Conspiracy Case Brought by Specialty Hospital Will Proceed to Trial

A U.S. district court judge in Kansas has found that sufficient evidence exists for 19-bed Heartland Spine & Specialty Hospital in Overland Park, Kansas, to proceed with its antitrust lawsuit against some of the state's major healthcare providers. (Heartland Surgical Specialty Hosp. LLC v. Midwest Division Inc., No. 05-2164 (D.C. Kan. Oct. 17, 2007)).

According to a complaint filed in 2005, Heartland alleges that five area hospitals and six managed care organizations—including Aetna, Blue Cross and Blue Shield of Kansas, CIGNA, Coventry Health Care of Kansas, Humana, and United Healthcare—conspired to shut Heartland out of managed care contracts, and thereby drive it out of business, because of the "competitive threat" posed by specialty hospitals. The defendants deny the claims and argue that Heartland did not meet its burden of showing evidence of an agreement to restrain trade.

On October 17, the judge denied the defendants' motions to dismiss the suit, concluding that sufficient evidence had been presented to allow the case to go to a jury. This evidence included the testimony of one defendant acknowledging an unwritten "gentlemen's agreement" among the managed care organizations that they would not extend contracts to specialty hospitals. The court concluded that such an unwritten understanding is clearly an agreement for purposes of properly alleging a conspiracy.

The court similarly found sufficient evidence of a horizontal conspiracy among the defendant hospitals such that the case should proceed to a jury. In particular, Heartland presented evidence that the defendant hospitals "met and discussed [with each other] the competitive threat caused by specialty hospitals" and openly expressed these concerns at public gatherings in which the managed care organization defendants were present. The judge also found that Heartland had shown sufficient evidence of a plausible economic motive for the conspiracy among defendant hospitals and managed care organizations. Heartland alleged that the hospital defendants wanted to avoid competing with specialty hospitals and thereby agreed to lower reimbursement rates in exchange for the managed care organizations' cooperation in excluding specialty hospitals.

Heartland settled with one of the hospitals, Blue Cross, CIGNA, Humana, and United earlier this year. The case against the remaining defendants is scheduled for trial in April 2008.

It is fairly common for specialty hospitals to claim that they are being excluded from managed care networks, but cases such as Heartland—in which a specialty hospital alleges a horizontal conspiracy among multiple hospitals aimed at excluding the plaintiff hospital and a companion horizontal conspiracy among health plans—are quite rare. By comparison, the Ninth Circuit's recent PeaceHealth decision involved conduct by only one hospital allegedly coercing managed care organizations to exclude the hospital's competitor.

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