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DOJ and Michigan Sue Four Hospital Systems for Agreeing Not to Compete With Each Other

Together with the State of Michigan, the United States Department of Justice’s Antitrust Division has filed a civil suit against four Michigan hospital systems for allegedly agreeing to limit marketing in each other’s territories.  Three of the hospital systems—Hillsdale Community Health Center, Community Health Center of Branch County, and ProMedica Health System—have agreed to settle the charges.  The fourth system involved—W.A. Foote Memorial Hospital, doing business as Allegiance Health—has declined to settle.

According to the complaint, these four systems operate the only general acute-care hospitals in their respective counties in south-central Michigan.  DOJ and Michigan allege that the CEO of Hillsdale Community Health Center orchestrated agreements with executives from the other three systems to limit marketing of healthcare services.  The hospitals’ marketing efforts were not limited to traditional advertisements and mailers; at times the hospitals would offer consumers health screenings and physician outreach.  Thus, the complaint alleges that the alleged agreements resulted in a loss of competition among the hospitals resulting in depriving consumers of valuable information regarding the respective services each of these hospitals might offer as well as the free medical services competition may have produced.

The complaint provides specific examples of the evidence the Government has developed regarding the existence of the alleged agreement.  It cites a 2013 oncology marketing plan by the Allegiance Health system, which allegedly stated that “an agreement exists with the CEO of Hillsdale Community Health Center, Duke Anderson, to not conduct marketing activity in Hillsdale County.”  The complaint also cites testimony from the CEO of the Community Health Center of Branch County, who acknowledged a “gentleman’s agreement” among the hospitals not to market in each other’s counties.  The complaint further alleges several instances in which participants violated their “gentleman’s agreement,” provoking complaints by others and renewed agreement to discontinue the encroaching marketing efforts.

The complaint asserts Sherman Act claims on behalf of the United States, while Michigan brings both Clayton Act and state antitrust law claims.  It requests injunctions against the hospital systems and their employees to prevent them from coordinating or communicating about marketing.  The complaint also seeks an order requiring the hospitals to “institute a comprehensive antitrust compliance program,” as well as attorney’s fees and costs.

A stipulation and a proposed final judgment have been filed as to the three settling hospitals, with terms that are consistent with the relief requested in the complaint.  The proposed final judgment states that each settling defendant shall not enter into any agreement that limits marketing or allocates territory, nor shall it communicate with any other defendant about marketing.  It further states that each settling hospital shall appoint an Antitrust Compliance Officer, and shall also self-report any additional potential antitrust violations to the DOJ and Michigan.  The proposed final judgment also provides that the settling hospitals must fully cooperate with any ongoing investigation or litigation concerning the marketing agreements—including testimony at trial—and must allow future compliance inspections by the DOJ and Michigan Attorney General.  Finally, each settling defendant must pay $5,000 to Michigan to partially cover the investigation’s costs.  The proposed final judgment will expire five years from the date of its entry.

We will continue to monitor this case moving forward.