DocketNumber: Case No. 17–cv–05005–LB
Citation Numbers: 305 F. Supp. 3d 1065
Judges: Beeler
Filed Date: 3/30/2018
Status: Precedential
Modified Date: 7/25/2022
ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS
INTRODUCTION
Plaintiffs NorthBay Healthcare Group and NorthBay Healthcare Corporation (collectively, "NorthBay") operate two hospitals in Solano County, California. NorthBay brings this action against (1) Kaiser Foundation Health Plan, Inc. ("Kaiser Health Plan"), a health insurer; (2) Kaiser Foundation Hospitals, Inc. ("Kaiser Hospitals"), the operator of two other hospitals in Solano County; and (3) the Permanente Medical Group, Inc. ("Permanente"), which manages doctors that work at Kaiser Hospitals' hospitals. NorthBay alleges violations of the Sherman Antitrust Act and various California state-law claims.
The court previously granted the defendants' motion to dismiss NorthBay's original complaint, holding that NorthBay had failed to plead a violation of the federal antitrust laws and declining to exercise supplemental jurisdiction over NorthBay's state-law claims. NorthBay Healthcare Grp. v. Kaiser Found. Health Plan, Inc. , No. 17-cv-5005-LB,
NorthBay filed a First Amended Complaint ("FAC"). But the FAC still fails to plead a cognizable antitrust claim. Among its other deficiencies, the FAC fails to plead that NorthBay suffered any causal antitrust injury. The court dismisses NorthBay's antitrust claims and declines to exercise supplemental jurisdiction over NorthBay's state-law claims, and therefore dismisses NorthBay's FAC in full, with leave to amend.
STATEMENT
1. The Defendants
Defendant Kaiser Health Plan is the largest health-care-service plan in the United States.
Defendant Kaiser Hospitals operates hospitals throughout the United States, including two hospitals with emergency departments in Solano County: Kaiser Permanente Vallejo Medical Center in Vallejo and Kaiser Permanente Vacaville Medical Center in Vacaville.
Defendant Permanente is a medical group comprised of physician-owned, for-profit partnerships and professional corporations.
Kaiser Health Plan, Kaiser Hospitals, and Permanente are "separate legal entities" and "separate economic actors."
2. NorthBay's Allegations
NorthBay operates two hospitals in Solano County: NorthBay Medical Center in Fairfield and NorthBay VacaValley in Vacaville.
2.1 Kaiser Hospitals Cancelled a Services Agreement with NorthBay in 2016
NorthBay's hospitals provide emergency medical services to patients, including Kaiser Health Plan enrollees.
In 2010, NorthBay and Kaiser Hospitals entered into an Agreement for Non-Referral Hospital Services for Kaiser Permanente Members ("Agreement").
On May 20, 2016, NorthBay received a letter on "Kaiser Permanente" letterhead announcing the termination of the Agreement effective September 18, 2016.
Shortly after September 20, 2016, Kaiser Health Plan began reimbursing NorthBay at less than half the rate specified in the 2010 Agreement.
According to NorthBay, there is no legal limit on the billing rates that hospitals in California can set to charge for their services.
2.2 Kaiser Hospitals "Steers" Trauma Patients to Its Hospitals
Solano County designates hospital trauma facilities to provide certain levels of services.
*1070When paramedics arrive on scene to transport a patient to a medical facility, they must "activate" trauma services if the patient meets certain medical criteria.
In October 2016, Kaiser Hospitals successfully lobbied Solano County to designate its Vacaville hospital as the county's base hospital for trauma care.
2.3 Permanente Doctors Call Emergency Medical Providers for Kaiser Health Plan Enrollees to Take Them to Kaiser Hospitals
NorthBay alleges that "Kaiser Permanente" maintains an on-call urgent-care line and implicitly alleges that the line is staffed by Permanente on-call physicians.
2.4 Kaiser Hospitals "Steers" Underinsured Patients Away From Its Hospitals
NorthBay alleges that Kaiser Hospitals steers underinsured and uninsured patients away from its hospitals to NorthBay's.
First, NorthBay cites to an instance where Kaiser Hospitals called to inform NorthBay that it was transferring a homeless patient to NorthBay.
Second, NorthBay cites to an instance where Kaiser Hospitals called NorthBay about a patient with abdominal pain and questionable kidney failure.
STANDARD OF REVIEW
A complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief" to give the defendant "fair notice" of what the claims are and the grounds upon which they rest. See Fed. R. Civ. P. 8(a)(2) ; Bell Atl. Corp. v. Twombly ,
To survive a motion to dismiss, a complaint must contain sufficient factual allegations, which when accepted as true, " 'state a claim to relief that is plausible on its face.' " Ashcroft v. Iqbal ,
If a court dismisses a complaint, it should give leave to amend unless the "the pleading could not possibly be cured by the allegation of other facts." Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc. ,
ANALYSIS
1. Governing Law
Causal antitrust injury is an essential element of both a monopolization claim and a conspiracy-to-monopolize claim under Section 2 of the Sherman Antitrust Act. Allied Orthopedic Appliances, Inc. v. Tyco Health Care Grp. LP ,
" 'Antitrust injury' means 'injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful.' " Somers ,
"It is not enough to show that one's injury was caused by illegal behavior." Pool Water Prods. v. Olin Corp. ,
2. Application
2.1 NorthBay Fails to Plead Injury of the Type the Antitrust Laws Were Intended to Prevent
NorthBay's claims fail because it has not pleaded injury of the type the antitrust laws were intended to prevent. As the court previously held with respect to NorthBay's original complaint, "NorthBay does not allege any antitrust injury or harm to competition generally. It alleges injury only to itself." NorthBay I ,
*1074NorthBay's FAC fares no better. With respect to its complaints about the 2010 Agreement, NorthBay's allegations, at their core, are that the defendants should give it-NorthBay-more money so that it-NorthBay-can invest more money in its-NorthBay's-chosen projects.
As the court noted in its prior dismissal order, another court addressed similar allegations by hospitals that alleged (like NorthBay does here) that Kaiser Health Plan, Kaiser Hospitals, and a Permanente Medical Group (there, the one in Southern California) supposedly engaged in a monopoly conspiracy because they refused to pay what the hospitals billed them to treat Kaiser Health Plan enrollees. In a decision that was affirmed by the Ninth Circuit, the court there dismissed the hospitals' claims, holding that (among other things) the hospitals failed to plead an antitrust injury:
[Plaintiff] has not sufficiently stated that the Defendants' actions actually injured competition. Plaintiff fails to plead supportive facts beyond conclusory statements that, as a result of Defendants['] actions, [plaintiff] or other hospitals were injured or pushed out of the relevant market, or that consumers actually faced higher prices, reduced quality of care and quantity of services, and reduced choice as a result of the Defendants' actions. Any resources [plaintiff] spent as a result of the Defendants' actions...do not show actual injury to competition. Thus, the alleged injury incurred by Kaiser Defendants' refusal to pay claims for [plaintiff]'s services ...show only potential harm to [plaintiff] alone. There are no non-conclusory allegations that Defendants' actions restrained trade in the relevant market or injured overall competition.
Prime Healthcare Servs., Inc. v. Serv. Emps. Int'l Union , No. 11-cv-2652-GPC-RBB,
Nor do NorthBay's "steering" allegations plead an antitrust injury. "Naked assertions...'devoid of further factual enhancement' are insufficient to state a claim." Oliver v. SD-3C LLC , No. 11-cv-01260-JSW,
NorthBay claims that Kaiser Hospitals steers Level III trauma patients who are *1075Kaiser Health Plan enrollees to its own hospitals instead of to NorthBay. But NorthBay pleads no facts to support that conclusion: it does not cite a single example of a Level III patient that was actually steered to Kaiser Hospitals or away from NorthBay. NorthBay cites to an instance where a Level II patient was allegedly steered to Kaiser Hospitals and then concludes that "if that [steering] practice is true of Level II patients, then it is equally true of Level III patients."
NorthBay's allegations that Kaiser Hospitals steers uninsured or underinsured patients away from itself and onto NorthBay are similarly conclusory. NorthBay cites two examples where Kaiser Hospitals allegedly "insisted" on transferring patient to NorthBay. But NorthBay notably does not allege that either patient actually was transferred to NorthBay. And if the patients were not transferred, NorthBay would not have borne any costs associated with their care and hence would have suffered no injury, much less any antitrust injury. NorthBay pleads no facts to support its conclusion that Kaiser Hospitals steered uninsured or underinsured patients onto NorthBay.
2.2 NorthBay Fails to Plead That It Suffered Antitrust Injury Itself
Even assuming NorthBay had pleaded an injury of the type the antitrust laws were intended to prevent, its claims would fail because it does not plead that it suffered that antitrust injury itself.
Fundamentally, what NorthBay is alleging (aside from individualized grievances such as its complaints about the 2010 Agreement) is not antitrust injury to itself but injury to a third party-a health insurer called Western Health Advantage ("WHA"), of which NorthBay owns 50%
*1076NorthBay alleges that "[b]ut for Defendants' steering practices and providing less than half the appropriate reimbursement rates to NorthBay, WHA would likely have a larger share of the healthcare insurance market in Solano County today and would more effectively constrain Kaiser Foundation Health Plan."
If anything, NorthBay may have pleaded itself out of a claim. According to NorthBay, it can set its billing rates for its services at whatever level it wants-and in the absence of a negotiated agreement, patients and insurance companies are required to pay NorthBay at those rates.
The Third Circuit's decision West Penn Allegheny Health System, Inc. v. UPMC ,
West Penn says it was injured as a result of Highmark's decision to take Community Blue off the market. It explains that Community Blue subscribers often received treatment at West Penn hospitals and that it lost business when Community Blue was eliminated. West Penn's injury in this regard, however, is not antitrust injury.
NorthBay is not WHA. NorthBay cannot appropriate alleged antitrust injury to WHA as its own. And NorthBay does not plead antitrust injury to itself. Its antitrust claims therefore necessarily fail.
3. The Court Declines to Exercise Supplemental Jurisdiction Over NorthBay's Remaining Claims
If a court dismisses all claims over which it has original jurisdiction, it may decline to exercise supplemental jurisdiction over the remaining claims.
The remainder of NorthBay's claims arise under state law. There is no diversity *1078of citizenship,
CONCLUSION
For the foregoing reasons, the court (1) dismisses NorthBay's claims under Section 2 of the Sherman Antitrust Act for failure to state a claim, and (2) declines to exercise supplemental jurisdiction over the remainder of NorthBay's claims and dismisses them for lack of jurisdiction.
The court grants NorthBay one final chance to amend its complaint and plead a cognizable claim over which the court has original jurisdiction. NorthBay may do so within three weeks of the date of this order. (If NorthBay files a second amended complaint, it must also file a blackline of its second amended complaint against its first amended complaint as an attachment.) If it does not do so, the court will enter judgment in favor of the defendants and will direct the clerk of court to close this case.
IT IS SO ORDERED.
Unless otherwise noted, the fact allegations in the Statement are from the FAC.
FAC-ECF No. 62 at 10 (¶ 15). Citations refer to material in the Electronic Case File ("ECF"); pinpoint citations are to the ECF-generated page numbers at the top of documents.
Id. at 2 (¶ 2), 39 (¶ 104), 42 (¶ 116).
Id. at 10 (¶ 16).
Id. at 15 (¶ 31), 17 (¶ 36).
Id. at 10 (¶ 17).
Id. at 8-9 (¶ 9), 11 (¶ 18), 12 (¶ 25), 41 (¶ 112).
Id. at 30 (¶ 76).
Id. at 2 (¶ 1), 11 (¶ 18), 28 (¶ 70).
Id. at 11 (¶ 18).
Id. at 9 (¶ 11), 15 (¶ 31).
Id. at 15 (¶ 31).
Id. at 16 (¶ 33).
See id. at 5-6 (¶ 5.e), 26 (¶ 63).
Id. at 5-6 (¶ 5.e).
Id. ("The Agreement...itself was between Kaiser Foundation Hospitals and NorthBay, and provided that Kaiser Foundation Health Plan would reimburse NorthBay at a contractually prescribed rate for providing its insureds with emergency medical services.") (emphasis added). In its original complaint, NorthBay alleged that this Agreement was between NorthBay and Kaiser Health Plan, not Kaiser Hospitals. Compl.-ECF No. 1 at 15 (¶ 48) ("In 2010, NorthBay and Kaiser Health Plan entered into an Agreement for Non-Referral Hospital Services for Kaiser Permanente Members."). In the FAC, however, this has been changed to Kaiser Hospitals.
FAC-ECF No. 62 at 6 (¶ 5.e), 26-27 (¶ 64).
Id. at 6 (¶ 5.e), 26-27 (¶ 64).
Id. at 6 (¶ 5.e), 26-27 (¶ 64).
Id. at 6 (¶ 5.e), 27 (¶ 64).
Id. at 6 (¶ 5.f), 43 (¶ 119).
Id. at 27 (¶ 65).
Id. at 37 (¶¶ 97, 100).
Id. (¶¶ 99-100).
Id. at 37-38 (¶ 100).
Id. at 27 (¶ 66).
Id. (¶ 67).
Id. at 20 (¶ 45).
Id. (¶ 44).
Id. (¶ 46).
See id. at 21-22 (¶¶ 47-49).
Pls.' Opp'n to Kaiser Defs. Mot.-ECF No. 73 at 23 ("The FAC speaks for itself, and the Court will see that it never-not once-alleges that the September example involved a Level III patient. To the contrary, the FAC openly acknowledged that the patient was Level II.").
FAC-ECF No. 62 at 22 (¶ 50).
The Solano County's policy memorandum of destination protocols for ambulances states that non-critical patients can choose which hospital their care is to be given-and that if they cannot communicate their choice, the transportation personnel should "use whatever other sources of information that might be available to indicate a pre-existing relationship" between the patient and a particular hospital. Kaiser Defs. Mot. Ex. D (Solano County Health & Social Services Department Policy Memorandum 6700)-ECF No. 67-7 at 3 (¶ II.D), 4 (¶ III.B), 5 (¶ IV.B). The court may take judicial notice of this memorandum because (1) NorthBay's FAC relies on Solano County's emergency-transport routing protocols, see FAC-ECF No. 62 at 22 (¶ 50), and hence the memorandum establishing the protocols can be considered under the incorporation-by-reference doctrine, Knievel v. ESPN ,
FAC-ECF No. 62 at 23 (¶ 52).
Id. at 23 (¶ 53).
FAC-ECF No. 62 at 23 (¶ 53).
In its original complaint, NorthBay alleged "upon information and belief" that the defendants conspired with the Vacaville Fire Department, which provides emergency medical care and transportation to emergency rooms for crisis and trauma patients, and that the defendants told them that patients who do not have Kaiser Health Plan insurance should not be taken to a Kaiser Hospitals hospital and should instead be taken to a non-Kaiser-Hospitals hospital. These allegations are not in the FAC.
FAC-ECF No. 62 at 7 (¶ 6), 34 (¶ 87), 36 (¶¶ 94-95).
NorthBay attempts to distinguish Prime Healthcare by claiming that it "involved a far-fetched conspiracy to eliminate non-unionized hospitals allegedly effected through collective bargaining and a labor-management agreement." Pls.' Opp'n to Permanente Mot.-ECF No. 75 at 22. While some of the allegations in Prime Healthcare involved labor agreements, the plaintiff there also made allegations that the "Kaiser Defendants[ ] refus[ed] to pay claims for treatment of Kaiser members at Prime hospitals" and "refus[ed] to pay physicians who provide emergency services to Kaiser members at Prime hospitals," Prime Healthcare ,
The fact that an assertion devoid of factual enhancement might not include the words "upon information and belief" does not make it non-conclusory or render it sufficient to state a claim.
Pls.' Opp'n to Kaiser Defs.' Mot.-ECF No. 83 at 24.
FAC-ECF No. 62 at 20 (¶ 45) (emphasis added).
The court also has questions about whether allegations that Kaiser Health Plan enrollees were steered to Kaiser Hospitals would plead an antitrust injury to NorthBay even assuming (counterfactually) that such allegations were non-conclusory. Implicit in NorthBay's theory that it suffered an antitrust injury is a presumption that, but for the steering, it has an entitlement to service (and charge) those enrollees for treatment of trauma injuries. It is not clear what the basis for this entitlement is. NorthBay is not, for example, entitled to Kaiser Health Plan enrollees' business if those enrollees choose to go instead to Kaiser Hospitals for outpatient medical care. Cf. Barry v. Blue Cross of Cal. ,
FAC-ECF No. 62 at 9 (¶ 14).
Id. at 8 (¶ 8); see also, e.g. , Pls.' Opp'n to Kaiser Defs. Mot.-ECF No. 73 at 28 ("The FAC alleges that but for Defendants' actions, 'WHA would likely have a larger share of the healthcare insurance market in Solano County today and would more effectively constrain Kaiser Foundation Health Plan.' "); Pls.' Opp'n to Permanente Mot.-ECF No. 75 at 26 ("Defendants responded to their health plan's diminishing power in Solano County by attacking Kaiser Foundation Health Plan's only significant competitor, WHA.").
Nor can NorthBay plead an antitrust injury based on its 50% ownership of WHA, as shareholders of companies do not have standing to sue for antitrust injuries to the companies. Vinci v. Waste Mgmt., Inc. ,
FAC-ECF No. 62 at 27 (¶ 66), 37 (¶¶ 98-100).
If Kaiser Health Plan refuses to pay, NorthBay might have a claim for that unpaid amount-but that does not give rise to an antitrust claim against Kaiser Health Plan.
Kaiser Health Plan and Kaiser Hospitals dispute NorthBay's allegation that insurance companies are required to pay a hospital's full rates and instead argue that they need to pay only the reasonable quantum-meruit value of the hospital's services. Kaiser Defs. Mot.-ECF No. 67 at 11 (citing Children Hosp. Cent. Cal. v. Blue Cross of Cal. ,
See Pls.' Opp'n to Kaiser Defs. Mot.-ECF No. 73 at 21; Pls.' Opp'n to Permanente Mot.-ECF No. 75 at 26, 27.
The Third Circuit held that West Penn could plead an antitrust injury by alleging that Highmark conspired with UPMC to artificially depress the rates at which Highmark paid West Penn to below what West Penn would have received in a competitive market. Id. at 103. But NorthBay does not make similar allegations here. To the contrary, NorthBay alleges that it can set its billing rates at whatever level it wants and that health insurers are obligated to pay it at those rates. FAC-ECF No. 62 at 27 (¶ 66), 37-38 (¶¶ 98-100).
In light of NorthBay's failure to plead causal antitrust injury, the court need not address whether NorthBay pleaded the other elements of its antitrust claims. The court refers the parties to its original dismissal order, which addressed other antitrust-claim elements, NorthBay I ,
All parties are citizens of California. FAC-ECF No. 62 at 9-10 (¶¶ 11-12, 15-17).