AHLA's Speaking of Health Law

A Look at the Sixth Circuit’s Recent Decision in St. Luke’s v. ProMedica

September 03, 2021 AHLA Podcasts
AHLA's Speaking of Health Law
A Look at the Sixth Circuit’s Recent Decision in St. Luke’s v. ProMedica
Show Notes Transcript

Steve Vieux, Counsel, Shook Hardy & Bacon, speaks with Doug Litvack, Partner, Jenner & Block, and Barbara Sicalides, Partner, Troutman Pepper, about the Sixth Circuit’s recent decision in St. Luke’s v. ProMedica, which vacated a preliminary injunction enjoining a health system from removing a competing health system from its integrated insurance company’s network. Litvack and Sicalides share some of the facts, arguments, and defenses of the case and key takeaways for health care providers and managed care systems. Litvack served as counsel to ProMedica in the case. From AHLA’s Antitrust Practice Group.

Watch the full conversation here.

To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.

Speaker 1:

This episode of A H L A speaking of health law is brought to you by A H L A members and donors like you. For more information, visit american health law.org.

Speaker 2:

Good morning, and welcome to the American Health Lawyers Association's Antitrust Practice Group Program on the recent St. Luke Hospital versus ProMedica Health Sys health System decision out of the sixth Circuit. Recently, as many of you antitrust healthcare antitrust practitioners must and watchers must know, the sixth Circuit panel vacated a preliminary injunction in joining a health system from removing a competing health system from its integrated insurance company's network. Today's program is designed to give some brief background on this case in terms of facts, arguments, and defenses, and also some takeaways for healthcare providers and managed care systems as well as their counsel. We have a special treat today we're joined by two healthcare antitrust specialists. First, Doug Litvac, who is a partner just recently at Geneen Block, who specialized in antitrust counseling at litigation with a particular focus on healthcare and consumer products. And as a special treat, you was also counsel to ProMedica in this case, before entering private practice. You was a trial attorney at the FTC analyzing challenging mergers, including participating in noteworthy enforcement actions in the healthcare sector. We're also joined by Barbara SLOs, and, excuse me, Barbara, if I mispronounce that<laugh>, I told you your name. But Barbara is a partner at Entrapment and Pepper, and she counsels clients on antitrust and competition issues as well as representing clients in civil and criminal antitrust litigation. And also do, does a great deal of antitrust work in the healthcare sector. And lastly, I'm your moderator. Um, I won't have that much to contribute to this conversation, but I'm a member of the Antitrust Practice Group of American Health, uh, lawyers Health Law Association, and I am a council at Shook Hardy in Bacon in San Francisco, where I specialize in business litigation for focus on antitrust concern protection issues. And without further ado, um, I'll start the conversation by first turning it over to Doug, who will give us a brief recap on the case, um, the facts of the specific case in front of the, of the circuit court, as well as a brief discussion on the background, um, of the case including, uh, the F T C investigation and enforcement action that kind of led to this in a roundabout way. Doug,

Speaker 3:

You know. Thanks Steve. Uh, so the story begins in 2010 when Proa acquired St. Luke's. It then goes through a long battle with the FTC ultimately ending up divesting St. Luke's per an FTC order. And as part of that divestiture, ProMedica had to lend temporary and extraordinary support to St. Luke's to get it back on its feet as an independent hospital. And part of that support was giving it, um, in-network contracting status to its insurance company Paramount. And, and it had to do that for at least three years. However, there was a provision that said that if St. Luke's underwent a change in control that Prometica no longer had to keep St. Luke's in its insurance network. And so that then in 2018, um, one year before that, that that contract expired. Um, proa and St. Luke's engaged in the discussion over prometica having a cancer center on St. Luke's campus. And in exchange, prometica agreed to extend the Paramount Insurance contract relationship with St. Luke's until 2023 to align with the cancer center relationship. However, prometica negotiated and St. Luke's agreed that the change in control provision would still apply. That was in the F T C, um, divestiture agreement. And then in 2020, um, McLaren Health System, a large vertically integrated system based in Michigan acquired St. Luke's, um, triggering the change in control provision, which then PICA responded by term, sending out termination notices to St. Luke's saying that it would no longer be in its insurance network. And then what ended up happening is that st that McLaren St. Luke's sued claiming an antitrust violation for allegedly terminating the, the insurance contracts with, um, with Paramount. And what ended up happening is the district court agreed and preliminarily enjoyed the contract saying that EDA had a duty to deal with, um, McLaren St. Luke's, despite the change in control provision. And we ultimately, for Prometica appealed that decision and were successful in the, um, sixth Circuit persuading the sixth circuit, that there was no duty to deal under the antitrust laws. And so that's, that's the quick version of the facts in this case. And, um, I'll turn it over to Barbara to explain the, the theory of harm.

Speaker 4:

All right. Well, first, congratulations, Doug, on the win, though. I know the case isn't over yet, so it's not

Speaker 3:

Over

Speaker 4:

<laugh><laugh>, I don't want you to count your chickens before they hatch, but nicely done. Um, so, so the theory of harm in the case is not, um, you know, as I wasn't a part of the case, right? So based on the materials that I've read, the theory of harm, um, is not entirely clear. But what the plaintiff seems to be focused on is that, um, they are, um, the best alternative, the closest alternative to the plaintiff's, um, healthcare provider in that region. And that the, uh, to the defendant, sorry, to ProMedica, and that ProMedica, um, has allegedly taken certain steps that have pushed the plaintiff just sort of the edge of its competitiveness and its ability to be competitively relevant in the geography. Um, they also focus on the fact that, uh, according to the complaint, uh, ProMedica, um, is high cost and doesn't have, um, particularly high quality ratings while, um, their system St. Luke's is, uh, purportedly the lower cost provider, um, and that they at St. Luke's has high quality metrics. So it paints the picture right that St. Luke's is on the edge of competitive relevance, which as I said, um, the complaint suggests is in part, at least in part, um, the fault of actions taken by ProMedica, um, allegedly anti-competitive actions, including payer agreements that excluded St. Luke's. And this is before the termination, um, gutting St. Luke's during the merged period. And, um, barring some physicians from practicing at St. Luke's, these are allegations, whether they're true or not, I can't, um, speak to. And also, um, imposing debt on St. Luke's, um, that as a result of the merger being unwound was burdensome, and that there was going to be a loss of access to volume with the termination by Paramount. And that that loss of access sort of put St. Luke's over the edge of being able to be an effective competitive restraint on Paramount, uh, I'm sorry, not on Paramount on ProMedica. So I'm using more words to describe this<laugh> than, um, although not as wi with the same amount of specific detail as the complaint. And so maybe I'm filling things in or reading between the lines in a way that, you know, Doug will tell me, um, is either wrong or that he disagrees with one or the other. Um, but in my view, that is what the focus of the plaintiff's, um, harm theory is, which is currently we are competitively relevant, but we are hanging on, um, by our thumbs or fingertips, and that this loss of access to the paramount volume will put us closer to, or maybe over the edge of being competitively relevant. And that in addition to that, the loss of any market share, um, by St. Luke's will be, uh, will cause harm to the public, to the consumers, um, because, and they rely on studies in their complaint for, um, the evidence for this, which is that, um, with any market, increased market concentration comes necessarily higher rates. And therefore, even if St. Luke's, um, or I should say even if ProMedica only gains a, a share or two or three, um, from St. Luke's loss of access to Paramount, that will result in some measurable harm to the consumers through higher rate, uh, higher rates and, and the loss of access to the patients, specifically members specifically who will be forced to use in their argument, um, forced to use Grama instead of having the ability to turn to St. Luke's. So that's my understanding of the theory of harm. Uh, I'd be interested in hearing Doug's, um, response to the theory of harm, um, and, and, um, the defenses that they launched in the case.

Speaker 3:

Um, I mean, Barbara, you, you, you did a good job because the complaint is long confusing and has lots of various allegations that don't seem to tie into any specific theory of harm. And, um, what the plaintiff in my view is trying to do is say, you know, this is a monopolization case. This is a case where ProMedica allegedly is a monopolist, and they see a threat of a new competitor emerging, and they're engaging in various conduct to eliminate that threat. And that'll ha actually feed into what I think the key defense is for Prometica and was our key message throughout the case, which is this is simply competition on the merits, um, and consumers benefit when firms compete. And that's all that Prometica is doing here, is engaging in vigorous competition with a new strong competitor with deep pockets, and that will benefit consumers. Um, and in fact, what the court did by enjoining a part of that competition, the court, um, essentially stopped healthy competition that will benefit consumers. And that's like thematically what the defense that Prometica brought in the district court and then persuaded the sixth Circuit was correct. And, you know, the, the case in front of the Sixth Circuit focused and centered in on whether it was unlawful for Prometica to terminate the Paramount contracts. And that claim falls into the category of what we cause antitrust lawyers like duty to deal or refusal to D claims. And the antitrust laws generally imposed no duty to deal with a competitor absent extraordinary circumstances that are found in the Aspen skiing case. And there's a very narrow test to show those extraordinary circumstances. And Pica's defense was all along that the plaintiffs didn't satisfy any element, let alone all the elements to meet that defense. And particularly PICA argued in the sixth Circuit agreed that there was no like prior voluntary course of dealing with the plaintiffs because ProMedica never agreed to deal with St. Luke's if it underwent a change of control and never agreed to deal with McLaren St. Luke's, which is Undecidedly different competitor by the plaintiff's own complaint. And that that fact alone we felt, and the sixth Circuit agreed, was dispositive, um, in rejecting their claim that this could be an antitrust violation. And to add, there needs to also be a profit sacrifice, meaning Prometica needs to be engaging in behavior that makes no business sense, but for its anti-competitive motive. And when we put forth a ton of evidence suggesting that this was profit maximizing behavior competition on the merits, because Prometica is a provider, first and foremost of healthcare services and uses as insurance arm to really drive volume to PICA providers. So it was completely profitable to terminate a relationship with a different provider who could siphon off patients from PICA facilities to their facilities, destroying the value of having the vertically integrated health plan as part of its provider system. And

Speaker 4:

Did

Speaker 3:

You think, yeah, go ahead.

Speaker 4:

Did you think that, um, the district court judge believed the second prong of the test in Aspens ski was met by the fact that, well, if it wasn't a profitable relationship, they wouldn't have had it, um, to begin with. And that struck me as a bit of a problem, cuz if that alone is enough evidence, then, you know, you basically turn the narrow Aspen skiing into a big wide open gate. Um, but was is that, that was how I understood the case was presented, and I'd be curious if that's true and how it was that the court, um, six circuit and district court addressed that.

Speaker 3:

Yeah, no, that's exactly right. So the, the district court latched onto the 2018 renewal that I mentioned in the, the overview of the facts where pica, um, in St. Luke's extended the Paramount relationship in connection with the cancer center relationship. And so the district court said, oh, because you did this in 2018, it shows this was a profitable relationship and now you're only terminating it to harm, um, McLaren St. Luke's and you're sacrificing profits. And the district court just misunderstood the facts and the change circumstances. It overlooked the significance of McLaren acquiring St. Luke's. And that's what the Sixth Circuit shows. It says Prometica in the 2018 renewal knew that it didn't want to do business with St. Luke's if it was acquired by another entity. That's why it made sure that the change of control provision existed, and that's a fact that district court overlooked. And that was why in part the sixth circuit reversed.

Speaker 4:

And how mu how much of your argument rested on the notion that, or I should say<laugh>, how would you have handled the case if it wasn't McLaren, if it was a smaller, less, uh, well funded, um, less flexible, uh, non vertically integrated, perhaps provider who was either, um, entering into some sort of an affiliation that resulted in a change of control? I actually didn't go back to read the change of control provision, so I'm not sure what qualified as change of control in the agreement, but

Speaker 3:

No, that's a good question. So something too that I was thinking about in Prepar argument, um, and I, I don't think the outcome changes because that the change in control provision applied to any change in control. Um, and just the existence of that provision suggested that the parties only viewed the relationship as profitable. If St. Luke's remained St. Luke's, it didn't undergo any change in control. So the minute it underwent a change in control, that just changed the, the calculus of having the relationship. And from there, you can't impose a duty to deal because you're not, um, engaging in conduct that doesn't make business sense. It's completely rational to terminate the contract because you negotiated for that provision.

Speaker 4:

I'd also say, I know you're, I mean, not that your briefs weren't fantastic<laugh>, um, but the amicus brief that was filed by the, um, economists was, um, pretty straightforward. It's much shorter than the party's briefs<laugh>, and if people are interested in sort of understanding the pro-competitive arguments for the termination, um, that's a, I I found that really helpful. Um, and actually a pretty quick read. So, um, for folks who are interested in, in more on the sort of economic three behind the pro-competitive arguments, um, Steve, I think you wanted us to cover also some of the government enforcement questions. Do you want Yeah.

Speaker 2:

Okay. Basically, yeah, I mean, we know, um, if we've been following Tech<laugh>, um, that with the Biden administration there's a new increased vigor and focus on antitrust enforcement, especially at the ftc. Um, a lot of the folks has been on tech, but we've also seen that in healthcare and a lot of the policy pronouncements have been targeted at healthcare. So Barbara, I'll have you lead off the discussion on this. Do you see the government, um, picking up in adopting, um, this theory of harm, perhaps probably using different arguments and looking for different cases, um, but do you think this is something folks should, um, folks in the ar folks in the industry, either healthcare providers or managed care providers, uh, should watch for increased government activity, um, in whether it's the ftc, doj or state ags?

Speaker 4:

So I definitely wouldn't think that federal or state enforcement would be interested in this specific case. I mean, in interested in becoming involved in or, um, because obviously the FTC was ably involved in the consent decree and, um, I'm sure has been, um, concerned and, uh, you know, following, um, the market generally. So the geography generally, so wouldn't think the specific case. I think the theory of harm. So I think refusal to deal is a really difficult argument, um, for any plaintiff. And I have plenty of clients who raise the issue and, you know, we dig into it, we look at it, and it is a hard argument to make under the existing antitrust laws. Um, and the ways in which, um, they've been applied and the economic theories that we have relied on for the last many years in interpreting our antitrust laws. I do think, um, that there is some suggestion or indication, um, hints from the agencies that, um, they are more concerned about vertical mergers. So it is a real possibility that vertically integrated, um, transactions will get closer looks ones that involve a, a significant healthcare provider acquiring a substantial, um, health insurance, um, entity. I think that, um, they will have concern with some of the potential harms that were alleged in the complaint if in fact, um, they continue down this road of sort of big as bad. Um, I don't know that, um, that there, that, that, that causation, um, necessarily from the allegations that were made. So the sort of alleged competitive harm that would've occurred for consumers and don't know that that necessarily was caused by the actions of ProMedica. And so fundamentally, I think the theory is a difficult one, and I don't think that the agency is going to, are gonna pick up on the theory in a context like this one. On the other hand, as I said, I do think they're very concerned about large healthcare com providers and they're concerned about consolidation and they're concerned about the vertical elements of it. So I think situations like this where a vertically integrated dominant provider acts, um, I think they will be interested in them whether I don't see them running to bring a lot of enforcement actions, but I think if the right case came along and they felt that a provider was tipped to the point where they could no longer be competitively relevant, I think they might look at it. Here you've got McLaren backing up the, um, plaintiff, it's kind of, I I don't know that, I don't know that they would use enforcement, you know, limited resources to pursue a case where there is a very well funded plaintiff who can, you know, work to improve their high despite the loss of, um, the volume from the paramount relationship.

Speaker 2:

There probably different facts, and maybe one thing you brought up too, probably maybe not in a pure refusal to deal case, but some of the similar issues, concerns about vertical integration and the health system with integrated, um, health plan

Speaker 4:

Narrow networks and also narrow networks. I think it's, um, I think that it's possible, um, that if somebody uses narrow networks as a weapon and they can't demonstrate the benefit that typically can flow from a narrow network. I have lots of clients. I mean, I represented O S F healthcare system in, um, the seventh circuit in a case related to narrow networks and, you know, you can economically prove whether they benefit, um, the consumers or not and whether they harm competition. And so I think in cases where narrow networks don't demonstrably have benefit like that, that could be an area they would focus in when there's a, particularly if there's a vertically integrated defendant, they've highlighted non-competes and they've highlighted, um, concentration and clearly, right. There are allegations here that, you know, um, prometica controls, um, the, the providers and doesn't allow providers to practice at St. Luke's who want to, so there are definitely pieces of the theory that I could see the agency having an interest in.

Speaker 2:

Yeah. Um, I mean, I don't think there was a pattern allegation, but you know, Doug, it, and we're going off the agenda right now,<laugh>, so it's ok. But I did, I mean, was part of the plaintiff's case that this was part of a pattern of anti-competitive conduct and how did they, um, you know, articulate that in, in the case in their briefing or an arguments?

Speaker 3:

Yeah, yeah, that's a good question. Yes. Yeah, so, so the plaintiff's primarily have a monopolization case where they're claiming that paramedic is engaged in an overall scheme to significantly weaken, um, McLaren St. Luke's or put them out of business. And one component of that is the refusal to deal on the insurance, but there's other contact conduct that both Barbara and you have appointed to Steve that's in the complaint. Um, and, you know, the antitrust laws require a pretty rigorous analysis of that conduct. And, you know, I guess I like to use the phrase monopoly broth to describe like, you know, incoherent, um, theories of grab bag acts that are innocuous on their own, but you put them together into this broth to create a monopolization claim, then, you know, that's what the plaintiffs have done. That's what we told the sixth circuit. And, you know, and Irus law requires that you define a market, you show that there's specific acts within that market that harm competition in that market, and all these acts that you're referring to occur outside the relevant market. And the plaintiffs repeatedly pointed to acts outside the relevant market to try to prove their case, um, just to create confusion. And, you know, what we did in response is really be disciplined about how the right way to apply the antitrust laws is, which is define the market, look at the acts within the market, and see whether there's harm. And that's where the plaintiffs really failed here.

Speaker 4:

The district was almost exclusively focused on the healthcare, um, the provision of healthcare market and not on the, um, insurance side at all. So looking at the share of Paramount, it was barely, it, it really was ignored, um, for lar in large part in the district court's decision, not in the, um, appellate court decision, not in the sixth circuit. But yeah, I mean, it was very clear the whole complaint really is, um, focused on the dominance in the healthcare side and not at all, um, on the, um, insurance side.

Speaker 2:

Hmm, that's interesting. Well, I mean, I guess now is a good time to end it off, uh, for discussion on what the next steps and also importantly, uh, one of the takeaways, um, for folks in this industry, either on the provider side or on the managed care side. And I'll turn it over to Barbara, um, to lead that off, followed by Doug.

Speaker 4:

Sure. So obviously, right, um, we have a, a government White House and the, um, enforcement agencies who are very interested in the industry as well as a lot of state, um, regulators or enforcers. So, um, I think my takeaways are not necessarily, um, just related to this case, but these sorts of decisions, right, um, that providers and payers make. So one, I think it's always smart to be honest about the reasons for your decisions when those decisions might harm a competitor. And it seems like, um, from the, um, record and the decision and the opinions anyway, that ProMedica was pretty clear, um, about why it was making this decision and didn't shy away from the fact that it had to do with, um, the change in the nature of the competitor that was gonna be entering the market. So I think honesty in, um, why you're making decisions that can hurt a competitor is always a good practice. Mm-hmm.<affirmative>, I think when you're narrowing a network or asking for a narrower network regardless of whether you're on the payer side or you're on the provider side, um, the hope for benefits from a narrower network should be clearly stated. Um, it should be, um, you know, even if it means, um, preparing internal documents that lay out the reasons for the decision, sometimes, um, if you can, I like to have my clients actually do the math of their decision. So, I mean, obviously sometimes you can't do that, right? You're not gonna go necessarily conduct an economic analysis of something. But if we're making a decision, um, that could harm a competitor and it's a significant decision, I think, um, not only documenting your reasons internally, um, but laying out the facts and support of your decision and even, um, you know, in a draft format, trying to do some of the math for that reason is really helpful when you're talking to courts that have, um, lack of experience in the healthcare space, in particular<laugh>, but perhaps even lack of experience in business. I mean, there are lots of, um, decision makers who've never actually worked directly with the business. That doesn't mean they're not confident to make the decisions, but this helps them to see why the decision was made and that it wasn't made. Um, you know, with the thought or, um, with any thought other than that we're gonna be better at we, what we do, we're gonna be able to help, um, our payers and our patients. And I think when you're a vertically integrated health system or payer, um, you should really consider who's delivering the messages for you in the meetings when you're interacting with someone who, um, a potential plaintiff. And, um, frankly, uh, when, um, in the, in, in these sorts of situations, um, some firewalls are useful. Um, and I don't mean necessarily official formal in all instances, but some sort of, um, reflection that, uh, it really was an important decision that, um, wasn't just driven, um, by the idea of the, that a provider might wanna harm its provider competitor in this context. So those are my, um, my takeaways. I'd be interested in hearing Doug's.

Speaker 2:

Yeah. And Doug, to the extent you feel comfortable, I know you're representing one of the parties, but to the extent you feel comfortable, if you could tell us specifically what are the next steps, um, in this matter? I know recently a petition for your hearing was, um, file last week.

Speaker 3:

Yeah. Um, yeah, lemme lemme start with takeaways and I'll, I'll get to the next steps on the, on the matter. So, so my, my takeaways are that I think we'll see more monopolization cases, um, both from the government and from private plaintiffs. Um, refusal at the deal claims will be hard. I have my fingers crossed that someday Aspen skiing will get reversed. Um, but, uh, I don't think that's likely. Um, but monopolization cases are here to stay and healthcare providers in particular, um, you know, typically operating consolidated markets with few competitors by the nature of the business, you need to be on the lookout for those types of claims, um, when making business decisions. And so I think from a takeaway perspective, um, it would be smart when you're engaging in any conduct that disadvantages arrival to, um, think about the implications of that con conduct. Talk to, you know, your in-house council, maybe talk to outside antitrust council just to make sure you understand the, the full landscape of risks. And if you're on the other side of the coin where you've been disadvantaged by a, you know, potentially dominant player, you also might wanna seek what options you have by talking with in-house counsel and outside counsel, um, to make sure that, um, you're exploring all the available options that you have. Um, and so just on the next steps of the case, um, so the plaintiff's filed a petition for, for rehearing, um, and just the, you know, just the chance of success on a petition for rehearing statistically falls between less than 3% of the cases. And I'll just point out that the decision was unanimous and contained, uh, and was, um, by the Chief Judge Sutton, and also joining in the decision was former Chief Judge Cole. Um, so we'll see what happens with the petition for rehearing, but just based on the statistics seems unlikely. Um, and then the, the case, there's a larger monopolization case pending in the district court, and we'll need to work through those issues in light of the sixth circuit decision. But, um, I can tell you that when we've said this publicly, the the case is meritless and we've filed counterclaim and we, you know, and, and fully expect to prevail on, on all the claims.

Speaker 2:

Okay. Okay. Yeah. And we'll, you know, we understand Yeah, that's your position too.<laugh>, um, folks from St. Luke's welcome, um, to contact us and, um, you know, we, we can schedule something to give your side too, um, as well. Uh, well I tried<laugh><laugh>. Yeah. But, um, thanks. This was great. This was informative. I found this to be very helpful as a healthcare antitrust practitioner. Um, and for if you guys, and for all the listeners out there, if you enjoyed this, um, I would recommend joining checking out the American Health Law Association and specifically the Antitrust Practice Group. We have a lot of informative programs like that whe whether they're brief, quick, informal podcast such as this or more formal webinars. And hopefully once we get after this pandemic more in-person, um, conferences, um, and brown bags, as well as written publications, bulletins and alerts, which we try to put out frequently, which I think are very helpful, um, for folks, whether you are a general antitrust, practi practitioner, um, you know, healthcare as these folks, as Doug and Barbara can tell you, healthcare antitrust. Yeah, antitrust is antitrust, but due to the specific economics and the way at least healthcare distribution is set up in our country, there's certain specific, um, issues, um, that you have to deal with or when you're, um, advising or advising folks on either side of the V or the V potentially, uh, in the healthcare industry when it comes to antitrust that you need to be aware of. And if you're health and if you practice in the other area of healthcare or your healthcare generalist, I guarantee you you'll run into an antitrust issue,<laugh>, um, one of these days, um, uh, for one of your clients. But, um, thanks a lot. Thanks Doug. Thanks Barbara. Um, this is very informative and thank you all for joining us.

Speaker 1:

Thank you for listening. If you enjoy this episode, be sure to subscribe to a H L A, speaking of health law, wherever you get your podcasts. To learn more about a H L A and the educational resources available to the health law community, visit American health law.org.