Cascade Health Solutions v. PeaceHealth

Rule of Law:

To establish that a bundled discount constitutes exclusionary conduct under § 2 of the Sherman Act, a plaintiff must prove that after allocating the full discount to the competitive product, the defendant sold the competitive product below its average variable cost.

Facts:

• McKenzie-Willamette Hospital ('McKenzie') and PeaceHealth were the only two providers of hospital care in Lane County, Oregon.
• PeaceHealth operated multiple hospitals providing primary, secondary, and tertiary care, holding a market share of approximately 75% for primary/secondary services and over 90% for tertiary services, which McKenzie did not offer.
• McKenzie operated one hospital that offered only primary and secondary acute care services.
• PeaceHealth offered bundled discounts to health insurers, conditioning lower reimbursement rates on the insurer making PeaceHealth its sole preferred provider for all three levels of care (primary, secondary, and tertiary).
• When insurer Regence considered adding McKenzie as a provider for primary/secondary services, PeaceHealth offered a substantially worse reimbursement rate (90%) than the rate offered if PeaceHealth remained the sole provider (85%).
• As a result of PeaceHealth's pricing structure, Regence declined to add McKenzie to its preferred provider plan.
• Similarly, after insurer Providence added McKenzie as a preferred provider, PeaceHealth increased its reimbursement rate charged to Providence from 90% to 93%, making it more expensive for the insurer to include McKenzie.

Procedural Posture:

• McKenzie-Willamette Hospital ('McKenzie') sued PeaceHealth in the United States District Court for the District of Oregon, alleging federal antitrust and state law violations.
• Prior to trial, the district court granted summary judgment in favor of PeaceHealth on McKenzie's tying claim.
• The remaining claims proceeded to a jury trial.
• The jury found for PeaceHealth on the monopolization and conspiracy to monopolize claims but found for McKenzie on the attempted monopolization, price discrimination, and tortious interference claims.
• The jury awarded McKenzie $5.4 million in damages, which the district court trebled to $16.2 million for the attempted monopolization claim.
• The district court also awarded McKenzie attorneys' fees and costs.
• PeaceHealth appealed the judgment against it to the U.S. Court of Appeals for the Ninth Circuit, and McKenzie cross-appealed the summary judgment ruling on its tying claim.