West Penn Allegheny Health System has a second chance to pursue what antitrust attorneys say are unusual conspiracy allegations against a rival health system and a major insurer.
Do over in Pennsylvania
Ruling allows West Penn to proceed with lawsuit
The struggling health system’s claims against the bigger, financially stronger University of Pittsburgh Medical Center and Highmark were dismissed roughly a year ago, but last week, a federal appeals court rejected the decision to throw them out.
West Penn Allegheny alleged that UPMC and Highmark conspired to protect each other from competition. The district judge dismissed the claims last year, saying West Penn “frequently repeats the buzzword that defendants ‘conspired,’ but the lawsuit “falls short on any plausible facts to support its bald allegations.”
But the 3rd U.S. Court of Appeals disagreed, finding that the district court wrongly set too high a bar for West Penn Allegheny to make its case and that the lawsuit should proceed. The courts diverged on the interpretation of a 2007 Supreme Court opinion that a lawsuit needs enough facts to make its allegations plausible to survive preliminary motions (May 28, 2007, p. 14). “We conclude that it is inappropriate” to apply the decision “with extra bite in antitrust and other complex cases,” the appeals court said.
West Penn Allegheny claims that UPMC, which is based in Pittsburgh and owns 10 Pennsylvania hospitals, agreed it would not reach reasonable terms with any of Highmark’s competitors, nor sell UPMC’s health plan to the insurer’s rivals. In return, according to the allegations, Highmark raised its payments to UPMC while holding down those for West Penn Allegheny.
Healthcare antitrust attorneys say such collusion allegations are uncommon because such a deal would leave the conspirators more vulnerable to each other’s growing market power and the possibility that one may succeed in dominating the market while the other fails. “It would be risky,” said Jeff Brennan, an antitrust attorney and a partner with the law firm Dechert.
Highmark officials were reviewing the appeals court decision last week, spokesman Michael Weinstein said in a statement. Weinstein defended the insurer’s payments to West Penn Allegheny as “fair and appropriate” and said the company would “continue to vigorously fight” the lawsuit.
Paul Wood, a spokesman for UPMC, in a statement described the appeals court reversal as disappointing and called the lawsuit a diversionary tactic by a failing rival. West Penn’s “struggles are entirely of its own making, and this lawsuit is nothing more than an attempt to divert attention away from its inability to get its financial house in order and shift blame for its failings to UPMC.”
West Penn Allegheny recently announced 400 layoffs and another 400 job cuts as part of an effort to consolidate its Pittsburgh hospitals. The system reported a net loss of $63.1 million for the year that ended June 30, in part because of $70.7 million in write-offs from discontinued operations and $11.8 million in consulting and severance costs. Operating losses last year totaled $19.2 million compared with $38.5 million the prior year.
In June, the five-hospital system said it would reduce capacity at 500-bed Western Pennsylvania Hospital and close inpatient and emergency services at Suburban General Hospital, the 59-bed campus of Allegheny General Hospital.
Last week, the system said its operations lost $3.6 million in the three months that ended in September, which includes a $9.5 million gain from the sale of its outpatient dialysis centers and roughly $3 million in restructuring costs. For the same three months the prior year, West Penn Allegheny lost $4.1 million.
The West Penn Allegheny lawsuit comes at a time of rising antitrust concern in the healthcare industry.
William Berlin, an antitrust attorney with Ober, Kaler, Grimes & Shriver, noted that the appellate court decision follows another lawsuit filed in October alleging anticompetitive behavior by an insurer. Berlin said the back-to-back actions can’t be considered a trend, but legal activity has captured the attention of insurers.
In October, the Justice Department sued Blue Cross and Blue Shield of Michigan, alleging the insurer used contract clauses, known as “most favored nation” deals, to ensure that hospitals charged its competitors at least as much or more (Oct. 25, p. 6). The Michigan Blues also agreed to pay some hospitals more in exchange, according to the complaint. Blue Cross and Blue Shield of Michigan denied the allegations.
Earlier this year, Christine Varney, assistant attorney general in charge of the Justice Department’s Antitrust Division, said authorities had launched a review of health insurance competition and would focus on insurers and hospitals that enter into exclusive contracts.
While the West Penn Allegheny allegations don’t involve most favored nation clauses, Douglas Ross, an antitrust attorney and partner with the law firm Davis Wright Tremaine, said the lawsuit alleges similar behavior: an agreement in which Highmark would favor UPMC in exchange for a marketplace advantage.
West Penn Allegheny’s ability to convince an appeals court its claims are plausible could bolster the government’s lawsuit against Blue Cross and Blue Shield of Michigan, Ross said. “This case may be helpful to the Department of Justice.”
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