Antitrust Alert: Federal District Court Certifies Hospital Patient Class in Postmerger Antitrust Lawsuit
On December 10, 2013, the U.S. District Court for the Northern District of Illinois granted class certification to customers claiming that the merger of two Chicago-area hospital groups, Evanston Northwestern Healthcare Corp. (ENH) and Highland Park Hospital, resulted in higher prices for patients. Class action litigation in merger cases is not common, because the remedy for a prospective merger challenge is an injunction, not damages. Because this case is a challenge to a completed transaction, where plaintiffs can allege actual injury not just prospective harm, it could result in a significant monetary recovery for plaintiffs. This is the first private antitrust class action in a hospital merger case.
The class action stems from ENH’s acquisition of rival Highland Park Hospital in 2000, forming a new hospital system. In 2004, the FTC filed a complaint alleging that the merger had lessened competition for general acute care hospital services in the geographic “triangle” formed by the three hospitals in the new system. The FTC’s decision to challenge the merger came after a string of losses by federal and state antitrust authorities in hospital merger cases from the mid-1990s through 2001. In an effort to reverse this trend, the FTC embarked on a retrospective analysis of consummated hospital mergers to evaluate whether these mergers had generated anticompetitive effects. The FTC’s study resulted in its challenge of the ENH transaction.
After a trial in 2005, an FTC administrative law judge (ALJ) held that the transaction had substantially lessened competition, as evidenced by dramatic post-merger price increases. The ALJ ordered a full divestiture of Highland Park from ENH. The Commission affirmed the ALJ’s decision on the merits, but instead of ordering a divestiture, it required that the parties establish separate, independent teams to negotiate prices with health plans. As the Commission acknowledged, the remedy was unusual, because the antitrust agencies typically require a divestiture to restore competition lost as a result of a merger. The Commission reasoned that in the ENH case a divestiture would be costly because the hospitals had functioned as a merged entity for over seven years. In re Evanston Northwestern Healthcare Corp., Dkt. No. 9315 (May 17, 2005).
Just days after the FTC issued its opinion on the merits, private plaintiffs filed a federal antitrust class action on behalf of all patients and other direct purchasers of healthcare services in the area served by ENH. The complaint alleged that the class members paid inflated prices for healthcare services at ENH hospitals because ENH had raised the rates it charged health plans above competitive levels. The complaint alleged antitrust violations under Section 2 of the Sherman Act, as well as Section 7 of the Clayton Act, and sought treble damages and injunctive relief from ENH. Berkowitz v. Evanston Northwestern Healthcare Corp., No. 1:2007cv04523 (N.D. Ill. Aug. 10, 2007). The plaintiffs moved to certify a class of “all end-payors who purchased inpatient and outpatient healthcare services directly from” the new system. Such a class could include individuals, self-insured patients, and health plans, though health plans have not yet decided whether to join the class.
Previously, the court had denied class certification because it found that the plaintiffs could not show uniform price increases for all services and all plaintiffs. The plaintiffs appealed to the Seventh Circuit, which held that the class action rules do not require a showing of uniform price increases, just use of common evidence and a common methodology to show harm.
Back at the district court, the lone remaining issue was whether a class action is superior to other methods to resolve the case, a prerequisite to class certification. ENH argued that health plans and self-insured subscribers were bound by arbitration provisions in its contracts with health plans. The court found this argument unconvincing because it was unclear the arbitration clauses covered antitrust claims, the health plans had not yet decided to join the class, and because the health plans likely numbered just “a fraction” of the proposed class. The court noted that it could revisit class certification if it turns out that a “significant percentage” of health plans and self-funded subscribers must arbitrate their claims.
This is an important case. This is the first private antitrust class action in a hospital merger case. In pre-consummation merger challenges, the only available remedy is prospective injunctive relief to halt a transaction. As a result, such cases do not often attract class action plaintiffs, because no quantifiable harm has occurred prior to closing. But in this case, the FTC’s finding of actual harm from artificially high prices could lead to a substantial monetary recovery. Since the hospitals have operated as a merged entity for over 13 years (with combined contracting teams for seven), the consequence of losing the class action – an award of treble damages – is far more severe than the FTC’s 2007 remedy. The certification of the class at this point in time illustrates how private antitrust litigation may follow a merged entity for years after enforcement agencies have allowed the merger to take place. This case also is consistent with a growing number of private antitrust cases brought against hospitals. The possibility of significant monetary recovery in health care antitrust matters is likely to attract more attention from plaintiffs’ attorneys in the future.
For more information, please contact your principal Jones Day representative or either of the lawyers listed below.
Toby G. Singer
Michael Gleason and Rob Castillo, associates in the Washington Office, assisted in the preparation of this Alert.
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