Federal Court Opinion Reminds Health Care Providers to Assess the Antitrust Risks of Competitor Affiliations

By and on March 4, 2019

The Attorney General of the State of Washington (the State) scored another victory last week in its federal antitrust challenge to Franciscan Health System’s (Franciscan) affiliations with two competing physician practices, Washington v. Franciscan Health System, Case No. C17-5690 (W.D. Wa.), pending in the United States District Court for the Western District of Washington. Specifically, the district court ruled that Franciscan cannot assert as an affirmative defense that its affiliations are legal because the competing physician practices with which it affiliated would have been financially weakened without them.

WHAT HAPPENED

  • The Washington case arises out of two transactions that Franciscan and the Franciscan Medical Group (FMG) entered with competitors in the Kitsap Peninsula immediately west of Seattle, one of which was with The Doctors Clinic (TDC), a 54-physician practice.
  • After reviewing Franciscan’s contractual relationship with TDC, the district court ruled in an Order granting the State’s Motion for Partial Judgment on the Pleadings that the Defendants cannot assert the so-called “weakened competitor” defense. The court held that whether TDC was financially weak absent Franciscan’s affiliation can be evidence at trial under certain circumstances, but is not an affirmative defense justifying what is otherwise allegedly illegal price-fixing.
  • This decision comes on the heels of a prior decision in July 2018 in which the district court struck the defendants’ related affirmative defense that TDC was a “failing company.”

WHAT THIS MEANS

  • Together, the district court’s decisions indicate that parties entering affiliations without a complete unity of economic interests should be wary of relying on arguments or defenses that can carry greater weight in the merger context. The only way to defeat a price- or wage- fixing claim on the pleadings is to show either that 1) the parties achieved sufficient unity of economic interests to be considered one entity for antitrust purposes, or 2) the complaint did not sufficiently allege any agreement to restrain trade.
  • Health care providers should be careful to comply with the antitrust laws even in situations where the parties believe an affiliation will result in real benefits for patients, efficiencies, higher quality of care or other improvements specific to the health care industry. These factors play no role when providers have engaged in price- or wage-fixing—for example, through joint payor contracting or jointly implementing employee salaries—without having achieved a full unity of economic interests.
Katharine M. O'Connor
Katharine (Kate) O’Connor focuses her practice on complex antitrust litigation, antitrust investigations brought by the US antitrust regulators and state attorneys general, and counseling clients on antitrust compliance questions. She also regularly represents clients before the antitrust regulators related to mergers and acquisitions. Kate has experience representing clients in a wide array of industries, including healthcare, manufacturing, food and finance. Read Katharine O’Connor's full bio.


Stephen Wu
Stephen Wu has nearly 25 years’ experience in defending antitrust litigation in federal courts around the country, defending mergers and acquisitions before the Federal Trade Commission (FTC), the United States Department of Justice (DOJ) Antitrust Division and State Attorneys General and counseling clients on antitrust compliance issues. Read Stephen Wu's full bio.

BLOG EDITORS

STAY CONNECTED

TOPICS

ARCHIVES

Ranked In Chambers USA 2022
US Leading Firm 2022