Hospital Wins $16.2 Million In Antitrust Case: Hospital's Encouragement Of Exclusivity From Payors Deemed Unlawful

By Neil W. Imus and Dionne C. Lomax

On Friday, October 31, 2003, a jury in Portland, Oregon returned a verdict in favor of plaintiff, McKenzie-Willamette Hospital, against defendant, PeaceHealth, for antitrust violations. The damages awarded totaled $5.4 million (trebled to $16.2 million) plus attorneys fees. This case is noteworthy because it highlights the antitrust risks that parties with large market shares (those who may presumably be deemed to possess market power), face from conduct that has the effect of excluding a competitor, even if there appears to be a sound non-exclusionary business justification for the action. The defendant hospital in this case appeared to be arguing that a discount being offered to the insurance companies in exchange for an "exclusive" contract was merely a reflection of the cost savings (on a per-patient basis) the hospital would realize as a result of a higher volume of patients. The defendant hospital said that it was a legitimate business decision for it to pass the cost savings along to the health plans and for the health plans to decide to enter into an exclusive arrangement if it meant that they could get a better deal from the hospital. The jury, however, apparently focused on the fact that the "discount in exchange for exclusivity" deal, whatever the business merits, had the effect of preventing the county's only other acute care hospital (the plaintiff) from doing business with these two health plans and concluded this arrangement violated the antitrust laws.

Plaintiff McKenzie-Willamette is a 114-bed general acute care hospital in Lane County Oregon. Defendant PeaceHealth owns 432-bed Sacred Heart Medical Center, also located in Lane County. According to the Complaint, McKenzie-Willamette and Sacred Heart Medical Center are the sole providers of acute care hospital services in Lane County. Plaintiff charged defendant, among other things, with monopolizing the local market for hospital services, illegal tying and unlawful price discrimination. Plaintiff asserted that defendant provides approximately 73% of acute care hospital services delivered to Lane County residents and that it controls at least 90% of the neonatal intensive care and cardiovascular services market (services for which defendant allegedly has no local competition). Plaintiff claimed that defendant used its market power to pressure insurers to exclude plaintiff from preferred provider contracts. It asserted, among other things...