Third Circuit Revives Antitrust Claim Against Blues

Health Update

A recent Third Circuit decision highlights the potential pitfalls of policy-setting by associations made up of competing entities. Last month, the Third Circuit reversed the dismissal of a medical device maker’s claims that it was shut out of the market for outpatient cardiac monitors by an alleged agreement between several Blues insurance plans and their association to deny coverage for certain types of monitors. The Third Circuit found that the device maker had sufficiently alleged a conspiracy among the defendants, based in part on allegations that the Blues plans agreed to and followed a policy promulgated by the association to refuse coverage. The court also found that the device maker had articulated a viable theory of competitive harm.

The Claims

In 2012, LifeWatch Services, Inc., one of the largest sellers of telemetry monitors, sued Blue Cross Blue Shield Association and five of its member insurance plan administrators (the Plans), alleging that they conspired to deny coverage for telemetry monitors. Telemetry monitors are a type of outpatient cardiac monitoring device. Other types of outpatient cardiac monitoring devices include insertable monitors (which are surgically implanted), Holter monitors and event monitors. These devices vary in price, complexity, data capture method and data transmission mechanism.

The Association licenses the Blue Cross and Blue Shield trademarks and trade names to its member health insurance plans. Collectively, these plans are a major purchaser of medical devices. The complaint alleges that, with input from its 38 plans, the Association develops and distributes a model medical policy recommending which treatments, devices and services to cover.

Although the model policy does not mandate that plans comply, and includes text explicitly disclaiming that idea, LifeWatch alleged that almost all plans adopt the model policy as is. LifeWatch further alleged that the Plans agreed among themselves and with the Association to a “Uniformity Rule”—i.e., that they would substantially comply with the model policy. LifeWatch alleged that the Association enforced adherence to the model policy through audits, and that if a plan strayed too far from the policy it could face sanctions, including losing the right to use the Association’s trademark.

Under the model policy, telemetry monitors are considered either “not medically necessary” or “investigational.” By contrast, Medicare, Medicaid and other private insurers cover telemetry monitors. The complaint also highlighted ten medical studies and 20 cases appealing coverage denial, finding telemetry monitors effective, superior to other treatments, medically or clinically necessary, or a standard of care.

Sufficient Pleading of Anticompetitive Effects

Two central elements of an antitrust conspiracy case are (1) the existence of an agreement and (2) to restrain trade unreasonably. The district court had dismissed LifeWatch’s complaint on the basis that it failed to allege the second element: anticompetitive effects. The district court held that because each of the Plans treats all telemetry providers equally, the Plans’ refusal to cover telemetry monitors was “not an antitrust violation, but rather a legal exercise of [their] monopsony power.”

LifeWatch appealed, and on August 28, 2018, the Third Circuit reversed and remanded. As in many antitrust cases, the viability of LifeWatch’s allegations of anticompetitive effects turned on market definition: According to the Third Circuit, the lower court incorrectly considered a telemetry monitor-only market instead of the market LifeWatch pleaded—the national outpatient cardiac monitor market. The court held that concerted refusal by the Plans to deal with all sellers of telemetry monitors could adversely impact competition in the market for the purchase of all types of outpatient cardiac monitors by shifting demand to lower-quality substitutes, thereby reducing demand for more-effective devices, interfering with patient choice of medical treatment and reducing the quality of cardiac monitors in general.

Sufficient Pleading of Conspiracy

The district court did not base its original dismissal on failure to plead an agreement, but suggested in its decision that it would have found against LifeWatch on this basis. In dictum, the district court noted that the Plans could have each independently decided not to cover telemetry monitors because their benefits did not outweigh their costs. Heading off potential future attempts to dismiss the complaint on this basis, the Third Circuit analyzed LifeWatch’s conspiracy allegations and found that the complaint did plausibly allege an agreement.

It is a rare antitrust conspiracy case that has direct evidence of an anticompetitive agreement. Typically, complaints allege circumstantial evidence which, taken as true, is enough plausibly to suggest that an agreement was made and allows the case to proceed to discovery and trial. Where a plaintiff pleads as the basis for a conspiracy allegation that the defendants all engaged in the same (or “parallel”) conduct, something more must be alleged to suggest that they did so pursuant to an agreement, rather than as a consequence of independent action.

Here, the court viewed LifeWatch’s allegations as presenting more than simply parallel conduct, highlighting the complaint’s allegations about the model medical policy:

  • The model policy is set during meetings in which a panel, composed of plan representatives, reviews and votes on what to include.
  • Defendants agreed to substantially comply with the model policy (the Uniformity Rule).
  • The Association enforced the Uniformity Rule through audits.
  • The Association imposed sanctions for failure to comply with the Uniformity Rule.

The court found that these allegations escaped being conclusory by the provision of a particular example of enforcement of the Uniformity Rule. The complaint alleged that one Plan, Highmark, had initially contracted with LifeWatch to deem telemetry monitors as medically necessary and cover such monitors for both Highmark subscribers and subscribers of other Blues plans, which would then reimburse Highmark. After allegedly being pressured by the other Plans, however, Highmark stopped paying for claims from subscribers of other Blues plans.

The court also noted that it was unlikely that the parallel actions of nearly three dozen plans in refusing to cover telemetry monitors could be explained as independent action when so many sophisticated third parties allegedly view telemetry monitors as medically necessary or meeting the standard of care. Specifically, the complaint alleged that Medicare, Medicaid and other private insurers cover telemetry monitors and that telemetry monitors were accepted as effective, medically necessary or the standard of care in ten cited medical studies and 20 cited cases appealing coverage denials.

Takeaways

While it remains to be seen whether LifeWatch ultimately will be able to prove its allegations through evidence, the Third Circuit’s decision provides a good example of the types of antitrust allegations that will clear the motion to dismiss hurdle. The case also serves as a reminder for any organization or association composed of competing entities of the antitrust risks inherent in developing and promoting policies disfavoring a particular type of product or service. Where the rest of the market takes a different approach to the policy, claims that the members each independently decided to act in accordance with the policy may be undermined. Under the right (or wrong) conditions, such policies can form the basis for antitrust group boycott claims.