July 18, 2016

Health Plan Members Convince Ninth Circuit to Revive Antitrust Class Action Against Dominant Northern California Healthcare Provider Sutter Health

By Rosa M. Morales

An antitrust class action challenging the dominance of healthcare provider Sutter Health in Northern California received a new lease on life Friday as the U.S. Court of Appeals for the Ninth Circuit held that plaintiffs’ geographic market allegations were sufficiently detailed and plausible to survive a motion to dismiss.

In Djeneba Sidibe, et al. v. Sutter Health, No. 14-16234 (9th Cir. July 15, 2016), a three-judge panel unanimously reversed and remanded the district court’s dismissal of the third amended complaint.  Acting on behalf of an alleged class of health plan members, the plaintiffs charge that Sutter Health violated Sections 1 and 2 of the Sherman Act and California’s Cartwright Act.

Matthew L. Cantor of Constantine Cannon argued on behalf of the putative class that the district court erred by requiring plaintiffs to allege “evidentiary facts” to support the “plausibility” of plaintiffs’ geographic market definition at the pleadings stage.  The Ninth Circuit agreed, holding that plaintiffs had indeed pleaded sufficient allegations to render their markets plausible.

In their complaint, plaintiffs allege that Sutter forced illegal tying arrangements and anti-steering clauses upon commercial health plans, causing them to pay supra-competitive insurance premiums and copayments.  Sutter is either the dominant—or the only—hospital in nine alleged relevant Northern California geographic markets for the sale of inpatient hospital services to commercial health plans known as hospital services areas (“HSAs”), as defined by the Dartmouth Atlas of Health Care (the “tying” markets).  HSAs are determined by where patients actually receive most of their inpatient hospitalizations.

Because patients generally consume inpatient hospitalizations locally, the plaintiffs contended that health plans cannot substitute hospital services outside of an HSA for hospital services within HSAs to remain competitive.  The plans would therefore pay “a ‘small but significant nontransitory increase in price’ (‘SSNIP’)” imposed by a hypothetical monopolist in each HSA. No. 14-16234, at 2-3.  Plaintiffs also claimed that Sutter leverages its market power in the tying markets to force health plans to include less desirable and supra-competitively priced Sutter hospitals in five other HSAs (the “tied” markets) where plans would otherwise substitute with available alternatives but for Sutter’s anticompetitive tactics.  Id. at 3.

Despite acknowledging that plaintiffs’ market definition was not “based on faulty logic,” the district court nevertheless dismissed the complaint on the ground that plaintiffs had “provide[d] no evidence . . . of the availability of substitutes” within the alleged HSAs and purportedly only showed where patients currently went—and not where they could go in the wake of a price increase.  Sidibe v. Sutter Health, 51 F. Supp. 3d 870, 886 (N.D. Cal. 2014).  The Ninth Circuit rejected the lower court’s conclusion and reversed.

Rather, the Ninth Circuit found that plaintiffs’ alleged markets were indeed “sufficiently detailed.”  No. 14-16234, at 3.  Antitrust markets are defined as areas “where buyers [as the health plans] can turn for alternative sources of supply.”  Id.  Here, plaintiffs had pleaded, inter alia, that Sutter owns the only hospitals in the relevant HSAs and health plans had no alternative sources of inpatient care within those markets.  Id.

As the appellate court noted, plaintiffs need not plead “evidentiary facts” to support the “validity of the relevant market,” as this is “typically a factual element . . . more appropriately addressed at summary judgment or trial,” and not the pleadings stage.  Id. at 3-4.  The complaint included allegations that “residents obtain[ed] most of their inpatient hospital services” within the HSAs—and this was sufficient to support their “plausibility” under Newcal Industry, Inc. v. IKON Office Solution, 513 F.3d 1038 (9th Cir. 2008).  Id. at 4.

The Ninth Circuit also rejected Sutter’s request for judicial notice of hospital data from California’s Office of Statewide Health Planning and Development, as well as other facts and matters of public record.  The appellate court remanded the case back to the district court for further proceedings.

Edited by Gary J. Malone

Categories: Antitrust Litigation

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