On the way to erasing an Oregon hospitals $16.2 million verdict, a federal appeals court last week floated guidelines that could steady the surprisingly shaky antitrust territory of discounts akin to McDonalds selling meals for less than the burger, fries and pop cost a la carte.
Struggling 105-bed McKenzie-Willamette Medical Center in Springfield, Ore., had complained that the bundled discounts its larger competitor offered insurance companies amounted to an illegal squeeze and in 2003 persuaded a jury it was true. To the relief of a number of antitrust experts, the 9th U.S. Circuit Court of Appeals in San Francisco decided the trial judge relied on a poorly reasoned antitrust case when he explained the law to the jurors who decided in McKenzie-Willamettes favor.
Theres still a lot of flux and uncertainty and research to be done in this area of bundling and the antitrust aspects of that, said healthcare economist David Argue, corporate vice president of Economists Inc., a Washington consulting firm. To the extent that theres clarity that comes out of this, thats a good thing.
McKenzie-Willamette initially prevailed on the theory that Bellevue-Wash.-based PeaceHealth harmed competition when it offered deep discounts on tertiary care at its 432-bed Sacred Heart Medical Center in neighboring Eugene, to insurance companies that agreed to make PeaceHealth the exclusive preferred provider for all levels of care.
The smaller hospital argued it was the more efficient provider of primary and secondary care but was in danger of being frozen out of those segments of the market by PeaceHealths strategy, 9th Circuit Judge Ronald Gould wrote in the 58-page opinion.
For guidance, U.S. District Judge Ancer Haggerty in Portland looked to a freshly decided dispute over tape. In that case, a maker of store-brand transparent tape went after giant 3M for offering rebates that increased according to the number of 3M products retailers stocked. A federal appeals court in Philadelphia, in affirming a jurys decision against 3M, concluded the bundling unfairly shut out a competitor that didnt offer the same array of products, even if the result was lower prices for consumers.
The jury in Oregon used that reasoning to hang PeaceHealth.
That opinion, though, has been criticized pretty vigorously by commentators, but it was the only game in town, said Thom Lambert, an associate professor at the University of Missouri at Columbia Law School. Lambert was among a group of antitrust scholars that responded to a call for friend-of-the-court briefs the court issued soon after oral arguments in March. Personally I think the Supreme Court will have to weigh in on this pretty soon, Lambert said.
Goulds opinion cites but doesnt adopt wholesale the recommendations of the federal Antitrust Modernization Commission, which concluded this year. According to the opinion, the appropriate test is whether the total discount on the bundle of goods, if applied to the competitive product alone, indicates a price thats below cost. That is, PeaceHealth was the only provider of tertiary care, so the jury could have used the test to determine whether the bundled discount was a veiled means to undercut McKenzie-Willamette on primary and secondary care.
PeaceHealths senior vice president for legal affairs, Stuart Hennessey, said the five-hospital system feels vindicated on this antitrust issue, even though it could face further appellate review or another round in the trial court under the new test. Sacred Heart spokesman Brian Terrett said the hospital hopes the decision will allow us to move forward in developing a stronger working relationship with McKenzie.
In the years since McKenzie-Willamette filed the complaint that would shift the ground beneath the national antitrust landscape, the hospital itself went through big changes. It was an independent not-for-profit hospital at the time. In 2003, it became majority-owned by for-profit Triad Hospitals, and spun off a not-for-profit partner, now called Cascade Health Solutions, which inherited the lawsuit. In July, Triad was acquired by Community Health Systems.
Cascades chief executive officer, Cheryl Boyum, did not return several messages requesting comment.