The Sixth Circuit Finds That Section One Of The Sherman Act Applies To An Integrated Hospital System

In The Medical Center at Elizabeth Place, LLC v. Atrium Health System, the Sixth Circuit reversed a well-known district court decision that a joint venture between separately owned hospitals was incapable of conspiring under Section One of the Sherman Act. The Court found that a group of hospitals acting under a Joint Operating Agreement (JOA) as an integrated health network, but maintaining their individual missions and management, were separate entities for purposes of antitrust liability. In a decision written by Judge Merritt, and joined by Judge Daughtrey, the court held that the hospitals should be considered separate (and therefore capable of colluding) because they “continue to function more or less as independent and competing hospitals” even after entering into the JOA, and because the decision-makers at each hospitals consider themselves to be “competing with each other” and the hospitals retain their assets separately. The court also relied on evidence that the hospital group had prevented insurance companies from contracting with the plaintiff, and had punished doctors for dealing with the plaintiff.

In a strong dissent, Judge Griffin argued that because the JOA provided for revenue-sharing among the member hospitals, they could not compete with each other as a matter of contract interpretation. He also argued that the hospitals anti-competitive intentions toward the plaintiff was irrelevant because the important issues “is whether defendants remain in competition with each other, not whether they intend to ward of competition with a third party.”

This decision significantly heightens the potential for antitrust liability for anti-competitive conduct in “virtual mergers” where hospitals enjoy the benefits of a merger without consolidating management or changing asset ownership.