United States District Court, W.D. Pennsylvania
PRESQUE ISLE COLON AND RECTAL SURGERY, on Behalf of Itself and All Others Similarly Situated, Plaintiff,
HIGHMARK HEALTH, HIGHMARK INC. f/k/a HIGHMARK HEALTH SERVICES, and HIGHMARK CHOICE COMPANY f/k/a KEYSTONE HEALTH PLAN WEST, INC., Defendants.
ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANTS' MOTION TO DISMISS
BARBARA J. ROTHSTEIN, UNITED STATES DISTRICT JUDGE.
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.
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.
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
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.
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 ¶
is comprised of three Pennsylvania corporations that provide
health insurance coverage to its members under various
healthcare plans, including PPOs, HMOs, and ACA-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." Dkt. No. 35 at
2-3 (internal citations removed). Insurers, such as Highmark,
are then considered buyers of physician services.
Id. (internal citations removed).
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 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).
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 ¶
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. 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.
The Current Dispute and The Court's Previous Order
granting Motion to Dismiss
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 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.
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
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.
Amended Complaint and Motion to Dismiss
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).
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. 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.
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,
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.
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
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.
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)).
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.
central argument is that the amended complaint fails to
adequately plead an antitrust injury. Thus, the Court will begin
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.
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.
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 . . .").
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)).
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.
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. 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
Plaintiff Pleads Injury of the Type the Antitrust Laws Were
Intended to Prevent
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)).
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.
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
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
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.
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