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West Penn Allegheny Health System, Inc. v. UPMC and Highmark

October 29, 2009


The opinion of the court was delivered by: Arthur J. Schwab United States District Judge



This case involves allegations of various violations of the federal antitrust laws (Sections 1 and 2 of the Sherman Act), 15 U.S.C. §§ 1-2, attempted monopolization claims (Section 2 of the Sherman Act), and state law tortious interference and employee raiding claims, brought by West Penn Allegheny Health System, Inc. ("West Penn Allegheny") against the University of Pittsburgh Medical Center ("UPMC") and Highmark Inc. (a Blue Cross and Blue Shield licensee) ("Highmark"), and set forth in West Penn Allegheny's Amended Complaint (doc. no. 66). Before this Court are UPMC's Motion to Dismiss the Amended Complaint (doc. no. 78) and Highmark's Motion to Dismiss Counts I and II of Plaintiff's Amended Complaint (doc. no. 82), pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, on the grounds that West Penn Allegheny has failed to state a claim upon which relief may be granted. For the following reasons, said Motions to Dismiss will be GRANTED.


A. The Parties

Plaintiff West Penn Allegheny is a Pennsylvania nonprofit corporation with its principal place of business in Pittsburgh, Pennsylvania. Complaint, ¶ 10 (doc. no. 1); Amended Complaint, ¶ 14.*fn1 Defendants UPMC and Highmark are also Pennsylvania nonprofit corporations with their principal places of business in Pittsburgh, Pennsylvania.

Complaint, ¶¶ 11 and 12; Amended Complaint, ¶¶ 15 and 16.

B. Plaintiff's Allegations Re: The Hospital Market in Pittsburgh Area

According to the Amended Complaint, hospital services in the Pittsburgh metropolitan area are dominated by UPMC. In the 1990's, UPMC began to acquire smaller, independent hospitals. UPMC currently owns 20 tertiary, specialty, and community hospitals including certain "key facilities" such as:

* UPMC-Presbyterian, UPMC-Shadyside, and UPMC-Mercy, the only other tertiary and quaternary care facilities in Pittsburgh besides West Penn Allegheny's Allegheny General Hospital and Western Pennsylvania Hospital.

* Children's Hospital of Pittsburgh, the only specialized pediatric inpatient facility in the Pittsburgh area.

* Magee Women's Hospital of UPMC, the largest obstetrical care facility in Western Pennsylvania.

Complaint, ¶ 16; Amended Complaint, ¶ 174.

The Amended Complaint avers that "with the exception of burn treatment, UPMC possesses a market share in excess of 50% in every tertiary and quaternary care service line in the six-county Pittsburgh metropolitan region. UPMC's oncology share, including its joint ventures and satellite cancer centers, is approximately 80%." Complaint, ¶ 17; Amended Complaint, ¶ 175.

In addition to UPMC and West Penn Allegheny, there are several small community hospital systems in Allegheny County and the adjoining counties including: Excela Health, a four-hospital system; Heritage Valley Health System, a two-hospital system; Butler Health System, which owns Butler Memorial Hospital; St. Clair Hospital; Ohio Valley General Hospital; Armstrong County Memorial Hospital; Jefferson Regional Medical Center; and The Washington Hospital. However, according to the Amended Complaint, none of these systems offer sophisticated tertiary and quaternary care, and none poses any threat to UPMC's dominance. In fact, none of the community hospital systems registers above a single digit market share in any service line in the six-county metropolitan area. Complaint, ¶¶ 18 & 19; Amended Complaint, ¶¶ 176 & 177.

C. Plaintiff's Allegations Re: The Health Insurance Market in the Pittsburgh Area

According to the Amended Complaint, Highmark's market share in the relevant market has exceeded 60% continuously since January 1, 2000. Complaint, ¶ 142; Amended Complaint, ¶ 194. Plaintiff further avers that a former UPMC Executive Vice President publicly stated that Highmark is "an insurer that clearly dominates 70-80% of the commercial market" and "it's pretty obvious they control finance of health care in western Pennsylvania." See "UPMC's Battle Against Highmark's Role in the Allegheny Bailout," Physician's News Digest (May 1999). Original Complaint, ¶ 21; Amended Complaint, ¶ 194.

The second-largest competitor to Highmark is UPMC Health Plan, a health insurance affiliate of UPMC, which holds approximately 20% of the commercial market. Complaint, ¶ 22; Amended Complaint ¶ 194. A significant portion of the enrollees of UPMC Health Plan are UPMC employees and their dependents who are automatically enrolled under the UPMC Health Plan. Amended Complaint, ¶ 195. Of the remaining commercial market for health care insurance, which is divided between health care insurers like United, Aetna, Coventry and CIGNA, Plaintiff alleges that none of these insurers have been able to achieve even a 10% market share. Complaint, ¶ 23; Amended Complaint, ¶ 196.

In the Amended Complaint, Plaintiff alleges that proof of the conspiracy between Highmark and UPMC is evidenced by the successful exclusion of United Health Care, a health insurer with revenues in excess of $80 billion in fiscal year 2008, from the Pittsburgh market. Amended Complaint, ¶ 73. Plaintiff further avers that in 2005 and 2006, United attempted to enter the Pittsburgh market as a well-capitalized company with a strong track record of success in many markets, and that United possessed the financial strength and insurance expertise to pose a "serious threat" to Highmark's dominance in the Pittsburgh market. Amended Complaint, ¶ 74. Plaintiff alleges that United's inability to enter the Pittsburgh market is based on the fact that as a result of the conspiracy, UPMC has refused to contract with United on competitive terms, thus blocking United's access to UPMC's two flagship hospitals, Presbyterian and Shadyside. Amended Complaint, ¶ 75. Further, Plaintiff avers that UPMC also refused United's "overtures" to purchase the UPMC Health Plan. Amended Complaint, ¶ 75. Because United is unable to offer in-network services to UPMC's facilities, it has been unable to achieve even a 10% market share in the Pittsburgh market. Amended Complaint, ¶ 76.

As further alleged evidence of the strength of Highmark's market power, Plaintiff points to a report of an economic consulting firm, LECG, retained by the Pennsylvania Insurance Department during its review of a proposed merger between Highmark and Independence Blue Cross (IBC) (which merger did not occur). Amended Complaint, ¶ ¶ 72 and 199. LECG's analysis indicated that Highmark has "substantial market power" in Western Pennsylvania. Amended Complaint, ¶ 199. The report further noted that substantial barriers to the entry of new competitors, including Health America and United, existed as to entry into the Pennsylvania market generally and the Western Pennsylvania market specifically, and stated:

Our review of the evidence in this case supports the contention that potential competitors do face entry barriers with respect to health insurance in Pennsylvania, particularly in western and southeastern Pennsylvania. While competitors have made limited inroads against the dominant Blue providers in those areas, both IBC and Highmark remain dominant in southeastern and Western Pennsylvania, respectively. Based on our interviews of market participants and other evidence, there are a number of barriers to entry -including the provider cost advantage enjoyed by the dominant firms in those areas and the strength of the Blue brand in those areas. In addition, those areas have also been characterized by an extensive amount of exit or retrenchment of competitors.

Amended Complaint, ¶ 200.

D. Plaintiff's Allegations Re: Antitrust and Anti-competitive Conduct of Defendant UPMC and Defendant Highmark

In the introductory section of the Amended Complaint, Plaintiff makes a summary of its allegations against UPMC and Highmark, which is quoted at length*fn2 as follows:

"At least since 2002, Pittsburgh's dominant hospital system, UPMC, and its dominant health insurer, Highmark, have conspired to reduce competition and raise prices at the expense of the community's employers, consumers, and patients. During that period, Highmark and UPMC have conspired to protect one another from competition. UPMC's most senior executives have openly said that they want to destroy West Penn Allegheny and have relentlessly worked to achieve a monopoly position in high-end tertiary and quaternary care services. Highmark's senior officials have admitted repeatedly that Highmark and UPMC had an agreement whereby Highmark would withdraw its commitment to and refuse any significant financial support or assistance for West Penn Allegheny in exchange for UPMC's agreement that it would protect Highmark's near monopoly position in the health insurance market." Amended Complaint, ¶ 2.

"UPMC agreed to protect Highmark by refusing to contract on reasonable terms with any competing health insurer or to sell its health insurance affiliate to any competing health insurer, thus relegating major national insurers such as United, Coventry, and Aetna to marginal participation (at best) in the Pittsburgh market. In exchange, Highmark agreed to restrict UPMC's hospital primary competitor, West Penn Allegheny, by shuttering its low-cost Community Blue product, attempting to block West Penn Allegheny's efforts to refinance its debt, and paying inflated reimbursement rates to UPMC while maintaining depressed rates for UPMC's competitors, especially West Penn Allegheny. Highmark has in turn passed on the costs of UPMC's rates to employers, consumers, and patients by charging higher premiums. Since the conspiracy's formation in 2002, and at least through 2007, UPMC and Highmark have enjoyed record profits - and an increasingly exploited Pittsburgh community has suffered skyrocketing health care costs." Amended Complaint, ¶ 3.

The Amended Complaint alleges that Highmark ceased offering its Community Blue product when Highmark agreed with UPMC to "sunset" Community Blue within twelve months, and Community Blue was in fact shut down in January 2004, and is now of out business. Amended Complaint, ¶ 79. The termination of the Community Blue product "ended health insurance price competition in the Pittsburgh community and forced employers and families into buying Highmark's remaining, far more expensive health insurance products." Amended Complaint, ¶ 79.

"One of the conspiracy's aims was to destroy West Penn Allegheny, the sole surviving competitor to UPMC in sophisticated tertiary and quaternary care. Ever since West Penn Allegheny rose from the ashes of the bankruptcy of the Allegheny Health, Education, and Research Foundation ("AHERF") -- an effort pushed hard by community leaders precisely to counter the danger that a dominating UPMC would raise prices -- UPMC has pursued a relentless campaign to drive West Penn Allegheny out of business. Indeed, UPMC CEO Jeffrey Romoff has stated publicly that competition in health care does not work and that West Penn Allegheny has no future. See Romoff Questions West Penn's Long-Term Viability, Pittsburgh Business Times (October 21, 2002)." Complaint, ¶ 3; Amended Complaint, ¶ 4.

Later in the Amended Complaint, Plaintiff alleges that "UPMC has engaged in a relentless campaign of anticompetitive, predatory conduct since at least 1999, and continuing through the present day, in an attempt to monopolize the Allegheny County market for acute inpatient hospital services and/or for tertiary and quaternary care services. UPMC's campaign [allegedly] has had five main prongs: (1) as described above, as part of the conspiracy with Highmark, UPMC secured Highmark's cooperation in raising West Penn Allegheny's costs, withdrawing from its earlier willingness to provide financial support and providing an artificially inflated advantage in reimbursement revenues to UPMC; (2) UPMC has restricted West Penn Allegheny's ability to cooperate with, and secure referrals from independent hospitals; (3) UPMC has tried to starve West Penn Allegheny of necessary patient referrals by raiding key admitting physicians, as well as raiding physicians such as anesthesiologists who are necessary for hospital operation; (4) UPMC has bid physician salaries to artificially inflated, supracompetitive levels; and (5) UPMC has interfered with West Penn Allegheny's bond offerings." Amended Complaint, ¶ 129.

In addition, Plaintiff alleges in the Amended Complaint that UPMC has "used its market power to coerce third parties, including the Veterans Administration Pittsburgh Healthcare System (the "VA")," a facility staffed largely by residents from UPMC. Amended Complaint, ¶ 130. Plaintiff alleges that the VA had begun to avoid using UPMC doctors to perform liver transplants at its facilities because of concerns over diversion of livers intended for VA patients to UPMC patients and UPMC's pressure on the VA to have liver transplants take place at UPMC instead of the VA's own, less costly, facilities. Amended Complaint, ¶ 131. In 2007, one of UPMC's transplant physicians who was dissatisfied with UPMC, left UPMC with the intention of joining West Penn Allegheny's liver transplant unit after the expiration of his UPMC non-compete obligations. The VA was considering hiring the physician to do liver transplants while he waited for his non-compete agreement to expire, a practice which plaintiff alleges had happened in the past (the VA had hired other physicians in the past with local non-competes on the basis that the VA and other local hospitals were not in competition with the VA for patients.) Amended Complaint, ¶ 132. In this instance, however, during his period of this physician's non-compete, UPMC complained to the VA that the doctor would be violating his non-compete agreement. The VA chairperson then allegedly responded to UPMC that the non-compete agreement would not cover the VA. Amended Complaint, ¶ 132.

UPMC further allegedly threatened to remove all of their residents from the VA's facilities if the liver transplant physician was hired. Amended Complaint, ¶¶ 132-33. As a result of UPMC's threat, the VA decided not to hire the transplant physician and West Penn Allegheny was "forced to compensate the doctor for the term of his non-compete even though he was not permitted to perform medical procedures or lose his services." Amended Complaint, ¶ 134.

"[U]PMC engaged in a ruthless and predatory campaign of physician raiding from 1999-2002 in an attempt to thwart the formation of West Penn Allegheny and to cripple, if not destroy, West Penn Allegheny as a viable competitor. That campaign has continued unabated throughout the period from 2002 through the present day." Amended Complaint, ¶ 142.

"In Summer 2002, UPMC offered a secret deal to Highmark aimed as the weakening of West Penn Allegheny: UPMC agreed to ensure Highmark's continued dominance in the health insurance sector, thus allowing Highmark to raise premiums without constraint. In exchange, UPMC not only demanded and received huge lump sum capital injections and substantially higher payment rates, but it also demanded that Highmark join in the campaign to hobble its sole viable competitor, West Penn Allegheny." Complaint, ¶ 5; Amended Complaint, ¶ 5.

"Even though Highmark original supported West Penn Allegheny with a $125 million loan because it recognized the benefits of hospital competition for the community and itself, it reversed course in exchange for UPMC's agreement not to allow its health plan to compete against Highmark and to block other insurers from achieving a footfhold in Pittsburgh. As part of its conspiracy with UPMC, Highmark systematically tilted the playing field against West Penn Allegheny. Despite West Penn Allegheny's clear cost advantages over UPMC, Highmark's agreement with UPMC led to Highmark's withdrawal of Community Blue, Highmark's low-cost insurance product that directed care to West Penn Allegheny to keep premiums down and health care affordable. See Highmark Pulling Plug on Lower Cost Health Plan, Pittsburgh Post-Gazette (March 27, 2003). As part of its conspiracy with UPMC, Highmark also kept its reimbursements to West Penn Allegheny at artificially depressed rates with the purpose of furthering UPMC's plan to drive West Penn Allegheny out of business and deny it access to the resources needed to invest in new facilities, technology, and equipment. Highmark's depressed reimbursement rates to West Penn Allegheny were in stark contrast to the excessively high rates paid to UPMC. By keeping West Penn Allegheny's rates down, Highmark was able to subsidize its overpayments to UPMC. Highmark also agreed with UPMC that Highmark would restrict its grants to West Penn Allegheny and would refuse to cooperate with any restructuring of West Penn Allegheny's finances, including Highmark's loan." Complaint, ¶6; Amended Complaint, ¶¶ 6 & 7.

After West Penn Allegheny's loan restructuring proposal was rejected in April 2005, West Penn Allegheny tried to revisit the possibility of restructuring the loan through board-to-board contacts. The Chairman of the Board of Directors of West Penn Allegheny contacted Robert Baum, the Chairman of the Board of Directors of Highmark, and the two men met on or about November 1, 2005. Amended Complaint, ¶¶ 105-06. While the two men agreed that the loan restructuring made sense, "Baum expressed concern that UPMC would retaliate either by contracting with United or by selling its health plan to United." Amended Complaint, ¶ 106.

In the summer of 2008, West Penn Allegheny's Chairman of the Board again tried to arrange a lunch with Mr. Baum; however, the meeting was canceled at the instruction of Highmark's counsel. Amended Complaint, ¶ 111. Plaintiff alleges that "[i]n 2006, Highmark rejected another proposal to restructure the debt service on the loan to West Penn Allegheny. Dr. Melani conceded this time, after years of misrepresentation, that Highmark's loans to UPMC and Jameson are on far more generous terms." Amended Complaint, ¶ 112.

"The conspiracy has taken a severe toll upon West Penn Allegheny. Despite providing equal or better care than UPMC at a lower cost to the community, Highmark agreed to withdraw its financial support of West Penn Allegheny, including keeping its reimbursement rates depressed. Moreover, the conspirators have artificially blocked and stunted West Penn Allegheny's natural growth as the high-quality and low-cost leader, resulting in lost patient volume, growth, and earnings to West Penn Allegheny. Those earnings are critical to West Penn Allegheny's charitable mission to improve the extent, scope, and quality of health care available to the Pittsburgh community. Meanwhile, as a result of the conspiracy between UPMC and Highmark, UPMC has posted profits that are dramatically disproportionate to its size. For example, for fiscal year 2006, UPMC's profits were $512 million, while West Penn Allegheny's net income was $21 million. Although UPMC is five times as large as West Penn Allegheny, its profits were 25 times those of West Penn Allegheny's. Similarly, Highmark's surplus rose from $2.8 billion in 2005 to $3.5 billion in 2007." Complaint, ¶ 7; Amended Complaint ¶ 10. Plaintiff alleges that "[t]he effects of the illegal conspiracy have continued to the present day." Complaint, ¶ 8; Amended Complaint ¶ 13.

As further proof of defendants' illegal activity, plaintiff alleges that Highmark paid inflated grants and reimbursements to UPMC that lead to UPMC's income rising from $23 million in 2002 to over $618 million in 2007. This compared to the fact that West Penn Allegheny struggled during that same period to break even. Amended Complaint, ¶ 126.

Plaintiff further alleges that this activity, namely the inflated reimbursements stopped in the summer of 2008; however, only due to the pressure of the Department of Justice's investigation into Highmark's and UPMC's illegal conspiracy. Amended Complaint, ¶ 127.

E. Plaintiff's Allegations Re: Highmark in Particular

Plaintiff makes numerous allegations against Highmark.

Plaintiff alleges that in Summer of 2002 Highmark and UPMC formed a conspiracy to eliminate competition and create what Plaintiff terms a "super monopoly" (Amended Complaint, ¶ 58). The allegations include that Highmark entered into a new multi-year participating provider agreement at highly favorable reimbursement rates for UPMC; that Highmark also agreed to stop providing assistance and support to West Penn Allegheny through discriminatory (i.e. lower) reimbursement and grant making; and that Highmark discontinued Community Blue, effective January 1, 2004, citing the need to cut administrative costs, after having stated in prior false advertising that a "key feature" of Community Blue was "that a group of hospitals have agreed to take additional discounts which allow us to price the product cheaper in the marketplace." Complaint, ¶¶ 65 and 73; Amended Complaint, ¶¶ 83 & 84. Plaintiff further alleges that as a result of this conspiracy the amount of rate discrimination has been in excess of $100 million. Amended Complaint, ¶ 121.

Plaintiff alleges that, upon information and belief, Highmark engaged in no "internal discussion or analysis" that led to the termination of Community Blue. Rather, senior management of Highmark simply announced to its employees who were managing Community Blue that the product would be discontinued. Complaint, ¶ 76; Amended Complaint, ¶ 82. According to the allegations of the Amended Complaint, Highmark's decision to end the growing low cost Community Blue product can only be explained as being necessary to achieve the benefits of the conspiracy with UPMC. Complaint, ¶ 75; Amended Complaint, ¶ 82.

Plaintiff alleges that compared to the deeply discounted Community Blue agreements between Highmark and West Penn Allegheny, UPMC's charges are "high." A study released by the Pennsylvania Health Care Cost Containment Counsel in June 2007 found that, for admissions in 2005, UPMC Presbyterian and UPMC Shadyside received an average of $34,803 for coronary artery bypass graft surgery, while AGH received only $23,715. The study also found that AGH performed better than UPMC's hospitals, with a lower readmission rate. Complaint, ¶¶ 76 and 77; Amended Complaint, ¶¶ 83 & 84.

Plaintiff further alleges that Highmark discriminated in its use of "grants" awarded to health care providers, and cites one example that in 2005 UPMC was awarded $8 million for an initiative to improve the implementation of information technology in health care (and waived the $500,000.00 cap), while Plaintiff remained limited to the cap. Complaint, ¶ 78; Amended Complaint, ¶ 125.

Plaintiff avers that, upon information and belief, Highmark "improperly" denied West Penn Allegheny proper reimbursement for emergency care services by allegedly failing to reimburse emergency care at ER rates after Allegheny Kiske Medical Center (AKMC) closed Citizens General Hospital and opened Citizens Ambulatory Care Center on the Citizens General site. Complaint, ¶ 79, Amended Complaint, ¶ 122.

Plaintiff further avers that while a Highmark Vice President agreed that it was important for the Citizens Ambulatory Care Center to remain open, Highmark could not provide full reimbursement for emergency care services provided because of issues with UPMC St. Margaret Hospital. Amended Complaint, ¶ 123. In place of receiving proper reimbursement, the Highmark Vice President urged AKMC to apply for a grant from Highmark to fund the operation of the Citizens Ambulatory Care Center, a grant that was rejected in its entirely. Amended Complaint, ¶ 124.

Plaintiff alleges that Highmark publicly supported UPMC's 2006 acquisition of Mercy Hospital, an action supposedly contrary to Highmark's self-interest, as the merger allegedly strengthened UPMC's bargaining leverage and reduced hospital competition. Complaint, ¶ 80; Amended Complaint, ¶ 85. UPMC's purchase of Mercy Hospital gives UPMC "de facto" control of "nominally independent community hospital systems" by establishing joint ventures with those hospitals including UPMC Cancer Centers, by threatening to set up satellite centers across the street from community hospitals, unless they agree to UPMC's proposal. Complaint, ¶¶ 116-117; Amended Complaint, ¶¶ 135 & 189.

Plaintiff contends that Highmark leaked confidential information provided by West Penn Allegheny to UPMC and cites as an example that in the Fall of 2006, Highmark provided confidential financial information about West Penn Allegheny to UPMC, who in turn leaked a "distorted" version of the information to credit-rating agencies and to business media in an attempt to reduce investor confidence in West Penn Allegheny. Complaint, ¶ 106; Amended Complaint, ¶ 128.

Plaintiff also contends that in Fall 2005, Highmark's Board Chairman allegedly admitted point blank to West Penn Allegheny that what Highmark had done with UPMC was "probably illegal." Complaint, ¶ 9; Amended Complaint, ¶ 8.

F. Plaintiff's Allegations Re: UPMC in Particular

1. Alleged Interference with West Penn Allegheny's Bond Offerings

Plaintiff alleges that in January, 2007, UPMC disseminated false information to investors and potential bond purchasers of West Penn Allegheny bonds and even distributed a book of information about West Penn Allegheny's finances that was printed as if it was written by West Penn Allegheny. Complaint, ¶¶ 107-108; Amended Complaint, ¶¶ 161- 164. West Penn Allegheny's investment bankers were allegedly "shocked at this conduct, which they told West Penn Allegheny was a level of deceit and underhandedness beyond anything they had ever encountered." Amended Complaint, ¶ 161.

The Amended Complaint further alleges that, upon discovery in January 2007 that UPMC had distributed its "book" of allegedly defamatory information to credit-rating agencies, West Penn Allegheny's Board Chairman called Nick Beckwith, Chairman of the Board of Directors of UPMC, and demanded that UPMC cease its "inappropriate conduct." Amended Complaint, ¶ 162. After allegedly substantiating that UPMC had in fact disseminated its "book" to the credit-rating agencies, Mr. Beckwith called West Penn Allegheny's Board Chairman and stated that, "this book is history." Amended Complaint, ¶ 163. Allegedly, Mr. Beckwith conceded that the book was "inappropriate," and "unseemly" in its mimicking of West Penn Allegheny's formatting and the style of the literature it disseminates. Amended Complaint, ¶ 163.

2. Alleged "Raiding" of Physicians

Plaintiff also alleges that UPMC "raided" West Penn Allegheny physicians by raiding cardiothoracic surgeons from AGH, multiple primary care and infectious disease physicians, orthopedists, radiologists, anesthesia groups (Pennsylvania Anesthesia Providers and Western Pennsylvania Anesthesia Associates), OB/GYN physicians, gastroenterologists on the AGH staff, and numerous other physicians and surgeons in 2002, 2003, 2005, 2006, 2008, and most recently in April 2009, with the raid of Dr. Colella, a bariatric surgeon at AGH, thereby necessitating AGH's drastic increase in salaries to levels well beyond those of the competitive market. Complaint, ¶¶ 109-115; Amended Complaint, ¶¶ 143, 144, 151-155.

As to Dr. Colella, the Amended Complaint avers that "in an internal email to UPMC CEO Mr. Romoff, UPMC senior executive Marshall Webster wrote that '[i]f he [Colella] carries through, AGH [Allegheny General Hospital] will not have a sustainable bariatrics program unless they just merge it with WP [West Penn].' To which Romoff replied: 'Excellent. AGH will merge with WP bariatrics I believe." Amended Complaint, ¶ 155. Dr. Webster further stated in an internal UPMC email that "if AGH were able to retain Dr. Colella, UPMC will have forced AGH to incur higher costs." Amended Complaint, ¶ 155.

Plaintiff alleges that physician raiding by UPMC guaranteed exceedingly high salaries without requiring the physicians to meet certain productivity targets, which is contrary to standard industry practices. Plaintiff's Amended Complaint attempts to weave in allegations of the conspiracy by alleging that UPMC's conspiracy with Highmark has been "key to paying for UPMC's predatory campaign of physician raiding. Because it has received artificially inflated reimbursement from Highmark, UPMC has had extra funds to subsidize money-losing, excessive compensation packages for physicians." Amended Complaint, ¶ 157.

Plaintiff further alleges that "in 2008, UPMC purchased the practice of a primary care physician on staff at West Penn Hospital. While this physician earned approximately $120,000 per year in private practice, UPMC hired him at a salary of roughly $500,000," an amount that was beyond what UPMC could recover from reimbursements for the physicians' services. Amended Complaint, ¶ 159. In further support of its claim of UPMC's predatory practices, Plaintiff alleges in the Amended Complaint that "in 2009, UPMC offered to employ a primary care physician on staff at AKMC for a significant salary increase while at the same time only requiring him to maintain half or a third of his current productivity level." Amended Complaint, ¶ 158.

3. Alleged Exclusive Dealing Agreements and Joint Venture Arrangements

Plaintiff avers that the UPMC Cancer Center network has restricted West Penn Allegheny's ability to gain referrals from community hospital oncology departments and that "[s]ophisticated tertiary and quaternary care facilities such as AGH rely on community hospitals for referrals of complex, difficult cases." Amended Complaint, ¶ 138. "The UPMC Cancer Center network functions as a group of exclusive dealing agreements between UPMC and the affected community hospitals. By housing a UPMC Cancer Center, each community hospital has ceded control over tertiary and quaternary care referrals to UPMC, which in turn refers cases almost always to its own tertiary and quaternary care facilities at Presbyterian and Shadyside hospitals. West Penn Allegheny has accordingly been foreclosed from providing care to these patients." Amended Complaint, ¶ 139. "Moreover, UPMC has used its Cancer Centers to block West Penn Allegheny from developing clinical relationships with community hospitals in fields outside of oncology." Amended Complaint, ¶ 141.

Plaintiff further avers that UPMC has taken "de facto" control of independent community hospital systems by threatening to set up rival UPMC satellite facilities adjacent to them unless they consented to enter into "joint ventures" with those hospitals including UPMC cancer centers, and this tactic has resulted in UPMC forming "joint ventures" with or placing a UPMC cancer center within nearly every community hospital systems (except those owned by West Penn Allegheny) in the six-county Pittsburgh metropolitan area. Complaint, ¶¶ 116-117; Amended Complaint, ¶¶ 135 and 189.

4. Alleged Anticompetitive Acquisitions

Plaintiff avers that "UPMC has grown its market power through a series of anticompetitive acquisitions." Amended Complaint, ¶ 189. With the purchase of Mercy Hospital in 2006, which was the only other sophisticated tertiary care facility in Pittsburgh not owned by UPMC or West Penn Allegheny, West Penn Allegheny is now the only remaining competitor for many of the "most sophisticated and expensive hospital services." Complaint, ¶ 116; Amended Complaint, ¶ 189.

G. Plaintiff's Inconsistent Factual Allegations

West Penn Allegheny is inconsistent in describing the damages sustained as a result of the alleged conspiracy between UPMC and Highmark. On one hand, West Penn Allegheny alleges that it suffered financial hardship and has a need for capital (Amended Complaint, ¶¶ 203, 204 & 205) while also admitting that it has experienced an increase in unrestricted cash of $54 million between June 2001 and June 2005, an increase in revenue of $362 million between 2000 and 2005 and a threefold increase in EBITDA (earnings before interest, taxes, depreciation and amortization) of $80 million between 2000 and 2005. Amended Complaint, ¶ 206.

Plaintiff further alleges that it was able to provide a sophisticated, high level of care to its patients. Amended Complaint, ¶ 214. At the same time, Plaintiff alleges that it could not provide proper care to its patients because it was unable to invest in and expand its oncology, cardiology, orthopedic and neurology programs. Amended Complaint, ¶ 210. Plaintiff further alleges that it was unable to invest in technology, thus decreasing the level of patient care. Amended Complaint, ¶ 210. In addition, Plaintiff alleges it was unable to integrate resources between its facilities at AGH and WPH, a situation that further compromised the level of patient care. Amended Complaint, ¶ 211. Finally, Plaintiff points to its inability or delay in being able to expand its facilities at Alle-Kiski Medical Center (AKMC) Emergency Department as a factor in being unable to provide adequate patient care. All of these statements are inconsistent West Penn Allegheny's allegation that it was able to provide sophisticated, high level care.

In its statement of Damages, Plaintiff further contends that none of its inefficiencies were a result of poor operating performance. Amended Complaint, ¶ 206. This, despite the fact that West Penn Allegheny admits that it provided duplicate services at its facilities at AGH and WPA, a condition that was costly and without doubt affected the financial and operational performance of West Penn Allegheny. Amended Complaint, ¶ 211.

Plaintiff also alleges that it was able to provide equal or better care than UPMC at a lower cost to the community. Complaint, ¶ 7; Amended Complaint, ¶ 10. Yet, Plaintiff later avers that its growth as the high-quality, "low-cost leader" has been stunted and its market share restricted. Complaint, ¶ 147; Amended Complaint, ¶ 202. Despite these allegations, West Penn Allegheny admits that the closure of Citizens General hospital caused such an influx of patients that it needed to expand its emergency facilities at AKMC. Amended Complaint, ¶ 212. This statement would indicate that, at least in the Alle-Kiski area, business was and is growing and its market share was and is increasing. Complaint, ¶ 147; Amended Complaint, ¶ 202.


A. Claims under Section 1 of the Sherman Act (Illegal Agreements) and Section 2 of the Sherman Act (Conspiracy to Monopolize) Against UPMC and Highmark (Counts I and II)

West Penn Allegheny alleges in Count I of the Amended Complaint that UPMC and Highmark have entered into an illegal conspiracy to protect UPMC and Highmark from competition and raise operating costs for West Penn Allegheny in violation of Section 1 of the Sherman Act. Complaint, ¶ 151; Amended Complaint, ¶ 222. Count II of the Amended Complaint alleges that UPMC and Highmark have entered into a conspiracy to allow each company to monopolize its respective market in violation of Section 2 of the Sherman Act. Complaint, ¶ 156; Amended Complaint, ¶ 128. West Penn Allegheny alleges that UPMC refused to contract on competitive terms with Highmark competitors, or to grow or sell the UPMC Health Plan. Complaint; ¶ 158, Amended Complaint, ¶ 231. Highmark allegedly discriminated in reimbursement rates and grants in favor of UPMC, and discontinued its Community Blue product to benefit UPMC. Complaint, ¶¶ 73-75, 159; Amended Complaint, ¶¶ 79-82, 232. Plaintiff posits that Defendants had a goal for UPMC to monopolize the market for healthcare services, and for Highmark to monopolize the market for healthcare insurance. Complaint, ¶ 156; Amended Complaint, ¶ 228.

B. Claims under Section 2 of the Sherman Act (Attempt to Monopolize) Against UPMC (Count III)

Count III of the Amended Complaint alleges that UPMC attempted to monopolize the relevant markets in violation of Section 2 of the Sherman Act. Complaint, ¶ 162; Amended Complaint, ¶ 235. According to the Amended Complaint, UPMC acted unlawfully through "predatory hiring and recruitment practices," Complaint ¶¶ 26-47; Amended Complaint, ¶¶ 22-25, 37-41, and through its dissemination of "false and misleading" information regarding West Penn Allegheny's finances to dissuade investors from investing in West Penn Allegheny bonds. Complaint ¶ 29; Amended Complaint, ¶ 24.

Plaintiff alleges that UPMC has attempted to monopolize the market for acute inpatient services and/or high-end tertiary and quaternary acute care inpatient services in Allegheny County; and that UPMC had a specific intent to monopolize the market, an intent that was evidenced by UPMC's CEO Jeffrey Romoff, who allegedly publicly stated his belief that competition in health care does not work. According to the Amended Complaint, the alleged statements of UPMC executives that they want to turn AGH into a "nursing home or a parking lot" is further evidence of its intent. Complaint, ¶ 163; Amended Complaint, ¶ 236.

The Amended Complaint further alleges that UPMC has engaged in predatory conduct in support of this goal including entering into an illegal market allocation agreement with Highmark, engaging in a nearly decade-long pattern of predatory physician raiding, and interfering with West Penn Allegheny's attempts to secure financing by setting forth false and misleading information to investors, and the anticompetitive acquisition of Mercy Hospital in 2006. Complaint, ¶ 164; Amended Complaint, ¶237.

The Amended Complaint also alleges that there is "a dangerous probability that UPMC will achieve monopoly power. . . [s]hould West Penn Allegheny falter or weaken significantly." Complaint, ¶ 165; Amended Complaint, ¶ 239.

C. Claims under State Law Against UPMC (Counts IV and V)

Counts IV and V of the Amended Complaint allege two state law claims against UPMC -- namely, "employee raiding" and unfair competition, and tortious interference with existing and prospective business relations -- based on the same allegations underlying its federal antitrust claims. Complaint, ¶¶ 168-74; Amended Complaint, ¶ 242-48.

The "employee raiding" component is based upon the allegations set forth hereinabove regarding UPMC's raiding of West Penn Allegheny physicians with the alleged intent of "crippling" West Penn Allegheny as a competitor. The Amended Complaint listed numerous physicians raids beginning in 2002 (Complaint ¶ 109; Amended Complaint, ¶ 143), and continuing in 2003, 2005, 2006, 2008 and most recently in April of 2009, with Dr. Colella. Complaint, ¶ 107-119; Amended Complaint, ¶¶ 135-37, 143, 144, 151-55, 161, 164. West Penn Allegheny alleges that all of the "raided" physicians were offered exorbitant artificially inflated compensation, an act that was done with the intent of driving West Penn Allegheny out of business. Complaint, ¶ 174; Amended Complaint, ¶ 248.

Plaintiff alleges that UPMC interfered with the terms of a series of participator provider agreements between West Penn Allegheny and Highmark, by pressuring Highmark to provide discriminatory lower reimbursement rates to West Penn Allegheny, by threatening to expand or sell its health insurance arm, or contract with a Highmark competitor. Amended Complaint, ¶ 252.

Plaintiff further alleges that UPMC has tortiously interfered with plaintiff's prospective business relationships with bond investors in Spring, 2007, by making false statements to potential investors about Plaintiff's finances and circulating an allegedly "defamatory fake financial report designed to appear as if written by West Penn Allegheny," without privilege or justification, and that West Penn Allegheny has been damaged by UPMC's conduct. Complaint, ¶ ¶ 181-184; Amended Complaint, ¶ ¶ 255-258.


A. Plaintiff's Allegations Re: Damages*fn3

According to the Amended Complaint, Defendants' illegal and predatory conduct has inflicted "severe damage" upon West Penn Allegheny. Complaint, ¶ 146; Amended Complaint, ¶ 201.

West Penn Allegheny alleges that the conspiracy between UPMC and Highmark has artificially stunted the growth of West Penn Allegheny and its market share has been unduly restricted. Without the existence of the conspiracy, West Penn Allegheny posits that its "market share would be substantially higher and it would have earned additional profit - - profits which it could have reinvested back into its operations to improve the quality of health care in the community and to further its charitable mission." Complaint, ¶ 147; Amended Complaint, ¶ 202.

"As described above, the conspirators attacked West Penn Allegheny by starving it of the capital needed to grow and to expand. This was achieved by inflating West Penn Allegheny's financing and other costs and keeping reimbursement paid to West Penn Allegheny at levels far below that paid to UPMC." Amended Complaint, ¶ 203.

"Significant capital investment is a prerequisite to competing in the market for acute care inpatient services. Capital investment is necessary to modernize and expand already existing hospital facilities and programs and to develop new high-end/high-return tertiary and quaternary programs that ...

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