Lifewatch Services Inc v. Highmark Inc

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

________________

No. 17-1990

LIFEWATCH SERVICES INC,

Appellant

v.

HIGHMARK INC; BLUE CROSS & BLUE

SHIELD ASSOCIATION; WELLPOINT INC;

HORIZON BLUE CROSS BLUE SHIELD

OF NEW JERSEY;BLUE CROSS & BLUE SHIELD OF

SOUTH CAROLINA; BLUE CROSS & BLUE SHIELD OF

MINNESOTA

________________

Appeal from the United States District Court

for the Eastern District of Pennsylvania

(D.C. Civil Action No. 2-12-cv-05146)

District Judge: Honorable Eduardo C. Robreno

Argued January 16, 2018

Before: AMBRO, RESTREPO, and FUENTES, Circuit

Judges

(Opinion filed: August 28, 2018)

Gary M. Elden, Esquire (Argued)

Anna S. Knight, Esquire

Shook, Hardy & Bacon

111 South Wacker Drive, 51st Floor

Chicago, IL 60606

Michael J. McCarrie, Esquire

Artz McCarrie Health Law

1500 Market Street

Centre Square, West Tower, Suite 4100

Philadelphia, PA 19102

Counsel for Appellant

Sheryl L. Axelrod, Esquire

The Axelrod Firm

The Beasley Builiding

1125 Walnut Street

Philadelphia, PA 19107

Sarah J. Donnell, Esquire

Daniel E. Laytin, Esquire (Argued)

David J. Zott, Esquire

Kirkland & Ellis

300 North LaSalle Street, Suite 2400

Chicago, IL 60654

Counsel for Appellee

Blue Cross & Blue Shield Association

2

Justin W. Bernick, Esquire

John R. Robertson, Esquire

Hogan Lovells US LLP

555 Thirteenth Street, N.W.

Columbia Square

Washington, DC 20004

Stephen A. Loney, Jr., Esquire

Hogan Lovells US LLP

1735 Market Street, 23rd Floor

Philadelphia, PA 19103

Counsel for Appellees

Wellpoint Inc.;

Horizon Blue Cross Blue Shield of New Jersey,

Blue Cross & Blue Shield of South Carolina;

Blue Cross & Blue Shield of Minnesota

________________

OPINION OF THE COURT

________________

AMBRO, Circuit Judge

The seller of a medical device, believing it was shut

out of the market for it, brought suit on federal antitrust

grounds against associated health insurance companies. The

claim was that they shielded themselves from patient demand

for the seller’s device by agreeing to deny coverage as “not

medically necessary” or “investigational,” even while the

medical community, other insurers, and independent arbiters

viewed it as befitting the standard of care. The District Court

dismissed the claim. For the reasons that follow, we reverse

its judgment and remand the case for further consideration.

3

I. Factual Background

We base our analysis, as we must on review of a Rule

12(b)(6) dismissal, on the allegations in the operative

complaint—here the Third Amended Complaint (for

convenience, the “Complaint”). According to it,

cardiovascular disease and disorders are the leading cause of

death in the United States. Plaintiff LifeWatch Services, Inc.

(“LifeWatch”) is one of the two largest sellers of telemetry

monitors. They are one of several types of outpatient cardiac

monitoring devices used to diagnose and treat arrhythmias, or

changes in heart rate or rhythm, which may signal or lead to

more serious medical complications. An arrhythmia can be

without noticeable symptoms; hence the patient may not

know it is occurring.

Other outpatient cardiac monitors include Holter

monitors, various forms of event monitors, and insertable

monitors. All record the electrical activity of a patient’s heart

to catch any instance of an arrhythmia. But they vary in

price, method of data capture, and mechanism by which the

data are transmitted to an analyst or physician for diagnosis.

For example, telemetry monitors are about three times as

expensive as event monitors. They record up to 30 days of a

patient’s cardiac activity and automatically transmit the data

to an analyst center. Event monitors, by contrast, record short

windows of data (in some cases no more than a minute),

which the patient must then take some action to transmit.

Many event monitors also require the patient to trigger the

data capture, creating a risk that asymptomatic arrhythmias go

undetected. Insertable monitors, which are surgically

implanted and less frequently used, are the most expensive;

they cost eight to ten times more than event monitors. While

the Complaint quotes from medical studies that recommend

only telemetry monitors to treat some patients with certain

4

conditions, in other cases telemetry and other monitors are all

appropriate treatments.

LifeWatch brought suit against the Blue Cross Blue

Shield Association (the “Association”) and five of its member

insurance plan administrators 1 (the “Blue Plans”; together

with the Association, “Blue Cross”) for violating Section 1 of

the Sherman Act, 15 U.S.C. § 1. It claims the Blue Plans

have impermissibly conspired with each other and the

Association to deny coverage of telemetry monitors.

The Association, which is not an insurer itself, owns

the rights to the Blue Cross and Blue Shield trademarks and

trade names. It licenses the right to the Blue Cross brand to

36 insurers nationwide. These Blue Plans are allegedly the

largest commercial health insurance group in the country,

collectively insuring 105 million Americans, with a national

network that covers 96% of hospitals and 92% of doctors. As

1

The Defendant Blue Plans named in the Complaint are:

Wellpoint, Inc., allegedly an Indiana corporation that,

combined with its affiliates, serves more than 71 million

people in California, Colorado, Connecticut, Georgia,

Indiana, Kentucky, New York, Maine, Missouri, Nevada,

New Hampshire, Ohio, Virginia, and Wisconsin, or more than

a third of all privately insured Americans; Horizon Blue

Cross Blue Shield of New Jersey, allegedly the largest health

insurer in New Jersey; Blue Cross and Blue Shield of

Minnesota, which allegedly has more members, products, and

services than other insurers in that state; BlueCross

BlueShield of South Carolina; and Highmark, Inc., allegedly

one of the largest health insurers in the country serving, with

affiliates, insureds in Pennsylvania, Delaware, and West

Virginia. As described later, LifeWatch has since settled its

case against Highmark.

5

a group, they are a major purchaser of medical devices and

services nationwide.

The Association maintains a model medical policy that

recommends to the Blue Plans which treatments, devices, or

services to cover. Each Blue Plan participates in the

development of these recommendations by voting on them.

A panel of some kind—the Complaint is vague—then meets

several times a year to finalize the model policy. 2

For more than a decade the model policy has

recommended against covering prescriptions for telemetry

monitors, explaining that in some cases they are not

“medically necessary” and in the rest they are

“investigational.” This provision of the model policy has

been adopted in near lockstep 3 by the Association’s member

Blue Plans. Though the Plans’ language denying coverage is

not always identical, the reasoning is the same.

Meanwhile, Medicare, Medicaid, and other private

insurers, including Aetna, cover telemetry monitor

2

LifeWatch’s brief on appeal explains that the “Medical

Policy Panel” is “the name Defendants give to themselves

acting in concert.” Appellant Br. 3. However, we see no

basis in the pleadings on which to infer who or what the panel

comprises.

3

The Complaint references only two Blue Plans that ever

contracted with LifeWatch to cover telemetry. One, a Plan in

Illinois, settled with LifeWatch outside this lawsuit. As

described later, the other, Highmark, partially changed course

and stopped covering telemetry in some cases. The claims

against Highmark were dismissed on June 9, 2016, after the

parties reached a settlement.

6

prescriptions. Multiple medical studies—the Complaint

references 10—have reviewed telemetry monitors and found

them to be effective, superior to other treatments in some

cases, or medically necessary. In at least 20 cases brought

between 2010 and 2012 by patients appealing a denial of

telemetry monitor coverage, independent, expert review

boards overturned the insurers’ denials; the review board

frequently determined that telemetry monitors were a

standard of care or clinically necessary. Blue Plans were

parties to several, if not all, of those appeals.

Nonetheless, with near uniformity, and for a decade,

the Blue Plans have declined to cover telemetry monitors. As

a result, LifeWatch claims both its sales and cardiac

monitoring treatment in general have suffered. It seeks treble

damages for its losses and an injunction under Sections 4 and

16 of the Clayton Act, 15 U.S.C. §§ 15 and 26, which

authorize private plaintiffs to sue for Sherman Act violations.

II. Analysis

Section 1 of the Sherman Act makes illegal “[e]very

contract, combination in the form of trust or otherwise, or

conspiracy, in restraint of trade or commerce among the

several States, or with foreign nations . . . .” 15 U.S.C. § 1.

To state a Section 1 claim, then, a plaintiff must allege (1) an

agreement (2) to restrain trade unreasonably. In re Ins.

Brokerage Antitrust Litig., 618 F.3d 300, 315 (3d Cir. 2010).

A private plaintiff suing under the Clayton Act must also

allege antitrust standing, including that its “injury [is] of the

type the antitrust laws were intended to prevent and . . . flows

from that which makes defendants’ acts unlawful.” Id. n.9.

(quoting (A.D. Bedell Wholesale Co. v. Philip Morris Inc.,

263 F.3d 239, 247 (3d Cir.2001)). Finally, the claim in this

case could still fail under the McCarran-Ferguson Act, 15

7

U.S.C. §§ 1011-1015, which exempts insurance providers

from federal antitrust liability in certain instances.

The District Court had subject matter jurisdiction

under 28 U.S.C. §§ 1331 and 1337. Blue Cross moved the

Court to dismiss LifeWatch’s Sherman Act Section 1 claim

under Rule 12(b)(6) of the Federal Rules of Civil Procedure.

It argued that the Complaint fails to allege either agreement

or anticompetitive effects in the relevant product market, that

LifeWatch lacks antitrust standing because it could not show

antitrust injury, and that Blue Cross’s telemetry monitor

coverage decisions are immune from antitrust challenge under

the McCarran-Ferguson Act.

The District Court dismissed for failing to allege

anticompetitive effects, and therefore failing to establish the

restraint was unreasonable. LifeWatch Servs., Inc. v.

Highmark, Inc., 248 F. Supp. 3d 641, 648-49 (E.D. Pa. 2017).

The Court emphasized that, because “each Blue [P]lan treats

all telemetry providers equally,” LifeWatch failed to allege

“competition-reducing” conduct. Id. at 649 (alteration and

emphasis in original) (internal quotation marks omitted). It

concluded that, “even assuming . . . a conspiracy amongst

Blue Plans to deny coverage for telemetry devices, . . . this

alleged conspiracy does not violate antitrust laws.” Id. at 646.

“[T]he Defendants’ refusal—whether concerted or not—to

purchase any telemetry device—whether produced by

LifeWatch or not—is not an antitrust violation, but rather a

legal exercise of Defendants’ monopsony power.” 4 Id. at

650.

4

A monopoly exists if only “one supplier or producer” has

“control or advantage . . . over the commercial market within

a given region.” Black’s Law Dictionary 1160 (10th ed.

2014). If “one buyer controls the market” instead of a seller,

8

The Court also suggested in a dictum that LifeWatch

failed to allege an agreement, as it believed the Plans could

have independently decided “that the benefits of telemetry

devices do not (yet) outweigh their costs.” Id. at 649. It did

not reach antitrust standing or the McCarran-Ferguson Act.

Id. at 650.

LifeWatch timely appealed, and the same four issues

are now before us for review. We have appellate jurisdiction

under 28 U.S.C. § 1291. We exercise plenary review of

dismissals under Rule 12(b)(6), “accept[ing] all factual

allegations in the complaint as true and, examining for

plausibility, ‘determin[ing] whether, under any reasonable

reading of the complaint, the plaintiff may be entitled to

relief.’” In re Lipitor Antitrust Litig., 868 F.3d 231, 249 (3d

Cir. 2017) (quoting Bronowicz v. Allegheny County, 804 F.3d

338, 344 (3d Cir. 2015)); see also Burtch v. Milberg Factors,

Inc., 662 F.3d 212, 220-21 (3d Cir. 2011).

For the reasons that follow, we hold that LifeWatch

plausibly stated a claim and has antitrust standing. However,

we leave Blue Cross’s McCarran-Ferguson Act argument for

the District Court’s consideration on remand.

A. Agreement

We take in order the elements of a claim under Section

1. It prohibits “every contract, combination . . . , or

conspiracy” that unreasonably restrains trade. 15 U.S.C. § 1.

We have interpreted these three terms collectively simply to

mean an agreement. Ins. Brokerage, 618 F.3d at 315.

that is a monopsony. Id. Likewise, if “a few large sellers”

have “control or domination of a market,” it is an oligopoly,

while oligopsony is where “a few large buyers or customers”

do. Id. at 1260.

9

“Unilateral activity by a defendant, no matter the motivation,

cannot give rise to a [S]ection 1 violation.” InterVest, Inc. v.

Bloomberg, L.P., 340 F.3d 144, 159 (3d Cir. 2003). Instead,

a plaintiff must plead “some form of concerted action . . . , in

other words, a unity of purpose or a common design and

understanding or a meeting of minds or a conscious

commitment to a common scheme . . . .” Ins. Brokerage, 618

F.3d at 315 (citations and internal quotation marks omitted).

An agreement may be shown by either direct or

circumstantial evidence. W. Penn Allegheny Health Sys., Inc.

v. UPMC (“West Penn”), 627 F.3d 85, 99 (3d Cir. 2010).

LifeWatch asserts it has provided allegations of both.

Because we hold it pled sufficient circumstantial evidence of

agreement here, we do not reach its direct evidence theory.

As the Supreme Court explained in detail in Bell

Atlantic Corp. v. Twombly, to survive a motion to dismiss, a

plaintiff must plead “enough factual matter (taken as true) to

suggest that an agreement was made.” 550 U.S. 544, 556-57

(2007). “[A]n allegation of parallel conduct and a bare

assertion of conspiracy,” such as “a conclusory allegation of

agreement at some unidentified point,” will not suffice. Id.

Rather, “allegations of parallel conduct . . . must be placed in

a context that raises a suggestion of a preceding agreement,

not merely parallel conduct that could just as well be

independent action.” Id. at 557.

For circumstantial evidence of an agreement, then, a

plaintiff must allege both parallel conduct and something

“more,” which we have sometimes called a “plus factor.” Ins.

Brokerage, 618 F.3d at 321. This “more” could include

evidence (1) “that the defendant had a motive to enter into a

. . . conspiracy,” (2) “that the defendant acted contrary to its

interests,” or (3) “implying a traditional conspiracy.” Id. at

321-22 (quoting In re Flat Glass Antitrust Litig., 385 F.3d

10

350, 360 (3d Cir. 2004)). In cases involving concentrated

markets like oligopolies or oligopsonies—where a small

number of sellers or buyers of a particular product dominate

the market—we have recognized that competitors are more

likely to be influenced by each other’s behavior even without

agreeing to act in concert. For example, “[o]ne oligopolist

may refrain from lowering its price because it fears, indeed

knows, that its rivals will match it.” Phillip E. Areeda &

Herbert Hovenkamp, Fundamentals of Antitrust Law

(“Fundamentals”) § 14.10[G] n.24 (4th ed. Supp. 2017). In

those cases we de-emphasize the first two types of evidence,

which “largely restate [that] phenomenon of

interdependence,” Valspar Corp. v. E.I. Du Pont De Nemours

& Co., 873 F.3d 185, 193 (3d Cir. 2017) (quoting Flat Glass,

385 F.3d at 360), often called “conscious parallelism,” see id.

We focus instead on the third, id., which is “‘non-economic

evidence “that there was an actual, manifest agreement . . . ,”’

which may include ‘proof that the defendants got together and

exchanged assurances of common action or otherwise

adopted a common plan even though no meetings,

conversations, or exchanged documents are shown,’” Ins.

Brokerage, 618 F.3d at 322 (quoting Flat Glass, 385 F.3d at

361).

LifeWatch pled parallel conduct. The Complaint

quotes the provision in the Association’s model policy that

recommends the Blue Plans deny telemetry monitor coverage.

It then asserts the Blue Plans adopted the model policy’s

approach with near total uniformity and references their use

of similar or identical language to deny coverage of telemetry

monitors.

Blue Cross proposes that we end our analysis here

because the Complaint alleges, at best, no more than parallel

conduct. In particular, Blue Cross cites the alleged higher

price of telemetry monitors relative to event monitors (but

11

lower price relative to insertable monitors) as providing all

the Plans an independent basis for denying coverage. Indeed,

if LifeWatch had alleged only that the Association and the

Plans reached the same telemetry monitor coverage decisions

en masse multiple years in a row, and that telemetry monitors

are more expensive than some other treatment options, Blue

Cross might have the better argument. However, LifeWatch

also pled something “more”: evidence implying a traditional

conspiracy.

As an initial matter, the Complaint states that the

Association’s model policy is set during meetings several

times a year, where a panel reviews the votes of all Blue

Plans regarding whether to cover particular treatments. As

noted, this model policy, which the Blue Plans participate in

creating, recommends denying coverage of telemetry

monitors as either not medically necessary or investigational.

Blue Cross does not dispute this description of the model

policy or its creation. Instead, it argues that its member Plans

are not bound to follow the model policy; in fact, it explicitly

disclaims that notion in its text. Thus, according to Blue

Cross, the Plans must make wholly independent decisions

regarding which treatments are medically necessary.

This argument apparently misunderstands the nature of

the alleged agreement, which is not contained within the

model policy’s text. 5 LifeWatch claims instead that the Blue

5

As we have noted in the criminal conspiracy context,

“common sense suggests, and experience confirms, that

illegal agreements are rarely, if ever, reduced to writing or

verbalized with the precision that is characteristic of a written

contract.” United States v. McKee, 506 F.3d 225, 238 (3d

Cir. 2007).

12

Plans agreed with each other and the Association that they

would substantially comply with the model policy. It dubs

this agreement the “Uniformity Rule.” The Association then

allegedly enforces the Plans’ conformance with the model

policy through audits. If a Plan strays too far from the model,

it could face sanctions, including losing the right to use the

Blue Cross name.

Even if these allegations were too conclusory to tip

the scales in favor of plausibility, the Complaint then

provides a particular example of the Uniformity Rule’s

enforcement. Highmark initially contracted with LifeWatch

to deem telemetry monitors medically necessary and cover

prescriptions for them. Under that contract, Highmark

covered claims for telemetry monitors submitted both by

Highmark subscribers and by subscribers to other Blue Plans;

those Blue Plans would then reimburse Highmark in some

fashion. However, allegedly under pressure by the other Blue

Plans and the Association, it stopped paying for claims from

non-Highmark subscribers. As we and other courts have

observed, “[c]oncerted action is established . . . [by] proof of

a causal relationship between pressure from one conspirator

and an anticompetitive decision of another conspirator.” 6

Gordon v. Lewistown Hosp., 423 F.3d 184, 207 (3d Cir.

2005); see also Schachar v. Am. Acad. of Ophthalmology,

Inc., 870 F.2d 397, 397-99 (7th Cir. 1989).

That so many sophisticated third parties allegedly view

telemetry monitors as medically necessary or meeting the

standard of care further undercuts Blue Cross’s theory that

6

Although LifeWatch’s claim against Highmark has been

dismissed, it and other unsued Blue Plans remain alleged co-

conspirators to the purported agreement. Thus their conduct

can be evidence of the agreement’s existence.

13

nearly three dozen Plans independently made the opposite

determination for 10 consecutive years. As noted, according

to the Complaint, other large insurers, including Aetna as well

as Medicaid and Medicare, cover telemetry monitors as

medically necessary. Multiple medical studies reached

similar conclusions. In states that mandate independent,

expert review of appeals of insurance coverage denials,

LifeWatch also funded many costly patient appeals of

telemetry monitor denials. It allegedly prevailed in an

overwhelming number of cases; the Complaint identifies 20

successful appeals between 2010 and 2012 decided by at least

six different independent review boards. The Complaint

indicates that many, if not all, were appeals of a Blue Plan’s

denial. The review boards in several cases determined that

telemetry monitors were clinically necessary or a standard of

care.

Viewed in the light most favorable to LifeWatch, see,

e.g., In re Avandia Mktg., Sales Practices & Prod. Liab.

Litig., 804 F.3d 633, 638 (3d Cir. 2015), these allegations

make an agreement among the Defendants plausible. While a

claim based on parallel—even consciously parallel—conduct

alone would be insufficient to survive dismissal, see Ins.

Brokerage, 618 F.3d at 321, the Complaint provides more. It

alleges the type of agreement reached by the Blue Plans and

the Association, an auditing mechanism by which the

agreement is enforced, a particular time when a Blue Plan

declined to cover telemetry monitors due to pressure from the

Association and other Plans, and the improbability that the

same coverage decision would be reached by nearly all the

Blue Plans independently. 7 The agreement and enforcement

7

The Complaint also gestures at a motive to conspire when it

describes the Defendants’ shared goal to save costs and

increase profits by shifting demand to less expensive

14

mechanism pled here provide the “reasonably founded hope

that the [discovery] process will reveal relevant evidence.”

Twombly, 550 U.S. at 559; see also Ins. Brokerage, 618 F.3d

at 324.

B. Unreasonable Restraint of Trade

To state a Section 1 claim, LifeWatch must also plead

that Blue Cross’s agreement has unreasonably restrained

trade. See NYNEX Corp. v. Discon, Inc., 525 U.S. 128, 133

(1998) (“[T]he Sherman Act’s prohibition of ‘[e]very’

agreement in ‘restraint of trade’ . . . prohibits only agreements

that unreasonably restrain trade.” (emphasis in original)

(citation omitted)). An “unreasonable” restraint is one that

inhibits competition in the relevant market. Eichorn v. AT &

T Corp., 248 F.3d 131, 138 (3d Cir. 2001).

A restraint among competitors—called “horizontal,” as

opposed to “vertical” restraints on market participants at

different points in a product’s supply chain—is more

rigorously scrutinized for an antitrust violation because it

could more easily facilitate competitive harms, such as the

exclusion of rivals, price fixing, or the consolidation of

market power. See Areeda & Hovenkamp, Fundamentals,

supra, § 14.11[A]. In particular, “when a firm exercises

monopsony power pursuant to a conspiracy, its conduct is

treatment options. However, in our case law the mere desire

to shift demand to lower cost devices is not a plus factor

establishing an agreement without further evidence “of

concerted, collusive conduct.” Burtch, 662 F.3d at 229

(quoting In re Baby Food Antitrust Litig., 166 F.3d 112, 137

(3d Cir. 1999)). “In a free capitalistic society, all

entrepreneurs have a legitimate understandable motive to

increase profits.” Id. (same).

15

subject to more rigorous scrutiny . . . .” West Penn, 627 F.3d

at 103. “[U]nlike independent action, concerted activity

inherently is fraught with anticompetitive risk insofar as it

deprives the marketplace of independent centers of

decisionmaking that competition assumes and demands.” Id.

(internal quotation marks omitted). Indeed, some horizontal

restraints, including price fixing and market division, are

considered anticompetitive by their very nature. NYNEX

Corp., 525 U.S. at 133-34 (citing United States v. Socony-

Vacuum Oil Co., 310 U.S. 150, 218 (horizontal price-fixing),

and Palmer v. BRG of Ga., Inc., 498 U.S. 46, 49-50 (1990)

(per curiam) (horizontal market division)). These are treated

as per se Sherman Act Section 1 violations. Id.

However, many horizontal restraints are not so clearly

harmful to competition. Deutscher Tennis Bund v. ATP Tour,

Inc., 610 F.3d 820, 829-30 (3d Cir. 2010). Instead, or in

addition, they may, for example, facilitate the creation of new

products, improve efficiencies, or lead to lower consumer

costs. A restraint that is not per se unreasonable is analyzed

under some form 8 of a “rule of reason” burden-shifting

8

Some horizontal restraints may warrant only a “quick look,”

rather than a complete rule-of-reason analysis. See F.T.C. v.

Ind. Fed’n of Dentists, 476 U.S. 447, 459 (1986); see also

Ohio v. Am. Express Co., 138 S. Ct. 2274, 2285 n.7 (2018).

A quick look “presum[es] competitive harm without detailed

market analysis” because “the anticompetitive effects on

markets and consumers are obvious.” Deutscher Tennis

Bund, 610 F.3d at 832. It is inappropriate if “‘the contours of

the market’ . . . are not ‘sufficiently well-known or defined to

permit the court to ascertain without the aid of extensive

market analysis whether the challenged practice impairs

competition . . . .’” Id. (quoting Worldwide Basketball &

16

framework, which seeks to determine whether the restraint’s

harmful effects are outweighed by any procompetitive

justifications and, if so, whether there are less restrictive

alternatives. Id.; see also United States v. Brown Univ., 5

F.3d 658, 678-79 (3d Cir. 1993).

LifeWatch claims the Blue Plans are engaged in a

horizontal, concerted refusal to deal. The parties agree that

this conduct should be analyzed under the rule of reason

framework. 9 Thus LifeWatch can satisfy the unreasonable-

restraint element in two ways. It can plead “‘actual

detrimental effects [on competition],’ . . . such as reduced

output, increased prices, or decreased quality in the relevant

market.” Am. Express Co., 138 S. Ct. at 2284 (quoting Ind.

Fed’n of Dentists, 476 U.S. at 460). Alternatively, it can

plead that the Blue Cross Defendants have “market power[,]

plus some evidence that the challenged restraint harms

competition.” Id. Under either approach, “courts usually

cannot properly apply the rule of reason without an accurate

definition of the relevant market” because, in most cases, a

court must “conduct a fact-specific assessment of ‘market

power and market structure . . . to assess the [restraint]’s

Sport Tours, Inc. v. Nat’l Collegiate Athletic Ass’n., 388 F.3d

955, 961 (6th Cir. 2004)).

9

We note that some group boycotts, which are similar to

concerted refusals to deal, are treated as unlawful per se. Ind.

Fed’n of Dentists, 476 U.S. at 458. But “the category of

restraints classed as group boycotts is not to be expanded

indiscriminately, and the per se approach has generally been

limited to cases in which firms with market power boycott

suppliers or customers in order to discourage them from

doing business with a competitor,” id., which LifeWatch does

not allege here.

17

actual effect’ on competition.” Id. at 2284-85 (alteration in

original) (quoting Copperweld Corp. v. Indep. Tube Corp.,

467 U.S. 752, 768 (1984)).

The parties do not dispute that LifeWatch must allege

a relevant market in this case. We thus begin with those

allegations, which provide the context for both its assertions

of anticompetitive effects and the District Court’s rationale in

granting Blue Cross’s motion to dismiss.

1. Market Definition

The relevant market in a Section 1 case is “the area of

effective competition . . . within which significant substitution

in consumption or production occurs.” Am. Express Co., 138

S. Ct. at 2285 (internal quotation marks omitted). In other

words, “the outer boundaries of a relevant market are

determined by reasonable interchangeability of use” of a

particular product within a particular geographic area. Queen

City Pizza, Inc. v. Domino’s Pizza, Inc., 124 F.3d 430, 437,

442 (3d Cir. 1997). In addition to substitutability or

interchangeability, “[w]e also look to . . . cross-elasticity of

demand, which is defined as ‘[a] relationship between two

products, usually substitutes for each other, in which a price

change for one product affects the price of the other.’” Mylan

Pharm. Inc. v. Warner Chilcott Pub. Ltd. Co., 838 F.3d 421,

435-36 (3d Cir. 2016) (quoting Black’s Law Dictionary 458

(10th ed. 2014)).

Critically, in a buyer-side conspiracy case, seller rather

than consumer or purchaser behavior is the focus. Todd v.

Exxon Corp., 275 F.3d 191, 2012 (2d Cir. 2001) (Sotomayor,

J.) (citing Roger D. Blair & Jeffrey L. Harrison, Antitrust

Policy and Monopsony, 76 Cornell L. Rev. 297, 324 (1991)).

“[The] market is comprised of buyers who are seen by sellers

as being reasonably good substitutes.” Campfield v. State

18

Farm Mut. Auto. Ins. Co., 532 F.3d 1111, 1118 (10th Cir.

2008) (quoting Todd, 275 F.3d at 202). Thus a court should

be wary of applying the market-definition analysis for seller-

side conspiracies “mechanically in the context of monopsony

or oligopsony.” Todd, 275 F.3d at 202.

A complaint may be properly dismissed if it defines

the relevant market without reference to interchangeability or

cross-elasticity of demand or if it “alleges a proposed relevant

market that clearly does not encompass all interchangeable

substitute products even when all factual inferences are

granted in plaintiff’s favor . . . .” Queen City Pizza, 124 F.3d

at 436. However, absent such obvious oversights, courts are

cautious before dismissing for failure to define a relevant

market. See Todd, 275 F.3d at 199-200 (collecting cases).

Ultimately the relevant market must “both correspond to the

commercial realities of the industry and be economically

significant.” Brown Shoe Co. v. United States, 370 U.S. 294,

336-37 (1962) (internal quotation omitted). That is why, “in

most cases, proper market definition can be determined only

after a factual inquiry into the commercial realities faced by

consumers” or purchasers, in seller-side conspiracies, or

sellers, in buyer-side conspiracies. Queen City Pizza, 124

F.3d at 436; see also Todd, 275 F.3d at 199-200 (“Because

market definition is a deeply fact-intensive inquiry, courts

hesitate to grant motions to dismiss for failure to plead a

relevant product market.”). Our case deals with the latter:

commercial realities faced by medical device sellers seeking

purchases. For example, these might be direct, out-of-pocket

purchases by the end-user patients, patient purchases funded

by a health insurer intermediary, or patient purchases

reimbursed by a health insurer after the fact.

A plaintiff bears the burden of defining both a relevant

geographic and a relevant product market. The Complaint

asserts several relevant markets here: national and regional

19

markets for the sale of health insurance plans and a national

market for the purchase of outpatient cardiac monitors.

However, LifeWatch forfeited its insurance-market theories

by not fully briefing them on appeal. Fed. R. App. P.

28(a)(8)(A); Barna v. Bd. of Sch. Directors of Panther Valley

Sch. Dist., 877 F.3d 136, 145 (3d Cir. 2017). When pressed

during oral argument, it then explicitly waived them. We

therefore turn to the only market definition still before us: the

national outpatient cardiac monitor market.

The parties do not dispute that the alleged market is

national, and the Complaint alleges commercial realities to

support a nationwide market. Patients nationwide suffer

arrhythmias that may require treatment with cardiac monitors.

Telemetry device firms and other unspecified monitoring-

device firms allegedly sell their products nationwide.

Insurers on the buyer side that allegedly compensate sellers of

cardiac monitors also operate nationally, including Medicaid

and Medicare. The Association’s model policy

recommending that Blue Plans not pay for telemetry monitors

is distributed nationally to each Blue Plan. And, as noted, the

Blue Plans operating across the country allegedly cover 105

million Americans collectively, purportedly about half of all

Americans with private insurance.

However, the parties vigorously dispute whether

LifeWatch has pled a relevant product market. The focus of

the parties’ briefing on appeal is whether telemetry monitors

compete with other types of monitors. According to

LifeWatch, all outpatient cardiac monitor sellers compete

within the same market. The Complaint repeatedly references

an “outpatient cardiac monitor” market and describes the four

categories of monitors that compete within it: telemetry,

Holter, event, and insertable monitors.

20

Although its opinion does not say so outright, the

District Court seemingly rejected that market when it

dismissed LifeWatch’s claim. It reasoned that the Blue

Plans’ alleged refusal to purchase telemetry monitors had no

anticompetitive effects among telemetry monitor providers

because it treated them all equally. See LifeWatch Servs., 248

F. Supp. 3d at 649. Blue Cross argues the District Court

implicitly, and correctly, held that LifeWatch’s claimed

product market was implausible and therefore adopted a

telemetry-monitor-only market for purposes of its

anticompetitive-effects analysis.

Read in the light most favorable to LifeWatch,

however, the Complaint alleges competition among all

outpatient cardiac monitors such that they are plausibly

within the same product market. All four of the alleged

categories of monitors capture the same type of data from a

patient’s heart. They capture it for the same purpose: to

identify and treat cardiac arrhythmias. The principal harm

LifeWatch alleges is that Blue Cross is shifting demand to

other outpatient cardiac monitors—presumably conduct that

would be impossible if the monitors were not interchangeable

to some relevant degree. Indeed, LifeWatch claims many

doctors have given up prescribing telemetry monitors and

instead rely exclusively on other cardiac monitors to treat

their patients. The Complaint also quotes a medical study by

the American Heart Association recommending telemetry

monitors alongside other cardiac monitors to treat certain

conditions.

Undoubtedly the Complaint alleges that certain

monitors are less able to function in some areas than others,

while others are costlier. It describes telemetry monitors as

superior to Holter and event monitors in their ease of use,

greater data capture, and ability to diagnose infrequent or

incapacitating arrhythmias. It asserts that only telemetry

21

monitors ought to be prescribed for patients with certain

conditions.

Blue Cross argues these allegations are fatal to

LifeWatch’s claim because they establish that telemetry

monitors are not reasonably interchangeable with other

cardiac monitors. But differentiation is often present among

competing products in the same market. For example, as we

have long observed, different brands of cars may compete to

provide a consumer’s main transportation to and from work—

and, depending on the circumstances, they may also compete

with other modes of travel. Queen City Pizza, 124 F.3d at

437. “Many machines performing the same function—such

as copiers, computers, or automobiles—differ not only in

brand name but also in performance, physical appearance,

size, capacity, cost, price, reliability, ease of use, service,

customer support, and other features.” Areeda &

Hovenkamp, Fundamentals, supra, § 5.11[A]. “Nevertheless,

they generally compete with one another sufficiently that the

price of one brand is greatly constrained by the price of

others.” Id.

Beyond the question of competition among cardiac

monitors, however, there is apparently a more fundamental

problem with the District Court’s reasoning and Blue Cross’s

arguments on appeal. The underlying question driving the

unreasonable-restraint analysis in a buyer-side conspiracy

case is whether the defendants’ purchasing power is

constrained by competition from other purchasers in the

relevant market. Thus, from the perspective of a seller, the

interchangeability that matters is for purchasers of outpatient

cardiac monitors.

Once again, as LifeWatch argues, the Complaint

alleges sufficient facts to survive a motion to dismiss. It

notes that sellers of medical devices like LifeWatch “are often

22

small and highly dependent on a limited number of products,”

suggesting they cannot easily change their products or expand

their offerings to induce a disinterested buyer to purchase

from them. 10 Third Am. Compl. ¶ 63. It also plausibly

alleges that health insurers are gatekeepers controlling patient

purchases in the market. According to the Complaint, it is

exceedingly rare for a patient to pay for a medical device out

of pocket. It describes in detail the difficulties patients face

in obtaining outpatient cardiac monitors not covered by their

insurers, including the opaque, costly appeals process for

coverage denials and that patients are often locked into

whatever health plan their employer sponsors. Thus it is fair

to infer that individual consumers do not constrain the Blue

Plans’ ability to control purchases or purchase prices. The

Complaint acknowledges that other insurers like Aetna,

Medicaid, and Medicare also fund patient purchases of

outpatient cardiac monitors. It also describes the

prohibitively high entry barriers to the health insurance

business. According to these allegations, only established

insurers effectively control purchases of outpatient cardiac

monitors.

10

We note that LifeWatch allegedly began offering a lower-

priced “Elite” monitor after Highmark’s decision to stop

covering telemetry monitors in part. However, the Complaint

suggests that the Elite product still costs LifeWatch the same

amount to make and that it operates at less-than-optimal

performance, as it is a standard telemetry monitor with some

functions either not provided or disabled. LifeWatch’s Elite

monitor allegations illustrate that medical device sellers may

not be able to change their inventories readily in response to

changing buyer preferences. No allegations support a

contrary inference.

23

In this context, we conclude the Complaint plausibly

states that the Blue Plans compete with other insurers, but not

individual consumers, in a national market for the purchase of

outpatient cardiac monitors.

2. Anticompetitive Effects

Armed with the proper market definition, the

unreasonable-restraint analysis becomes straightforward. The

Complaint alleges various “actual anticompetitive effects,”

which, as noted, could include “reduction of output, increase

in price, or deterioration in quality of goods and services.”

Deborah Heart & Lung Ctr. v. Virtua Health, Inc., 833 F.3d

399, 403 (3d Cir. 2016) (quoting Angelico v. Lehigh Valley

Hosp., Inc., 184 F.3d 268, 276 (3d Cir. 1999)).

According to the Complaint, the Blue Plans refuse to

pay for telemetry monitors “not as a result of independent

decisionmaking, but pursuant to a conspiracy” with each

other and the Association. See West Penn, 627 F.3d at 104.

We have held in similar cases that it is “certainly plausible”

for this sort of agreement to “unreasonably restrain[] trade.”

Id. “Such shortchanging poses competitive threats similar to

those posed by conspiracies among buyers to fix prices . . .

and other restraints that result in artificially depressed

payments to suppliers—namely, suboptimal output, reduced

quality, allocative inefficiencies, and (given the reductions in

output) higher prices for consumers in the long run.” Id.

(citation omitted).

Indeed, these are the anticompetitive effects LifeWatch

claims. According to the Complaint, Blue Cross’s concerted

denial of telemetry monitor coverage has harmed consumers

by reducing demand for and output of more effective devices,

by interfering with a patient’s choice of medical treatment,

and by reducing the quality of cardiac monitors in general.

24

LifeWatch alleges the restraint artificially shifts demand from

telemetry monitors to lower quality substitutes. It

discourages physicians and their patients from choosing the

most appropriate treatment. Further, physicians, who

typically do not know which insurance a patient has, are

allegedly deterred from prescribing telemetry monitors

altogether, even if it is the preferred treatment for patients

whose insurance would cover it. They simply prescribe a

cardiac monitor that will certainly be covered, rather than risk

discovering later that the patient cannot afford a telemetry

monitor. And because the restraint reduces current and

anticipated demand for telemetry monitors in favor of older

technology, it hinders research, development, and innovation

in the market for cardiac monitors.

The District Court’s reasoning that there can be no

anticompetitive effects from a restraint that treats all sellers of

telemetry monitors equally rests on a telemetry-monitor-only

product market that was not alleged. A concerted refusal to

deal with all sellers of telemetry monitors, regardless of its

equality, may still restrain competition in the alleged market

for the purchase of outpatient cardiac monitors.

The District Court also attempted to distinguish this

case from Blue Shield of Virginia v. McCready, 457 U.S. 465

(1982). But with our understanding of the alleged product

market, those distinctions disappear. In McCready, a plaintiff

patient denied coverage for psychological treatment brought a

class action against Blue Shield health insurance companies

and a group of psychiatrists for allegedly agreeing “to exclude

and boycott clinical psychologists from receiving

compensation under the Blue Shield plans.” 457 U.S. at 470.

In analyzing whether the patient’s injury was of a type the

antitrust laws were intended to prevent, the Supreme Court

described the alleged agreement as an “anticompetitive

scheme.” Id. at 483. “Blue Shield sought to induce its

25

subscribers into selecting psychiatrists over psychologists” by

“refusing to reimburse subscribers for psychotherapy

performed by psychologists, while providing reimbursement

for comparable treatment by psychiatrists.” Id. at 467, 483-

84. A subscriber presented with this alleged “Hobson’s

choice . . . between visiting a psychologist and forfeiting

reimbursement, or receiving reimbursement by forgoing

treatment by the practitioner of their choice” was injured by

“that which makes the defendants’ acts unlawful”—i.e., by

their anticompetitive effects. Id. at 484.

Similarly, LifeWatch claims that the Blue Plans induce

doctors and insureds to use other outpatient cardiac monitors

instead of telemetry monitors by refusing to fund telemetry

monitor prescriptions while funding comparable treatment

with other monitors. See id. at 483-84. The District Court

suggested there can be no “Hobson’s choice” as in McCready

where the Blue plans “do not cover any telemetry device

supplied by any provider.” LifeWatch Servs., 248 F. Supp. 3d

at 648. But the “Hobson’s choice” here is not among

telemetry monitor brands but among all cardiac monitors—

just as in McCready the choice was not among psychologists

but among all psychotherapy providers.

Because LifeWatch has alleged actual anticompetitive

effects in the relevant market, the unreasonable restraint

element of the Section 1 claim is satisfied directly. We thus

need not consider whether LifeWatch also satisfied it

indirectly by alleging Blue Cross’s market power over the

purchase of outpatient cardiac monitors. See Am. Express

Co., 138 S. Ct. at 2284.

C. Antitrust Standing

In the preceding analysis we concluded that LifeWatch

pled a Section 1 violation. However, its claim could

26

nonetheless fail if it lacks antitrust standing to bring suit

under the Clayton Act.

Sections 4 and 16 of the Clayton Act enable private

plaintiffs to sue for treble damages for and to enjoin antitrust

injuries. 15 U.S.C. §§ 15, 26. While the statutory language

of those provisions is broad, and apparently requires only

constitutional standing to bring suit, 11 the Supreme Court has

held that private plaintiffs must also have “antitrust standing.”

See Hanover 3201 Realty, LLC v. Vill. Supermarkets, Inc.,

806 F.3d 162, 171 (3d Cir. 2015). The Court articulated

several factors to consider when analyzing whether a plaintiff

has such standing. Associated Gen. Contractors of Cal., Inc.

v. Cal. State Council of Carpenters, 459 U.S. 519, 538

(1983). We have summarized these factors as:

(1) the causal connection between the antitrust

violation and the harm to the plaintiff and the

intent by the defendant to cause that harm, with

neither factor alone conferring standing; (2)

whether the plaintiff's alleged injury is of the

type for which the antitrust laws were intended

11

Standing is a term for “[a] party’s right to make a legal

claim or seek judicial enforcement of a duty or right.”

Black’s Law Dictionary 1625 (10th ed. 2014). Constitutional

standing derives from Article III of the U.S. Constitution,

which limits the federal court’s “judicial power,” or

jurisdiction, to deciding “cases” or “controversies.” U.S.

Const. art. III, § 2; see also Spokeo, Inc. v. Robins, 136 S. Ct.

1540, 1547 (2016). For a federal court to have jurisdiction

over any claim, “[t]he plaintiff must have (1) suffered an

injury in fact, (2) that is fairly traceable to the challenged

conduct of the defendant, and (3) that is likely to be redressed

by a favorable judicial decision.” Id. at 1547.

27

to provide redress; (3) the directness of the

injury, which addresses the concerns that liberal

application of standing principles might

produce speculative claims; (4) the existence of

more direct victims of the alleged antitrust

violations; and (5) the potential for duplicative

recovery or complex apportionment of

damages.

In re Lower Lake Erie Iron Ore Antitrust Litig., 998 F.2d

1144, 1165-66 (3d Cir. 1993).

The parties here dispute only whether LifeWatch

alleged the second factor, antitrust injury, which “is a

necessary but insufficient condition of antitrust standing.”

Hanover 3201 Realty, 806 F.3d at 171. It seeks to ensure that

the antitrust laws are enforced to protect competition and not

individual competitors. Brunswick Corp. v. Pueblo Bowl–O–

Mat, Inc., 429 U.S. 477, 488 (1977). An antitrust injury (1)

“flows from that which makes [the] defendants’ acts

unlawful” and (2) “is an injury of the type the antitrust laws

were intended to prevent.” West Penn, 627 F.3d at 101

(quoting Brunswick Corp., 429 U.S. at 489).

To analyze the first prong of antitrust injury, “we must

examine the causal connection between the purportedly

unlawful conduct and the injury.” City of Pittsburgh v. W.

Penn Power Co., 147 F.3d 256, 265 (3d Cir. 1998). Blue

Cross argues that intervening factors, such as the Plan’s

independent ability to decline coverage of telemetry monitors,

a doctor’s choice not to prescribe telemetry monitors, and a

patient’s desire for alternative treatments, “‘cut[] the causal

chain’ and convert any claim of causation into ‘a speculative

exercise.’” Appellee Br. 32 (quoting City of Pittsburgh, 147

F.3d at 267-68).

28

We find this causation argument unpersuasive. The

Complaint asserts that the Plans’ near universal decision to

deny coverage of telemetry monitors would not occur without

enforcement of the Uniformity Rule—as evidenced by other

insurers’ coverage, independent arbitrators’ decisions that

they should be covered, and scientific studies finding them

effective and in some circumstances preferable. It also

alleges that doctors are deterred from prescribing telemetry

monitors because of the Blue Plans’ decision not to cover

them and the hassle caused by not knowing whether a

patient’s insurer will deny coverage. And it alleges that the

Uniformity Rule insulates the Plans from demand for

telemetry treatment. This sufficiently pleads a causal link

between LifeWatch’s injury—lost profits from depressed

telemetry monitor sales—and the Plans’ denial of telemetry

monitor coverage due to the Uniformity Rule. See

McCready, 457 U.S. at 480-81, 483 (noting providers, in

addition to consumers, of a medical treatment would have a

claim for “Blue Shield’s selective refusal to reimburse”

(internal quotation marks omitted)); cf. City of Pittsburgh,

147 F.3d 267 (finding no causal link where plaintiff’s injury

was due to regulations preventing competition between

defendant utility companies, not the defendants’ proposed

merger).

Likewise, LifeWatch’s alleged injury due to

anticompetitive effects in the outpatient cardiac monitor

market is “of the type” the antitrust laws were meant to

prevent. “As a general matter, the class of plaintiffs capable

of satisfying the antitrust-injury requirement is limited to

consumers and competitors in the restrained market . . . and to

those whose injuries are the means by which the defendants

seek to achieve their anticompetitive ends.” West Penn, 627

F.3d at 102 (internal citations omitted). Denying coverage for

LifeWatch’s telemetry device was the means by which the

Blue Plans and the Association depressed demand for

29

telemetry monitors in the outpatient cardiac monitor market.

Its ability to compete as a seller of outpatient cardiac

monitors has been allegedly hindered by the Uniformity Rule.

See McCready, 457 U.S. at 483-84 (noting where insureds

“were compelled to choose” between a covered treatment

provider and one for whom Blue Shield denied coverage, the

denied treatment provider also had antitrust injury). Its injury

“reflect[s] the anticompetitive effect either of the violation or

of anticompetitive acts made possible by the violation.” West

Penn, 627 F.3d at 101 (quoting Brunswick Corp., 429 U.S. at

489).

Blue Cross counters that no competition-reducing

conduct was alleged because all telemetry monitor providers

are treated equally; therefore LifeWatch’s injury is not “of the

type” the antitrust laws seek to prevent. Of course, this only

reiterates the District Court’s implicit product market analysis

with which we have already disagreed.

In sum, LifeWatch sufficiently pled both elements of

antitrust injury, and its antitrust standing is not otherwise in

dispute.

D. McCarran-Ferguson Act

Finally, LifeWatch’s claim can only survive Blue

Cross’s motion to dismiss if the McCarran-Ferguson Act, 15

U.S.C. §§ 1011-1015, does not exempt Blue Cross from

antitrust liability. As Blue Cross acknowledged at oral

argument, a defendant bears the burden of establishing its

immunity under that Act. See Doctors, Inc. v. Blue Cross of

Greater Phila., 490 F.2d 48, 50 n.2 (3d Cir. 1973) (“The

motions to dismiss were filed before either defendant

submitted an answer. As a result, the essential facts

necessary to support this claim of immunity have not as yet

been pleaded.”); Grp. Life & Health Ins. Co. v. Royal Drug

30

Co., 440 U.S. 205, 216 (1979) (analyzing the Act’s

exemption according to what the defendants demonstrated).

On the heels of a Supreme Court ruling that “insurance

transactions were subject to federal regulation under the

Commerce Clause, and that the antitrust laws in particular,

were applicable to them,” Congress passed the McCarran-

Ferguson Act to clarify that regulation of the “business of

insurance” should be relegated to the states. Sec. & Exch.

Comm’n v. Nat’l Sec., Inc., 393 U.S. 453, 458 (1969).

However, the Act provides that the Sherman Act still applies

to “the business of insurance to the extent that such business

is not regulated by State Law” and to “agreement[s] to

boycott, coerce, or intimidate.” 15 U.S.C. §§ 1012(b),

1013(b). Therefore, for Blue Cross to be exempted from

liability in this case, its challenged conduct “(1) must

constitute the business of insurance, (2) must be regulated by

state law, and (3) must not amount to a boycott, coercion, or

intimidation.” Union Labor Life Ins. Co. v. Pireno, 458 U.S.

119, 124 (1982). The parties agree that Blue Cross has

satisfied the third element but dispute whether it can satisfy

the first two.

Because it dismissed on other grounds, the District

Court did not address whether Blue Cross has shown it is

exempt. We do not decide the issue and leave it for the

Court’s consideration on remand.

III. Conclusion

LifeWatch plausibly pled an agreement between the

Blue Plans and the Association that unreasonably restrains

trade in the national market for outpatient cardiac monitors.

It pled that its injury stems from the competitive harms

caused by this agreement. Thus LifeWatch has stated a

Sherman Act Section 1 claim.

31

Blue Cross nonetheless may be exempt from liability

under the McCarran-Ferguson Act, a question the District

Court did not reach in its opinion. We therefore reverse its

dismissal and remand for it to consider Blue Cross’s

McCarran-Ferguson Act argument.

32