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This month's article and test provided by the State Bar's Antitrust & Trade Regulation Law Section

Hospital
Antitrust
Actions

It has become a familiar scenario: First, a hospital makes a staffing decision -- for example revoking a doctor's privileges, canceling a contract with a medical group, or entering into an exclusive contract for certain health care services.

The hospital is then hit with a Sherman Act complaint from the disgruntled doctor or group of doctors alleging a litany of antitrust theories including conspiracy in restraint of trade, group boycott, price-fixing, tying and monopolization. The plaintiff's case is almost invariably bounced out of court on a motion to dismiss or for summary judgment.

While physicians and other health care practitioners have not been at all shy about litigating perceived anticompetitive impacts of adverse staffing decisions, they face an intimidating gauntlet of defenses, including insufficient nexus to interstate commerce, lack of antitrust injury, lack of standing, the Copperweld doctrine, insufficient market power in the relevant market, the state action exemption and the statutory immunities provided in the Health Care Quality Improvement Act of 1986 and the Local Government Antitrust Act of 1984.

The courts for the most part have been eager to embrace such defenses. Those doctors who are fortunate enough to survive summary judgment and succeed at trial may face a judgment NOV or a hostile court of appeals that vacates their damage award.

In 1994, the Seventh Circuit in BCB Anesthesia Care v. Passavant Memorial Area Hosp. Ass'n., 36 F.3d 664 (7th Cir. 1994), after noting that doctors almost never win hospital staffing antitrust cases, went so far as to say that "[h]ow one hospital staffs its needs is so unlikely to be within the ambit of Section 1 of the Sherman Act that it does not justify a detailed examination of purpose and effect unless plaintiffs give us far better reasons for that examination than they have here."

The interstate commerce test

The trial court in BCB had dismissed the complaint for failure to allege a sufficient nexus with interstate commerce -- a jurisdictional requirement of the Sherman Act. While the Sherman Act indeed requires plaintiffs to show a threshold effect on interstate commerce, the Seventh Circuit concluded that plaintiffs had satisfied this burden.

As the Court noted, the interstate commerce test was relaxed recently by the Supreme Court in Summit Health v. Pinhas, 500 U.S. 322 (1991), a case involving a hospital's decision to terminate an ophthalmologist's staff privileges. While its reasoning is less than crystal clear, the court held that in such a case it is not necessary that the terminated doctor's practice itself have interstate connections as long as the market from which the complaining practitioner was excluded impacts interstate commerce.

No antitrust injury

The Seventh Circuit in BCB ultimately rejected plaintiffs' antitrust claims on the grounds that there was no impact on competition; in other words no antitrust injury. As the court stated:

"A staffing decision does not itself constitute an antitrust injury. 'If the law were otherwise, many a physician's workplace grievance with a hospital would be elevated to the status of an antitrust action.

"To keep the antitrust laws from becoming so trivialized, the reasonableness of a restraint is evaluated based on its impact on competition as a whole within the relevant market.' Here we are given little reason to infer that there is an impact on competition within the relevant market defined by plaintiffs."

Inability to prove antitrust injury is a common pitfall for physician plaintiffs; courts frequently recite the well-worn maxim that the antitrust laws were established for the protection of competition, not competitors.

Standing

A similar sentiment is expressed by many courts in the guise of standing analysis. Instead of asking whether there has actually been competitive harm, these courts ask whether doctors are the ones to be leading the antitrust charge. Consumers, payors or the government, according to some courts, are more proper antitrust plaintiffs.

In Huhta v. The Children's Hosp., 1994 U.S. Dist. LEXIS 7327 (E.D. Pa. May 31, 1994), the court, addressing a cardiologist's complaint over limitation of his hospital privileges, held that "[e]ven if plaintiff could establish the requisite antitrust injury, he would still lack standing because he is not a proper antitrust plaintiff.

"To determine whether the plaintiff is a proper 'private attorney general' or the 'most efficient enforcer' of the antitrust laws, courts have focused on whether there are more direct victims of the alleged antitrust violations, and whether the plaintiff can effectively represent the interests of those victims."

The court agreed with defendants that the patients and insurance companies were the direct victims of the alleged antitrust violations.

Capacity to conspire

Hospital staffing antitrust cases typically include a Sherman Act Section 1 claim. As set forth in Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984), Section 1 requires an agreement or conspiracy between at least two separate persons or entities; two parts of the same entity are legally incapable of conspiring. A hospital and its directors or employees, for example, are incapable of conspiring.

Most courts have also held that a hospital and its medical staff -- the group of doctors at a hospital typically responsible for peer review -- are incapable of conspiring with one another.

The courts have said, however, that the individual members of a medical staff are capable of conspiring with one another. This is because these bodies are usually fairly loose affiliations of doctors (considered autonomous economic units) often including direct competitors.

Causation

While a hospital's medical staff is, according to some courts, a ready-made conspiracy, it often dodges antitrust liability because it lacks final credentialing authority.

Typically, it is the hospital's governing board which makes the final call in staffing matters. This intervening step has been held to break the required causal chain between the conspiracy and the harm.

Market power

As in other antitrust cases, plaintiffs in hospital staffing cases usually try to avoid a detailed analysis of the market by alleging per se antitrust violations such as group boycotts, tying and price fixing. Unlike violations which are analyzed under the "rule of reason," per se violations do not require consideration of the reasonableness of defendant's actions or whether the defendant has sufficient power in the relevant product and geographic markets to cause competitive harm.

Courts almost always analyze such cases under the rule of reason, however, noting that hospitals' staffing decisions are not the type of plainly anticompetitive activity for which the per se rule is reserved.

The state action exemption

Plaintiffs challenging staffing decisions must consider whether the state-action exemption will apply. Hospitals can take refuge in this exemption if they are acting to pursue a "clearly articulated and affirmatively expressed state policy . . . actively supervised by the state itself." (California Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980)).

The state action exemption has been used successfully where a hospital's staffing decisions are made pursuant to state law. The exemption may be of little use in California, however, because according to Patrick v. Burget, 486 U.S. 94, 100-101 (1988), in order for the doctrine to apply to private hospitals, the state must have the ultimate say in credentialing decisions.

The Health Care Quality Improvement Act of 1986

Before embarking on litigation, plaintiffs must consider whether the Health Care Quality Improvement Act of 1986 (HCQIA) (42 U.S.C. §§11101-52) applies.

Congress passed the HCQIA out of a concern that the threat of damages was chilling appropriate criticism of doctors. The HCQIA provides qualified immunity from money damages for those involved in the decision to deny staff privileges to a physician based upon the physician's competence or professional conduct. For the immunity to apply, the professional review activities must have been taken (1) in the furtherance of quality health care; (2) after a reasonable effort to obtain the facts; (3) after providing the physician the benefit of procedural safeguards such as adequate notice and hearing; and (4) in the reasonable belief that the action was warranted by the facts (42 U.S.C. §11112(a)).

The HCQIA is a significant piece of defensive armor for hospitals faced with lawsuits based upon staffing decisions. The Eleventh Circuit recently relied on it to deny a doctor a $4.2 million jury verdict. The HCQIA also has a fee shifting provision that allows substantially prevailing defendants to recoup their attorney fees.

As significant as HCQIA immunity is, it is important to recognize its limitations. First, while the HCQIA protects against money damages, it does not prevent doctors from bringing an action for equitable relief. Second, the HCQIA only applies to suits by physicians, not other health care professionals. Third, the HCQIA only applies to staffing decisions based upon competence or professional conduct. A hospital's business decision to cancel a contract with a group of doctors, for example, is not covered.

The Local Government Antitrust Act of 1984

The Local Government Antitrust Act of 1984, which was passed to stem the tide of huge damage awards that was threatening local governments, also may provide hospitals with a defense. Credentialing decisions of a medical staff may be exempt from antitrust damages (although again not injunctive relief) under this Act if they are made at a city or county run hospital.

Conclusion

Antitrust actions against hospitals over adverse staffing decisions are not for the faint-hearted. Plaintiffs face a minefield of defenses and those intent on bringing such actions should be counseled to expect a rough ride. If there is any doubt, ask Dr. John Smith. A district court recently tossed out his antitrust case and ordered him to pay defendants more than $300,000 in attorneys fees and costs. Dr. Smith's lawyer was assessed $2,000 in Rule 11 sanctions and was required to pay additional attorneys' fees and costs for pursuing a frivolous appeal.

Peter Huston is an antitrust and litigation attorney at the San Francisco law firm of Latham & Watkins.