AAI has joined with the Committee to Support the Antitrust Laws (COSAL) to submit an amicus brief in the Ninth Circuit Court of Appeals arguing that a district court erred by refusing to permit a class of insurance customers who lost a monopolization case against a dominant hospital system to introduce contemporaneous evidence of the hospital system’s intent to restrain trade and by failing to account for well-established industry dynamics when defining health insurance markets.  

In Sidibe v. Sutter Health, a class of businesses and individuals claimed to have paid inflated health insurance premiums after a dominant hospital system in California, Sutter Health, began to insist on systemwide contracts with insurers. Until 2002, insurers negotiated with Sutter hospitals individually when they assembled their provider networks, but after 2002 Sutter began insisting on systemwide contracting, under which an insurer could not contract with Sutter hospitals in concentrated, “must-have” geographic markets unless they also contracted with Sutter hospitals in competitive markets. The plaintiffs alleged that the move to systemwide contracting, and certain provisions in the contracts, violated Section 1 of the Sherman Act as well as the State of California’s antitrust law, the Cartwright Act.

Although Sutter settled a similar case brought by a different class of plaintiffs and the California Attorney General, it litigated the Sidibe case to a jury verdict and won. On appeal, the plaintiffs argue, among other things, that the district court erred by prohibiting the plaintiffs from introducing contemporaneous evidence of Sutter Health’s intent when it developed and formed the challenged contracting practices in the late 1990s and early 2000s. The court prohibited the introduction of any evidence prior to 2006.

The plaintiffs also argue that the district court erred by allowing the jury to determine on its own whether to consider the likely response of insured patients to price increases, and the role of Kaiser Permanente, which provides services only to its own members and not to independent insurers, in assessing Sutter’s market power.

The COSAL/AAI amicus brief argues that the district court erred as a matter of law in refusing to permit the jury to hear or see any contemporaneous evidence about “the history of the restraint and the reasons for its adoption,” which the Supreme Court has recognized as relevant factors in determining whether a restraint is unreasonable under the Sherman Act. Moreover, such evidence carries even more weight under the Cartwright Act, because the Cartwright Act applies a different legal standard. It recognizes a contract as illegal if it “has as its purpose oreffect an unreasonable restraint of trade.” An anticompetitive purpose is a stand-alone basis for liability.

The brief also argues that applicable Circuit precedent, including the St. Luke’s case, recognizes a two-stage model of competition in the healthcare industry. First, providers such as Sutter Health compete for inclusion in health insurance plans. Second, providers seek to attract patients, primarily on a non-price basis because insured patients are largely insensitive to price. The district court therefore should have focused the market-definition inquiry on the likely response of insurers to a price increase by a hypothetical monopolist. The court should not have permitted the jury to consider evidence about the response of insured patients, nor hypothetical competition from Kaiser Permanente, which does not sell provider services to independent insurers.  

The brief was written by Kristen Marttila and Joseph Bourne of Lockridge Grindal Nauen PLLP, which served as counsel to COSAL. AAI Vice President of Legal Advocacy Randy Stutz and AAI Extern Mathew Simkovits assisted.

AAI has filed an amicus brief asking the Ninth Circuit Court of Appeals to overturn an award of summary judgment to a defendant on market-definition grounds despite direct and unambiguous evidence of anticompetitive effects.  

In Innovative Health v. Biosense, the defendant, Biosense, manufactured a leading cardiac mapping system used by hospital cardiologists to create a visual map of the human heart. In addition to making and selling the system, called the “CARTO 3,” Biosense also provides clinical support services (including trained technicians) to operate the system, and it sells single-use, sensor-enabled catheters that the system uses to perform the heart-mapping procedure.  

The plaintiff, Innovative, is a “reprocessor.”  After Biosense’s new, disposable catheters have been used in a procedure, Innovative reprocesses the catheters and offers them for sale to hospitals at a discount, in competition with Biosense. Innovative’s reprocessed catheters are FDA-approved as substantially equivalent to new catheters.

For years, Biosense provided clinical support services to its CARTO 3 customers without regard to where they purchased their CARTO 3 catheters, but in 2014 it initiated a new policy whereby it refused to provide clinical support services to hospitals unless they purchased their catheters from Biosense. Innovative brought an aftermarket tying claim, alleging a violation of Section 2 of the Sherman Act. It presented direct evidence that, before the policy change, competition between Biosense and reprocessors established a benchmark price for CARTO 3 catheters, and after the policy, hospitals ceased purchasing from reprocessors. All reprocessors were eliminated from the market and the price of catheters increased substantially and sustainably above the price that had prevailed under competition. Although alternative cardiac heart-mapping systems are available for sale, Biosense did not lose catheter sales despite the price increase. 

Notwithstanding Innovative’s direct evidence, the district court granted summary judgment to Biosense on grounds that Innovative failed to adequately establish a legally cognizable relevant market. It held that Innovative alleged a “single-brand market,” and that such markets are disfavored. While it allowed that single-brand markets are permissible in “rare and unforeseen circumstances,” it would not recognize one here because Innovative did not establish that competition in the foremarket for mapping systems does not discipline competition in the aftermarket for catheters.

The AAI brief argues that direct evidence of anticompetitive effects suffices to create a triable question on the issues of both market power and a relevant market. If a plaintiff can show anticompetitive effects, there is at least a question whether it can show market power, because anticompetitive effects cannot be caused other than by a firm exercising market power. And if a firm has market power, there is necessarily some identifiable relevant market in which the power exists. Summary judgment on market definition grounds is therefore categorically inappropriate in direct-evidence cases, or at least in cases where, as here, the evidence is unambiguous and retrospective in nature.  

The brief also argues that the district court erred by (1) giving the burden of proof to the plaintiff to disprove the disciplining effect of foremarket competition, and (2) defining the aftermarket as a “single-brand” market despite the presence of interbrand competition.  The Supreme Court’s Kodak decision makes clear that, under Matsushita, direct evidence establishes at least a reasonable inference of market power and therefore shifts the burden of proof to the defendant to show that competition in the foremarket disciplines competition in the aftermarket. Kodak also makes clear that horizontal competition occurring among independent firms selling differentiated products and that generates beneficial consumer welfare effects is interbrand competition, notwithstanding that it is aftermarket competition.

The brief was written by AAI Vice President of Legal Advocacy Randy Stutz, with assistance from AAI Extern Mathew Simkovits, who is a student at Stanford Law School. Several AAI Advisory Board members also provided assistance.