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.
25
26