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Methodist Health Services Corporation v. Osf Healthcare System

United States District Court, C.D. Illinois, Peoria Division

March 25, 2015

METHODIST HEALTH SERVICES CORPORATION, Plaintiff,
v.
OSF HEALTHCARE SYSTEM, an Illinois not-for-profit corporation b/d/a SAINT FRANCIS MEDICAL CENTER Defendant.

ORDER

SARA DARROW, District Judge.

In this antitrust case, Plaintiff Methodist Health Services Corporation ("Methodist") complains that Defendant OSF Healthcare System d/b/a Saint Francis Medical Center ("Saint Francis") has reduced competition and raised prices at the expense of consumers for inpatient hospital services and outpatient surgical services in the relevant geographic market by forcing commercial health insurers to enter into provider agreements that effectively exclude Saint Francis' competitor providers from contracting with those insurers. Now before the Court is Saint Francis' Motion for Judgment on the Pleadings, ECF No. 82. For the reasons below, it is DENIED. Defendant's Motion for Leave to File a Reply, ECF No. 89, and Plaintiff's Motion for Leave to File a Surreply, ECF No. 92, are GRANTED.

BACKGROUND

Methodist's 188-paragraph complaint raises 11 claims against Saint Francis: exclusive dealing in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1 (Count I); attempted monopolization in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2 (Count II); monopolization in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2 (Count III); exclusive dealing in violation of the Illinois Antitrust Act, 740 ILCS 10/3 (Count IV); attempted monopolization in violation of the Illinois Antitrust Act, 740 ILCS 10/3 (Count V); monopolization in violation of the Illinois Antitrust Act, 740 ILCS 10/3 (Count VI); tortious interference with prospective economic advantage with respect to BCBS (Count VII); tortious interference with prospective economic advantage with respect to Aetna (Count VIII); tortious interference with prospective economic advantage with respect to Health Alliance (Count IX); tortious interference with prospective economic advantage with respect to Humana (Count X); and unfair and deceptive acts and practices in violation of the Illinois Consumer Fraud Act, 815 ILCS 505/10a (Count XI).

Methodist seeks damages, fees and costs, and for this Court to enjoin Saint Francis from conduct which prevents Methodist from participating in any commercial health insurance network. Compl. 38, ECF No. 1.

I. The Parties

The Court accepts as true, as it must when considering a motion for judgment on the pleadings, the following facts alleged in Methodist's complaint. Forseth v. Village of Sussex, 199 F.3d 363, 368 (7th Cir. 2000).

Defendant Saint Francis is a not-for-profit hospital located in Peoria, Illinois. Id. at ¶ 9. It is the fourth largest medical center in Illinois, id. at ¶ 38, and the only provider of certain essential medical services in the relevant geographic area, defined by Methodist as Peoria, Tazewell, and Woodford Counties, Illinois, id. at ¶¶ 10, 39.[1] These essential services include solid organ transplants, tertiary pediatric services, Level 3 neonatal intensive care ("NICU"), and Level 1 Trauma care. Id. at ¶ 39. Saint Francis is part of the OSF Healthcare System. Id. at ¶ 37.

Plaintiff Methodist is an integrated health care delivery system consisting of various operating divisions, including an acute care hospital. Id. at ¶ 10. It does not offer several of the essential services Saint Francis provides, including organ transplant, tertiary pediatric services, NICU, and Level 1 Trauma care. Id. at ¶ 40. Methodist is located in Peoria, Illinois. Id. at ¶ 10. In addition to Methodist and Saint Francis, there are four other hospitals in the relevant geographic area: Proctor Hospital, Pekin Memorial Hospital, Hopedale Medical Complex, and Advocate Eureka Hospital. Id. at ¶¶ 36, 44-47. None of these hospitals provides either Level 1 or Level 2 Trauma care. Id. at ¶¶ 44-47. There also are several non-hospital-based providers in the relevant geographic area that provide outpatient surgical services. Id. at ¶ 48.

Because Saint Francis is the largest hospital in the region and the only local provider of certain essential medical services, most health insurance companies doing business in the relevant geographic market consider Saint Francis a "must-have" participating hospital in their health insurance networks. Id. at ¶¶ 2, 39.

II. The Relevant Product Markets and Saint Francis' Market Power

The Complaint defines two relevant product markets: (1) "the sale of inpatient hospital services to commercial health insurers, " and (2) "the sale of outpatient surgical services to commercial health insurers." Id. at ¶¶ 14, 21.[2] Commercial health insurers include managed-care organizations, other HMOs or PPOs, and employer self-funded plans. Id. at ¶ 17. Government payers, such as Medicare, Medicaid, and TRICARE, are excluded from the relevant markets. Id. at ¶¶ 17-18.

Methodist has excluded government payers from its relevant product market because the price government payers pay for inpatient hospital services and outpatient surgical services does not significantly constrain the prices hospitals and other providers charge commercial health insurers for the same services. Id. at ¶ 19. This is because commercial health insurers negotiate their rates with providers individually, while the federal government and each state unilaterally sets the rates and schedules at which it will pay providers for services provided to individuals covered by Medicare and TRICARE and by Medicaid, respectively-rates that typically are lower than the rates negotiated by commercial health insurers. Id. Methodist also claims that, because government payers unilaterally set the prices they will pay for services, a hospital or other healthcare provider can impose a price increase for inpatient hospital and/or outpatient surgical services solely on commercial health insurers. Id. at ¶¶ 20, 24.

Methodist claims that Saint Francis has approximately 53 percent of the market share for inpatient hospital services sold to commercial health insurers, and more than a 50 percent share of the market for outpatient surgical services sold to commercial health insurers. Id. at ¶ 2. Methodist further claims that, on average, OSF's prices are significantly higher ...


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