Patients Suing Hospitals for Antitrust Violations – Do They Have Standing?

A recently decided case out of Connecticut provides a useful examination of how antitrust standing issues may be analyzed in cases involving commercially-insured patients directly suing a health care system alleging economic harm resulting from the system’s anti-competitive conduct.

Of particular note, the case is being litigated in state court under state antitrust law because the patients as “indirect purchasers” of health care services do not have standing to bring antitrust lawsuits under federal law.

In Brown v. Hartford Healthcare Corp., seven individual patients covered by commercial health plans (and in one case a Medicaid health plan) (the “Patients”) filed a putative class action lawsuit against Hartford Healthcare Corporation (“Hartford”), alleging that Hartford’s business practices violate the Connecticut Antitrust Act[1] and the Connecticut Unfair Trade Practices Act, leading to inflated prices for healthcare services.  Hartford moved to dismiss the case for the absence of subject matter jurisdiction, arguing that the Patients lack standing because as indirect purchasers of healthcare services, they are not “efficient enforcers” of Connecticut’s antitrust laws and have not suffered an antitrust injury.

On October 26, the Connecticut Superior Court ruled that the Patients do have standing and refused to dismiss the case. The court’s decision will almost certainly be appealed.

Factual Background

Hartford operates seven hospitals across Connecticut in addition to a multi-specialty physician network and various other health care services. In the complaint, the Patients allege that certain of the hospitals face little or no competition in both the inpatient and outpatient markets and that Hartford uses its dominant position to maintain and grow its market share, restrain trade and extract supra-competitive prices for both inpatient and outpatient services.

According to the Patients, Hartford accomplishes this by using illegal tying arrangements under which it ties health insurers’ access to its “must have” hospitals (where it is the dominant provider) to insurers agreeing to include in their networks Hartford’s hospitals in areas in which Hartford faces competition, and also through the use of “all or nothing” contracting along with anti-steering and anti-tiering contract provisions and “gag” clauses.^[2]

The Patients claim that Hartford’s alleged anticompetitive conduct causes them injury through the health plans to which they belong, typically provided through their employers.  They are all enrolled in health plans for which they or their household pay monthly premiums and, with one exception, have received services from Hartford. All claim that they are financially impacted by Hartford’s conduct in the form of higher premiums and deductibles as well as copayment and coinsurance payments either paid directly by them or paid by their employers but passed on to them via reduced wages.

They assert that because they are damaged by Hartford’s alleged illegal conduct, they have standing to prosecute the lawsuit.

Standing for Indirect Purchasers

The Patients’ claims are all brought under the Connecticut Antitrust Law. This is because for federal antitrust purposes they are considered “indirect purchasers” of services and are barred from bringing antitrust suits in federal court. See Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977)

In Illinois Brick, state and other governmental entities were indirect purchasers of concrete blocks incorporated into structures sold by masonry contractors to general contractors. The Supreme Court held that the governmental entities were barred from bringing a Sherman Act price-fixing case against the concrete block manufacturers.^[3]

The Court reasoned that “[p]ermitting the use of pass-on theories under § 4 [of the Clayton Act] essentially would transform treble damages actions into massive efforts to apportion the recovery among all potential plaintiffs that could have absorbed part of the overcharge — from direct purchasers to middlemen to ultimate consumers. However appealing this attempt to allocate the overcharge might seem in theory, it would add whole new dimensions of complexity to treble damages suits, and seriously undermine their effectiveness.”

Six years after its decision in Illinois Brick, the Court did hold that, notwithstanding its prior decisions, states are free to enact statutes that permit recovery by indirect purchasers for violations of state antitrust laws. California v. ARC Am. Corp., 490 U.S. 93 (1989) (the “ARC case”).

Accordingly, in Connecticut, as in many other states, for state antitrust law purposes, Illinois Brick’s direct purchaser rule has been “repealed.” In Connecticut, the repeal was via statutory amendments. In other states, it has been either by statute or via judicial decisions.^{[4] [5]}

With the repeal, patients of health care systems in Connecticut and in those other states are not barred from bringing antitrust lawsuits against the systems and their affiliated providers under state law.

That said, notwithstanding there being no per se prohibition on indirect purchasers such as the Patients bringing these lawsuits, they must still establish that they have standing to proceed.

In the Hartford case, the court described the standing rule in Connecticut as follows:

“[T]o have standing to bring a claim under the antitrust act, a plaintiff must adequately plead both that it has suffered an antitrust injury and that it is an efficient enforcer of the antitrust act.” [emphasis added]

The court proceeded to find that the Patients had adequately pleaded that they had “suffered an antitrust injury” on account of the alleged economic impact on premium payments and out-of-pocket expenses such as copays and coinsurance.

With respect to the efficient enforcer requirement, the court turned to the U.S. Supreme Court’s decision in Associated Gen. Contractors v. Carpenters, 459 U.S. 519 (1983) (“AGC”), which in considering the question of standing in the context of a federal antitrust case^[6] identified a number of factors as relevant:

• Is there a causal connection between the defendant’s antitrust violation and harm to the plaintiff;
• What is the nature of the plaintiff’s alleged injury – is it the type the antitrust laws were intended to remedy or forestall;
• The directness or indirectness of the asserted injury; the chain of causation between the plaintiff’s injury and the alleged restraint in the market;
• Whether the damages claimed are highly speculative or abstract; and
• The risk of duplicate recoveries on the one hand, or the danger of complex apportionment of damages on the other.

Referencing the Connecticut Supreme Court’s prior decision in Tremont Public Advisors, LLC v. Connecticut Resources Recovery Authority, 333 Conn. 672, 217 A.3d 953 (2019), and modifying the AGC factors “to accommodate the legislative policy reflected in the Indirect Purchaser Law,” the court proceeded to apply the four factors described below and to conclude that the Patients are “efficient enforcers.” Accordingly, it denied Hartford’s motion to dismiss.

Directness or Indirectness of the Injury

The court concluded that this factor weighed in favor of the Patients. It reasoned:

• The weight this factor carries is reduced, but not eliminated, because indirect purchasers are permitted to bring these suits under Connecticut law.
• Hartford argues that the Patients’ claims are too remote because it is the insurers, not the Patients, who paid the allegedly inflated prices for Hartford’s services.
• Hartford also argues that it is the Patients’ employers who pay the bulk of the inflated insurance premiums, thus placing the Patients further down the chain of distribution.
• Hartford compares the Patients’ position to that of plaintiffs in consumer class actions brought against credit card companies whose alleged anticompetitive conduct inflated the cost of processing credit and debit cards, a cost allegedly passed on to consumers.
• Unlike the inflated costs at issue in the credit card cases, which attach to virtually every consumer good in the economy, the Patients’ claims are confined within the market for healthcare services. The cost of Hartford’s services and a relatively limited number of other providers are, as alleged in the complaint, passed through in the form of insurance premiums that are driven by the cost of healthcare services.
• Because the Patients participate, along with their employers, in the payment of the allegedly inflated premiums, the relationship between the Patients’ injury in the form of inflated insurance premiums and Hartford’s alleged anticompetitive conduct inflating those premiums is not too indirect considering that indirect purchaser claims are permitted.

Identifiable Alternative Plaintiffs

The court concluded that this factor also weighed in favor of the Patients, reasoning as follows:

Hartford argues that the insurers are better positioned and more motivated to bring antitrust claims and, therefore, this factor should weigh against standing.

However, by definition, there are always identifiable classes of persons injured by antitrust violations more directly than an indirect purchaser.

Moreover, given that indirect purchasers are permitted to pursue claims under Connecticut antitrust law, the insurers’ position as direct purchasers and their potential role as antitrust plaintiffs cannot weigh against the Patients’ antitrust standing.

Further, direct purchasers sometimes refrain from bringing suit for fear of disrupting relations with their suppliers. In those instances, the direct purchaser rule denies recovery to indirect purchasers who may have been actually injured by antitrust violations.

In the present case, there is no indication that the insurers are pursuing or will pursue claims for the antitrust violations alleged by the Patients.

While employers who purchase healthcare plans from the insurers are also positioned as indirect purchasers to bring antitrust claims against Hartford, Hartford has presented no argument to establish they are better positioned or more motivated than the Patients.

Speculativeness of the Injury

This third factor also weighed in favor of the Patients. The court reasoned:

As damage claims move from direct to indirect and the distribution chain becomes more complex, the possibility of factors intervening to affect causation and price multiplies and claims become more speculative.

Tying cases (this case is one) present unique damages issues because the plaintiff must not only demonstrate that the tying product possesses monopolistic leverage in the market, but also prove the cost or value of the tied products free from the unlawful arrangement.

Hartford argues that the Patients’ claims “would require layer upon layer of speculation” and it identifies eight variables that it asserts must be accounted for in order to calculate an overcharge to the Patients.

The Patients argue that the Affordable Care Act makes the overcharge “relatively easy to measure” because it establishes a mandatory benchmark for the percentage of premium that must be devoted to the purchase of healthcare services.

The complaint also references multiple studies establishing that insurers pass on increased hospital prices through premium increases.

In amending the law to permit indirect purchasers to bring antitrust suits, the legislature parted ways with the federal courts’ conclusion that the inherently speculative nature of indirect purchasers’ damage claims warrants a bar on those claims.  Consequently, a certain degree of speculation in an indirect purchaser’s damages theory is expected and tolerable.

Whether indirect purchasers’ damages theories are too speculative is a question that must be addressed on a case-by-case basis.

The court has no reason to question the variables identified by Hartford as essential to a damages analysis, nor does the court discount the Patients’ allegations that there exists substantial research and data that provide a reliable foundation upon which to account for those variables.  On the existing record, the court is unable to determine whether this factor weighs for or against standing in the context of a motion to dismiss.

Complexity, Apportionment and Duplicative Recoveries

The court concluded that this factor presently weighed in favor of the Patients, while pointing out that circumstances could change and the court might need to reevaluate.

• The increased complexity of the economic analysis necessary to apportion damages across a chain of distribution and isolate the damages of an indirect purchaser, as well as the risk of duplicative damage awards, were the most significant concerns underlying the Supreme Court’s decisions in Hanover Shoe and Illinois Brick to preclude the defensive and offensive use of passing-on theories.
• The Connecticut legislature reached a different conclusion when it enacted the “repealer” legislation. While that does not mean that the legislature endorsed judicially unmanageable antitrust actions, it does mean that courts must be hesitant to dismiss indirect purchaser claims on these grounds.
• The legislature also did not intend to foment duplicative damage awards. The legislature itself took a step toward avoiding duplicative recoveries when in passing the “repealer” law it also rejected Hanover Shoe’s prohibition on the use of the passing-on defense against the claims of direct purchasers. (see footnote 4 above)
• The efficient enforcer factor encompasses two separate factors, complexity and duplicative recoveries.
• Complexity
  • The legislature’s decision to enact the law reflects a determination that the claims of indirect purchasers who have suffered an antitrust injury and can present a reliable theory of damages, should proceed despite the additional complexity they may present. Should the complexity lead to a merely speculative theory of damages, that may prove to be an obstacle.
  • In the present case, however, given the state of the record, the court is unable to conclude that the Patients will present an excessively speculative damages analysis. The complexity of the case does not weigh against standing at this juncture.
• Duplicative Damages
  • There is no evidence that duplicative damage awards are likely in the present case. The insurers and employers, who comprise the other classes of persons within the chain of distribution, have not brought antitrust claims under state or federal law.  Were they to do so, the state law claims would be subject to the passing-on defense approved as part of the repealer legislation.
  • While that defense does not eliminate the risk that duplicative damages could be awarded to insurers bringing direct purchaser claims under federal law, the Supreme Court in the ARC case has acknowledged the potential for overlapping remedies posed by state indirect purchaser laws but held that federal law does not preempt state indirect purchaser laws.
  • In enacting the repealer law, the legislature demonstrated a concern that duplicative damage awards should be avoided where possible, but not at the expense, of injured indirect purchasers.

Recent Cases in Other States

We are seeing standing issues involving antitrust lawsuits by patients against hospital systems being addressed in other cases in other states.  As in Hartford, these cases are almost always being brought as class actions.

A very recent example is a case being litigated in North Carolina state court. Davis v. HCA Healthcare, Inc., 2022 NCBC 52 (2022). In this case, the plaintiffs are residents of western North Carolina who have health insurance under some form of commercial insurance plan. Their class action complaint filed under North Carolina antitrust law alleges that as a result of HCA Healthcare’s antitrust violations (monopolization, attempted monopolization and illegal restraint of trade) through its Mission Hospital affiliate, each plaintiff has had to pay “higher amounts” for healthcare services.

Following the filing of the complaint, HCA moved to have the case dismissed asserting, among other things, that the plaintiffs lacked standing to bring the suit and that dismissal for lack of subject matter jurisdiction was appropriate.

In support of its motion, HCA cited Illinois Brick and the bar on indirect purchaser lawsuits and argued that the plaintiffs as patients covered by commercial insurance plans—and who therefore have payment for their care subsidized (or paid entirely) by commercial insurers—are merely indirect purchasers of services and therefore lack standing.

In denying the motion, the Superior Court, acknowledging the indirect purchaser bar for federal antitrust purposes, pointed out that the North Carolina Court of Appeals on two prior occasions had expressly recognized the standing of indirect purchasers to bring antitrust claims in North Carolina. See Hyde v. Abbott Labs., Inc., 123 N.C. App. 572, 573, 584 (1996); Teague v. Bayer AG, 195 N.C. App. 18, 19, 29 (2009) 43.

Further, the court noted that it had previously rejected a similar standing-related argument in Dicesare v. Charlotte-Mecklenburg Hosp. Auth., 2017 NCBC LEXIS 33 (N.C. Super Ct. April 11, 2017).

In that case, the plaintiffs, who were each covered by a commercial insurance plan, sued a hospital over anti-steering and confidentiality restrictions that it used in negotiations with commercial healthcare insurers.

The hospital moved to dismiss the complaint for lack of standing, but the court rejected its argument ruling that the plaintiffs had alleged an injury in fact (increased cost and less consumer choice) that was fairly traceable under the allegations of the complaint to the hospital’s imposition of the contractual provisions, and that in North Carolina, indirect purchasers have standing to bring state law antitrust suits.

The Varying Significance of the AGC Factors in State Law Indirect Purchasers Cases

As explained, for purposes of applying the efficient enforcer requirement for standing, the court in the Hartford case looked at the factors identified by the Supreme Court in the AGC case and then modified them to best reflect what it believed was the intent of the Connecticut legislature in allowing indirect purchasers to bring suits.

Courts in other states that have repealed Illinois Brick and permitted indirect purchaser suits have similarly needed to consider whether and to what extent the AGC factors apply.

As the court in the Hartford case explained, some state courts have applied the AGC factors (see Kanne v. Visa U.S.A. Inc., 723 N.W.2d 293 (Neb. 2006); others have determined not to apply them (see Lorix v. Crompton Corp., 736 N.W.2d 619 (Minn. 2007); while still others have applied them in modified form (see Crouch v. Crompton Corp., Superior Court of North Carolina, Docket Nos. 02CVS4375 and 03CVS2514 (Oct. 28, 2004) (2004 WL 2414027).

Finally, given the current landscape with regard to antitrust enforcement in the health care market and given the nature of class action lawsuits, there will undoubtedly continue to be more activity in this area.

[1] One count of the complaint also alleges a violation of the Connecticut Unfair Trade Practices Act.

^[2] An anti-steering provision typically takes the form of a health insurer agreeing not to include in its plans anything that might steer patients to the use of competing hospitals even if those hospitals are lower cost. Under an anti-tiering provision, the insurer is prohibited from offering “tiered” plans which place more economical providers in a higher tier and give patients financial incentives to choose that tier.

^[3] The Court based its decision on its prior decision in Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481 (1968) in which it had held that a defendant could not defend against a direct purchaser’s antitrust claim by arguing that the direct purchaser was unharmed because it passed on the inflated prices to a customer (the so called “passing-on” defense).

^[4] The Connecticut Antitrust Act, General Statutes, Section 35-46a, provides that “[I]n any action brought under subsection (c) of section 35-32 or seeking treble damages under section 35-35, a defendant may not assert as a defense that the defendant did not deal directly with the person on whose behalf the action is brought[.]” More than 30 states no longer bar indirect purchasers from bringing state law antitrust claims.

^[5] In addition to repealing the indirect purchaser bar, Section 35-46a also “repeals” the bar on assertion of the “passing-on” defense. “[A] defendant may, in order to avoid duplicative liability, prove, as a partial or complete defense against a damage claim, that all or any part of an alleged overcharge ultimately was passed on to another person by a purchaser or a seller in the chain of manufacture, production or distribution that paid the alleged overcharge.”

^[6] In its opinion, the court explains why, for purposes of determining standing in an indirect purchaser case under the Connecticut Antitrust Law, courts should consider the factors set forth in the AGC case.