The U.S. Court of Appeals for the 6th Circuit recently issued an opinion with potential antitrust impact on joint ventures—in the healthcare realm and beyond. The case was originally filed by a Dayton-area surgical center, The Medical Center at Elizabeth Place, against a competing local hospital network, Premier Health Partners. The plaintiff claims that Premier Health Partners (Premier) and four of its member hospitals conspired under Section 1 of the Sherman Act – which requires concerted conduct between distinct economic actors — to put it out of business.
The four defendant hospitals had operated independently before joining in 1995 to form Premier. The hospital network was created through a joint operating agreement (JOA) instead of a merger because one of the hospitals, Catholic Health Initiatives, Inc., was prohibited from merging with non-Catholic entities. The defendants moved for summary judgment based on the well-established “Copperweld“ doctrine. In Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984), the Supreme Court held that a parent and wholly-owned subsidiary are incapable of conspiring pursuant to Section 1 of the Sherman Act because they “have a complete unity of interest” and are this not separate economic actors.
The U.S. District Court for the Southern District of Ohio initially granted summary judgment in favor of the defendant hospitals. The district court acknowledged that the Supreme Court’s 2010 American Needle decision established that the applicability of the Copperweld doctrine requires looking under the hood beyond the corporate formalities and delving further into the substance of the arrangements. In American Needle, the Supreme court held that the 32 NFL teams are “independent centers of decisionmaking,” not entitled to Copperweld protection. Favoring application of the Copperweld doctrine, the district court noted that the hospitals share both revenues and losses, with percentages pre-set by agreement. Also, the management at each hospital, including its CEO, report to Premier‘s executives, and a number of the management functions are integrated and centralized, including billing and collection, property management, and legal services. Thus, the district court applied Copperweld despite the fact that each hospital: maintains its own formal corporate existence by filing separate corporate registrations and tax returns; has a different management team and corporate governance documents; and holds its own assets.
The 6th Circuit disagreed with the lower court, holding that summary judgment before trial was inappropriate where factual questions remain about the defendants’ operation as a single entity. The 6th Circuit reasoned that the applicability of the Copperweld doctrine is a fact-intensive question that depends on the particular factual circumstances. For example, the court cited the report of a management consultant hired by Premier Health Partners that observed competition between its member hospitals to gain patients and generally suggested a lack of strategic collaboration.
Interestingly, Judge Richard Griffin states in a dissenting opinion that the Copperweld doctrine should apply to Premier Health Partners. He concludes: “Regardless of their intent to keep plaintiff out of the market, defendants have demonstrated a complete unity of interest and a single center of decision-making.” Indeed, the 6th Circuit’s majority opinion is particularly noteworthy given the revenue and loss sharing between the defendants—each hospital receives a pre-set portion of the collective pot and thus enjoys no benefit from generating more business than its partners. It will be interesting to follow the litigation as it is remanded back to the district court for further proceedings. Whether other courts apply the Copperweld doctrine and the American Needle decision in the same way remains to be seen. Stay tuned.