Health Law

MONOPOLY AND THE BIG BAT THEORY IN ANTITRUST LAW

By Greg Piche'

It perhaps deserves repeating that it is not illegal to be a monopoly in this country. In the 2004 case of Verizon Communs., Inc. v. Law Offices of Curtis v. Trinko, LLP, 540 U.S. 398, 407 (2004), the United States Supreme Court reasserted the rule, 

The mere possession of monopoly power and the concomitant charging of monopoly prices is not only not unlawful;  an important element of the free-market system. The opportunity to charge monopoly prices - -at least for a short period-- is what attracts ?business acumen? in the first place; it induces risk taking that produces innovation and economic growth. To safeguard the incentive to innovate the possession of monopoly power will not be found unless it is accompanied by an element of anticompetitive conduct.

In  a sense the achievement of a monopoly is the brass ring of business. It is the ultimate success of having whipped the competition and being the last man standing. Assuming that the monopoly is achieved by fair competition, innovation, superior products, business smarts or lucky accident there is nothing wrong with charging what the traffic will bear until such time as a competitive counterweight arrives in the market.

In the hospital business it is acceptable even desirable for an institution with a natural monopoly to enjoy its position and make the best of it until competition surfaces which it always does. It is not acceptable for a hospital to use its monopoly position as leverage to stave off the threat of competition from upstart facilities. The recent case of Perinatal Medical Group, Inc. et al. v. Children?s Hospital Central California et al, Case No. CV F 09-1273 LIO GSA, in which a federal district court judge denied a motion to dismiss a plaintiff?s antitrust case reflects a fact pattern of conduct which the judge perceived as stating a claim for breach of the Sherman Antitrust Act.

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The plaintiff perinatal was a group of neonatologists who had a contract with Children?s Hospital to provide 24/7 coverage at, and administrative services at the hospital. Children?s Hospital was a designated ?regional? hospital under California law and some critically ill patients must be transferred to Children?s if they have certain medical conditions. Two of the physicians at Perinatal assisted a local teaching hospital, Community Medial Center, to open a Neonatal Intensive Care Unit, which did not have a ?regional? designation, and had on occasion referred pediatric surgery cases to a practitioner who was not a member of the Specialty Medical Group Central California (?SMG?) favored by Children?s.

Concerned about the competition from Community Medical Center, Children?s, according to the complaint, approached other members of Perinatal, promising to assist them if they were to leave Perinatal. Children?s advised Perinatal that if it didn?t agree to practice exclusively at Children?s, it would not renew its contract. It also insisted that Perinatal agree to refer all patients to SMG.  The other shareholders of Perinatal left and formed a new company Central California Neonatology Group (?CCNG?), which then took over the Children?s contract from Perinatal. Thereafter Perinatal was rebuffed by Children?s whenever attempted to admit and care for patients in the Children?s Intensive Care Nursery.  Children?s adopted a rule that no outside group could admit patients unless either they, or another physician was physically present in the hospital. The rule effectively prohibited any neonatologist who was not a member of CCNG from practicing in the hospital.

The district judge issued an order of April 14, 2010 denying the defendants motion to dismiss the case for failure to state a claim. The court held that even under the heightened pleading requirements for antitrust cases adopted by the Supreme Court in Atl. Bell Corp. v. Twombly, 550 U.S. 544 (2007), the plaintiff had stated a factual  basis for violation of the Sherman Act. The court found that as a matter of law, the defendants were capable of conspiring to restrain trade and that the injury pled by the defendants was of a type the antitrust laws were designed to address.

According to Plaintiffs, other physicians and health plans in the region, including Kaiser, that would otherwise refer patients to non-CCNG physicians given the possibility that such patients may requires services that can  be provided only at Children?s regional NICU. In addition, the ability of non-CCNG and non-SMG physicians to practice their profession has been limited unlawfully and their ability to provide services in the relevant market has been restrained. . . .Plaintiffs allege that defendants? conspiracy has negatively impacted competition regarding the price and quality of physician services in the region.

It is not just having the big bat that counts in antitrust law. It is how you swing it.

Full post as published by Healthcare Law Blog on May 03, 2010 (boomark / email).