A federal court in Ohio has provided some of the clearest guidance to date on the application of the single-enterprise immunity doctrine to healthcare organizations. The single-enterprise immunity doctrine is critically important in the healthcare industry, because firms that qualify for single-enterprise immunity are free to engage with each other in joint contracting, joint strategic planning, and all other varieties of joint conduct without risking antitrust liability under Section 1 of the Sherman Act.
In antitrust parlance, the single-enterprise immunity doctrine is known as “Copperweld,” after the Supreme Court case that first recognized the doctrine. The original Copperweld case reached the entirely unremarkable conclusion that the interests of a parent company and its wholly owned subsidiaries are so closely aligned that any agreements between them cannot pose any competitive danger and, therefore, are outside the scope of Section 1 of the Sherman Act. Subsequent decisions have found that Copperweld can also apply to the relationship between a parent company and its majority-owned subsidiaries, as well as to two corporations that are owned by the same shareholders. These later precedents have not been without controversy, however, and the outer bounds of Copperweld remain unsettled. In particular, it has long been a question how (or whether) Copperweld applies to entities that lack common ownership.
Specific to the healthcare industry, Copperweld immunity has been found to apply to the relationship between a hospital and an ambulance operator, where the hospital had broad managerial powers and the right to appoint a supermajority of the ambulance operator’s board. Copperweld has also been found in an affiliation where two hospitals were governed by a common management authority, merged their medical staffs, and achieved a high level of operational integration. But because these healthcare decisions have been highly fact-dependent, they have provided limited guidance for others to follow.
On October 20, 2014, the Southern District of Ohio provided some of the clearest guidance to date about the application of Copperweld to healthcare organizations. Much of the record in the case is under seal, but the key allegations in the case were that an organization of plans and providers had conspired to exclude a rival hospital from managed care contracts and from receiving referrals. The defendants were not commonly owned, but they were subject to a common Joint Operating Agreement under which they delegated operational, strategic, and financial control to a single entity and shared a common ultimate financial ledger.
On these facts, the court held that the defendants could qualify for Copperweld immunity. Even though the defendants did not have common ownership, the opinion held that “it is the economic integration of Defendants, not the form, that is determinative for the antitrust analysis.” The court stressed first that the Joint Operating Agreement among the parties created “contractual control,” which the court deemed “sufficient to demonstrate that the Defendants are a single entity.” The court added that the “Defendants are not competitors because they are not separate economic actors — all of the money goes to one bottom line.” It granted that some of the defendants had separate debt obligations and that individual executives’ performance incentives were tied to their respective entities’ performances. However, the court ruled that these competing demands did not undercut the unity of the organization’s economic interest, because they all ultimately served the same bottom line.
The court noted other aspects of the defendants’ relationship that also supported the conclusion that the combined organization qualified for Copperweld immunity: the organization contracted jointly; it developed and approved the combined strategy, business plans, and budgets; and it managed the operations of all its constituent parts. But in addition to common control, a key factor that appeared to influence the court was that the combined organization shared a common bottom line. In other words, for an organization with centralized control, the bottom line for Copperweld may be that the defendants had one bottom line.
Copperweld immunity is a critical concept in determining what amount of integration is advisable for engaging in joint contracting or joint strategic planning.
Therefore, the Southern District of Ohio’s ruling provides important guidance for the entire healthcare industry. That said, three points are worth making about the opinion.
First, it is important to note that the court’s opinion represents just that—one court’s opinion — and it was based on the specific facts presented. Healthcare organizations across the country therefore should be mindful that other courts are not necessarily bound by the Southern District of Ohio’s ruling, especially where different facts are presented.
Second, the lack of centralized control and a single bottom line does not mean that parties cannot qualify for Copperweld immunity in other ways. The court’s opinion makes clear that “substance, not form” determines the Copperweld analysis. Therefore, the opinion still leaves room for asserting Copperweld immunity based on other grounds, such as having common ownership, board rights, rights to change bylaws or articles of incorporation, or integrated staffs. Therefore, it is important to consult with antitrust counsel to consider the application of the Copperweld doctrine to any specific factual scenario.
Finally, it is important to point out that Copperweld immunity is not quite an antitrust silver bullet. For one, Copperweld is an immunity for liability under Section 1 of the Sherman Act, which governs joint conduct such coordinated rate-setting; however, Copperweld does not provide a defense to unilateral conduct such as monopolization, nor does it prevent an action against anticompetitive mergers or acquisitions. Moreover, Copperweld can be an expensive defense to raise. The matter before the Southern District of Ohio is a case in point. Although the defendants were ultimately successful on summary judgment, they previously had lost a motion to dismiss the case two years earlier, where the court observed that Copperweld immunity is a “factually driven issue” that could not be decided without discovery. Therefore, the parties were required to undertake expensive and time-consuming discovery—including the production of documents and depositions—before the court was able to conclude that they qualified for immunity. Therefore, while Copperweld is an important doctrine, parties that seek to rely on it should understand that it is neither an absolute defense nor necessarily an inexpensive one to raise.