A federal judge ruled last week that a precedent-setting antitrust lawsuit against a merged Pennsylvania health system and its physicians could go to trial.
"We find the defendants' argument to be wholly without merit," U.S. District Judge James Munley in Harrisburg wrote in his 13-page denial of a motion to dismiss one count of an antitrust lawsuit brought by Harrisburg, Pa.-based HMO HealthAmerica of Pennsylvania against three-hospital Susquehanna Health System of Williamsport.
"We do not find the defendants' argument to be cogent. . . . The plaintiffs have sufficiently pled both a tying arrangement and claims of illegal mergers. In conclusion, we find that the plaintiffs have sufficiently pled a tying arrangement where in order to buy the `tying product' of hospital services, plaintiffs were forced to buy the `tied product' of physician services at a supra-competitive price."
Munley rejected the motion to dismiss, and a trial date is expected later this year or in early 2002.
The case involves the business conduct of three north central Pennsylvania hospitals that merged in 1994 to form Susquehanna. The hospitals are Williamsport Hospital and Medical Center and Divine Providence Hospital, the only acute-care facilities in Williamsport, population 32,000, and Muncy Valley Hospital, located 15 miles southeast in the Lycoming County community of Muncy. Under what once was hailed as a trend-setting agreement, the state gave its blessing to the merger, effectively exempting the deal from federal antitrust scrutiny, in exchange for the system accepting temporary restrictions on its business conduct, practices and prices.
In a lawsuit filed in September 2000, HMO HealthAmerica of Pennsylvania, a 150,000-member HMO based in Harrisburg, accused Susquehanna and its wholly owned subsidiary, Susque-hanna Physicians Services, of using their state-blessed monopoly to set exorbitant prices. HealthAmerica's parent companies, Coventry Health Care Management Co. and Coventry Health and Life Insurance Co., both of Bethesda, Md., joined the suit.
In the three-count civil action, the insurers allege that the hospitals' merger violated Section 1 of the Sherman Act and Section 7 of the Clayton Act, which respectively bar unreasonable restraint of trade and acquisitions that reduce competition. The third count alleged illegal restraint of trade under Section 1 of the Sherman Act. Along with damages, the third count seeks a court order compelling Susquehanna to price services competitively and prohibiting the system from tying hospital services to physician services. Susquehanna sought dismissal of the third count because it didn't believe the HMO had alleged an illegal tying arrangement or had alleged any damages from such an arrangement.
The case is being watched closely by antitrust lawyers because it is the first challenge of a hospital merger that has been blessed by a state. As such, it represents a test of the credibility of the cost-saving promises made by several hospital mergers nationwide.
Susquehanna's attorney, Mark Mattioli of Post & Schell in Philadelphia, said, "We believe that Susquehanna's costs will be low compared with other providers in the region, and we believe that the amount of premium increases by HealthAmerica will likely exceed the increases of any of our providers."