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HEALTHAMERICA PENNSYLVANIA v. SUSQUEHANNA HEALTH SYSTEM

April 17, 2001

HEALTHAMERICA PENNSYLVANIA, INC., COVENTRY HEALTH AND LIFE INSURANCE COMPANY, AND COVENTRY HEATLHCARE MANAGEMENT CORPORATION, PLAINTIFFS
v.
SUSQUEHANNA HEALTH SYSTEM, THE WILLIAMSPORT HOSPITAL & MEDICAL CENTER, DIVINE PROVIDENCE HOSPITAL, MUNCY VALLEY HOSPITAL, AND SUSQUEHANNA PHYSICIAN SERVICES, DEFENDANTS.



The opinion of the court was delivered by: James M. Munley, U.S. District Judge

West Page497

MEMORANDUM

Before the court for disposition is the defendants' motion to dismiss count III of the amended complaint. The plaintiffs are: HealthAmerica Pennsylvania, Inc., a managed health care plan that offers health maintenance organization (HMO) product in Northcentral Pennsylvania; Coventry Health and Life Insurance Company, an insurance company that offers a point of service product and a preferred provider organization product in Northcentral Pennsylvania; and Coventry Healthcare Management Corporation, a third-party administrator that administers self-insured health insurance products in Northcentral Pennsylvania. The first named defendant is Susquehanna Health System, (hereinafter "SHS") a health care system offering hospital, physician and other health care services in Northcentral Pennsylvania. Susquehanna Health System includes the following three hospitals that are also named as defendants: The Williamsport Hospital and Medical Center; Divine Providence Hospital; and Muncy Valley Hospital. The final defendant is Susquehanna Physician Services, (hereinafter "SPS"), the largest physician group in Lycoming County, Pennsylvania. It employs over 40 percent of the primary care physicians practicing in that county and is wholly owned and controlled by SHS. For the reasons that follow the defendants' motion to dismiss will be denied.

Background

As alleged in plaintiffs' complaint,*fn1 the facts are as follows: In 1994, the two dominant hospital systems in Northcentral Pennsylvania region (Providence Health System and North Central Pennsylvania Health System) merged to create Defendant Susquehanna Health System (hereinafter "SHS"). The result of the merger was a single entity with overwhelming market power in the markets for inpatient and outpatient hospital services.

Prior to the 1994 merger, two health systems were present in the Lycoming County/Northcentral, Pennsylvania area. They were Providence Health System, Inc., which included Divine Providence Hospital and Muncy Valley Hospital, and the North Central Pennsylvania Health System, which was comprised of only one hospital, the Williamsport Hospital and Medical Center. All three of these hospitals are located in Lycoming County. Two of them (Divine Providence Hospital and Williamsport Hospital and Medical Center) are located in Williamsport, Pennsylvania and the third, Muncy Valley Hospital, is found approximately fifteen miles away in Muncy, Pennsylvania. Because of the merger, all of these hospitals are now part of SHS. The closest hospital that is not part of SHS is at least thirty miles away, and thus, too far away to be a reasonable alternative to patients living in the area.
The merger was allowed by the Attorney General of Pennsylvania in exchange for the merging parties' agreement to enter into a consent decree. The decree, required, inter alia, that the merged entity achieve certain savings from increased efficiency and pass those savings on to consumers in the form of lower prices in each of the five years following the merger. The five-year period expired in July 1999. Subsequent to July 1999, SHS has successfully demanded significant price increases from the plaintiffs for hospital services and indicated that they intend to extract similar increases from all other payors in the market as their contracts are negotiated for renewal.
The physician services and hospital services contracts that the plaintiffs previously had contained different renewal dates. Therefore, the plaintiffs did not anticipate renegotiating the contracts at the same time. However, at the time for renewal of the physician services contract, SHS terminated the contract for hospital services and informed the plaintiffs that they would be required to renegotiate the physician and hospital contracts jointly.
Accordingly, plaintiffs have filed a complaint alleging that the defendants engaged in an illegal hospital merger and a series of illegal physician practice acquisitions that have reduced competition and increased the prices that the local community must pay for health care services. Plaintiffs' complaint is comprised of three counts. The first count alleges an illegal hospital merger in violation of the Section 7 of the Clayton Act, 15 U.S.C. § 18, and Section 1 of the Sherman Act, 15 U.S.C. § 1. The second count involves allegations of illegal physician acquisitions in violation of the same statutory sections. Illegal restraint of trade in violation of the Section 1 of the Sherman Act, 15 U.S.C. § 1 is averred in the complaint's third count. Along with damages, the plaintiffs seek an injunction to force the defendants to price their services at competitive levels and prohibit them from tying the sale of hospital services to physician services.
Defendants have filed a motion to dismiss Count III of the plaintiffs' complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). The motion has been fully briefed and argued, bringing the matter to its present posture. For the reasons that follow, the motion to dismiss will be denied.

Standard of Review

When a 12(b)6 motion is filed, the sufficiency of a complaint's allegations are tested. The issue is whether the facts alleged in the complaint, if true, support a claim upon which relief can be granted. In deciding a 12(b)6 motion, the court must accept as true all factual allegations in the complaint and give the pleader the benefit of all reasonable inferences that can fairly be drawn therefrom, and view them in the ...

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