In granting summary judgment for St. Francis, the trial court carefully examined Methodist’s allegations and expert testimony regarding market foreclosure to narrow the estimate to “unlawful foreclosure.” This analysis eliminated key patient populations from the market foreclosure estimate – for example, St. Francis employees – because the court concluded they had been lawfully foreclosed. As a result, the court concluded that the actual unlawful foreclosure caused by St. Francis’ contracts was not more than 20 percent to 22 percent of the market, materially below the 30 percent to 40 percent threshold that would presumptively raise antitrust concerns. Additionally, the court found that Methodist was not foreclosed from regularly competing for the exclusive contracts with payors, as the terms of the various contracts at issue were between one and three years in duration. Collectively, this volume of competition was sufficient to preclude a jury from finding that Methodist was substantially foreclosed from competition in the relevant market. 

For a more detailed analysis of the trial court decision, please see our prior client alert available here.

Court of Appeals Opinion 

In his pithy, six-page opinion affirming the district court on behalf of a unanimous panel of the U.S. Court of Appeals for the Seventh Circuit, leading antitrust expert Judge Richard Posner observed that Methodist’s antitrust claims were “quite simple[.]” In contrast to the trial court’s detailed calculation of unlawful foreclosure, Judge Posner acknowledged that St. Francis’ exclusive contracts covered more than half of all commercially insured patients in the area, and then simply asked, “But what is more common than exclusive dealing?” Analogizing to commonplace and well-accepted requirements contracts, the court noted that payors may be willing to accept in-network exclusivity in return for better rates from hospitals. Additionally, the court focused on the fact that St. Francis’ contracts were of limited duration, thus Methodist had the ability to compete and bid against St. Francis for exclusivity with major insurers in the market every one to three years. The court reiterated: “competition-for-the-contract is a form of competition that antitrust laws protect rather than proscribe, and it is common.” (citing Paddock Publications, Inc. v. Chicago Tribune Co., 103 F.3d 42, 45 (7th Cir. 1996))

The court also noted that other factors indicated the absence of antitrust injury. First, Methodist failed to produce evidence of increased prices for insurers or consumers. Second, other insurers or hospitals in the market (as well as the Department of Justice) did not provide any support for Methodist’s allegations. Third, the record did not suggest that the exclusive contracts prevented Methodist from improving its facilities and services to better compete against St. Francis for exclusive contracts or other patient populations.

Conclusion 

The Methodist trial court and Seventh Circuit opinions provide useful guidance for payors and providers that are considering exclusive dealing arrangements. In particular, parties seeking to implement such contracts should carefully evaluate, after determining the applicable patient populations, whether the potential for exclusion is below any presumptive threshold. Parties should also consider factors beyond estimates of foreclosure, including the length of the agreement and the ability of rivals to compete directly for patients.”

Client Alert 2017-148