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Presque Isle Colon and Rectal Surgery v. Highmark Health

United States District Court, W.D. Pennsylvania

July 22, 2019

PRESQUE ISLE COLON AND RECTAL SURGERY, on Behalf of Itself and All Others Similarly Situated, Plaintiff,




         The matter before the Court is Defendants Highmark Health, Highmark Inc., and Highmark Choice Company's (collectively "Highmark") second motion to dismiss. Plaintiff Presque Isle Colon and Rectal Surgery ("Plaintiff) instituted this action against Highmark alleging in its original complaint that Highmark violated Sections 1 and 2 of the Sherman Antitrust Act as well as Pennsylvania's antitrust laws, breached the parties' contract and implied covenant of good faith and fair dealing, and was unjustly enriched. Dkt. No. 1. Highmark then moved to dismiss Plaintiffs claims, arguing that Plaintiff failed to sufficiently allege a violation of the federal antitrust laws. Dkt. No. 17. This Court agreed with Highmark and dismissed largely for failure to sufficiently set forth a federal antitrust violation but granted plaintiff leave to amend its federal law claims and replead its pendent state and common law claims. Dkt. No. 35.

         Plaintiff filed an amended complaint on December 3, 2018. Dkt. No. 42. In it, Plaintiff reasserts its claims as to Highmark's violations of the Sherman Antitrust Act, Pennsylvania's antitrust laws, and Pennsylvania common law causes of action including unjust enrichment, breach of contract and covenant of good faith and fair dealing, and reformation or rescission. Dkt. No. 42. Currently before the Court is Highmark's motion to dismiss the amended complaint in its entirety, pursuant to Federal Rule of Civil Procedure 12(b)(6), arguing that the amended complaint still fails to state a claim on which relief can be granted. Dkt. No. 47.

         Having reviewed the motion to dismiss the amended complaint, the opposition thereto, the record of the case, and the relevant legal authorities, the Court will GRANT in part and DENY in part the motion. Specifically, the Court will grant the motion as to Plaintiffs Section 1 and related Pennsylvania common law claims, as well as its claims of unjust enrichment and breach of contract. The Court will deny, however, the motion as to Plaintiffs Section 2 and related Pennsylvania common law claims, as well as its claims for breach of implied covenant of good faith and fair dealing and reformation and rescission. The Court's reasoning follows:


         The Court assumes familiarity with the facts of this case, as described in the Court's September 6, 2018 Memorandum Order granting the Highmark's first motion to dismiss for failure to state a claim. Dkt. No. 17. For clarity's sake, however, the Court will reiterate some of the salient facts, as pled in the amended complaint. Dkt. No. 42.

         A. The Parties

         Plaintiff operates an independent physician-run medical practice organized under the laws of Pennsylvania and located in Erie County, Pennsylvania, part of the Erie County Metropolitan Statistical Area ("MSA"). Dkt. No. 42 at ¶ 14.[1]

         Highmark is comprised of three Pennsylvania corporations that provide health insurance coverage to its members under various healthcare plans, including PPOs, HMOs, and ACA[2]-compliant private health insurance plans. Id. at ¶¶ 15-17; Dkt. No. 47 at 3. In the healthcare industry, medical service providers, such as Plaintiff, are considered sellers because while they provide care to patients they sell their services to insurers, like Highmark, in exchange for contractually determined "reimbursements."[3] Dkt. No. 35 at 2-3 (internal citations removed). Insurers, such as Highmark, are then considered buyers of physician services. Id. (internal citations removed).

         Highmark is one of the largest health insurers in the Commonwealth of Pennsylvania, with "more than 4 million covered lives." Dkt. No. 42 at ¶¶ 2, 42; Dkt. No 47 at 3 n.3. Plaintiff alleges that Highmark is the "dominant" health insurer in the region, insuring at least 65% of ■ health insurance enrollees in Western Pennsylvania[4] and far in excess of 65% of enrollees in the Erie County MSA. Dkt. No. 42 at ¶¶ 2, 43. Additionally, Plaintiff contends that Highmark "controls commensurate shares of reimbursements" to independent physicians in both the Erie County MSA and Western Pennsylvania based on the assertion that it is "responsible for 'buying'" at least 65% of the outpatient physician services to insured patients in Western Pennsylvania and "well in excess" of 65-70% of the same services in the Erie County MSA. Id. at ¶¶ 3, 43. Thus, Plaintiff asserts, "Highmark is both the largest health insurer and the, largest buyer of outpatient physician services in these areas." Id. at ¶ 3 (emphasis in original).

         In addition to its health insurance business, Highmark recently entered the outpatient physician services market by acquiring several hospitals and other healthcare facilities. Id. at ¶¶ 4, 46. Highmark now controls St. Vincent Hospital, which Plaintiff explains is the "largest' hospital system in Erie." Id. at ¶ 4. Plaintiff also reports that Highmark has announced plans to build or operate at least four other facilities in Pennsylvania. Id. at ¶ 4 n.2.

         In 2011, Plaintiff and Highmark signed a Professional (or Participating or Preferred) Provider Agreement ("PP A"), in which Plaintiff agreed to render medical care to Highmark-covered patients and Highmark, in turn, agreed to pay, or "reimburse," Plaintiff for its services. Dkt. No. 42-1; see also Dkt. No. 42 at ¶¶ 14, 59-61.[5] The PPA governs the reimbursement terms between the parties and includes two relevant clauses to the instant case. First, the PPA provides for a variable reimbursement rate, in which "allowances [paid to specialist] may be reviewed and adjusted from time to time during the Term." Dkt. No. 42-1 at Att. 6.1 § 4.2; see also Dkt. No. 42 at ¶ 60. Second, the PPA contains an "all products" clause, through which Plaintiff agreed to treat patients enrolled in any insurance product offered by Highmark (the "All Products Clause"). Dkt. No. 42-1 at § 4.1; see also Dkt. No. 42 at ¶¶ 13, 61.[6]

         B. The Current Dispute and The Court's Previous Order granting Motion to Dismiss

         Relations between the parties deteriorated when Highmark implemented a 4.5% "across-the-board" reimbursement rate cut effective April 1, 2016, for outpatient services rendered to patients covered by one of Highmark's ACA-compliant healthcare plans. Dkt. No. 42 at ¶¶ 10, 65, 164. Plaintiff instituted the instant action on May 11, 2017, alleging antitrust violations of both Section 1, 15 U.S.C. § 1, and Section 2, id. at § 2, of the Sherman Antitrust Act, as well as related Pennsylvania common law causes of action. Dkt. No. 1. Plaintiffs original complaint focused on the PPA, alleging that it constitutes an unreasonable restraint of trade under Section 1, Dkt. No. 1 at ¶¶ 111-12, 126-27, and that Highmark maintains and abuses monopsony[7] power by combining the reimbursement rate cuts with the All Products Clause to "forc[e] upon independent physician" an "anticompetitive scheme." Dkt. No. 35 at 6 (internal quotations and citations removed). As stated above, Highmark moved to dismiss the original complaint for failure to state a claim, which this Court granted in a written decision dated September 6, 2018 ("hereinafter, "the September Order"). Dkt. Nos. 17 and 35.

         The September Order focused on Plaintiffs Section 1 and 2 claims. In regard to the Section 1 claim, the Court held that Plaintiff failed to allege an "agreement" which is required to satisfy Section 1 's prohibition against "agreements] that unreasonable restrain trade." Dkt. No. 35 at 9 (emphasis in original). With respect to the Section 2 claims, the Court held that Plaintiff failed to satisfy both the requirements of antitrust injury and the substantive requirements of Section 2, which prohibits "unlawful monopsony" and attempted monopsony. Id. at 9-16. This Court's reasoning rested on the conclusion that a unilateral depression of reimbursement rates "does not, on its own, run afoul of § 2." Id. at 10. As this Court stated, "absent 'special circumstances, where, for example, a price is below incremental cost,' there is no harm to the market, i.e., there is no 'antitrust injury." Id. at 11 (emphasis in original) (quoting Kartell v. Blue Shield of Massachusetts, 749 F.2d 922, 927 (1st Cir. 1984), cert, denied, 471 U.S. 1029 (1985)); see also W. Perm Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85, 103 (3d Cir. 2010) ("West Penn")). Therefore, this Court dismissed the complaint with leave to amend.

         As both parties have noted in their briefing, see, e.g., Dkt. No. 48 at 1-2, the Court invited Plaintiff in its repleading to address how (1) Highmark's acquisition of Saint Vincent enhanced its unlawful monopsony as a health insurer and (2) Highmark treats independent physicians differently from Highmark-acquired hospitals, Dkt. No. 12-13. In addition, this Court instructed Plaintiff to provide a "breakdown of [its] insured, non-insured, and ACA-insured patients," as well as additional business-related information, necessary to support a predatory pricing claim. Id. at 13-14.

         C. Amended Complaint and Motion to Dismiss

         Plaintiff has now provided an amended complaint. Dkt. No. 42. Plaintiff still advances causes of action under Section 1 of the Sherman Antitrust Act (Counts 5 and 7) and related Pennsylvania common law antitrust claims (Counts 6 and 8); Section 2 of the Sherman Antitrust Act (Counts 1 and 3) and related Pennsylvania common law antitrust claims (Counts 2 and 4); and Pennsylvania common law causes of action for Unjust Enrichment (Count 9), Breach of Contract and Implied Covenant of Good Faith and Fair Dealing (Count 10), and Reformation or Recission (Count 11).

         The most immediate difference between the original complaint and the amended complaint is that Plaintiff has refashioned its Section 1 claim as an "unlawful tying" claim, in which it claims Highmark restrained trade by "unlawfully tying" reimbursements "under any of its health insurance products to the reimbursement of the same under any of its other health insurance product" through the All Products Clause. Id. at ¶ 119.[8] Additionally, Plaintiff revised large sections of its Section 2-related allegations in an attempt to address some of this Court's concerns highlighted in the September Order.

         Plaintiff now contends that Highmark's reduction in reimbursements rates "has led, and will continue to lead," to a reduction in the quantity and quality of outpatient physician services, including colorectal services in both the Erie County MSA and Western Pennsylvania. Dkt. No. 42 at ¶ 5. Specifically, Plaintiff claims that "predatorily reduced reimbursement rates to below independent physicians' costs" will result in such physicians going out of business, reducing the quantity of such services available to patients, and that Highmark has not imposed the same rate reductions on physicians working at Highmark-controlled facilities. Id. at ¶ 6. Further, according to Plaintiff, rate reductions will also result in a degradation of quality of services available to patients as independent physicians will "cease performing better, higher-quality procedures with favorable patient outcomes." Id. at ¶ 7. Plaintiff also alleges that at the same time Highmark cut reimbursement rates, it simultaneously raised premium rates for enrollees, for example increasing rates for Highmark ACA plans between 20.1%-21.5% in 2016 and 48.1%, "or more," in 2017. Id. at 9-10, 44.

         In addition to "predatorily depressed reimbursement rates," Plaintiff now adds "other anticompetitive conduct," which it contends is "designed to raise [Plaintiffs] costs, harm their [sic] business [], or impede their [sic] ability to compete against Highmark-controlled outpatient physician services." Dkt. No. 42 at ¶ 12. This alleged conduct includes (1) an "extraordinary number of so-called 'audits, '" which Plaintiff contends are pretextual attempts to "claw-back" fairly earned reimbursements and interfere with quality of care, (2) steering patients away from Plaintiff in favor of Highmark's own outpatient services, and (3) instituting procedure codes that "result in gross inefficiencies," including forcing Plaintiff to perform multiple procedures where it could perform just one, resulting in "inconvenience and burden on [Plaintiffs] patients." Dkt. No. 42 at ¶¶ 12, 49-58. Plaintiff contends that independent physicians are unable to avoid this anticompetitive conduct based on the All Products Clause, which forces physicians "to accept reimbursement from all of Highmark's health insurance products or none at all." Id. at ¶ 13. Independent physicians, according to Plaintiff, cannot forgo treating Highmark patients because of the insurers' dominance in the relevant markets. Id. at ¶¶ 13, 59-66. As a result, Plaintiff claims it has "lost approximately $200, 000 to $300, 000 annually." Id. at ¶¶ 11, 47.

         As stated above, Highmark moves to dismiss the amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), arguing that it still fails to state a claim upon which relief can be granted.


         A Rule 12(b)(6) motion tests the legal sufficiency of claims asserted in a complaint. To survive such a motion, a plaintiff must plead "sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is "facially plausible" when the plaintiff pleads sufficient facts for a court to "draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678. In determining whether a complaint "states a plausible claim for relief," the reviewing court must "draw on its judicial • experience and common sense." Id. at 679.

         When considering a motion to dismiss, a court must '"accept all factual allegations as true and construe the complaint in the light most favorable to the plaintiff" Estate of Roman v. City of Newark, 914 F.3d 789, 795 (3d Cir. 2019) (quoting Warren Gen. Hosp. v. Amgen Inc., 643 F.3d 77, 84 (3d Cir. 2011)). At the same time, the court is "not compelled to accept 'unsupported conclusions and unwarranted inferences.'" Baraka v. McGreevey, 481 F.3d 187, 195 (3d Cir. 2007) (quoting Schuylkill Energy Res., Inc. v. Pennsylvania Power & Light Co., 113 F.3d 405, 417 (3d Cir. 1997)). Nor is it compelled to accept '"a legal conclusion couched as a factual allegation.'" Id. (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)).

         IV. ANALYSIS

         The central thrust of Highmark's renewed motion to dismiss is that Plaintiffs amended complaint is long on conclusory statements and short on factual allegations. See, e.g., Dkt. No. 47 at 2 ("Plaintiffs Amended Complaint fails to state an antitrust claim because, among its generalized grievances, there are no allegations of reduced competition that increase prices or harm consumers."). Highmark is largely correct. Plaintiffs amended complaint contains many assertions regarding the degradation of quality and quantity of outpatient physician services in the relevant markets and the harm that "has and will result," Dkt. No. 42 at ¶ 6, but provides little by way of specific factual allegations regarding the alleged harm to the market in general (e.g. other independent physician practices) or patients. However, construing the amended complaint most favorably to Plaintiff as this Court is required to do at this nascent stage of the litigation, as is discussed in detail below, the Court concludes that most of Plaintiff s claims survive Highmark's motion to dismiss.

         Highmark's central argument is that the amended complaint fails to adequately plead an antitrust injury.[9] Thus, the Court will begin there.[10]

         A. Antitrust Injury

         Section 4 of the Clayton Act enables a private plaintiff "who shall be injured in his [or her] business or property by reason of anything forbidden in the antitrust laws" to sue for treble damages. 15 U.S.C. § 15. "While the statutory language of [Section 4] is broad," the Supreme Court and the Third Circuit have recognized that "plaintiffs must also have 'antitrust standing.'" Lifewatch Servs. Inc. v. Highmark Inc., 902 F.3d 323, 341 (3d Cir. 2018) (quoting Hanover 3201 Realty, LLC v. Vill. Supermarkets, Inc., 806 F.3d 162, 171 (3d Cir. 2015). Antitrust standing differs from Article III constitutional standing in that it is "prudential." Phila. Taxi Ass'n, Inc v. Uber Techs., Inc., 886 F.3d 332, 338 (3d Cir.), cert, denied, 139 S.Ct. 211 (2018) ("Phila. Taxi"); Ethypharm S.A. France v. Abbott Labs., 707 F.3d 223, 232 (3d Cir. 2013). "It does not affect the subject matter jurisdiction of the court, as Article III standing does, but prevents a plaintiff from recovering under the antitrust laws." Ethypharm S.A. France, 707 F.3d at 232.

         Antitrust injury, in turn, is a "necessary but insufficient condition of antitrust standing." Barton & Pittinos, Inc. v. SmithKline Beecham Corp., 118 F.3d 178, 182 (3d Cir. 1997) (citing In re Lower Lake Erie Iron Ore Antitrust Litig., 998 F.2d 1144, 1166 (3d Cir. 1993)); see also Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 110 n.5 (1986) ("A showing of antitrust injury is necessary, but not always sufficient, to establish standing under § 4, because a party may have suffered antitrust injury but may not be a proper plaintiff under § 4 for other reasons."). Establishment of an antitrust injury is meant to advance the goals of antitrust law- "protecting] competition, not competitors," Phila. Taxi, 886 F.3d at 338 (emphasis is original)- by ensuring "that the harm claimed by the plaintiff corresponds to the rationale for finding a violation of the antitrust laws in the first place," Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 342 (1990); West Penn, 627 F.3d at 101.

         To establish antitrust injury, a "plaintiff must do more than show that it would have been better off absent the violation." West Penn, 627 F.3d at 101 (citing Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977)). Rather, a plaintiff must prove that it suffered an "injury of the type the antitrust laws were intended to prevent" and that the injury "flows from that which makes defendants' acts unlawful." Brunswick Corp., 429 U.S. at 489; Race Tires Am., Inc. v. Hoosier Racing Tire Corp., 614 F.3d 57, 76 (3d Cir. 2010) ("the injury prong requires: (1) harm of the type the antitrust laws were intended to prevent; and (2) an injury to the plaintiff which flows from that which makes defendant's acts unlawful") (internal quotations and citation removed). Plaintiff bears the burden of this showing. See Phila. Taxi, 886 F.3d at 343 ("the plaintiff must prove . . .").

         At this early stage, the pleading standard is permissive; indeed, as the Third Circuit has recognized, "[t]he existence of antitrust injury is not typically resolved through motions to dismiss." Schuylkill Energy Res., 113 F.3d at 417) (citing Brader v. Allegheny Gen. Hosp., 64 F.3d 869, 876 (3d Cir. 1995). An antitrust plaintiff is only required to "allege facts capable of supporting a finding or inference that the purported anticompetitive conduct produced" the purported harm. In re Remicade Antitrust Litig., 345 F.Supp.3d 566, 577 (E.D. Pa. 2018) (quoting In re EpiPen (Epinephrine Injection, USP) Mktg, Sales Practices & Antitrust Litig, No. 17-2785, 2017 WL 6524839, at *15 (D. Kan. Dec. 21, 2017)).

         Highmark claims that Plaintiff has failed to meet even this low standard in its amended complaint. It moves the Court to dismiss based largely on the contention that the Plaintiff has advanced only "purely conclusory" allegations of reduced output and quality and that these allegations are "unsupported by any factual allegations" showing harm to competition or consumers. Dkt. No. 47 at 7. Further, it alleges that Plaintiff has failed to adequately plead injury stemming from anticompetitive conduct based on a summary claim of a "$200-300, 000 annual loss." See Dkt. No. 47 at 10-11.

         Plaintiff replies that it has sufficiently alleged antitrust injury based on pleading that Highmark's anticompetitive conduct, including predatorily low reimbursement rates for outpatient services, unnecessary audits, unfair steering of patients away from independent physicians, and inefficient procedure codes and requirements, leaves patients with "no choice but to turn to inferior, more costly services" and independent physicians with "no choice but to endure Highmark's" anticompetitive actions or go out of business.[11] Dkt. No. 48 at 2, 4-6. For the reasons stated below, the Court finds that Plaintiff has alleged a sufficient antitrust injury to establish its antitrust standing.

         1. Plaintiff Pleads Injury of the Type the Antitrust Laws Were Intended to Prevent

         To establish an antitrust injury, a plaintiff must allege an injury that is "the type the antitrust laws were intended to prevent." Brunswick Corp., 429 U.S. at 489. This inquiry involves identifying the alleged anticompetitive conduct and determining whether that conduct injured "consumers or [] competition in general." See Phila. Taxi, 886 F.3d at 344; see also Id. at 339 ("[a]negations of purportedly anticompetitive conduct are meritless if those acts would cause no deleterious effect on competition"). To determine whether conduct is anticompetitive, the court must look at the conduct "as a whole rather than considering each aspect in isolation." LePage's Inc. v. 3M, 324 F.3d 141, 162 (3d Cir. 2003) (en banc) (citing Cont'l Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 699 (1962)); see also Phila. Taxi, 886 F.3d at 339. From there, the alleged injury must be "attributable to an anti-competitive aspect of the practice under scrutiny." Atl. Richfield Co., 495 U.S. at 334; West Penn, 627 F.3d at 101. As such, the court must "examine the causal connection between the purportedly unlawful conduct and the injury" claimed to the market and consumers. Lifewatch Servs. Inc., 902 F.3d at 342 (quoting City of Pittsburgh v. W. Penn Power Co., 147 F.3d 256, 265 (3d Cir. 1998)).

         Highmark contends that Plaintiff has failed to allege "a single example of an actual reduction in the delivery of outpatient physician services or any reduction in competition," Dkt. No. 47 at 7, or harm to consumers, id. at 9-10. For example, Highland contests that patients will be forced to "turn to inferior, more costly services from Highmark-controlled facilities," Dkt. No. 48 at 2, by claiming that there are "no factual allegations ... to suggest that patient choice has been reduced or that St. Vincent Hospital's services are inferior to Plaintiffs [services]," Dkt. No. 49 at 5. In sum, the thrust of Highmark's arguments is that Plaintiff has still failed to allege anticompetitive conduct and that such conduct led to harm to competition or consumers.

         Plaintiff replies that the amended complaint adequately alleges antitrust injury based on the addition of further alleged anticompetitive conduct, which supplemented Plaintiffs original complaint of predatorily low reimbursement rates, including unnecessary audits, unfair steering, and inefficient procedure codes and requirements. Dkt. No. 48 at 2, 4-6.

         As it is the complaint that must "state[] a plausible claim for relief," the Court examines the amended complaint critically to see if it has met the minimal standard necessary to survive a motion to dismiss. Iqbal, 556 U.S. at 679 (citing Twombly, 550 U.S. at 556). The central contention of the amended complaint remains Plaintiffs allegations of predatorily low reimbursement rates and independent physicians' inability to escape or bargain around such cuts based on Highmark's claimed monopsony. As the Court previously held in the September Order, Plaintiffs allegations regarding rate reductions, even when coupled with the All Products Clause, do not suffice to establish antitrust injury or a substantive claim under Section 2. See Dkt. 35 at 10-14 (holding that there is no "harm to the market when insurers, even with monopsony power, "contractually extract, and then pay, noncompetitive prices to medical providers") (citing Kartell, 749 f.2d at 927)) (emphasis in original).

         In its amended complaint, however, Plaintiff has added substantive claims of additional anticompetitive conduct that it alleges has and will continue to cause adverse effects on competition and consumers. First, Plaintiff claims it and other independent physicians have been subjected to unnecessary audits as a means to "claw-back" previously disbursed reimbursements that "interfere with treatment decisions." Dkt. No. 42 at ¶¶ 12, 49-50. Plaintiff claims that Highmark "does not subject physicians working at Highmark-controlled facilities to the same scrutiny." Id. at ¶ 12. These audits hurt independent physicians by "rais[ing] [physicians'] costs" and "diverting resources away from providing outpatient colorectal services to patients." Id. at ¶ 50.

         Second, Plaintiff alleges that Highmark subjects independent physicians to inefficient procedure codes and requirements. Dkt. No. 42 at ¶ 51. These procedure codes have forced Plaintiff to schedule patients for two different "procedures," where one would suffice, subjecting patients to "inconvenience and burden" not to ...

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