Marion HealthCare, LLC. v. Southern Illinois Healthcare ( 2022 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 20-1581
MARION HEALTHCARE, LLC,
Plaintiff-Appellant,
v.
SOUTHERN ILLINOIS HOSPITAL SERVICES, a not-for-profit corpo-
ration doing business as Southern Illinois Healthcare; and
HEALTH CARE SERVICE CORPORATION, doing business as Blue
Cross and Blue Shield of Illinois,
Defendants-Appellees.
____________________
Appeal from the United States District Court
for the Southern District of Illinois.
No. 3:12-CV-871-MAB — Mark A. Beatty, Magistrate Judge.
____________________
ARGUED NOVEMBER 10, 2020 — DECIDED JULY 15, 2022
____________________
Before EASTERBROOK and SCUDDER, Circuit Judges.*
* Circuit Judge Kanne, a member of the panel at the time of argument,
died on June 16, 2022. This appeal is being decided by a quorum. 28 U.S.C.
§46(d).
2 No. 20-1581
EASTERBROOK, Circuit Judge. The operator of an outpatient
surgery clinic in southern Illinois accuses the area’s largest
hospital system and its largest health insurer of violating fed-
eral antitrust law and similar state rules by entering into con-
tracts that designate the hospital but not the clinic as a pre-
ferred provider (also known as an in-network provider) for
the insurer. This leads some patients to choose the hospital
over the clinic because more of the fees will be reimbursed,
copayments will be lower, or both.
District Judge Herndon dismissed much of the complaint
but permiTed Marion HealthCare (which we call the Clinic)
to try again. 2013 U.S. Dist. LEXIS 120722 (S.D. Ill. Aug. 26,
2013). After Judge Herndon retired, the case was transferred
to District Judge Yandle, who granted judgment in favor of
the insurer (Health Care Service Corp., which we call the
Blues because it comprises both Blue Cross and Blue Shield
plans).
Judge Yandle concluded that insurers are customers and
cannot be liable for the practices of sellers with market power.
2015 U.S. Dist. LEXIS 69749 (S.D. Ill. May 29, 2015). As payors,
insurers should be aligned as plaintiffs (if they are to be liti-
gants at all) rather than defendants. But Judge Yandle denied
the motion of Southern Illinois Hospital Services to dismiss
the amended complaint. (We call it the Hospital, singular, alt-
hough it has three facilities in southern Illinois—a hospital in
Carbondale, population 25,000, and two smaller facilities.)
The Clinic and the Hospital agreed that a magistrate judge
could handle the rest of the case and enter a final judgment.
28 U.S.C. §636(c).
Discovery followed, but, before releasing a decision on the
Hospital’s motion for summary judgment, Magistrate Judge
No. 20-1581 3
Williams retired. His successor appointed the retired judge as
a special master. Reviewing the special master’s report, Mag-
istrate Judge BeaTy granted summary judgment to the Hos-
pital on the ground that the Clinic had not been injured. 2020
U.S. Dist. LEXIS 55745 (S.D. Ill. Mar. 31, 2020).
That wrapped up all parties and issues. The Clinic ap-
pealed, contesting the decisions of both District Judge Yandle
and Magistrate Judge BeaTy. No one noticed a potential juris-
dictional problem: the Blues had not consented to a magis-
trate judge having final authority.
We held in Coleman v. Wisconsin Labor & Industrial Commis-
sion, 860 F.3d 461 (7th Cir. 2017), that use of the §636(c) proce-
dure requires the consent of every named litigant, even one
that has not been served with process. In the absence of all
parties’ consent, Coleman concludes, a district judge rather
than the court of appeals reviews the magistrate judge’s deci-
sion. We directed the parties to file supplemental memos ad-
dressing Coleman. The Clinic has asked us to dismiss the ap-
peal (which it could have done on its own but didn’t), while
the Hospital and the Blues contend that we have jurisdiction.
The Clinic, having lost on the merits before Magistrate Judge
BeaTy, now wants a decision by an Article III district judge.
Section 636(c)(1) says that a magistrate judge may enter a
final decision “[u]pon the consent of the parties”. Coleman
holds that everyone named in the complaint is a party for this
purpose. Any other approach, Coleman said, could deprive a
litigant of the right to a decision by a person enjoying the ten-
ure and salary protections of Article III. This also implies a
limit to Coleman’s scope, for the Blues enjoyed that right and
prevailed before a district judge. (The Blues say that, after
winning, they were no longer a party because they had been
4 No. 20-1581
dismissed from the case. That’s mistaken; they were and are
a prevailing party, not a retroactive non-party. That’s why they
are appellees in this court, defending their victory.)
An opinion dissenting from the denial of hearing en banc
in Coleman freTed about the handling of litigation such as this,
in which one defendant wins before a district judge and the
remaining litigants consent to decision by a magistrate judge.
860 F.3d at 479. The panel responded that, in such a situation,
it is enough if all litigants whose rights remain to be deter-
mined consent to have a magistrate judge resolve their con-
troversy. Id. at 471. This exception, which ensures that every
litigant enjoys the right to an Article III judge if it chooses, fits
the current situation. The Blues received a district judge’s de-
cision; the Clinic and the Hospital made their own choice to
have a magistrate judge decide the remaining issues.
There is more. Consent to decision by a magistrate judge
may be implied as well as express. Roell v. Withrow, 538 U.S.
580, 588–90 (2003), held that a party may consent by submit-
ting arguments to a magistrate judge without protest. The
Blues did exactly that. When the Clinic and Hospital sought
discovery from the Blues during the extended litigation that
followed District Judge Yandle’s decision in the Blues’ favor,
they protested to the magistrate judge rather than to Judge
Yandle. The Blues’ post-argument memorandum in this court
treats that step as representing whatever consent was neces-
sary for the magistrate judge to play the role to which the
Clinic and the Hospital had agreed. To top this off, the Blues’
post-argument memorandum tells us that the Blues are con-
tent with the division of authority between the district judge
and the magistrate judge. That amounts to express consent, if
belated. We therefore have appellate jurisdiction.
No. 20-1581 5
The Blues won on the ground that they are consumers of
medical care (or at least pay on behalf of consumers) and, if
the Hospital has market power, should be plaintiffs rather
than defendants. Judge Yandle thought that both the Sherman
Act and §3 of the Clayton Act lead to this result. The Hospital
won on the ground that the Clinic was not injured and, if in-
jured, did not suffer antitrust injury—that is, was not made
worse off by higher prices or a reduction in output, the things
that make monopolies objectionable. See Brunswick Corp. v.
Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977). The antitrust laws
“protect consumers from suppliers rather than suppliers from
each other.” Stamatakis Industries, Inc. v. King, 965 F.2d 469, 471
(7th Cir. 1992); accord, Four Corners Nephrology Associates v.
Mercy Medical Center of Durango, 582 F.3d 1216, 1217 (10th Cir.
2009) (Gorsuch, J.).
Judge Yandle’s and Judge BeaTy’s reasons, though nomi-
nally different, are two aspects of the same reason: liability in
antitrust law turns not on phrases such as “exclusive con-
tract” but on whether consumer welfare has been impaired.
See, e.g., Reiter v. Sonotone Corp., 442 U.S. 330 (1979); Broadcast
Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1(1979). Patients (the consumers of health care), their payment
proxies (the Blues and other private insurers), and their gov-
ernmental proxies (the Antitrust Division, the FTC, Medicare,
and Medicaid) would be appropriate plaintiffs, but none of
these has appeared on the Clinic’s side.
The Clinic scarcely tries to show that it has been injured
by reduced output or higher prices at the Hospital. And that’s
not the only thing odd about this antitrust suit. The complaint
does not allege that there is any historical link between the
Hospital’s insurance-contracting practices and either prices or
6 No. 20-1581
output. Instead the complaint alleges that the Hospital has
77% of the patient admissions in the two counties where the
Clinic has facilities.
Does that imply market power? Illinois has 102 counties,
and in rural stretches of southern Illinois patients may find it
necessary to drive some distance for medical care. For all this
complaint shows, the area from which the Hospital draws pa-
tients is larger than two counties—and perhaps there are
other equally large hospitals just outside these two counties.
If so, persons seeking medical care could turn to them. The
counties where the plaintiff has premises may be a poor proxy
for power to affect price, and the allegations of the complaint
do not match this circuit’s approach to ascertaining market
power in medical cases. See, e.g., FTC v. Advocate Health Care
Network, 841 F.3d 460 (7th Cir. 2016); Vasquez v. Indiana Uni-
versity Health, Inc., No. 21-3109 (7th Cir. July 8, 2022).
Then there is the Clinic’s unusual use of “exclusive deal-
ing.” The Blues have not promised to deal only with the Hos-
pital (in or out of two particular counties), nor has the Hospi-
tal promised to deal only with the Blues. The Hospital accepts
payments from many insurers, in addition to Medicare and
Medicaid, while the Blues reimburse all manner of providers.
Any person insured by the Blues is free to use the Clinic’s ser-
vices. The amount the Blues reimburse (or the required co-
payment) may be different, but no one has refused to deal
with anyone else. The Clinic, for its part, can strike preferred-
provider deals with other insurers and has done so with at
least one. Magistrate Judge BeaTy wrote that the Clinic does
not want preferred-provider deals, fearing that such an ar-
rangement could produce more patients than it could handle.
2020 U.S. Dist. LEXIS 55745 at *27 (the Clinic “remained out-
No. 20-1581 7
of-network as a business strategy, at times complaining that
the rates being offered by payers were not competitive and at
other times, remaining out-of-network because [it] did not be-
lieve it could handle the increased patient volume that would
flow from an in-network agreement with certain payers”). So
the deal between the Hospital and the Blues has not fenced
the Clinic out of any part of the market in which it cares to
participate.
In other words, the Blues’ commitment to the Hospital
not to strike a preferred-provider deal with some other pro-
vider located near the Hospital is not “exclusive dealing” in
the normal antitrust sense. For the same reason it cannot be
called a tie-in contract. It is instead a form of price discrimi-
nation. Yet the Clinic does not contend that the antitrust laws
forbid price discrimination by either the Hospital or the Blues.
This is not the first time the Seventh Circuit has addressed
one medical provider’s antitrust challenge to a preferred-pro-
vider deal struck between an insurer and a different medical
provider. Methodist Health Services Corp. v. OSF HealthCare
System, 859 F.3d 408 (7th Cir. 2017), holds that neither federal
nor Illinois antitrust law forbids such arrangements, whether
or not a medical provider has market power. We emphasized
the benefits of allowing competition for the contract: that is,
an insurer or other payor can use the inducement of preferred
provider status to haggle down the prices charged by a pro-
vider with market power. That works to patients’ benefit, for
insurance costs less; bargaining by large payors helps coun-
teract the large hospital’s ability to raise prices. Methodist Hos-
pital added that a preferred-provider designation differs from
vertical integration—first, because the contract can be renego-
tiated periodically, and second, because the insurance market
8 No. 20-1581
contains other payors, some of which will designate the large
hospital as a preferred provider and some of which won’t. We
concluded that competition in the market, rather than judicial
decisions, should determine how that process plays out. That
is as true of the Clinic’s claim as it was of Methodist Hospi-
tal’s.
Instead of calling the arrangement between the Blues and
the Clinic a form of exclusive dealing, the Clinic might have
argued that the Blues’ preferred-provider network is an es-
sential facility to which every medical provider requires ac-
cess. But it would be hard to invoke the essential-facilities
doctrine, for the Clinic does not contend that the Blues have
market power, so its network cannot be essential. And the Su-
preme Court greatly curtailed the scope of the essential-facil-
ities doctrine in Pacific Bell Telephone Co. v. linkLine Communi-
cations, Inc., 555 U.S. 438 (2009). This makes it understandable
that the Clinic has not depicted the Blues’ network as essen-
tial, but the exclusive-dealing cases are even less apt.
The Clinic proffered an expert witness (John Bowblis) who
assumed that the Hospital has market power rather than try-
ing to demonstrate it. For that and other reasons, including
the fact that Bowblis’s damages theory does not match the
Clinic’s liability theories and that he did not try to estimate
losses to consumers, Magistrate Judge BeaTy excluded the re-
port under Fed. R. Evid. 702. He did not abuse his discretion
in doing so. This left the Clinic without any means to show
market power, antitrust injury (or any injury), or otherwise
get beyond labels such as “exclusive dealing.” And labels are
not enough.
No. 20-1581 9
The Clinic’s other theories need not be discussed, and its
state-law claims fail for the same reason its federal-law claims
fail.
AFFIRMED