A huge jury verdict in an Oregon antitrust case may send shivers down the spines of health system executives engaged in mergers that involve significant market control and weaker competitors.
On Oct. 31, a federal jury in U.S. District Court in Eugene, Ore., found that PeaceHealth, a six-hospital Catholic system based in Bellevue, Wash., attempted to monopolize hospital services in Lane County, Ore., and awarded rival 106-bed McKenzie-Willamette Medical Center in Springfield, Ore., $16.2 million in damages.
A successful prosecution of a private antitrust case is rare, but it carries huge pitfalls for hospital companies in that juries are faced with all of the complexities of healthcare markets, insurance contracts and pricing but have little expertise to sort through the conflicting information.
"The lesson to me is watch out for juries," said Jeff Miles, a prominent healthcare antitrust lawyer in the Washington office of Ober Kaler. "This appears to be a classic David vs. Goliath case and I'm sure McKenzie-Willamette aroused a lot of sympathy from jurors. Explaining antitrust can be difficult. Ask any antitrust lawyer. Juries are scary."
It's rare for a jury to see such a case, said Toby Singer who works in the Washington office of Jones Day Reavis & Pogue. "While there have been other cases of hospitals suing hospital competitors, this is the first that's gotten a jury verdict in recent years and it should be really watched by the hospital community. We're talking big money here."
The jury found PeaceHealth illegally exploited its market dominance, discriminated in its prices and wrongfully interfered with McKenzie-Willamette's business, harming competition for hospital services in Lane County.
Singer said three or four years ago private hospital antitrust lawsuits grew more common as state antitrust resources dried up and federal antitrust regulators seemed to shy away from intervening after losing a number of high-profile merger challenges, but those cases were either dismissed or settled before trial. "It was only a matter of time before one of these resulted in more than a press release," Singer said. "I think hospitals need to pay attention to the fact that they could get sued by parties other than the government. The real question is whether this will withstand appeal."
Alan Yordy, chief executive officer of PeaceHealth's Oregon Region, said if the judge allows the verdict to stand, PeaceHealth likely would appeal the finding. "This verdict confirms PeaceHealth Oregon Region is indeed a monopoly and has used its market power to control and eliminate competition," McKenzie-Willamette board Chairwoman Maureen Weathers said. "We believe this verdict will preserve healthy competition for the future." She said the hospital would funnel the proceeds from the jury award into a community not-for-profit foundation that holds a 20% ownership stake in the hospital to provide charity care there.
"We wanted our day in court and we are satisfied that we achieved a positive lasting impact on healthcare in Lane County," she said. "A legacy of nearly 49 years has been preserved."
PeaceHealth, sponsored by the Roman Catholic Sisters of St. Joseph of Peace, owns hospitals in Alaska, Oregon and Washington, including its 443-bed flagship hospital, Sacred Heart Medical Center in Eugene, about five miles east of McKenzie-Willamette. PeaceHealth is constructing a $350 million regional medical center in Springfield a few miles from McKenzie-Willamette.
"We have a hard time looking at the facts in the trial (as supporting) the verdict," Yordy said. "On virtually all the charges-conspiracy, impropriety of the managed-care contract and monopolization-the jury found no violations. We've whittled down the case to essentially one charge: an attempt to monopolize. We believe the facts were strong on our case."
In the lawsuit, filed in January 2002, McKenzie-Willamette, an independent not-for-profit, alleged that PeaceHealth shut it out from providing care to more than one-third of Lane County's insured residents through its exclusive contract with Regence Blue Cross and Blue Shield of Oregon. The hospital said PeaceHealth practiced predatory pricing, an illegal tying relationship (an agreement by a seller to sell one product or service only on the condition that the buyer purchase another product or service), restraint of trade, attempted monopolization, conspiracy to monopolize and actual monopolization in violation of the Sherman Antitrust Act.
One of those allegations-the illegal tying relationship-was thrown out by a judge during the summer, and the jury ruled out the conspiracy and actual monopolization charges.
Thomas Triplett, a healthcare antitrust lawyer with the Portland law firm of Schwabe, Williamson & Wyatt who represented McKenzie-Willamette, said his client first took the complaint to the Oregon attorney general's office, which told him it lacked the financial resources to bring the case to court.
In April 1989 Washington state's attorney general reached agreement with PeaceHealth to allow the consolidation of two Bellingham, Wash., hospitals. In that agreement the attorney general allowed PeaceHealth to purchase 106-bed St. Luke's General Hospital and merge it with its 153-bed St. Joseph Hospital in exchange for a five-year agreement to limit price increases, undergo annual audits and achieve cost savings through efficiencies.
It was one of a half-dozen "certificates of public advantage" or similar agreements conferred by state attorneys general in the 1980s and 1990s. The agreements contain restrictions on the merged hospitals' business activities and limit price increases in exchange for state antitrust immunity.