(CN) – The 3rd Circuit reinstated an antitrust lawsuit accusing Pittsburgh’s dominant hospital system and health insurer of conspiring to weaken or shut out their rivals.
West Penn Allegheny Health System, Pittsburgh’s second-largest hospital system, says the University of Pittsburgh Medical Center (UPMC) used its relationship with the area’s largest insurer, Highmark Inc., to corner their markets.
UPMC allegedly leveraged its position as Allegheny County’s largest hospital system to insulate Highmark from competition. In exchange, Highmark used its 60 to 80 percent market share in the health insurance market to help strengthen UPMC and weaken UPMC’s rivals, according to West Penn.
Although UPMC and Highmark had a contentious relationship in the past, UPMC reportedly offered a “truce” in 1998, suggesting they combine forces and use their market power to protect each other from competition.
Highmark accepted the offer and began using its position to weaken West Penn, whose 2000 merger it had previously funded in order to keep UPMC from dominating the market, West Penn claims.
Highmark allegedly cut off all financial support to West Penn and refused to refinance the $125 million merger loan for fear of retaliation by UPMC.
“Highmark said that it was under a ‘constant barrage’ from UPMC and that UPMC was ‘obsessed’ with driving West Penn out of business,” the ruling states.
The insurer also awarded UPMC an $8 million grant, but capped West Penn’s grant money at $500,000.
The conspiracy ended in 2007, after an antitrust investigation by the Department of Justice, according to the ruling. But while the companies were in cahoots, they raked in massive profits. UPMC’s net income rose from $23 million in 2002 to more than $618 million in 2007, while Highmark’s net income shot up from $50 million in 2001 to $398 million in 2006.
UPMC’s profits came from the “sweetheart” reimbursements it received from Highmark, which made most of its money through higher premiums.
A federal judge dismissed West Penn’s antitrust claims for failure to allege a conspiracy. U.S. District Judge Arthur Schwab said the complaint “is long on innuendo and frequently repeats the buzz word that the defendants ‘conspired,'” but ultimately fails to allege “any facts which evidence a concerted action.”
On appeal, the three-judge panel in Philadelphia found not only ample allegations of conspiracy, but also evidence of antitrust injury with the lower reimbursement rates West Penn received from Highmark. Circuit Judge D. Brooks Smith added that the allegations “plausibly suggest that UPMC has engaged in anticompetitive conduct,” such as raiding West Penn’s key physicians by offering bloated salaries.
The panel revived West Penn’s antitrust lawsuit and sent the case back to Judge Schwab.