HealthAmerica v. Susquehanna Health System Joint Ventures and Copperweld: A New Perspective

On July 21, 2003, the U.S. District Court for the Middle District of Pennsylvania ruled that an alliance of two separately owned hospitals operating as a single entity were incapable of conspiring to violate the antitrust laws. The case is notable for its application of the Copperweld doctrine. Under Copperweld, a corporation and its wholly-owned subsidiary are legally incapable of conspiring under the Sherman Act. In analyzing joint ventures and other combinations Courts have applied Copperweld in various ways. Some courts have focused on structure to determine if the parties can be deemed a single economic actor incapable of conspiring, and others have focused on operations to determine single entity status. In Susquehanna, the court focused on operations rather than structure, and applied the Copperweld doctrine to permit joint pricing between two hospital systems that maintained separate legal identities and retained the ownership of all of their respective assets.

The opinion provides the following background. In 1994 the two hospital systems in North Central Pennsylvania -- Providence Health System and North Central Pennsylvania Health System -- created Susquehanna Health System. Susquehanna was established as the parent company, with Providence and North Central as the sole corporate members. The Board of Directors consists of 18 directors, half of whom were appointed by each member. The alliance agreement, among other things: (1) gives Susquehanna the authority to manage and operate both hospital systems (including the establishment of overall policy, oversight of the management, long range planning, coordination of managed care plans, responsibility for programs and services and responsibility for the unified budget); (2) permits each party to retain its respective separate legal identity and the ownership of all of its tangible and intangible assets; (3) permits each member (with certain exceptions) to be governed by its respective Board of Directors; and (4) prohibits members from terminating or initiating any program or service without the prior approval of Susquehanna.

HealthAmerica and other insurance companies sued Susquehanna claiming that Susquehanna successfully demanded price increases from health plans that resulted in a 21% increase in hospital rates. Plaintiffs' complaint contended, among other things, that the parties' combination was illegal and in violation of Section 1 of the Sherman Act, which make certain...