Court: District Court, E.D. Pennsylvania; April 3, 2017; Federal District Court
An antitrust action has been initiated against the Blue Cross and Blue Shield Association and several administrators of local Blue Cross and Blue Shield Plans, alleging a nationwide conspiracy to deny insurance coverage for mobile cardiac outpatient telemetry (MCOT) devices produced by Life-Watch Services, Inc. The defendants have collectively moved to dismiss the complaint, and the Court has decided to grant this motion.
MCOT devices are among various arrhythmia monitoring tools prescribed by physicians to remotely record a patient's electrocardiograph (EKG) and are noted for their advantages over other monitoring types, including the capacity to capture and transmit data without patient intervention, thus facilitating quicker physician response times. LifeWatch, the plaintiff, is a leading seller of telemetry monitors, specifically the "LifeWatch MCT 3-Lead" device, and operates monitoring facilities in Philadelphia and near Chicago. The Blue Cross and Blue Shield Association, the largest commercial health insurer in the U.S., oversees a federation of thirty-six health insurance plans, collectively serving approximately 105 million insured individuals. The defendants also include several administrators of various Blue Plans.
LifeWatch alleges that Defendants have engaged in a long-standing conspiracy to deny insurance coverage for MCOT devices and services, despite substantial scientific evidence supporting the efficacy of telemetry. LifeWatch contends that nearly all Blue Plans have uniformly deemed telemetry as not ‘medically necessary’ for over a decade due to a horizontal anticompetitive agreement known as the “Blue Cross ‘Uniformity Rule.’” This rule involves an illegal agreement among Blue Plans to conform to a model medical policy that dictates which claims to deny. A “Medical Policy Panel” purportedly sets these terms, with regular meetings to vote on coverage decisions. LifeWatch claims that Blue Plans adopt the Association’s decisions and face penalties for deviations, including loss of the Blue Cross brand. Specifically, LifeWatch points out that the model medical policy mandates blanket denials of telemetry coverage, which contradicts medical literature and independent expert opinions. LifeWatch asserts that this refusal to evaluate evidence independently is a direct result of the alleged horizontal agreement, leading to reduced revenue, diminished innovation incentives, and distortion of the outpatient cardiac-monitoring device market. The anti-competitive effects include lowered quality of cardiac monitoring, reduced competition, and inhibited research and development. Consequently, LifeWatch brings a claim for conspiracy to restrain trade under Section 1 of the Sherman Act and seeks a permanent injunction against Defendants, along with treble damages, costs, and attorneys’ fees.
LifeWatch initiated its lawsuit on September 10, 2012. Defendants filed a motion to dismiss on August 6, 2015, which was followed by extensions and a response from LifeWatch on September 24, 2015. The Court addressed motions related to the withdrawal of LifeWatch's former counsel, culminating in the substitution of new counsel. On February 16, 2016, LifeWatch's new counsel filed an unopposed motion for leave to submit a third amended complaint, which the Court granted the following day. LifeWatch submitted the third amended complaint on February 25, 2016, which is currently under consideration for dismissal.
Defendants argue for dismissal under Rule 12(b)(6) for four reasons: (1) LifeWatch lacks antitrust standing; (2) there are no factual allegations of an agreement; (3) LifeWatch fails to demonstrate anti-competitive effects in a relevant market as required by the Sherman Act; and (4) the insurance coverage decisions made by Blue Plans’ telemetry monitors are protected from antitrust claims under the McCarran-Ferguson Act.
In evaluating a motion to dismiss under Rule 12(b)(6), the Court must assume the truth of all allegations in the complaint and draw reasonable inferences in favor of the non-moving party. The factual allegations must surpass a speculative level and provide a plausible basis for relief, avoiding mere labels or legal conclusions. The Court's review is limited to the complaint's allegations and any relevant documents or public records.
Defendants argue that LifeWatch has failed to demonstrate an antitrust injury, claiming that the harm it experienced—lost profits due to Blue Plans' refusal to cover telemetry monitors—does not constitute injury to competition. They assert that any reduction in the availability or quality of telemetry monitors is not a result of anticompetitive behavior, as Blue Plans treat all providers equally. LifeWatch counters that the collective refusal of Blue Plans to purchase telemetry products constitutes an anticompetitive act that harms its business and the market at large. LifeWatch argues this agreement among buyers is a violation of antitrust laws, as it restricts sales of their primary product.
The Court, assuming the truth of LifeWatch's allegations and the existence of a Uniformity Rule, concludes that the alleged conspiracy does not violate antitrust law. It emphasizes that the Sherman Act is designed to protect market competition rather than individual competitors. The purpose of antitrust laws is to promote economic efficiency and consumer welfare by preserving competitive markets, not to penalize competitive conduct unless it unfairly destroys competition itself. Historical interpretations of the Sherman Act support the notion that it targets restraints of trade with a significant impact on competition rather than isolated harms to individual businesses.
LifeWatch cites two key cases: **West Penn Allegheny Health Sys. Inc. v. UPMC** and **Blue Shield of Virginia v. McCready**. In **West Penn**, the plaintiff, West Penn, a major hospital system, sued UPMC and Highmark for conspiring to suppress competition in violation of the Sherman Act. West Penn alleged that UPMC used its market power to protect Highmark from competition, while Highmark, in turn, provided West Penn with depressed reimbursement rates as part of this conspiracy, effectively weakening West Penn in the market.
The Third Circuit found that the district court incorrectly dismissed West Penn's Sherman Act claims, emphasizing the nature of the conspiracy involving manipulated reimbursement rates.
In **McCready**, the plaintiff, a patient, accused Blue Shield of engaging in an anticompetitive scheme by favoring psychiatrists over psychologists, leading to a restrictive choice for subscribers. McCready claimed damages for being coerced into choosing psychiatrists in a way that limited her treatment options. The Supreme Court upheld her antitrust standing, noting that Blue Shield's actions constituted a conspiracy to exclude psychologists, thereby violating antitrust principles.
Both cases are distinguished from the current matter; **West Penn** involved a blatant antitrust violation acknowledged by the conspirators, while **McCready** centered on a scheme that restricted consumer choice, a key aspect protected under antitrust law. The damages claimed in both instances were linked to the loss of consumer choice, reinforcing the relevance of antitrust protections.
LifeWatch claims that the Blue Plans have conspired through the Uniformity Rule to limit competition in telemetry services. However, LifeWatch does not allege that this conspiracy is designed to protect one Blue Plan from competition at the expense of another or to unfairly restrain competition. Unlike the conspiracy in West Penn, where two parties acted to shield each other from competition, no similar allegations are made here. Subscribers are not presented with a choice that limits their options, as Blue Plans do not cover any telemetry devices from any provider.
Even if LifeWatch can show that the Blue Plans conspired to deny coverage for telemetry devices, it has not demonstrated that such actions significantly affect competition. LifeWatch argues that the Uniformity Rule reduces market competitiveness by decreasing telemetry purchases and creating a market unresponsive to consumer demand, which allegedly results in several anticompetitive effects, including reduced quality of cardiac monitoring and inhibited innovation. However, the Court finds that these potential market inefficiencies do not necessarily indicate a violation of antitrust laws, as LifeWatch has not plausibly linked these inefficiencies to competition-reducing conduct.
LifeWatch's assertion that all telemetry providers are treated equally by the Blue Plans undermines its antitrust claims, as antitrust laws protect competition, not individual competitors. The Court notes that the Blue Plans may simply believe that the costs of telemetry devices outweigh their benefits. LifeWatch acknowledges that telemetry devices are significantly more expensive than alternatives, and the inability to convince insurers of their value does not equate to a harm to competition.
Defendants' refusal to purchase telemetry devices, whether from LifeWatch or others, does not constitute an antitrust violation but is recognized as a legal exercise of their monopsony power. A firm with significant buying power can negotiate aggressively without violating antitrust laws, even if its decisions adversely impact competitors like LifeWatch. The Court found that LifeWatch failed to establish a colorable antitrust claim under the Sherman Act, thus deeming it unnecessary to consider additional issues such as antitrust standing or market effects. Consequently, the Court granted Defendants’ motion to dismiss with prejudice, dismissing LifeWatch’s Third Amended Complaint and marking the case as closed. All related motions were denied as moot. LifeWatch noted the existence of unsued co-conspirators, particularly other Blue Plans, and referenced studies supporting the superiority of telemetry technology over event monitoring for cardiac issues.
The case underwent a transfer into and out of multidistrict litigation (MDL) related to antitrust issues involving Blue Cross. On November 9, 2012, Blue Cross filed a Notice of Related Action, linking this case to others being consolidated into MDL-2406. The Judicial Panel on Multidistrict Litigation issued a conditional transfer order on December 13, 2012, which led to a temporary stay of proceedings approved by the Court. LifeWatch opposed the transfer, arguing that its case was distinct due to its focus on a conspiracy to deny insurance coverage for life-saving technologies, unlike the MDL's market allocation issues. Despite this, the Panel found that the case would benefit from centralized proceedings and formally transferred it on April 1, 2013. On July 7, 2015, the Panel remanded the case back to the original court, which reopened it that same day. The Court later denied as moot motions to dismiss and to file a reply brief. Defendants filed a motion to dismiss the third amended complaint on May 31, 2016, to which LifeWatch responded on June 30, 2016. The Third Circuit's interpretation of Twombly suggests that conspiracy allegations can be deemed insufficient if clear alternative explanations exist, yet it cautions against applying a heightened plausibility standard in complex cases. The question of whether LifeWatch suffered antitrust injury emerges only after the adequacy of liability allegations is established, emphasizing that hypothetical scenarios, such as spitting in the street being an antitrust violation, do not effectively address the core anticompetitive impact needed for claims.
The Court expresses skepticism about LifeWatch's ability to demonstrate antitrust standing, but does not need to resolve this issue definitively because LifeWatch has not sufficiently alleged an antitrust violation. Defendants argue that previous cases, West Penn and McCready, are distinguishable because they involved conspiracies with competitors, while LifeWatch fails to allege any such collusion among telemetry providers. The Court supports this view but cautions against limiting antitrust remedies based solely on the intent of the conspirators, asserting that a lack of violation negates the need to consider standing. The Court highlights that antitrust injury must stem from a competitive threat linked to the alleged violation. LifeWatch’s reference to an anti-competitive aspect of the Uniformity Rule—claiming it involves collusion to deny coverage—lacks clarity on how this conduct harms competition. It remains uncertain what competition could be undermined by the Blue Plans' actions, as LifeWatch does not claim differential treatment among telemetry providers or that the Blue Plans compete against each other. LifeWatch acknowledges it still sells telemetry devices to other insurers, including some Blue Plans not involved in the lawsuit.
Monopsony power refers to the ability of a buyer to influence the market, which can lead to anticompetitive outcomes such as reduced output, quality, or choice. Citing several legal and academic sources, the text emphasizes the negative implications of monopsony and oligopsony power in markets. The court has denied a request for leave to amend a complaint, stating that such an amendment would be futile. LifeWatch has made three amendments over the past five years without successfully alleging a valid antitrust violation, and the court believes further amendments would not change this outcome. The court reviewed multiple documents related to the motion to dismiss before making its determination.
