The Seventh Circuit Court recently rejected a $300 million antitrust suit by Peoria, Ill.-based Methodist Health Service Corp. against competitor OSF Saint Francis Medical Center.
A three-judge appellate court panel upheld a summary lower court judgment in favor of St. Francis in the case that involved the two largest hospitals in Peoria.
Methodist filed the suit against St. Francis more than four years ago that charged the “larger and more profitable” hospital violated the Sherman Act to the detriment of Methodist.
Hospitals across the U.S. have been merging at a faster pace in recent years at least in part to gain more leverage with health insurance companies for negotiating reimbursements. But St. Francis is already a large hospital, and Methodist's suit is an example of the kind of issues large hospitals and health systems can encounter.
The judges found no evidence that St. Francis' signed long-term exclusive contracts with all area health insurance companies, so there was no “destruction of competition.” Plus, St. Francis’ exclusive contracts expire every year or two, which gives other hospitals the option of outbidding St. Francis, said the judges.
On the other hand, Methodist argued that St. Francis' "exclusive contracts" ended up causing "insurers and ultimately consumers to pay nearly $30 million more than they would have paid in a competitive market.” The judges said a reason for St. Francis’ advantage is that payers consider it a “must have” hospital because of its broad inpatient services, such as neonatal intensive care, pediatric care and a Level 1 trauma center.
Consolidation in both the payer and the provider industries is expected to continue. Launching new health plans as a provider is no easy task, and there's certainly no guarantee of profit. However, it is a different option for hospitals that want to gain more leverage and avoid dealing with the associated legal risks.
Providers entering the payer space also promote competition, which is currently an imperative for the federal government due partly to the belief that monopolies and duopolies lead to increased prices to consumers and decreased care quality. If the launch of a health plan is something a hospital wants to pursue, experts recommend collaborating with payers or consulting firms that can help navigate the process.