiss members in a vacuum: they must

be able to market their plan to purchasers of health care benefits.

Ultimately, DHJ offers no explanation why the presence of

competition between managed care providers, which include at least

17 PPOs and several HMOs in the New Orleans area, will not suffice

to prevent the imposition of supra-competitive prices.

Finally, if DHJ truly offers equivalent service at a lower

price, then the prices offered to potential purchasers of the

Healthcare Advantage plan presumably declined when that PPO

18
See also Levine, 72 F.3d at 1552 (evidence of increased
prices in a managed care plan is insufficient to show harm to
competition without information on fees charged by providers not in
the plan, resource costs, and inflation).

20
replaced East Jefferson with DHJ in 1992. Perhaps that provides

some explanation for Healthcare Advantage's subsequent success

relative to SMA.

2. Consumer choice. As additional evidence of impact on

competition, DHJ argues that the appellees' actions have reduced

consumer choice. DHJ relies on testimony that a number of patients

prefer DHJ over East Jefferson. The district court rejected this

argument, noting that most physicians on DHJ's staff were also on

East Jefferson's staff and that SMA customers can still patronize

DHJ if they are willing to pay more. At most, SMA subscribers'

choice was reduced, but this was insufficient to show diminished

competition in the market.

We agree with the district court. Not only can SMA

subscribers still use DHJ at higher prices if they desire, but,

critically, the purchasers of health care plans, who select among

managed care alternatives, are free to choose one of the six PPOs

with which DHJ was still affiliated in 1993. Furthermore,

subscribers to Healthcare Advantage now have easier access to DHJ

and a more difficult path to obtain East Jefferson's services.19

See Jefferson Parish Hosp. Dist. v. Hyde, 466 U.S. 2, 29-31, 104

S.Ct. 1551, 1567-68, 80 L.Ed.2d 2, (1984).

3. Harm to a competitor. DHJ also contends that it has been

substantially weakened as a competitor because it lost SMA revenues

19
Surely DHJ does not wish to suggest that its replacing East
Jefferson in the Healthcare Advantage PPO is a potential antitrust
violation because Healthcare Advantage subscribers' choices have
been interfered with.

21
and has been unfairly deprived of membership in a premiere managed

care plan. The district court rejected this injury to a competitor

alone as evidence of injury to competition for purposes of an

antitrust violation.

While injury to a competitor can be some evidence of injury to

competition, see Multiflex, 709 F.2d at 986 n. 6, the injuries to

DHJ are insufficient under the circumstances to create a fact issue

on injury to competition. Dr. Zaretsky noted that SMA revenue was

6 percent of DHJ's total revenue and testified that the increased

importance of managed care made access to such plans essential to

long-term survival. However, DHJ has not presented evidence that

its exclusion from SMA substantially affected its long-term

viability as a competitor. Indeed, the evidence suggests the

contrary: DHJ's facility has continued to operate under lease to

another company and remains a member of numerous managed care

plans, including Healthcare Advantage, which, as of 1994, had

eclipsed SMA in people covered in the New Orleans area.

Absent evidence that affiliation with SMA is critical to its

ability to compete in the marketplace or that East Jefferson has

market power in a properly defined market, DHJ's replacement by

East Jefferson as a member of SMA, in an otherwise competitive

hospital services market, does not present a threat to competition

sufficient to violate Section 1.

B. Section 2 Claim

To establish Section 2 violations premised on attempt and

conspiracy to monopolize, a plaintiff must define the relevant

22
market.20 See Jayco Systems, Inc. v. Savin Business Machines Corp.,

777 F.2d 306, 319 (5th Cir.1985), cert. denied, 479 U.S. 816, 107

S.Ct. 73, 93 L.Ed.2d 30 (1986).

"To define a market is to identify producers that provide

customers of a defendant firm (or firms) with alternative sources

for the defendant's product or services." 2A Phillip E. Areeda et

al., ANTITRUST LAW ¶ 530a, at 150 (1995). The relevant product and

geographic markets must reflect the realities of competition.

Brown Shoe Co. v. United States, 370 U.S. 294, 336-37, 82 S.Ct.

1502, 1530, 8 L.Ed.2d 510 (1962). Critically, evidence must be

offered demonstrating not just where consumers currently purchase

the product, but where consumers could turn for alternative

products or sources of the product if a competitor raises prices.

See Federal Trade Comm'n v. Freeman Hosp., 69 F.3d 260, 268-69 (8th

Cir.1995). The possibilities for substitution must be considered.

Blue Cross and Blue Shield United, 65 F.3d at 1409-10.

East Jefferson asserts that the relevant geographic market

urged by DHJ and its expert, Dr. Zaretsky, is too narrowly drawn.

The East Bank of Jefferson Parish, advocated by DHJ as a separate

market, is in close proximity to Orleans Parish. The two areas are

not separated by any natural boundaries and are connected by

numerous roadways. Dr. Zaretsky reported that 27 percent of

20
To the extent that DHJ relies on proof of the tendency of the
defendants' actions to have anticompetitive effects, as opposed to
actual anticompetitive effects, DHJ must also establish market
power in the relevant market in order to recover under Section 1.
See discussion of Section 1 claim, supra; see also Hornsby Oil
Co., Inc. v. Champion Spark Plug Co., 714 F.2d 1384, 1392-94 (5th
Cir.1983); Levine, 72 F.3d at 1552-53.

23
admissions to hospitals in Orleans Parish were of East Bank

residents. Furthermore, over 30 percent of East Bank residents

obtained hospital care outside of the East Bank. In particular, one

of Dr. Zaretsky's tables shows that the hospital with the third

largest share of East Bank residents' admissions is Southern

Baptist Hospital, a hospital not in the East Bank. On that table,

Baptist has a larger market share than DHJ's, yet Dr. Zaretsky

excluded Baptist from the relevant market. Even more probative of

the porousness of the assertedly separate geographic markets, 30

percent of both DHJ's and East Jefferson's patients live outside of

the East Bank.

DHJ counters that East Jefferson's own internal documents

refer to the East Bank as its "primary service area," and SMA

documents also describe the East Bank as a distinct geographic

area. DHJ further relies on the opinion of Dr. Zaretsky, which

considered major transportation routes, travel times, and area

custom and habit. At a minimum, DHJ urges, fact issues preclude

summary judgment on this issue.

We are persuaded that the evidence in DHJ's own expert report

establishes as a matter of law that the relevant market cannot be

drawn as narrowly as DHJ suggests. See Seidenstein v. National

Med. Enters., Inc., 769 F.2d 1100, 1106 (5th Cir.1985) (stating

that relevant market, although usually a fact question for the

jury, may be determined as a matter of law). The facts that over

30 percent of East Bank residents sought hospital services outside

the East Bank and that 30 percent of patients at DHJ and East

24
Jefferson reside outside the East Bank condemn DHJ's designation of

the relevant geographic market. Particularly telling is that the

hospital with the third largest market share of East Bank

residents' admissions is not included in DHJ's relevant market.21

Not only has DHJ failed to present evidence that health care

purchasers and ultimate consumers could not reasonably turn to

hospitals outside the East Bank, see Freeman Hospital, 69 F.3d at

268-270, but in fact, the substantial percentage of East Bank

residents who currently leave the East Bank for their hospital

services is powerful evidence of the alternatives reasonably

available to consumers. In a market that includes hospitals in

Orleans Parish, East Jefferson has no opportunity to dominate, much

less to attempt or conspire to monopolize.

IV. Other antitrust claims

DHJ's hope to pursue state antitrust claims and a Clayton Act

claim for injunctive relief rest on a reversal of the summary

judgment on the other federal claims. That hope is dashed by the

previous discussion.

V. Conclusion

For the foregoing reasons, we AFFIRM the decision of the

district court granting summary judgment for appellees SMA and East

Jefferson on DHJ's federal and state antitrust claims.

AFFIRMED.

21
In addition to Southern Baptist, two other hospitals outside
the East Bank have a larger percentage of the business of East Bank
residents than Elmwood, a hospital included in the relevant market
by Dr. Zaretsky.

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