Hospital building

US Sixth Circuit vacates decision requiring hospital system to deal with rival

United States Publication August 25, 2021

On August 10, 2021, the U.S. Court of Appeals for the Sixth Circuit in St. Luke's Hospital v. ProMedica Health System, Inc. vacated a decision requiring ProMedica Health System to deal with a rival Toledo, Ohio hospital, St. Luke's. The court's findings were consistent with arguments in an amicus brief in support of ProMedica that Norton Rose Fulbright partners Amanda Wait, Vic Domen and Gerald Stein authored on behalf of The Brattle Group and several prominent antitrust economists.

The facts of the case go back a decade to ProMedica's acquisition of St. Luke's. As part of the merger, ProMedica's insurance subsidiary, Paramount, contracted to include St. Luke's in Paramount's network. But the Federal Trade Commission challenged the merger, and as part of the parties' settlement with the FTC, ProMedica agreed to keep St. Luke's in Paramount's network. But there was a catch. If ownership of St. Luke's changed, the parties agreed that Paramount could terminate the "in network" status of St. Luke's. That's exactly what happened last year when McLaren Health Systems, a large healthcare company, agreed to buy St. Luke's. The day after McLaren finalized the acquisition, Paramount announced that it was dropping St. Luke's from its network. St. Luke's then sued ProMedica, alleging that its refusal to continue contracting with St. Luke's was a "refusal to deal" in violation of Section 2 of the Sherman Act and seeking an injunction to require ProMedica (and Paramount) to continue contracting with St. Luke's. The trial court granted the injunction. The Sixth Circuit has now vacated it.

The Sixth Circuit held that ProMedica had a legitimate business explanation for ending its relationship with St. Luke's because the change in ownership of St. Luke's changed the circumstances of their relationship. Indeed, the court noted that businesses in competitive markets must adapt to changed economics or else fail. This echoed amici's argument that changed circumstances require parties to assess their relationships anew or else risk those relationships becoming irrational or inefficient. Amici also argued that forcing parties to continue a relationship under changed circumstances can actually harm competition because, among other reasons, it inserts a court's business judgment in place of the market's and can lessen incentives to compete. The court effectively adopted this theory. It stated that forcing rivals to do business with each other pushes the bounds of courts' expertise and can, paradoxically, lessen competition.

We are pleased that the court considered the potential unintended consequences of forcing rivals to continue to do business with each other. Refusal-to-deal claims are a narrow exception to the presumptive freedom companies enjoy to do business with whomever they choose. Courts have recognized that a firm's ability to refuse to deal is an essential component of bargaining that helps to realize comparative advantage among businesses. Courts that interfere in these bargaining relationships without fully analyzing the circumstances therefore risk harming instead of aiding competition.

St. Luke's has filed a petition for en banc rehearing; we will provide an update if the petition is granted.           



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