Hospitals’ Steering of Patients to Equipment Providers Did Not Violate Antitrust Law

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

An Alabama hospital and a corporation that operated several hospitals in the same area, along with their affiliated joint ventures that provided durable medical equipment (DME), did not violate the Sherman Act or Alabama antitrust law by allegedly using their control of hospital services to coerce patients into buying or renting DME (including beds, wheelchairs, and oxygen tanks) from those affiliates.

A motion to dismiss the claims of competing DME providers, who were allegedly excluded as a result of the hospital defendants' steering of patients to their affiliates, was granted.

Standing

As an initial matter, the court decided that the competing DME providers had standing to assert the claims. The plaintiffs' allegations in the case—that the hospitals were channeling patient choice to their captive DME providers—were sufficient to show the necessary injury to competition.

The failure of the plaintiffs to allege an actual increase in prices or an actual deterioration in the quality of DME did not defeat the claim of an antitrust injury. If the allegations were proven true, competition would have been injured because the competing DME vendors no longer had access to the patients who needed DME.

The plaintiffs' damages in the case were not premised on their ability to profit while patients “paid an artificially inflated price.” Though the complaining DME providers' injuries were indirect and speculative, their potential damages were duplicative, and the patients were more direct victims, the DME providers were efficient enforcers of the antitrust law. They were much better positioned than consumers to detect an antitrust violation earlier and did not suffer from the same collective-action problems that individual consumers with relatively small injuries did.

Reciprocal Dealing

The complaining DME competitors failed to offer sufficient factual allegations in support of a coercive reciprocity claim, the court found. While reciprocal dealing arrangements could constitute an illegal restraint of trade when coercive, reciprocal dealing was not by itself illegal.

The plaintiffs made no allegation that the hospital staff's continued employment, pay, benefits, or access to the hospital were in any way conditioned on the staff referring patients to their hospital's DME providers. Nothing in the complaint suggested that the hospitals and their staff otherwise had a buyer-seller or other comparable commercial relationship, the court noted.

Refusal to Deal

The defendants did not engage in an unlawful refusal to deal by failing to provide the competing DME providers access to discharged patients, the court added. While the complaining DME competitors sufficiently alleged agreement between the hospitals and their captive DME providers to state a claim that they were acting in concert, the concerted actions in which they engaged did not state an antitrust claim for which relief could be granted.

The hospitals' unilateral termination of their prior voluntary course of dealing, which had been demonstrated by a DME rotational assignment system, did not suggest a willingness to forsake short-term profits. The hospitals terminated the course of dealing after entering into joint ventures with their respective DME providers, and there was nothing in the plaintiffs' complaint, outside of conclusory allegations, plausibly suggesting that the decision to cease the rotational system and exclude competing DME providers from access to the hospitals was for any purpose other than increasing both the short-term and long-term profits of their DME providers, the court said.

Monopolistic Conduct

The defendants did not engage in monopolization, attempted monopolization, or conspiracy to monopolize the market for the distribution of DME through their Montgomery and Prattville hospitals, the court also ruled. The complaining DME providers failed to allege either that a single entity (a single hospital) or multiple entities acting in concert (the two hospital distributors of DME) engaged in monopolizing activity.

The only allegation of parallel conduct arose from the fact that the hospitals entered into joint ventures with their respective DME providers during the same broadly-defined time period.

In the absence of any allegations of concerned activity between the hospitals' two DME providers, the only theory that could possibly support the claims was one based on shared monopoly, which was not recognized as a viable cause of action, the court explained.

The decision—Precision CPAP, Inc. v. Jackson Hospital—appears at 2010-1 Trade Cases ¶76,939.