Davis v. Hca Healthcare, Inc.

Davis v. HCA Healthcare, Inc., 2022 NCBC 52.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE

SUPERIOR COURT DIVISION

BUNCOMBE COUNTY 21 CVS 3276

WILLIAM ALAN DAVIS;

LORRAINE NASH, as Administrator

of the Estate of RICHARD NASH;

WILL OVERFELT, Ed.S BCBA;

JONATHAN POWELL; FAITH C.

COOK, Psy.D.; and

KATHERINE BUTTON, on their own ORDER AND OPINION ON

behalf and on behalf of all others DEFENDANTS’ MOTION TO DISMISS

similarly situated,

Plaintiffs,

v.

HCA HEALTHCARE, INC.; HCA

MANAGEMENT SERVICES, LP;

HCA, INC.; MH MASTER

HOLDINGS, LLLP; MH HOSPITAL

MANAGER, LLC; MH MISSION

HOSPITAL, LLLP; ANC

HEALTHCARE, INC. F/K/A

MISSION HEALTH SYSTEM, INC.;

and MISSION HOSPITAL, INC.,

Defendants.

THIS MATTER comes before the Court on Defendants’ Motion to Dismiss

Class Action Complaint (“Motion to Dismiss” or “Motion,” ECF No. 27).

THE COURT, having considered the Motion, the briefs of the parties, the

arguments of counsel, and all appropriate matters of record, CONCLUDES, for the

reasons set forth below, that the Motion should be GRANTED, in part, and

DENIED, in part.

Wallace and Graham, P.A., by John Hughes and Mona Lisa Wallace,

and Fairmark Partners, LLP, by Jamie Crooks for Plaintiffs William

Alan Davis, Lorraine Nash, as Administrator of the Estate of Richard

Nash, Will Overfelt, Ed.S. BCBA, Jonathan Powell, Faith C. Cook, Psy

D., and Katherine Button, on their own behalf and on behalf of all others

similarly situated.

Roberts & Stevens, P.A., by Phillip T. Jackson, John Noor, and David

Hawisher, and Simpson Thatcher & Bartlett LLP, by Sara Razi and

Abram Ellis, for Defendants HCA Healthcare, Inc., HCA Management

Services, LP, HCA, Inc., MH Master Holdings, LLLP, MH Hospital

Manager, LLC, and MH Mission Hospital, LLLP.

Bradley Arant Boult Cummings LLP, by Dana C. Lumsden and Dexter

C. Hobbs, Jr., and Faegre Drinker Biddle & Reath LLP, by Kenneth M.

Vorrasi, Jonathan H. Todt, Alison M. Agnew, and Paul H. Saint-Antoine

for Defendants ANC Healthcare, Inc. f/k/a Mission Health System Inc.

and Mission Hospital, Inc.

Davis, Judge.

INTRODUCTION

1. This case presents several unique issues arising under antitrust law

with regard to the provision of healthcare services in western North Carolina.

Plaintiffs allege that (1) Defendants possess a monopoly with regard to the provision

of inpatient medical services in the Asheville area though their flagship hospital; (2)

Defendants have unlawfully sought to maintain and extend that monopoly into

adjacent counties by coercing commercial health insurers into including Defendants’

other smaller facilities in their “networks”; and (3) by virtue of such practices,

Defendants have also engaged in an unlawful restraint of trade. Defendants,

conversely, contend that (1) any existing monopoly that they possess in the Asheville

area for inpatient medical services was lawfully acquired; and (2) Plaintiffs have

failed to adequately plead in their Complaint valid claims for monopolization,

attempted monopolization, or restraint of trade. In evaluating the parties’ competing

positions, the Court must apply antitrust principles within the specific context of the

healthcare industry in which patients largely pay for medical care in the form of

premiums paid to commercial health insurers, which negotiate directly with hospitals

for inclusion within the insurers’ networks.

FACTUAL AND PROCEDURAL BACKGROUND

2. The Court does not make findings of fact on a motion to dismiss under

Rule 12(b)(6) of the North Carolina Rules of Civil Procedure and instead recites those

facts contained in the complaint (and in documents attached, referred to, or

incorporated by reference in the complaint) that are relevant to the Court’s

determination of the motion. See, e.g., Concrete Serv. Corp. v. Inv’rs Grp., Inc., 79

N.C. App. 678, 681 (1986); Window World of Baton Rouge, LLC v. Window World,

Inc., 2017 NCBC LEXIS 60, at *11 (N.C. Super. Ct. July 12, 2017).

A. Parties

3. The named Plaintiffs in this action are all residents of western North

Carolina who each have health insurance under some form of commercial insurance

plan. (Complaint, ECF No. 3, ¶¶ 15–20.) The Complaint alleges that as a result of

Defendants’ antitrust violations, each Plaintiff has had to pay “higher amounts” for

healthcare services. (Compl. ¶¶ 15–20.)

4. Defendant HCA Healthcare, Inc. (“HCA”) “is the ultimate parent

company of the HCA enterprise” and is “the world’s largest for-profit hospital chain.”

(Compl. ¶¶ 21–23.) HCA operates through a web of affiliated entities, including the

following Defendants: HCA Management Services, LP; MH Master Holdings, LLLP;

MH Hospital Manager, LLC; and MH Mission Hospital, LLLP. (Comp. ¶¶ 21–41.)

5. Defendant ANC Healthcare, Inc. f/k/a Mission Health System Inc.

(“ANC”) was incorporated in 1981 as a North Carolina nonprofit corporation and

operated healthcare systems in Western North Carolina. (Compl. ¶¶ 43–44.)

Although the company still exists, it has not been based in North Carolina since 2019.

(Compl. ¶ 42.)

6. Defendant Mission Hospital, Inc. (“Mission) similarly operated in North

Carolina until 2019. Both Mission and ANC now have principal places of business in

Florida. (Compl. ¶¶ 42, 46.) Mission was incorporated in 1951 as a North Carolina

nonprofit corporation. (Compl. ¶ 47.)1

B. Relevant Markets

7. Plaintiffs identify three distinct geographic markets relevant to the

antitrust claims asserted in the Complaint. 2

8. Plaintiffs assert that the first relevant market—the “Primary Relevant

Market”— is the Asheville Region Inpatient Services market. Plaintiffs describe this

market as “the sale of inpatient general acute care hospital services to insurers (or

self-funded [third-party administrator]s) in Buncombe and Madison Counties[.]”

(Compl. ¶ 111.) Plaintiffs allege that “Defendants participate in the Asheville Region

Inpatient Services Market predominately through their flagship facility, Mission

Hospital-Asheville.” (Compl. ¶ 111.)

1 The named Defendants in this case are referred to collectively herein as “Defendants.”

2 For purposes of the present Motion, Defendants have not challenged the validity of

Plaintiffs’ designation of these markets.

9. In the Asheville Region Inpatient Services market, Defendants possess

a market share of approximately 80-90% for acute inpatient services. (Compl. ¶ 116.)

According to the Complaint, this market share is “significant enough to stifle

competition and restrict freedom of commerce, and, during the relevant period,

Defendants have had the ability to control the price for this market.” (Compl. ¶ 116.)

10. The second relevant market identified by Plaintiffs is “the sale of

outpatient medical services to insurers in Buncombe and Madison Counties,” which

the Complaint refers to as the Asheville Region Outpatient Services market. (Compl.

¶ 117.) Plaintiffs assert that “Defendants participate in this market through their

flagship facility, Mission Hospital-Asheville, and other HCA/Mission outpatient

facilities in Buncombe and Madison Counties.” (Compl. ¶ 117.) The Complaint does

not provide any market share data for the Asheville Region Outpatient Services

market but nevertheless alleges that “Defendants are able to control the prices paid

by commercial health plans and patients” in this market. (Compl. ¶ 129.)

11. The third, and final, relevant market Plaintiffs identify is the “Outlying

Regions Inpatient and Outpatient Services Market.” 3 Plaintiffs allege that “[u]nlike

Mission Hospital-Asheville, several of these Outlying Facilities face some competition

for acute inpatient hospital services and compared to Mission Hospital-Asheville they

face more significant competition for outpatient medical services, from other

hospitals and non-hospital providers in the geographic regions in which they

operate.” (Compl. ¶ 127.)

3 Plaintiffs assert that this market comprises Macon, McDowell, Mitchell, Transylvania, and

Yancey Counties. (Compl. ¶ 126.)

12. Defendants’ allegations regarding Defendants’ market share in the

Outlying Regions relates solely to inpatient services. (Compl. ¶ 131.) Plaintiffs

provide the following market share figures for inpatient services in the counties

comprising the Outlying Regions using data from 2018: 4

Macon County: 74.4%

McDowell County: 76.4%

Mitchell County: 85.4%

Transylvania County: 78.7%

Yancy County: 90.9%

(Compl. ¶ 225.)

C. Mission’s Acquisition of Asheville Monopoly

13. The origins of this lawsuit stem from the operation of Mission Hospital

in Asheville, North Carolina. (Compl. ¶ 57.) After joining with other Buncombe

County hospitals after World War II, Mission became a “major medical center” in

western North Carolina. (Compl. ¶ 58.) As noted, Mission Hospital, Inc. was

incorporated in 1951. (Compl. ¶ 58.)

14. In the 1990s, following Mission’s growth as a major hospital in western

North Carolina, Mission initiated lobbying efforts to persuade the North Carolina

General Assembly to enact a Certificate of Public Advantage (“COPA”) law 5 to

4 As discussed in more detail later in this Opinion, these figures are largely, if not entirely,

based on Medicare data.

5 A COPA is essentially an agreement between a private entity and a state in which the entity

is granted a legal monopoly in a particular market in exchange for agreeing to be subject to

certain types of oversight from the state. (Compl. ¶ 63.)

encourage cooperation between Mission Hospital and St. Joseph’s Hospital, the only

two private acute care hospitals in Asheville at that time. (Compl. ¶ 59.)

15. These lobbying efforts were successful, and in 1993 an initial version of

the COPA law was enacted that sought to immunize Mission from antitrust scrutiny.

(Compl. ¶ 59; 1993 N.C. Sess. Laws 529.) The General Assembly stated the following

regarding the underlying purpose of the law:

[F]ederal and State antitrust laws may prohibit or discourage

cooperative arrangements that are beneficial to North Carolina citizens

despite their potential for or actual reduction in competition and . . .

such agreements should be permitted and encouraged.

N.C.G.S. § 131E-192.1(7) (1997) (repealed 2015).

16. The operative portion of the COPA law stated as follows:

(a) Activities conducted pursuant to a cooperative agreement for which

a certificate of public advantage has been issued are immunized from

challenge or scrutiny under State antitrust laws. In addition,

conduct in negotiating and entering into a cooperative agreement for

which an application for a certificate of public advantage is filed in

good faith shall be immune from challenge or scrutiny under State

antitrust laws, regardless of whether a certificate is issued. It is the

intention of the General Assembly that this Article shall also

immunize covered activities from challenge or scrutiny under federal

antitrust laws.

N.C.G.S. § 131E-192.13(a) (2013) (repealed 2015).

17. In the Complaint, Plaintiffs summarize the effect of the COPA law as

follows: “Effectively, the government and Mission had a deal: If Mission accepted

regulation to prevent it from charging monopoly prices or otherwise abusing its

monopoly market power, North Carolina would exempt Mission from the antitrust

laws.” (Compl. ¶ 63.)

18. In response to FTC antitrust concerns, the COPA law was amended in

1995, after which Mission entered into a partnership with St. Joseph’s Hospital.

(Compl. ¶¶ 60–61.) The COPA law was amended once more in 1998 to facilitate a

formal merger between Mission and St. Joseph’s Hospital, resulting in the Mission

Health System. (Compl. ¶¶ 60–61) The COPA law was again amended in 2006.

(Compl. ¶ 67.) Plaintiffs assert that in reliance upon the COPA law, Mission

established a pattern of buying up and eliminating physician groups. (Compl. ¶ 72.)

19. In the early 2010s, Mission officials began complaining about the state

oversight provided for under the COPA law. Plaintiffs allege that “[a]fter years of

pressure by [Mission’s CEO],” the General Assembly enacted a bill repealing the

COPA law, “terminating state oversight” on 30 September 2016. (Compl. ¶¶ 78–81.)

20. Following the COPA law’s repeal, Mission was freed of state regulatory

oversight and began to negotiate with HCA, a for-profit, multi-state healthcare

system. (Compl. ¶ 84.) HCA’s acquisition of the Mission system was announced in

March 2018, and a series of Asset Purchase Agreements were executed in 2018 and

2019. (Compl. ¶¶ 84.)

D. Defendants’ Acts Post-HCA Acquisition

21. According to the Complaint, hospitals such as those under Defendants’

control negotiate with insurers not on a “service-by-service basis” but rather for a

bundle of services in order to be considered “in-network” with a particular commercial

insurer. (Compl. ¶ 99.) The costs paid by the commercial health insurer to the

hospital for patient services is indirectly passed on to consumers in the form of

premiums paid by consumers as part of their commercial health insurance plan.

(Compl. ¶ 102.) In order for a commercial insurer’s insurance plan to be viable, the

insurer must offer in-network services within the region where patients live or work.

(Compl. ¶ 101.) Plans that do not include a comprehensive set of services, or that

require long-distance travel by patients in order to receive in-network care, are not

viable insurance products. (Compl. ¶ 101.)

22. Plaintiffs allege that when an insurer seeks to offer a health insurance

plan “in a region where a significant area is controlled by a single hospital,” the

dynamics are different—that is, the hospital becomes a “must-have” hospital. As a

result, Plaintiffs assert, “must have” hospitals enjoy significant advantages over

other healthcare providers in negotiations with commercial insurers. 6 Such hospitals

are able to effectively demand higher prices for services than those that would exist

in a competitive market featuring significant competition from other healthcare

providers. (Compl. ¶¶ 105–06)

23. Plaintiffs allege that this unique advantage in the marketplace has been

accompanied by certain “anticompetitive negotiating tactics [by Defendants] with

commercial health plans and/or [that Defendants] have insisted on contractual terms

including one or more anticompetitive provisions for the insurers.” (Compl. ¶ 133.)

Such tactics and clauses include tying (“all-or nothing”) restrictions, “gag” clauses,

and anti-tiering and anti-steering provisions. (Compl. ¶ 133.)

6 In western North Carolina, this means that any commercial health insurance plan in

Defendants’ operating region that does not include Mission Hospital-Asheville in-network is

a non-viable insurance plan in the region served by that hospital.

24. Plaintiffs allege that Defendants have engaged in an unlawful “tying

scheme,” which occurs when a monopolist in one market uses its leverage stemming

from the monopoly to “reap profits in another market.” (Compl. ¶ 200.) Plaintiffs

describe the classic example of an “all-or nothing” tying agreement in this context as

occurring when, during negotiations with an insurer, a hospital system (such as

Mission) demands that in order for the insurer to be able to include the system’s

“must have” hospital in its network, the insurer must agree to include other facilities

owned by the hospital system in the network—regardless of whether the insurer

wants to include those other facilities. As a result, Plaintiffs argue that the insurer

is coerced into including facilities in its network that it does not believe are beneficial

to its patients based on factors such as price or quality. Otherwise, the insurer’s

network is essentially rendered useless by virtue of its inability to offer the “must

have” hospital in-network. (Compl. ¶ 201.)

25. Plaintiffs allege that (1) Mission Hospital-Asheville is the epitome of

such a “must-have” hospital in western North Carolina for the provision of inpatient

services; and (2) through the use of a tying provision in its contracts with commercial

health insurers, Defendants are able to coerce those insurers into including other

facilities owned by Defendants in their networks— regardless of whether the insurers

would otherwise choose not to include these additional facilities in-network. (Compl.

¶ 202.)

26. Plaintiffs also assert that in their contracts with insurers Defendants

“required one or more insurers not to use steering or tiering language, or to use

weaker language or provisions than the insurers would have desired to use, as a

condition of obtaining access to Defendants’ ‘must have’ Mission Hospital-Asheville

for their commercial health plan.” (Compl. ¶ 229.) According to Plaintiffs, insurers

engage in “steering” when they direct patients to seek care at certain facilities that

offer more cost-effective or higher-quality care than other facilities. (Compl. ¶ 226.)

Plaintiffs further allege that insurers in a competitive market may also engage in

“tiering” by creating tiers within a health insurance plan to incentivize their patients

to seek care at more cost-effective facilities and to discourage them from utilizing

facilities that are more expensive. (Compl. ¶ 227.) Plaintiffs contend that anti-

steering and anti-tiering contractual provisions therefore eliminate an insurer’s

otherwise existing ability to encourage the use of facilities that are less expensive.

(Compl. ¶ 227.)

27. The Complaint also asserts that Defendants “have obscured their price

increases and anticompetitive contracts from regulators and the public through use

of gag clauses that prevent insurers from revealing their agreements’ terms.” (Compl.

¶ 231.) Plaintiffs state such clauses have the effect of “prevent[ing] competitors,

insurers, and consumers from understanding in a transparent manner the pricing

and other terms and arrangements being used by Defendants.” (Compl. ¶ 231.)

28. Overall, Plaintiffs allege that the practices described above have caused

anticompetitive harm in the following respects:

• protecting Defendants’ market power and enabling Defendants to

raise prices and reduce quality of acute inpatient hospital services

substantially beyond what would be tolerated in a competitive

market, to the detriment of consumer welfare;

• substantially lessening competition among providers in their sale of

acute inpatient services;

• preventing the entry of competitors into the market by forcing

insurers to agree to terms that bar them from sharing competitive

pricing information;

• preventing the entry of potential competitors into the market by

forcing insurers to agree to terms that bar them from directing

consumers to lower cost providers;

• restricting the introduction of innovative insurance products that are

designed to achieve lower prices and improved quality for acute

inpatient hospital services;

• reducing consumers’ incentives and ability to seek or even be aware

of acute inpatient hospital services from more cost-effective

providers; and

• depriving consumers of the benefits of a competitive market for their

purchase of inpatient hospital services.

(Compl. ¶ 134.)

29. Plaintiffs allege that as a result of the above-referenced practices,

insurance premiums in areas where Defendants operate are substantially higher

than those in surrounding areas. (Compl. ¶ 235.)

30. In addition, the Complaint alleges that Defendants required patients to

undergo unnecessary procedures and pushed patients toward more expensive care.

Plaintiffs assert that such conduct would not occur in a competitive healthcare

market involving an arms-length bargaining process between insurers and

healthcare facilities. (Compl. ¶¶ 193–98.)

31. The Complaint further asserts that “Defendants’ monopolistic practices

have caused reduced quality of service in HCA/Mission hospitals.” In particular,

Plaintiffs allege that after its acquisition by HCA, Mission Hospital-Asheville’s rating

was downgraded from an “A” to a “B” based on “infections, high-risk baby deliveries,

some cancer treatment procedures, and the patient experience regarding elective

surgeries.” (Compl. ¶¶ 89, 94.) According to the Complaint, Mission was also

downgraded by Centers for Medicare and Medicaid Services (“CMS”), and “CMS even

threatened to terminate its contract with HCA/Mission over patient safety

concerns[.]” (Compl. ¶ 95.)

32. Finally, Plaintiffs allege “[o]n information and belief, because of

Defendants’ Inpatient/Outpatient Tying Scheme, outpatient facilities have closed or

relocated to more competitive markets and would-be competitors for outpatient care

have declined to operate in Buncombe and Madison Counties, which has decreased

the quantity of outpatient care and increased prices[.]” (Compl. ¶ 205.)

E. Lawsuit

33. On 10 August 2021, Plaintiffs filed this action in Buncombe County

Superior Court. (Class Action Complaint, ECF No. 3.) Plaintiffs have asserted the

following claims: (1) monopolization in violation of Article I, Section 34 of the North

Carolina Constitution and N.C.GS. § 75-2.1; (2) attempted monopolization in

violation of N.C.G.S. § 75-2.1; and (3) restraint of trade in violation of N.C.G.S. §§ 75-

1 and 75-2. 7 As relief, Plaintiffs seek monetary damages along with injunctive,

equitable, and declaratory relief. (Compl. ¶¶ 299–345.)

34. This action was designated a mandatory complex business case on 11

August 2021. (ECF Nos. 1, 2.) On 13 October 2021, Defendants filed a Motion to

Dismiss pursuant to N.C. R. Civ. P. 12(b)(1) and 12(b)(6) seeking dismissal of each of

7 All of Plaintiffs’ claims are based on North Carolina law. However, as noted below, in

analyzing these claims it is permissible for the Court to consider federal antitrust cases that

it deems to be instructive.

Plaintiffs’ asserted claims for relief. (ECF No. 27.) After the case was reassigned to

the undersigned on 3 January 2022, (ECF No. 32), the Court held a hearing on 27

April 2022 and a supplemental hearing via WebEx on 17 August 2022. The Motion

to Dismiss is now ripe for decision.

LEGAL STANDARD

35. Defendants’ Motion to Dismiss has two components. First, they assert

that the named Plaintiffs lack standing to bring this action such that dismissal for

lack of subject matter jurisdiction is appropriate under Rule 12(b)(1) of the North

Carolina Rules of Civil Procedure. Second, they contend that Plaintiffs have failed to

state a valid claim for relief pursuant to Rule 12(b)(6).

36. “A plaintiff’s standing to assert its claims may be challenged under

either Rule 12(b)(1) or Rule 12(b)(6) of the North Carolina Rules of Civil Procedure.”

Raja v. Patel, 2017 NCBC LEXIS 25, at *11 (N.C. Super. Ct. Mar. 23, 2017) (citations

omitted). A Rule 12(b)(1) motion challenges a court’s “jurisdiction over the subject

matter” of the plaintiff’s claims. N.C. R. Civ. P. 12(b)(1). “Subject matter jurisdiction

is the indispensable foundation upon which valid judicial decisions rest,” In re T.R.P.,

360 N.C. 588, 590 (2006) (citation omitted), and “has been defined as the power to

hear and to determine a legal controversy; to inquire into the facts, apply the law,

and to render and enforce a judgment,” High v. Pearce, 220 N.C. 266, 271 (1941)

(cleaned up). “[T]he proceedings of a court without jurisdiction of the subject matter

are a nullity.” Burgess v. Gibbs, 262 N.C. 462, 465 (1964) (citation omitted).

37. It is clear that “[a]s the party invoking jurisdiction, plaintiff has the

burden of establishing standing.” Queen’s Gap Cmty. Ass’n v. McNamee, 2011 NCBC

LEXIS 37, at **4 (N.C. Super. Ct. Sept. 23, 2011) (cleaned up). In determining the

existence of subject matter jurisdiction, the Court may consider matters outside the

pleadings. Emory v. Jackson Chapel First Missionary Baptist Church, 165 N.C. App.

489, 491 (2004) (cleaned up). However, “if the trial court confines its evaluation [of

standing] to the pleadings, the court must accept as true the plaintiff’s allegations

and construe them in the light most favorable to the plaintiff.” Munger v. State, 202

N.C. App. 404, 410 (2010) (quoting DOT v. Blue, 147 N.C. App. 596, 603 (2001)).

38. “It is well-established that dismissal pursuant to Rule 12(b)(6) is proper

when ‘(1) the complaint on its face reveals that no law supports the plaintiff’s claim;

(2) the complaint on its face reveals the absence of facts sufficient to make a good

claim; or (3) the complaint discloses some fact that necessarily defeats the plaintiff’s

claim.’ ” Corwin v. British Am. Tobacco PLC, 371 N.C. 605, 615 (2018) (quoting Wood

v. Guilford Cty., 355 N.C. 161, 166 (2002)). The Court may also “reject allegations

that are contradicted by the documents attached, specifically referred to, or

incorporated by reference in the complaint.” Laster v. Francis, 199 N.C. App. 572,

577 (2009) (cleaned up).

39. In evaluating antitrust claims asserted under North Carolina law, this

Court has stated the following:

The Motion [to Dismiss] must be decided as a matter of state law;

however, it is proper for the Court to consult federal case law. See Rose

v. Vulcan Materials Co., 282 N.C. 643, 656-57, 194 S.E.2d 521, 530-31

(1973) (consulting federal decisions to inform the court’s restraint-of-

trade analysis). The Court is fully cognizant that the Motion [to

Dismiss] must be resolved under North Carolina’s lenient Rule 12(b)(6)

standard rather than the more exacting federal plausibility standard

that governs the federal antitrust precedents that the parties cite in

their briefs. Compare Sutton v. Duke, 277 N.C. 94, 104, 176 S.E.2d 161,

167 (1970) (noting that a pleading complies with North Carolina’s

standard if it gives sufficient notice of the events underlying the claims),

with Bell Atl. Corp. v. Twombly, 550 U.S. 544 556-57, 127 S. Ct. 1955,

167 L. Ed. 929 (2007) (requiring that a complaint must state a plausible

claim).

Sitelink Software, LLC v. Red Nova Labs, Inc., 2016 NCBC LEXIS 45, at **17 (N.C.

Super Ct. June 14, 2016); see also Dicesare v. Charlotte-Mecklenburg Hosp. Auth., 376

N.C. 63, 70 (2020) (applying North Carolina’s Rule 12 standard in reviewing antitrust

claims brought under North Carolina law). “Dismissal of an antitrust claim ‘at the

pre-discovery, pleading stage [is] . . . generally limited to certain types of glaring

deficiencies.’ ” Se. Anesthesiology Consultants, PLLC v. Rose, 2019 NCBC LEXIS 63,

at *25 (N.C. Super. Ct. Oct. 10, 2019) (quoting Dicesare v. Charlotte-Mecklenburg

Hosp. Auth., 2017 NCBC LEXIS 33, at *46 (N.C. Super Ct. April 11, 2017)).

Nevertheless, “even North Carolina’s lenient pleading standard does not allow for an

antitrust claim to continue when there are insufficient or conclusory allegations of

market power.” Id. (citing Sitelink, 2016 NCBC LEXIS 45, at *29–30).

ANALYSIS

I. Standing

40. The Court first turns to Defendants’ contention that Plaintiffs lack

standing to bring this action. In support of this argument, Defendants cite federal

case law barring “indirect purchasers” from asserting antitrust claims under federal

antitrust law. Defendants argue that patients such as Plaintiffs who are covered by

commercial insurance plans—and therefore have payment for their care subsidized

(or paid entirely) by commercial insurers—are merely indirect purchasers of

Defendants’ services and therefore lack standing to assert the antitrust claims in the

Complaint.

41. In response, Plaintiffs argue that North Carolina courts have expressly

recognized that indirect purchasers who seek to assert antitrust claims under state

law—including antitrust claims against hospitals—possess standing to assert those

claims.

42. The United States Supreme Court has held that “indirect purchasers”—

that is, those who do not purchase goods or services directly from an alleged

monopolist but instead from another party “downstream”—do not have standing to

bring suit under the federal antitrust statutes. Ill. Brick Co. v. Illinois, 431 U.S. 720,

728 (1977). However, our Court of Appeals has on at least two occasions expressly

recognized the standing of indirect purchasers to bring antitrust claims in North

Carolina. See Hyde v. Abbott Labs., Inc., 123 N.C. App. 572, 573, 584 (1996) (allowing

indirect purchasers of baby formula to sue for violation of antitrust laws under

Chapter 75); Teague v. Bayer AG, 195 N.C. App. 18, 19, 29 (2009) (recognizing indirect

purchaser standing for consumer who purchased products containing a component

subject to an alleged price-fixing scheme).

43. Moreover, this Court has previously rejected a similar standing-related

argument in Dicesare. In that case, the plaintiffs, who were each covered by a

commercial insurance plan, sued a hospital over anti-steering and confidentiality

restrictions that it used in negotiations with commercial healthcare insurers.

Dicesare, 2017 NCBC LEXIS 33, at *4–15. The hospital moved to dismiss the

complaint for lack of standing, but the Court rejected its argument based on Teague.

The Court ruled that the plaintiffs had alleged “an injury in fact—increased cost and

less consumer choice—that is fairly traceable under the allegations of the [complaint]

to the Hospital’s imposition of the [contractual] provisions.” Id. at *21. This Court

expressly stated that “[i]n North Carolina, indirect purchasers have standing under

section 75-16 to bring an action for violations of Chapter 75.” Id. at *20 (emphasis

added and citations omitted).

44. Similarly, the Complaint’s allegations in the present case, as discussed

extensively above, sufficiently identify anticompetitive practices in which Defendants

have engaged during their negotiations with commercial insurers leading, among

other things, to higher insurance premiums for consumers along with denial of access

to information regarding price and quality as to Defendants’ facilities so as to

establish their standing to advance their antitrust claims in this action. 8

45. Therefore, Defendants’ Motion to Dismiss under Rule 12(b)(1) for lack of

standing is DENIED.

II. Restraint of Trade

46. Plaintiffs assert that by virtue of the practices described above

Defendants have engaged in an unlawful restraint of trade in violation of Chapter 75

8 Defendants also argue that Plaintiffs are too “differently situated to have standing” to raise

any of the claims in the Complaint. (ECF No. 28, at p. 34.) However, the Court is

unpersuaded by this argument as well.

of the North Carolina General Statutes. N.C.G.S. § 75-1 states in pertinent part that

“[e]very contract, combination in the form of trust or otherwise, or conspiracy in

restraint of trade or commerce in the State of North Carolina is hereby declared to be

illegal.” N.C.G.S. § 75-1 (2021). 9

47. “To establish a claim for restraint of trade under North Carolina law, a

party must plead ‘(1) a contract, combination, or conspiracy; (2) that imposed an

unreasonable restraint of trade.’ ” Se. Anesthesiology, 2019 NCBC LEXIS 63, at *27

(quoting Dicesare, 2017 NCBC LEXIS 33, at *44). Our Supreme Court has held that

federal decisions under the Sherman Act are instructive in evaluating claims under

§ 75-1. See Rose v. Vulcan Materials Co., 282 N.C. 643, 655 (1973) (“[T]he body of law

applying the Sherman Act, although not binding upon this Court in applying G.S. 75-

1, is nonetheless instructive in determining the full reach of that statute.”).

48. It is undisputed that the alleged practices put at issue in the Complaint

are properly viewed as vertical restraints rather than horizontal restraints.

“Restraints are generally categorized as horizontal or vertical. A horizontal restraint

is an agreement among competitors on the way in which they will compete with one

another. Vertical restraints are restraints imposed by agreement between firms at

different levels of distribution.” Aya Healthcare Servs. v. AMN Healthcare, Inc., 9

F.4th 1102, 1108 (9th Cir. 2021) (cleaned up).

9 N.C.G.S. § 75-2 states that “[a]ny act, contract, combination in the form of trust, or

conspiracy in restraint of trade or commerce which violates the principles of the common law

is hereby declared to be in violation of G.S. 75-1.” N.C.G.S. § 75-2 (2021).

49. The parties disagree, however, on the applicable standard for evaluating

whether the restraints Plaintiffs allege are lawful. Plaintiffs assert that the Court

should utilize the “per se” standard of review, while Defendants contend that the

appropriate standard is the “rule of reason.” “With certain narrow exceptions,

sections 75-1 and 75-2, like their federal counterparts, prohibit restraints of trade or

commerce only when such restraints are unreasonable.” Sitelink, 2016 NCBC LEXIS

45, at **18 (cleaned up). “Under the per se rule, certain practices, such as horizontal

price-fixing, are presumed unreasonable and thus considered illegal per se.” Dicesare,

2017 NCBC LEXIS 33, at *44–45 (citing United States v. Am. Express Co., 838 F.3d

179, 193–94 (2d Cir. 2016)).

50. In Dicesare, this Court noted that “[a] vertical restraint . . . is generally

evaluated under the rule of reason.” Id. at *45 (citing Am. Express., 838 F.3d at 194).

Indeed, the United States Supreme Court has confirmed that the rule of reason

applies to vertical price restraints. See Leegin Creative Leather Prods. v. PSKS, Inc.,

551 U.S. 877, 882 (2007) (“We now hold that . . . vertical price restraints are to be

judged by the rule of reason.”). Following these precedents, the Court concludes that

the rule of reason is applicable to Plaintiffs’ restraint of trade claim.

51. This Court discussed the application of the rule of reason standard to

restraint of trade claims in Dicesare:

Under the rule of reason, Plaintiffs have the initial burden of showing

that Defendant’s challenged conduct has an adverse effect on

competition as a whole in the relevant market. R.J. Reynolds Tobacco

Co., 199 F. Supp. 2d at 380. “Examples of actual anticompetitive effects

include reduced output, decreased quality, and supracompetitive

pricing.” Am. Express Co., 838 F.3d at 194. Anticompetitive effects may

be shown directly by establishing an actual adverse effect on

competition. Id. Anticompetitive effects may also be shown indirectly

“by showing that the defendant has ‘sufficient market power to cause an

adverse effect on competition.’ ” Id. (quoting Tops Mkts., Inc. v. Quality

Mkts., Inc., 142 F.3d 90, 96 (2d Cir. 1998)). Market power alone,

however, is insufficient to establish anticompetitive effects indirectly.

Id. at 194-95. Plaintiffs must also show “some other ground for believing

that the challenged behavior could harm competition in the market,

such as the inherent anticompetitive nature of the defendant’s behavior

or the structure of the interbrand market.” Tops Mkts., Inc., 142 F.3d

at 97. “[T]he structure of the interbrand market means, in practice, an

inquiry into whether the challenged behavior significantly restrict[s]

competitors’ ability to enter the relevant market and compete—in other

words, whether the challenged behavior create[s] significantly higher

barriers to entry.” MacDermid Printing Sols. LLC v. Cortron Corp., 833

F.3d 172, 183-84 (2d Cir. 2016) (internal quotation marks omitted).

Id. at *45–46.

52. The insured patients in Dicesare sued a hospital, in part, for its use of

anti-steering provisions in its contracts with commercial health insurers, contending

they constituted an illegal restraint of trade under North Carolina law. Id. at *44.

This Court denied the hospital’s motion to dismiss the complaint, ruling that the

plaintiffs’ allegations that the anti-steering provisions enabled supracompetitive

pricing, reduced competition, and lessened consumer incentives to seek more cost-

effective care survived a Rule 12 challenge. Dicesare, 2017 NCBC LEXIS 33, at *50–

53. In explaining its ruling, this Court stated the following:

The [complaint] alleges that the Anti-Steering Provisions have the

following anticompetitive effects in the relevant market: (1) protecting

the Hospital’s market power and enabling it to charge supracompetitive

prices; (2) substantially lessening competition among providers of acute

inpatient hospital services; (3) restricting the introduction of innovative

insurance products designed to achieve lower prices for, and higher

quality of, acute inpatient hospital services; (4) reducing consumers’

incentives to obtain acute inpatient hospital services from more cost-

effective providers; and (5) depriving insurers and insureds of the

benefits of a competitive market for acute inpatient hospital services.

Plaintiffs further allege that, due to the Anti-Steering Provisions,

Plaintiffs have less insurance plans from which to choose and are denied

access to information about the cost and quality of the Hospital’s

services compared to its competitors.

Regardless of whether the method of satisfying the adverse effect

requirement is labeled direct or indirect, “there is really only one way to

prove an adverse effect on competition under the rule of reason: by

showing actual harm to consumers in the relevant market. How actual

harm is shown determines whether proof of market power is also

required.” MacDermid Printing Sols. LLC, 833 F.3d at 182-83 (footnote

omitted). Protecting market power through means other than

competition on the merits, as Plaintiffs allege here, has been found to

constitute an anticompetitive effect. Microsoft Corp., 253 F.3d at 62.

Moreover, Plaintiffs contend that the Anti-Steering Provisions enable

the Hospital to charge, and that the Hospital does in fact charge,

supracompetitive prices that are passed on to insureds.

Supracompetitive pricing can satisfy the proof requirements of an actual

adverse effect on competition. Am. Express Co., 838 F.3d at 205-06

(“Plaintiffs might have met their initial burden [at trial] under the rule

of reason by showing . . . that Amex’s pricing was set above competitive

levels within the credit-card industry (i.e., supracompetitive pricing).”).

Id. at *50–52.

53. A federal court in North Carolina similarly addressed a motion to

dismiss a restraint of trade claim involving a hospital’s utilization of anti-steering

restrictions in United States v. Charlotte-Mecklenburg Hosp. Auth., 248 F. Supp. 3d

720 (W.D.N.C. 2017) (“Atrium”). In Atrium, a hospital that allegedly possessed a 50%

share of the relevant healthcare market was sued by the state and federal

governments over the use of anti-steering provisions in its contracts with commercial

health insurers. Id. at 723–25. 10 In denying the hospital’s motion to dismiss, the

10 The plaintiff’s claim for restraint of trade was brought pursuant to Section 1 of the Sherman

Act, which prohibits “agreements that unreasonably restrain trade.” Atrium, 248 F. Supp.

3d at 725.

court concluded that the plaintiffs had satisfied their burden under the federal Rule

12 standard by stating a plausible claim for restraint of trade by alleging both direct

and indirect adverse effects on competition. Id. at 730.

54. First, the Atrium court found that the plaintiffs had alleged direct

evidence of an unreasonable restraint by alleging that “[i]ndividuals and employers

in the . . . area pay higher prices for health insurance coverage, have fewer insurance

plans from which to choose, and are denied access to consumer comparison shopping

and other cost-saving innovative and more efficient health plans that would be

possible if insurers could steer freely.” Id. at 729.

55. Second, the court determined that the plaintiffs had also satisfied their

burden of pleading an unreasonable restraint via the indirect method by alleging the

existence of sufficient market power through a large market share coupled with the

hospital’s ability to force insurers to accept unwanted contractual provisions. Id. at

730–31. The court noted that the plaintiffs had further asserted the “potential for

genuine adverse effects on competition” by virtue of the hospital’s ability to charge

higher than competitive prices in a manner that was tied “directly to [the hospital’s]

market power by alleging that insurers would prefer not to have steering restrictions

in their contract but are unable to remove them because of the necessity to include

[the hospital] in their plans.” Id. (cleaned up).

56. With regard to Plaintiffs’ allegations here that Defendants have

unlawfully restrained trade through an “all or nothing” tying arrangement, similar

claims arising in a virtually identical context against a hospital system called Sutter

Health (“Sutter”) have been addressed by both federal and state courts in California.

57. In Sidibe v. Sutter Health, No. 12-cv-04854-LB, 2021 U.S. Dist. LEXIS

45221 (N.D. Cal. Mar. 9, 2021), class action plaintiffs, who all either paid for health

insurance individually or through their employers, brought suit against Sutter in

federal court alleging, inter alia, an unlawful tying arrangement that violated federal

antitrust laws and California law by causing higher prices to be paid by consumers.

Id. at *3–6. According to the plaintiffs’ allegations, Sutter had employed a tying

arrangement in which it used “its market power for inpatient services in seven

Northern California Markets” (in which Sutter was “the only or dominant hospital”)

to force insurers to also include in their networks Sutter’s inpatient services in other

geographic markets. Id. at *4. In other words, the plaintiffs alleged that Sutter had

used its market power in the Northern California markets (the tying markets) to force

insurers to also include in-network Sutter’s inpatient services in the other markets

(the tied markets) even though the insurers did not necessarily want to include those

services in their insurance plans. Id. Plaintiffs also challenged several other

practices of Sutter, including its use of anti-steering restrictions such as a contractual

provision preventing insurers from “chang[ing] Sutter’s status as a preferred provider

without Sutter’s permission.” Id.

58. In analyzing Sutter’s motion for summary judgment, the federal district

court summarized the key issue concerning the plaintiffs’ tying allegations as follows:

The main issue is whether Sutter forces insurers — through its

systemwide contracts with them — to include (in their networks)

inpatient services at Sutter hospitals in the Tied Markets as a condition

to access to inpatient services at Sutter hospitals in the Tying Markets

(where Sutter is the only or dominant hospital), resulting in higher

prices.

Id. at *6.

59. Because of the relevance and thoroughness of the Sidibe court’s

subsequent analysis of this issue, it is helpful to quote this portion of the opinion in

full:

Sutter contends that it never conditioned access to inpatient services in

the Tying Markets to the health plans’ including inpatient services in

the Tied Markets in their networks, and it never required health plans

to pay for one service as a condition for accessing another service.

Instead, it gave discounted rates to the health plans for including

Sutter’s hospitals in their networks. A systemwide contract is not

necessarily unlawful. But the theory of liability is that Sutter used its

market power for inpatient services in the Tying Market to force the

health plans to include (in their networks) Sutter inpatient services in

the Tied Markets and then had terms that prevented the health plans

from excluding Sutter tied hospitals from the networks or establishing

lower-cost networks. Fact disputes about how Sutter exercised its

market power preclude summary judgment on the tying claims.

A tying arrangement occurs where “a seller with market power in one

product market [] extend[s] its market power to a distinct product

market.” Cascade Health Sols. v. PeaceHealth, 515 F.3d 883, 912 (9th

Cir. 2008). “To accomplish this objective, the seller conditions the sale

of one product (the tying product) on the buyer’s purchase of a second

product (the tied product).” Id. “The essential characteristic of an

invalid tying arrangement lies in the seller’s exploitation of its control

over the tying product to force the buyer into the purchase of a tied

product that the buyer either did not want at all, or might have

preferred to purchase elsewhere on different terms.” Id. at 913-14

(cleaned up) (quoting Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466

U.S. 2, 12, 104 S. Ct. 1551, 80 L. Ed. 2d 2 (1984)).

The elements of a tying claim are as follows: “(1) [] the defendant tied

together the sale of two distinct products or services; (2) [] the defendant

possesses enough economic power in the tying product market to coerce

its customers into purchasing the tied product; and (3) [] the tying

arrangement affects a not insubstantial volume of commerce in the tied

product market.” Id. at 913 (cleaned up); Suburban Mobile Homes, Inc.

v. AMFAC Communities, Inc., 101 Cal. App. 3d 532, 542, 161 Cal. Rptr.

811 (1980) (similar elements for a tying claim under California’s

Cartwright Act).

Sutter contends that its systemwide contracts do not impose a tie

because it does not condition the sale of one product to a health plan’s

purchase of another product. Instead, its contracts are its mechanism

for setting prices, giving discounted rates to a plan if it is in a network

and non-discounted non-par rates if it is not in a network. But the facts

are disputed. First, the contracts were systemwide and required health

plans to include Sutter inpatient services in the Tied Markets. There

are fact disputes about whether this was merely Sutter’s setting its

prices, or rather, whether Sutter forced higher prices in the Tied

Markets that were passed through to consumers through insurance

premiums. For example, the 95-percent non-par rates were higher than

the insurers’ customary out-of-network rates. As a result, the health

plans allegedly could not build narrow networks (at a lower cost) that

excluded Sutter because there was no cost advantage (compared to a

network that included Sutter hospitals). Second, the contracts

prevented insurers from changing Sutter’s status in the health plans’

networks (by, for example, putting Sutter providers into less preferred

tiers resulting in lower costs) without Sutter’s consent. There is

evidence that Sutter permitted health plans to exclude or tier Sutter

hospitals. But there is evidence that it was occasional, that Sutter

denied requests to put Sutter hospitals in non-preferred tiers, and that

when health plans tried to market lower-cost tiered networks that did

not include Sutter in the favored tier, Sutter threatened to terminate

the contracts and sue the plans. There is evidence too that the plans

objected to the provisions and ultimately acceded to them because they

had no choice.

Id. at *14–17.

60. In related antitrust litigation brought against Sutter in state court by a

different group of plaintiffs, a California Superior Court allowed a restraint of trade

claim to proceed based on allegations that Sutter Health “extract[ed]

supracompetitive prices” when it “(1) require[d] [the plaintiff insurer] to offer its

beneficiaries the services of either all Sutter hospitals or none of them; (2) prohibit[ed]

[the plaintiff insurer] from incentivizing its beneficiaries to choose competition

hospitals and (3) prohibit[ed] Blue Shield—the network vendor—from disclosing

Sutter’s prices.” UFCW & Emps. Benefit Trust v. Sutter Health, Case No. CGC—14-

538451, at pp. 2, 7 (Cal. Super. Ct. Apr. 1, 2016). In a demurrer to the plaintiffs’

complaint, Sutter argued that the allegations concerning adverse effects on

competition did not meet the required threshold necessary to state a claim for an

unreasonable restraint of trade. Id. at p. 7.

61. The Superior Court disagreed, holding instead “that Sutter’s all-or-

nothing, anti-incentive, and price secrecy terms foreclose price competition by rival

providers[.]” Id. The court similarly rejected Sutter’s contention that the plaintiffs

had insufficiently pled an adverse effect on competition by means of a “restricted

output in a specially defined relevant market.” Id. (cleaned up). The court held that

the plaintiffs’ allegation that “network vendors have no leverage to bargain on price

because they cannot exclude Sutter from any health plans” was sufficient to allow the

claim to proceed. Id.

62. Based on this Court’s thorough review of the Complaint and the briefs

in the present action and its careful consideration of the parties’ arguments as well

as its extensive review of relevant case law from around the country, the Court is

unable to agree with Defendants that Plaintiffs have failed to sufficiently allege a

valid claim for restraint of trade under Rule 12(b)(6).

63. To be sure, the Complaint lacks specificity—in certain respects—in

connection with Plaintiffs’ broad allegations of anticompetitive effects stemming from

Defendants’ alleged conduct such as details regarding the exclusion of competing

providers in the relevant markets or a lack of patient choice concerning the provision

of healthcare services.

64. But what Plaintiffs have alleged is that (1) through the contractual

restrictions at issue, Defendants are coercing insurers into including Mission

facilities in the insurers’ networks that they do not want; and (2) as a result, the

insurers lack the power they would normally be able to exercise in a competitive

market to decide which facilities should and should not be included in their networks.

(Compl. ¶¶ 134, 182, 229.)

65. In addition, these contractual provisions—most notably, the anti-

steering provisions—have the potential to preclude Defendants’ competitors from

receiving patients from insurers who would otherwise direct those patients to them

based on factors such as higher quality or lower cost. (Compl. ¶ 229.)

66. Moreover, the Complaint does contain at least some allegations that

decreased quality, higher prices, and reduced output have resulted from these

contractual provisions that suffice for purposes of Rule 12(b)(6) review.

67. Thus, at a minimum, Plaintiffs have satisfied their burden of alleging

an unreasonable restraint of trade via the indirect method by alleging the existence

of sufficient market power held by Defendants in the Asheville Inpatient Services

market, coupled with the potential for anticompetitive effects stemming from

unwanted contractual provisions unilaterally imposed by Defendants on insurers.

Defendants’ argument that additional allegations are required at the pleadings stage

lacks merit. As the Third Circuit stated in rejecting a similar argument,

[t]he defendants make a half-hearted argument that even if the

complaint alleges that they formed a conspiracy to shield one another

from competition, the [restraint of trade] claim is still deficient because

the complaint does not allege that the conspiracy unreasonably

restrained trade. We disagree. At the pleading stage, a plaintiff may

satisfy the unreasonable-restraint element by alleging that the

conspiracy produced anticompetitive effects in the relevant markets.

See Howard Hess, 602 F.3d at 253; Brown Univ., 5 F.3d at 668.

Anticompetitive effects include increased prices, reduced output, and

reduced quality. Toledo Mack, 530 F.3d at 226; Brown Univ., 5 F.3d at

668-69.

...

The complaint also plausibly suggests that by shielding Highmark from

competition, the conspiracy resulted in increased premiums and reduced

output in the market for health insurance. These allegations are

sufficient to suggest that the conspiracy produced anticompetitive

effects in the relevant markets.

W. Penn Allegheny Health Sys. v. UPMC, 627 F.3d 85, 100-01 (3d Cir. 2010).

68. The restraints resulting from these contractual provisions may or may

not ultimately be deemed unreasonable, but the Court is satisfied at this early

juncture that Plaintiffs are entitled to discovery on this issue. See SD3, LLC v. Black

& Decker (U.S.) Inc., 801 F.3d 412, 434 (4th Cir. 2015) (cleaned up) (“Our decision

should not be mistaken for an ultimate endorsement of the merits of [the plaintiff’s]

case. At this point, [the plaintiff’s] prospects for success are largely irrelevant, as a

lawsuit need not be meritorious to proceed past the motion-to-dismiss stage. . . . To

dismiss [the plaintiff’s] complaint because of some initial skepticism would be to

mistakenly collapse discovery, summary judgment, and trial into the pleading stages

of a case.”). 11

69. Thus, based on the above, Defendants’ Motion to Dismiss is DENIED as

to Plaintiffs’ restraint of trade claim. See, e.g., Hyundai Motor Am., Inc. v. Direct

Techs. Int’l, Inc., No. 3:17-cv-732-MOC-DSC, 2018 U.S. Dist. LEXIS 146780, at *5–6

(W.D.N.C. Aug. 29, 2018) (denying motion to dismiss as to restraint of trade claim

based on allegations of tying scheme by defendant). 12

III. Monopolization

70. The Court reaches a different conclusion, however, regarding Plaintiffs’

monopolization claims.

71. Our General Statutes provide that

[i]t is unlawful for any person to monopolize, or attempt to monopolize,

or combine or conspire with any other person or persons to monopolize,

any part of trade or commerce in the State of North Carolina.

11 Although Defendants contend that the contractual provisions at issue are actually

procompetitive rather than anticompetitive, the Court cannot make such a determination at

the pleadings stage. During discovery, Defendants will have a full and fair opportunity to

establish the procompetitive benefits of these provisions. See Robertson v. Sea Pines Real

Estates Cos., 679 F.3d 278, 292 (4th Cir. 2012) (“At this early stage of the litigation, we are

not in a position to weigh the alleged anticompetitive risks of the [challenged conduct] against

their procompetitive justifications. This rule of reason inquiry is best conducted with the

benefit of discovery and we thus express no view on the merits of the litigation beyond

recognizing the sufficiency of the complaints.”); Dicesare, 2017 NCBC LEXIS 33, at *52–53

(cleaned up) (“In its briefs, the Hospital conflates Plaintiffs’ initial burden of proving an

adverse effect on competition with the ultimate determination of whether those

anticompetitive effects outweigh any procompetitive benefits that may be offered by

Defendant. At this stage of the proceeding, however, the Court is required to take the

allegations of the [Complaint] as true and all contravening assertions in the Answer as false.

Thus, Plaintiffs’ allegations of adverse effects on competition must be accepted as true, and

Defendant’s pro-competitive justifications considered unproven.”).

12 Defendants also raise an argument that some of Plaintiffs’ claims are untimely based on

the applicable statute of limitations. However, because none of the claims asserted in the

Complaint are time-barred on their face, the Court deems this argument to be premature.

N.C.G.S. § 75-2.1 (2021).

72. A plaintiff is required to allege the following elements to state a valid

claim for monopolization: “(1) the possession of monopoly power in the relevant

market and (2) willful acquisition or maintenance of that power as distinguished from

growth or development as a consequence of a superior product, business acumen, or

historic accident.” Sykes v. Health Network Sols., Inc., 2017 NCBC LEXIS 73, at *60

(N.C. Super. Ct. Aug. 18, 2017) (cleaned up).

73. This Court has held that “[i]n determining whether monopoly power

exists, courts look at defendant’s market share, the durability of defendant’s market

power, and whether there are significant barriers to entry.” Dicesare, 2017 NCBC

LEXIS 33, at *54–55 (cleaned up). “Generally, seventy percent (70%) to seventy-five

percent (75%) market share is necessary to sustain a monopolization claim and thirty

percent (30%) to fifty (50%) is presumed necessary to sustain a claim for attempted

monopolization.” Se. Anesthesiology, 2019 NCBC LEXIS 63, at *32 (citations

omitted).

74. The markets relevant to Plaintiffs’ monopolization claim are the three

antitrust markets outlined in the Complaint, which—as noted above—consist of the

Asheville Region Inpatient Services market, the Asheville Region Outpatient

Services market, and the Outlying Regions Inpatient and Outpatient Services

market.

75. As an initial matter, the Complaint purports to assert, inter alia, a

monopolization claim under Article I, Section 34 of the North Carolina Constitution.

However, Defendants argue—and Plaintiffs concede—that this constitutional

provision only applies against state actors, a classification that does not include

Defendants. See, e.g., Deminski v. State Bd. of Educ., 377 N.C. 406, 413 (2021)

(cleaned up) (“[T]o allege a cause of action under the North Carolina Constitution, a

state actor must have violated an individual’s constitutional rights.”); Bailey v. Flue-

Cured Tobacco Coop. Stabilization Corp., 158 N.C. App. 449, 457 (2003) (“As

[Defendant] is not a State actor, we conclude that both plaintiffs’ section 19 and 34

claims fail.”). Therefore, Plaintiff’s monopolization claim under the North Carolina

Constitution is DISMISSED with prejudice.

76. Plaintiffs’ remaining monopolization claims are based on three distinct

theories—unlawful acquisition of a monopoly, monopoly maintenance, and monopoly

leveraging. The Court will discuss each theory in turn.

A. Monopoly Acquisition

77. With regard to Plaintiffs’ monopoly acquisition claim, it is important to

be clear as to what Plaintiffs are and are not arguing. Although they allege that

Defendants possessed a monopoly in the Asheville region for inpatient services

through Mission Hospital even prior to HCA’s acquisition of Mission’s assets in 2019,

they do not expressly contend that the monopoly was originally obtained in an

unlawful manner. 13 As Plaintiffs concede, a lawfully obtained monopoly does not

violate the antitrust laws. See, e.g., United States v. Microsoft Corp., 253 F.3d 34, 51

13 Indeed, such a position would be difficult to maintain given the General Assembly’s

enactment of the COPA laws and the protection to Mission provided therein from antitrust

liability.

(D.C. Cir. 2001) (cleaned up) (“[M]erely possessing monopoly power is not itself an

antitrust violation.”) Instead, Plaintiffs argue that HCA’s takeover of the Mission

system, which allegedly occurred in connection with HCA’s specific intent to

monopolize, was unlawful under N.C.G.S. § 75-2.1.

78. Although Plaintiffs allege that HCA owns hospitals across the country,

the Complaint concedes that HCA did not own any in North Carolina prior to the

acquisition of the Mission system. (Compl. ¶ 149.) Thus, this case does not present

the sort of antitrust issues that would exist following a merger, for example, between

two existing competitors in the North Carolina healthcare services market. Instead,

the transaction resulting in HCA’s acquisition of Mission’s assets simply resulted in

a swap of ownership without any accompanying change in competition. Plaintiffs

have not cited any case law supporting the notion that such a transaction under these

circumstances—without more—violates the antitrust laws. Therefore, Defendants’

Motion to Dismiss is GRANTED as to Plaintiffs’ monopoly acquisition theory, and

this claim is DISMISSED without prejudice.

B. Monopoly Maintenance

79. Nor have Plaintiffs stated a valid claim under a theory of monopoly

maintenance. Plaintiffs’ monopoly maintenance claim is based on their contention

that Defendants engaged in anticompetitive conduct in order to maintain their

monopoly on inpatient services in the Asheville region based on the dominance of

Mission Hospital-Asheville.

80. However, a careful reading of the Complaint reveals that all, or virtually

all, of Plaintiffs’ allegations concerning the contractual restrictions utilized by

Defendants relate to markets other than the Asheville Region Inpatient Services

market. 14 As such, although these allegations are relevant to Plaintiffs’ monopoly

leveraging claim—which is discussed below—they do not support Plaintiffs’ monopoly

maintenance claim. The Complaint fails to contain any nonconclusory allegations

that Defendants are engaging in anticompetitive conduct specifically designed to

prevent competitors from entering the Asheville Region Inpatient Services market or

to otherwise unlawfully foreclose competition in that market.

81. The Sutter Health cases are, once again, instructive. In Sidibe, the

federal court rejected the plaintiff’s monopoly maintenance claim on similar grounds:

Sutter contends that there is no evidence that its contracting practices

led to its acquiring or maintaining market power in the Tying Markets.

Instead, as the plaintiffs’ expert opines, the undisputed facts establish

that Sutter’s market power exists because nearly all hospitals are in

rural areas, and the operator of those hospitals automatically has some

degree of market power.

The plaintiffs respond (in a single paragraph) that “by forcing the

[health plans] to accept its anticompetitive contract provisions, Sutter

has maintained its monopoly power over [inpatient hospital services] in

its Tying Markets, particularly at Alta Bates in the Berkeley-Oakland

market.” The plaintiffs cite Sutter’s contention during the Alta

Bates/Summit merger — that health plans could steer away from Alta

Bates to constrain prices — and contrast it with Sutter’s subsequent

imposition of the anti-steering/anti-tiering terms in its contracts that

prevented health plans from steering members away from the more

expensive tied hospitals and Alta Bates (a tying hospital) and launching

more inexpensive, tiered networks that put Sutter in a less-preferred

tier.

14 Indeed, the whole essence of Plaintiffs’ tying theory is that Defendants seek to require

insurers to include in their networks Defendants’ facilities in markets besides the Asheville

Region Inpatient Services market.

...

The plaintiffs offer no evidence for six of the seven Tying Markets (and

the corresponding hospitals). For those markets and hospitals, the

evidence is undisputed that Sutter’s power exists because the markets

are rural. As to Alta Bates, the plaintiffs identify evidence — through

their expert — that more steering would have resulted in lower prices

there. But that is not the equivalent of preventing other hospitals from

entering or expanding in the Berkeley-Oakland HSA (meaning, hospital-

service area) Tying Market. Instead, the theory of liability in the

complaint is that Sutter used its market power in the Tying Markets

(where it faced no competition) to force health plans to include Sutter

hospitals in the Tied Markets (where it faced competition).

In sum, the plaintiffs have not produced evidence that shows disputed

material facts about Sutter's willful maintenance of monopoly power.

2021 U.S. Dist. LEXIS 45221, at *20–22 (emphasis added); see also Blix Inc. v. Apple,

Inc., No. 19-1869-LPS, 2021 U.S. Dist. LEXIS 128137, at *9 (D. Del. July 9, 2021)

(dismissing monopoly maintenance claim premised on tying allegations under Rule

12(b)(6) because “[the plaintiff] does not explain how [the defendants’ alleged tying

conduct] restricts competition in [the tying market]”); Dreamstime.com, LLC v.

Google, LLC, No. C 18-01910 WHA, 2019 U.S. Dist. LEXIS 13408, at *25–26 (N.D.

Cal. Jan. 28, 2019) (cleaned up) (“[N]othing [plaintiff] has alleged demonstrates that

[defendant] has maintained its monopoly by engaging in conduct to ‘chill vigorous

competition’ in the relevant market”).

82. Therefore, based on the above, Defendants’ Motion to Dismiss is

GRANTED as to Plaintiffs’ monopoly maintenance claim, and this claim is

DISMISSED without prejudice.

C. Monopoly Leveraging

83. Plaintiffs also assert a monopolization claim premised on a theory of

monopoly leveraging. “A monopoly leveraging claim is a . . . monopolization claim or

attempted monopolization claim involving conduct in more than one market. To

succeed, a plaintiff must demonstrate ‘that a party has a monopoly in one area, uses

unlawful acts to leverage that monopoly into another area, and achieves or is likely

to achieve that second monopoly.’ ” Simon & Simon, PC v. Align Tech., Inc., No. 19-

506 (LPS), 2020 U.S. Dist. LEXIS 72499, at *23 (D. Del. Apr. 24, 2020) (quoting IQVIA

Inc. v. Veeva Systems, Inc., No. 17-00177 (CCC), 2018 U.S. Dist. LEXIS 171456, at *4

(D.N.J. Oct. 3, 2018)).

84. “Monopoly leveraging . . . is not a standalone theory of liability under

Section 2 [of the Sherman Act].” Id. (citing Verizon Commc’ns., Inc. v. Law Offices of

Curtis V. Trinko, 540 U.S. 398, 415 n. 4 (2004)). Instead, “[i]n order to state a claim

under a leveraging theory, a plaintiff must sufficiently allege that the defendant

either has obtained monopoly power in the second market or, in the case of an

attempted monopoly claim, has a ‘dangerous probability of success’ in monopolizing

a second market.” Unigestion Holding, S.A. v. UPM Tech., Inc., 305 F. Supp. 3d. 1134,

1150 (D. Ore. 2018) (quoting Trinko, 540 U.S. at 415 n. 4).

85. Thus, with regard to this claim, Plaintiffs must sufficiently allege that

Defendants exercise (or that there is a dangerous likelihood they will exercise)

monopoly market power in the Asheville Region Outpatient Services market or the

Outlying Regions Inpatient and Outpatient Services Market.

86. With regard to outpatient services, the Complaint makes no attempt to

allege any market share held by Defendants either in the Asheville Region market or

in the Outlying Regions market.

87. As for inpatient services in the Outlying Regions, the Complaint alleges

market shares held by Defendants for each of the individual five counties comprising

the Outlying Regions in varying percentages—all in excess of 70%. Critically,

however, the Complaint suggests—and Plaintiffs’ counsel conceded at the 27 April

2022 hearing on the pending Motion—that those market share numbers are based

largely, if not entirely, on Medicare data.

88. Plaintiffs’ Complaint makes clear that this lawsuit concerns the private

insurance market, rather than the “the sale of such services to government payers.”

(See Compl. ¶ 109 (“The relevant product markets do not include sales of such services

to government payers, e.g., Medicare, Medicaid, and TRICARE (covering military

families), because a healthcare provider’s negotiations with commercial health plans

are separate from the process used to determine the rates paid by government

payers.”).)

89. On a number of occasions, courts have acknowledged the fundamental

differences between government payers and private insurers in antitrust cases and

refused to consider Medicare or Medicaid data offered in support of such claims.

90. For example, in FTC v. Sanford Health, No. 1:17-cv-133, 2017 U.S. Dist.

LEXIS 215937 (D. N. D. Dec. 15, 2017) the court rejected the notion that government

payers should be considered together with commercial insurers in the antitrust

context, stating the following:

A relevant product market definition may be based on a distinct category

of customers. FTC v. Advocate Health Care Network, 841 F.3d 460, 468

(7th Cir. 2016). The plaintiffs’ proposed market definition includes only

commercial insurers, to the exclusion of government payers—Medicare

and Medicaid. There is no evidence that contracting with government

payers involves the two-stage competition described above. The process

of providers reaching agreements with [Blue Cross] is not so similar to

that involved in contracting with government providers that

government providers should be included as customers in the relevant

market. This court finds it appropriate to consider a relevant market

limited to a distinct category of customers—commercial health

insurance plans.

Id. at *34.

91. The court in Steward Health Care Sys., LLC v. Blue Cross & Blue Shield,

997 F. Supp. 2d. 142 (D. R. I. 2014) followed the same approach, acknowledging the

differences between private insurers and government payers in this context.

In the marketplace for the purchase of hospital services, however,

Medicare and Medicaid purchase hospital services, but they can only do

so for the limited number of individuals that qualify for those programs.

The remainder of the market consists of private insurers purchasing

hospital services for their subscribers. Viewing the product market from

the perspective of an aggrieved private purchaser of hospital services,

then, it is appropriate to exclude Medicare and Medicaid purchases

because the private purchaser was never competing to purchase those

services in the first place.

Id. at 162.

92. The Court finds these authorities persuasive and will therefore

disregard the Complaint’s market share data from Medicare sources. Having made

this determination, the Court therefore concludes that, for both outpatient services

in all regions and inpatient services in the Outlying Regions, Plaintiffs have failed to

allege a sufficient market share held by Defendants to support a monopolization

claim. See Se. Anesthesiology, 2019 NCBC LEXIS 63, at *34–35 (cleaned up)

(dismissing a section 75-2.1 claim pursuant to Rule 12(b)(6) based on plaintiff’s

failure to allege “any market share possessed by [Defendants] in the relevant market

or a dangerous probability of success of acquiring market share”); see also Distance

Learning Co. v. Maynard, No. 19-cv-03801-KAW, 2020 U.S. Dist. LEXIS 99256, at

*23 (N.D. Cal. June 4, 2020) (“Because Plaintiff has not alleged facts demonstrating

adequate market share, Plaintiff’s § 2 claims must be dismissed”); Black Diamond

Land Mgmt., LLC v. Twin Pines Coal Co., No. No.: 2:14-cv-02333-RDP, 2016 U.S.

Dist. LEXIS 87022, at *56–57 (N.D. Ala. July 6, 2016) (“Without any facts concerning

a relevant market or market share, there is no way for Plaintiff to demonstrate

monopoly power or attempted monopolization . . . . Plaintiff’s Sherman Act claims are

therefore due to be dismissed with prejudice.”).

93. In seeking to avoid this result, Plaintiffs contend that market share is

essentially a proxy for monopoly power, which can be proved directly by other means

such as the ability to control prices. As a general proposition, Plaintiffs are correct.

See, e.g., Tops, 142 F.3d at 97–98 (cleaned up) (“Monopoly power, also referred to as

market power, is the power to control prices or exclude competition. It may be proven

directly by evidence of the control of prices or the exclusion of competition, or it may

be inferred from one firm’s large percentage share of the relevant market.”).

94. Here, however, the Complaint does not contain sufficient allegations of

Defendants’ monopoly power in the relevant markets outside the Asheville Region

Inpatient Services market that are sufficient to substitute for the failure to plead

such power through market share. In particular, the allegations in the Complaint

that Defendants are able to control prices in these other markets are conclusory.

Moreover, these allegations are rebutted by the only two specific examples Plaintiffs

offer. First, Plaintiffs reference an incident that allegedly occurred in 2017 when (1)

Mission allegedly insisted on certain price increases at Mission Hospital-Asheville to

Blue Cross Blue Shield of North Carolina (“Blue Cross”); and (2) instead of engaging

in the type of negotiations that would exist in a competitive market upon Blue Cross’s

refusal to agree to the price increases, Mission temporarily took the entire Mission

system out-of-network. (Compl. ¶ 164.) However, the Complaint goes on to state that

a negotiated result was ultimately reached in which Defendants received a rate

increase that was not as high as originally demanded. (Compl. ¶ 164.) Thus, even

taking Plaintiffs’ allegations as true for purposes of Rule 12(b)(6), this incident

undermines their allegation that Defendants possess the power to actually control

prices.

95. The Complaint’s second example concerns another health insurer,

Cigna. Plaintiffs allege that a similar dispute occurred following HCA’s acquisition

of Mission in which HCA “used aggressive contract negotiating tactics” with the goal

of obtaining a significant price increase from Cigna. (Compl. ¶ 173.) Once again,

however, Plaintiffs’ assertions regarding this incident fall far short of sufficiently

alleging Defendants’ possession of monopoly power. (Compl. ¶ 173.) 15

15 Indeed, the Complaint does not even allege the ultimate outcome of the dispute with Cigna.

96. Furthermore, the Court simply disagrees with Plaintiffs’ contention that

the mere existence of contract disputes such as these—without more—adequately

illustrates Defendants’ monopoly power in the markets at issue.

97. In addition, Plaintiffs’ allegations throughout the Complaint that

Defendants charge supracompetitive prices at their facilities fail to remedy the

absence of sufficient allegations about monopoly-level market share in the markets

other than the Asheville Region Inpatient Services market. Courts have repeatedly

held that the charging of high prices alone is not an antitrust violation. See, e.g.,

Simpson v. US West Commc’ns., 957 F. Supp. 201, 205 (D. Or. 1997) (quoting Berkey

Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 294 (2d Cir. 1979)) (“Setting a high

price may be a use of monopoly power, but it is not in itself anticompetitive.”).

98. It is also worth noting that Plaintiffs concede in their Complaint that

Defendants face some level of competition in every market other than the Asheville

Region Inpatient Services market. (Compl. ¶¶ 127–28, 204).

99. Therefore, for all of these reasons, Defendants’ Motion to Dismiss is

GRANTED without prejudice as to Plaintiffs’ monopoly leveraging theory.

IV. Attempted Monopolization

100. Finally, Plaintiffs allege a claim for attempted monopolization. “To

prevail on an attempted monopolization claim, Plaintiffs must demonstrate (1) a

specific intent to monopolize a relevant market; (2) predatory or anticompetitive acts;

and (3) a dangerous probability of successful monopolization.” Sitelink, 2016 NCBC

LEXIS 45, at **29 (quoting R.J. Reynolds Tobacco Co. v. Philip Morris Inc., 199 F.

Supp. 2d 362, 394 (M.D.N.C. 2002)). “Generally, . . . thirty percent (30%) to fifty (50%)

[market share] is presumed necessary to sustain a claim for attempted

monopolization.” Se. Anesthesiology, 2019 NCBC LEXIS 63, at *32 (cleaned up).

101. Once again, this claim is directed toward the markets other than the

Asheville Region Inpatient Services market. For the reasons stated above, Plaintiffs

have similarly failed to sufficiently allege a dangerous likelihood that Defendants will

establish a monopoly in these regions.

102. Therefore, Defendants’ Motion to Dismiss is GRANTED without

prejudice as to Plaintiffs’ attempted monopolization claim. See, e.g., Se.

Anesthesiology, 2019 NCBC LEXIS 63, at *34–35 (dismissing attempted

monopolization claim for failure to allege any market share in the relevant antitrust

market); Sitelink, 2016 NCBC LEXIS 45, at **31–32 (dismissing attempted

monopolization claim for insufficient allegations of market share).

CONCLUSION

THEREFORE, IT IS ORDERED as follows:

1. Defendants’ Motion to Dismiss pursuant to Rule 12(b)(1) for lack of standing

is DENIED.

2. Defendants’ Motion to Dismiss Plaintiffs’ restraint of trade claim is DENIED.

3. Defendants’ Motion to Dismiss Plaintiffs’ monopoly acquisition claim is

GRANTED, and this claim is DISMISSED without prejudice.

4. Defendants’ Motion to Dismiss Plaintiffs’ monopoly maintenance claim is

GRANTED, and this claim is DISMISSED without prejudice.

5. Defendants’ Motion to Dismiss Plaintiffs’ monopoly leveraging claim is

GRANTED, and this claim is DISMISSED without prejudice.

6. Defendants’ Motion to Dismiss Plaintiffs’ attempted monopolization claim is

GRANTED, and this claim is DISMISSED without prejudice.

7. Defendants’ Motion to Dismiss Plaintiffs’ monopolization claim under the

North Carolina Constitution is GRANTED, and this claim is DISMISSED

with prejudice.

SO ORDERED, this the 19th day of September, 2022.

/s/ Mark A. Davis

Mark A. Davis

Special Superior Court Judge for

Complex Business Cases