The United States District Court for the Southern District of
Ohio has unsealed its summary judgment opinion in The Medical
Center at Elizabeth Place v. Premier Health Partners. The
Court granted summary judgment in favor of the
defendants—four hospital systems that operated pursuant to a
joint operating agreement that granted operational and financial
control of their hospitals to a joint operating company. The
plaintiff, a 26-bed adult acute-care hospital, argued that the four
hospital systems and the joint operating company should be viewed
as separate entities under Sherman Act § 1 and that managed
care contracts negotiated by the joint operating company on behalf
of the hospital systems that allegedly harmed the plaintiff were a
per se illegal group boycott.
Rejecting the plaintiff's arguments, the Court ruled that the
hospitals and the joint operating company were a single entity for
purposes of Section 1 of the Sherman Act. The Court's opinion
provides guidance for the treatment of joint ventures as a single
entity for antitrust purposes even where there is no common sharing
of assets. It also provides additional authority for the conclusion
that sufficient steps taken to ensure contractual control and
sharing of revenues should be sufficient to establish joint
economic interests and therefore a single entity.
Background
The defendants are participants in a joint operating agreement
to manage the delivery of healthcare services in the Dayton area,
giving the operating company (Premier Health Partners, or
"Premier") operational control and oversight over four
health systems, their subsidiary hospitals, and their employed
physicians. The systems could not merge because one of them was a
Catholic hospital that was required to retain its Catholic
identity. The participants retained their separate legal identities
and title to all of their assets, but they delegated operational,
strategic, and financial control to Premier, including developing
and overseeing implementation of the systems' strategic plans,
budgets, and business plans. Critical for this case, Premier also
conducted managed care contracting on behalf of the participants,
negotiating and entering into payor contracts that bound all of the
hospital participants. All joint venture income or loss was
combined into a common bottom line and shared according to the
terms of the joint operating agreement, independent of each
particular hospital participant's revenue or
profitability.
In rejecting the plaintiff's argument that common stock or
asset ownership was required to create a single entity, the court
adhered to the Supreme Court's guidance in its 1984
Copperweld decision: "substance, not form, should
determine whether a separately incorporated entity is capable of
conspiring under Section 1." Copperweld held that a
parent and its wholly owned subsidiary always constituted a single
entity for Section 1 purposes, because their economic interests are
aligned, "so agreements among them do not suddenly bring
together economic power that was previously pursuing divergent
goals." In its 2010 American Needle decision, the
Supreme Court returned to the question of plurality, examining
whether NFLP, a venture among NFL teams to develop, market, and
license their separately-held intellectual property, was a single
entity or whether the teams were separate entities. The Court held
that NFLP was not a single entity because it joined together
"separate economic actors pursuing separate economic
interests"—not merely because the teams were separate
legal entities, but because they were "independent centers of
decision making," each pursuing its own divergent economic
interests. From these opinions, the Court in Premier
concluded that "Supreme Court precedent eschews any
bright-line rule regarding asset ownership, emphasizing function,
not form, and how the parties actually operate."
Premier concluded that contractual control is sufficient
to establish a single entity for antitrust purposes where each
participant delegated "operational, strategic, and financial
control" to the joint venture. It did not matter that Premier
did not own the hospitals' assets: "The fact that Premier
is 'a corporate shell with no assets, income, expenses, or
liability [and thus] there is no shared ownership of assets used in
the Joint Venture' is immaterial and does not create a genuine
dispute of material fact."
The Court further concluded that any perception by some
unidentified employees at the hospitals that the hospitals competed
with each other did not matter because there was no economic
competition among them: "[I]t is the economic integration of
Defendants, not the form, that is determinative for the antitrust
analysis." As a result, any competition ceased once they
entered the joint venture, became "subject to Premier's
control," and shared a "unity of economic
interests," with all income and loss going to a common bottom
line.
Guidance
This decision, along with a 2003 opinion from the United States District Court for the Middle District of Pennsylvania, Healthamerica Pennsylvania v. Susquehanna Health Systems, offers guidance on ways of structuring joint ventures, especially in the hospital area, to maximize a single entity conclusion. It should be enough—at least where there is good cause for a decision not to merge entirely—to delegate sufficient operational, strategic, and financial control to the joint venture, provided the participants have a unified economic interest, such as the sharing of all income and loss among the participants. Obviously, the extent and nature of that integration will always be the key to the analysis.
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