Appendix — Little Rock Cardiology Clinic, P.A. v. Baptist Health

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OPINION OF THE UNITED STATES

COURT OF APPEALS FOR THE EIGHTH

CIRCUIT DELIVERED AND ENTERED

DECEMBER 239, 2009

LITTLE ROCK CARDIOLOGY CLINIC PA, et

al., Plaintiffs-Appellants,

vs.

BAPTIST HEALTH; Baptist Medical System

HMO, Inc., Defendants-Appellees, Arkansas

Blue Cross and Blue Shield; USAble Corpora-

tion; HMO Partners, Inc., Defendants.

Nos. 08-3158/09-1786

591 F.3D 591

Appeal from the United States District Court for the

Eastern District of Arkansas, Little Rock Cardiology

Clinic, P.A. v. Baptist Health, 573 F. Supp. 2d 1125,

NO. 4:06CV01594 JLH (F.D. Ark. 2008).

Before HON. MICHAEL J. MELLOY, HON. C.

ARLEN BEAM, and RAYMOND W. GRUENDER,

Circuit Judges.

OPINION: MELLOY, Circuit Judge.

This is an antitrust case involving alleged viola-

tions of Sections 1 and 2 of the Sherman Act, 15

U.S.C. $$ 1, 2. It comes to us after the district court!

granted Appellee Baptist Health's motion to dismiss

2a

for failure to state a claim and denied Baptist

Health's motion to tax discovery-related copying

costs. The principal issue on appeal concerns the

proper methodology for determining the relevant

market in an antitrust case. We also address

whether the district court abused its discretion in de-

clining to tax costs. We affirm on both issues.

1 The Honorable J. Leon Holmes, Chief Judge,

United States District Court for the Eastern

District of Arkansas.

I. Background

Appellant Little Rock Cardiology Clinic PA

("LRCC") is a professional association of cardiologists

located in Little Rock, Arkansas, practicing in both

diagnostic and interventional cardiology procedures.

Baptist Health is the largest hospital company in

Arkansas, operating five hospitals in the state, its

largest being a 585-bed facility in Little Rock. Blue

Cross & Blue Shield of Arkansas ("Blue Cross") is a

health-insurance company headquartered in Little

Rock.? Beginning in 1975, LRCC and its cardiologists

maintained clinical and staff privileges at Baptist

Health and were in Blue Cross's FirstSource net-

work, a network of preferred providers used by all of

Blue Cross's health plans. This changed, however,

with the opening of the Arkansas Heart Hospital.

2 Prior to oral argument, LRCC and Blue

Cross settled their dispute. Blue Cross is no

longer a party to this appeal.

In 1997, LRCC developed Arkansas Heart Hospi-

tal, which specializes in cardiology services and com-

3a

petes with Baptist Health. Prior to developing Ar-

kansas Ieart, the LRCC cardiologists were on staff

at Baptist Health, and participated in Blue Cross's

FirstSource network. Shortly after LRCC opened Ar-

kansas Heart, Blue Cross terminated its network

provider agreements with LRCC and LRCC's doctors.

LRCC alleges that Baptist Health effected this ter-

mination "in concert and in combination with .. .

Baptist Health to restrain and monopolize trade

unlawfully, specifically, to protect Baptist Health

from competition in the relevant market.” In 2003,

Baptist Health adopted an "Economic Credentialing

Policy,” which prohibited any doctor from maintain-

ing staff privileges at any Baptist Health facility if

that doctor directly or indirectly held an interest in a

competing hospital. Recently, an Arkansas state cir-

cuit court permanently enjoined enforcement of this

policy.

LRCC initially filed this suit against Baptist

Health in November 2006, alleging that Baptist

Health conspired with Blue Cross to restrain trade

in, and monopolize the market for, cardiology ser-

vices for privately insured patients by: (1) forming a

jointly owned HMO, HMO Partners, Inc., with Blue

Cross; (2) agreeing with Blue Cross that Baptist

Health would be the HMO's exclusive in-network fa-

cility; and (3) agreeing with Blue Cross that Blue

Cross would remove LRCC from Blue Cross's First-

Source network. A month later, LRCC amended its

complaint to add as plaintiffs a number of individual

cardiologists and each of their individual profes-

sional associations through which they and LRCC

provide cardiology services. Baptist Health then

moved to dismiss the complaint for failure to state a

claim. The district court denied the motion.

4a

In December 2007, LRCC filed a second amended

complaint, adding Blue Cross as a defendant, as well

as Blue Cross's and Baptist Health's individually

owned subsidiaries and their jointly owned subsidi-

ary. ? All defendants then moved to dismiss the sec-

ond amended complaint for failure to state a claim.

The district court granted this motion on the grounds

that, among other things, LRCC's complaint failed to

allege a proper relevant market. In doing so, the dis-

trict court noted that the Supreme Court's recent de-

cision in Bell Atlantic Corp. v. Twombly, 550 U.S.

544, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007), had

created a higher pleading standard than the stan-

dard in Conley v. Gibson, 355 U.S. 41, 78 S. Ct. 99, 2

L. Ed. 2d 80 (1957), the standard upon which the

district court had relied in denying Baptist Health's

first motion to dismiss. The district court, however,

granted LRCC leave to amend its complaint one final

time.

3 For the purpose of this opinion, we refer to

the parties as "Baptist Health" or "Blue Cross."

The identities of the subsidiaries are not mate-

rial to our decision.

In March 2008, LRCC filed a third amended com-

plaint, the complaint at issue in this appeal, alleging

six antitrust claims against Baptist Health. 4 Count I

alleges, under $ 7 of the Sherman Act, that Baptist

Health and Blue Cross unlawfully conspired to re-

strain trade in the market for services to cardiology

patients. The remaining counts allege violations of $

2 of the Sherman Act. Counts II and III allege that

Baptist Health conspired with Blue Cross to monopo-

lize, and attempted to monopolize, the market for

cardiology procedures. Count IV alleges that Baptist

5a

Health monopolized the market for cardiology proce-

dures. Counts V and VI allege that Baptist Health

conspired with Blue Cross to monopolize, and aided

in Blue Cross's attempt to monopolize, the market

for private heaith insurance.

4 We note that the third amended complaint

contains two additional counts, Counts VII and

VIII. Count VII alleges that Blue Cross mo-

nopolized the insurance market. It does not

name Baptist Health, and is not a subject of

this appeal. Count VIII seeks injunctive relief,

which the district court rejected as barred by

laches. LRCC waived any review of this holding

by not raising the issue in its appellate brief.

Ballard v. Heineman, 548 F.3d 1132, 1136 (8th

Cir. 2008). Thus, these counts are immaterial

to our analysis.

The district court granted Baptist Health's mo-

tion to dismiss with prejudice, finding that the al-

leged relevant market for Counts I-IV was legally

flawed and therefore Counts I-IV did not state a

plausible antitrust claim. As to Counts V and VI, the

district court dismissed LRCC's claims against Bap-

tist Health as barred by the statute of limitations be-

cause LRCC failed to allege an overt act in further-

ance of the conspiracy or attempt to monopolize the

private insurance market within the four-year limi-

tations period. See 15 U.S.C. $ 156.

After the district court dismissed LRCC's com-

plaint, Baptist Health filed a bill of costs under Fed-

eral Rule of Civil Procedure 54(d), seeking discovery-

related costs for transcription, in-house copying of

documents, scanning documents produced in discov-

6a

ery, and reproduction of Electronically Stored Infor-

mation ("ESI"). The district court declined to tax

those costs against LRCC.

On appeal, we address two issues: (1) whether the

district court erred in dismissing Counts I-IV; and (2)

whether the district court erred in declining to tax

Baptist Health's discovery-related costs. Because

LRCC does not raise on appeal the district court's

dismissal, on limitations grounds, of Counts V and

VI, we do not address it here. See United States v.

Azure, 539 F.3d 904, 912 (8th Cir. 2008).

II. Antitrust Claims

On appeal, we review de novo the district court's

grant of a motion to dismiss under Federal Rule of

Civil Procedure 12(6)(6), “accepting the allegations

contained in the complaint as true and drawing all

reasonable inferences in favor of the nonmoving

party.” Express Scripts, Inc:.v. Aegon Direct Mktg.

Serus., Inc., 516 F.3d 695, 698 (8th Cir. 2008). This

standard requires us to determine whether the com-

plaint “assert[s] facts that affirmatively and plausi-

bly suggest that the pleader has the right he claims .

_ rather than facts that are merely consistent with

such a right.” Stalley v. Catholic Health Initiatives,

509 F.3d 517, 521 (8th Cir. 2007).

The four counts at issue on appeal raise federal

antitrust claims under Sections 1 and 2 of the

Sherman Antitrust Act. Under that Act, it is unlaw-

ful to contract or form a conspiracy "in restraint of

trade or commerce among the several States," 15

U.S.C. § 1, or to "monopolize or attempt to monopo-

lize... any part of the trade or commerce among the

several States,” 15 U.S.C. $ 2. The parties agree that

7a

LRCC has not alleged a per se violation. LRCC

therefore has the burden of alleging a relevant mar-

ket in order to state a plausible antitrust claim.

Double D. Spotting Serv., Inc. v. Supervalu, Inc., 136

F.3d 554, 560 (8th Cir. 1998). Without a well-defined

relevant market, a court cannot determine the effect

that an allegedly illegal act has on competition. See

FTC v. Freeman Hosp., 69 F.3d 260, 270-71 (8th Cir.

1995). Thus, as we have stated, "Antitrust claims of-

ten rise or fall on the definition of the relevant mar-

ket." Bathke v. Casey's Gen. Stores, Inc., 64 F.3d 340,

345 (8th Cir. 1995). A relevant market consists of

both a product market and a geographic market. Id.

We proceed by analyzing each of these required com-

ponents.

A. Product Market

A court's determination of the limits of a relevant

product market requires inquiry into the choices

available to consumers. Craftsmen Limousine, Inc. v.

Ford Motor Co., 491 F.3d 380, 388 (8th Cir. 2007).

The focus is on how "consumers will shift from one

product to the other in response to changes in their

relative costs." SuperTurf, Inc. v. Monsanto Co., 660

F.2d 1275, 1278 (8th Cir. 1981). The relevant product

market should include “products that have reason-

able interchangeability for the purpose for which

they are produced.” United States v. El. du Pont de

Nemours & Co., 351 U.S. 377, 404, 76 S. Ct. 994, 100

L. Ed. 1264 (1956). The district court found that Ap-

pellant's third amended complaint failed to allege a

relevant product market because, among other rea-

sons, the complaint erroneously defined the product

market by how consumers pay for cardiology ser-

vices. We agree.

8a

The parties extensively brief the issue of what

LRCC alleges to be the relevant product market. The

complaint first states, "The relevant product is those

medical services that cardiology patients receive ex-

clusively in a hospital from a cardiologist.” It also

states, however, that ‘cardiology services and hospi-

tal services are not distinct products for the purposes

of antitrust analysis." Finally, it states that the rele-

vant product market is "the market for cardiology

procedures obtained in hospitals by patients covered

by private insurance." Thus, it is unclear whether

LRCC is alleging a market in which there is a single,

conjoined service--cardiology services obtained in

hospitals--or a market in which there are two dis-

tinct and complementary services--hospital services

and cardiology services. One issue on which the par-

ties agree, however, is that the product market

LRCC alleges is limited to patients covered by pri-

vate insurance. We base our affirmance of the dis-

trict court's product-market holding on this undis-

puted limitation.

LRCC proposes a market limited by how consum-

ers pay for cardiology procedures. This theory lacks

support in both logic and law. As stated above, the

general issue when determining the relevant product

market concerns the choices available to consumers.

Craftsmen Limousine, 491 F.3d at 388. In this case--

an exclusive-dealing case involving shut-out cardi-

ologists--the relevant inquiry is whether there are

alternative patients available to the cardiologists.

See Campfield v. State Farm Mut. Auto. Ins. Co., 532

F.3d 1111, 1119 (10th Cir. 2008) (‘When there are

numerous sources of interchangeable demand, the

plaintiff cannot circumscribe the market to a few

buyers in an effort to manipulate those buyers’ mar-

9a

ket share."); Stop & Shop Supermarket Co. v. Blue

Cross & Blue Shield of R. I., 373 F.3d 57, 67 (1st Cir.

2004) ("[T]he concern in an ordinary exclusive deal-

ing claim by a shut-out supplier is with the available

market for the supplier."); Brokerage Concepts, Inc. v.

U.S. Healthcare, Inc., 140 F.3d 494, 514 (3d Cir.

1998) (stating the “logical assumption that [a phar-

macy] considers members of other prescription plans,

or uninsured persons, completely interchangeable

with [privately insured] members."). Thus, LRCC

must look to alternative patients who are able to pay

the required fees, not just those who pay using pri-

vate insurance.

LRCC argues that the product market should be

limited to patients using private insurance because

private insurance and government insurance--the

other primary method of payment--are not reasona-

bly interchangeable. The trouble with this theory is

that it analyzes the issue from the wrong side of the

transaction. It may be true that, from the patient's

perspective, private insurance and Medi-

care/Medicaid are not reasonably interchangeable.

For a variety of reasons, including age and financial

considerations, a person with private insurance may

not qualify for these government programs. But this

lawsuit is not about the options available to patients,

it is about the options available to shut-out cardiolo-

gists. LRCC's claims boil down to the allegation that,

due to Baptist Health's allegedly unlawful actions,

LRCC has access to fewer patients. The relevant

question, then, is to whom might the cardiologists at

LRCC potentially provide medical service? LRCC's

complaint provides the answer: LRCC can provide

service to "patients ... from either a government

program such as Medicare or Medicaid, or from a

10a

private insurer." (emphasis added). Patients able to

pay their medical bill, regardless of the method of

payment, are reasonably interchangeable from the

cardiologist's perspective--the correct perspective

from which to analyze the issue in this case.

In reaching this conclusion we do not, as LRCC

argues, disregard the well-pleaded allegations in the

complaint. LRCC has made no allegation that pri-

vate insurance is the only method of payment it can

accept. Quite the opposite, LRCC's complaint states

both that it can and that it does accept payment from

sources other than private insurers. Our conclusion

does not challenge LRCC's factual allegations, but

rather its legal theory, to which we owe no deference.

Wiles v. Capitol Indem. Corp., 280 F.3d 868, 870 (8th

Cir. 2002). Nor, as LRCC contends, does our decision

in F.T.C. v. Tenet Health Care Corp., 186 F.3d 1045

(8th Cir. 1999), endorse LRCC's proposed market.

Tenet was a monopolization case brought under $ 7

of the Clayton Act, 15 U.S.C. § 18, in which we ad-

dressed the bounds of a relevant geographic market.

Tenet, 186 F.3d at 1051-52. In so doing, we found

only that the locations where a patient with private

insurance could reasonably turn (a key inquiry in

geographic-market analysis) were constrained by

whether the patient's insurance covered the hospital

in the relevant location. Jd. at 1055. This does not

address the inquiry in the case of a shut-out sup-

plier: to whom can the supplier sell? Thus, Tenet is

inapposite to our decision on the relevant product

market in this case.

We conclude that, as a matter of law, in an anti-

trust claim brought by a seller, a product market

cannot be limited to a single method of payment

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when there are other methods of payment that are

acceptable to the seller. We also analyze LRCC'’s al-

leged relevant geographic market as an alternative

ground on which to affirm the district court's dis-

missal.

B. Geographic Market

LRCC's failure to allege a coherent relevant geo-

graphic market provides an adequate and independ-

ent means of affirming the district court's dismissal.

Properly defined, a geographic market is a geo-

graphic area “in which the seller operates, and to

which.. .. purchaser[s] can practicably turn for sup-

plies." Tampa Elec. Co. v. Nashville Coal Co., 365

U.S. 320, 327, 81 S. Ct. 623, 5 L. Ed. 2d 580 (1961);

accord Morgenstern v. Wilson, 29 F.3d 1291, 1296

(Sth Cir. 1994). Broken down, the test requires a

court to first determine whether a plaintiff has al-

leged a geographic market that includes the area in

which a defendant supplier draws a sufficiently large

percentage of its business--"the market area in which

the seller operates,” its trade area. See Morgenstern,

29 F.3d at 1296 (citation omitted); Double D, 136

F.3d at 560; Bathke, 64 F.3d at 345. A court must

thes: determine whether a plaintiff has alleged a

geographic market in which only a small percentage

of purchasers have alternative suppliers to whom

they could practicably turn in the event that a de-

fendant supplier's anticompetitive actions result in a

price increase. See, e.g., Morgenstern, 29 F.3d at

1296. The end goal in this analysis is to delineate a

geographic area where, in the medical setting, "'few'

patients leave ... and ‘few’ patients enter.” United

States v. Rockford Mem'l Corp., 717 F. Supp. 1251,

1267 (N.D. Ill. 1989), affd, 898 F.2d 1278 (7th Cir.

12a

1990). The district court held that LRCC's alleged

geographic market, Little Rock, was overly narrow

because the complaint contains no allegations that

Little Rock, by itself, made up Baptist Health's trade

area. As with the product market, we agree with the

district court.

LRCC's complaint alleges that Baptist Health op-

erates and competes in an area well beyond the city

of Little Rock. The complaint alleges that Baptist

Health serves "a large percentage of residents from

around the state who need cardiology services in

hospitals.” More specifically, the complaint alleges

that, in addition to Little Rock, Baptist Health oper-

ates in Hot Springs, Pine Bluff, Conway, Searcy, and

FE] Dorado. Despite these allegations detailing the

apparently broad reach of Baptist Health's cardiol-

ogy services, LRCC's complaint seeks to limit the

relevant geographic market to "the cities of Little

Rock and North Little Rock." The geographic market

is defined as such, LRCC contends, because cardiol-

ogy patients in Little Rock and patients from hospi-

tals in surrounding areas “overwhelmingly” go to Lit-

tle Rock for cardiology procedures. > The reason for

this migration to Little Rock, LRCC alleges, is that

the cardiology procedures are "not practicably avail-

able in hospitals in surrounding cities.” In short,

LRCC's argument is that Little Rock is the relevant

geographic market because it is the location to which

would-be cardiology patients must travel. Accepting

the allegations as true and reading them in the light

most favorable to LRCC, as we must, Express

Scripts, 516 F.3d at 698, we cannot find that LRCC's

complaint alleges a plausible relevant geographic

market.

13a

5 LRCC's complaint alleges that "99.5% of pri-

vately insured cardiology patients from the

area code with zip codes beginning with the

three digits 722, which is Little Rock proper,

use hospitals within Little Rock." Further, "[olf

the privately insured cardiology patients who

reside in Little Rock and its surrounding areas,

which are covered by zip codes that begin with

722 and 721, 84.7% use hospitals in Little Rock.

The remaining 15.3% of cardiology patients in

these zip codes use hospitals in North Little

Rock and Conway.”

This case presents an unusual question. Our

cases typically have addressed disputes raising the

issue of where a consumer can practicably turn in

the event of a defendant's anticompetitive price in-

crease--the second prong in our two-prong geo-

graphic-market analysis. See, e.g., Minn. Ass’n of

Nurse Anesthetists v. Unity Hosp., 208 F.3d 655, 662

(8th Cir. 2000); Tenet, 186 F.3d at 1054; Double D,

136 F.3d at 560-61; Bathke, 64 F.3d at 344-47;

Morgenstern, 29 F.3d at 1296. Here, however,

LRCC's complaint contains allegations concerning

the geographic areas where customers could turn for

cardiology procedures, but fails to do so from the

starting point of Baptist Health's trade area. In other

words, LRCC's complaint alleges that a low percent-

age of patients leave its proposed geographic market,

but does not allege that a low percentage of its pa-

tients enter its proposed geographic market. Without

the necessary allegations, we cannot find that LRCC

has stated a plausible antitrust claim. By limiting

the geographic market in this way, LRCC is able to

gerrymander the relevant market to an artificially

narrow location, the location where cardiology proce-

14a

dures take place. As the Supreme Court has stated,

Tampa, 365 U.S. at 327, and as we have echoed,

Double D, 136 F.3d at 560, this is an impermissible

limitation. An antitrust plaintiff must allege a geo-

graphic market in which the defendant supplier

draws a sufficiently large percentage of its business.

This crucial first step serves as a limitation, prevent-

ing antitrust plaintiffs from delineating arbitrarily

narrow geographic markets. It is on this first step

that LRCC's complaint stumbles.

Adopting LRCC's theory of a geographic market

has the potential to create problems in antitrust

cases where the product or service at issue requires

the consumer to travel to a specified location. It

would, as the district court stated, allow antitrust

plaintiffs to “define a market by identifying a small

area around the defendant's location in which nearly

all potential customers patronize the defendant.” Us-

ing LRCC's logic, we could delineate the relevant

geographic market as the square mile surrounding a

hospital, the block on which a hospital sits, or even a

hospital building where the relevant procedure takes

place. Surely a sufficiently large percentage of people

in this area use the hospital's services. These "geo-

graphic markets,’ however, are obviously too narrow.

LRCC next argues that relevant case law does not

permit us to hold that a single city is not a relevant

market. This argument is problematic for two rea-

sons. First, although we find that the geographic

market in this case is implausibly narrow, our opin-

ion should not be read to reject the notion that a city

by itself could, in a different case, be a relevant geo-

graphic market. The boundaries of a relevant market

will turn on the factual allegations presented in any

l5a

given case. Tenet, 186 F.3d at 1052. We hold only

that in this case, the theory upon which LRCC relies

to reach the conclusion that a single city is the rele-

vant geographic market is legally flawed.

Second, the cases from the Seventh Circuit, which

LRCC cites in support of its position, are not con-

trary to our ruling in this case. The first case, United

States v. Rockford Memorial Corp., 898 F.2d 1278

(7th Cir. 1990), is in fact similar te our holding in re-

gard to its analysis of the relevant product market,

and does not support LRCC's argument. In Rockford,

the Seventh Circuit noted first that the district court

found that 87 percent of defendants’ patients came

from "an area surrounding Rockford and consisting

of the rest of Winnebago County (the county in which

Rockford is located) and pieces of several other coun-

ties." Id. at 1284. Thus, Rockford first noted the de-

fendant's trade area. The court then moved to the

second prong of the analysis, stating that patients

within this market were unlikely to seek out other

hospitals in the event of anticompetitive pricing and

therefore upheld it as the relevant geographic mar-

ket. Jd. at 1285. This is not analogous to LRCC's

case. Rather than arguing that the vast majority of

Baptist Health's patients come from Little Rock,

which would be analogous to Rockford, LRCC sup-

ports its geographic market with the allegation that

the vast majority of cardiology patients go to hospi-

tals in Little Rock. The distinction between these two

scenarios is not without a difference. As stated

above, were we to adopt LRCC's logic, we would be

opening the door to creation of geographic markets

with narrowness limited wnly by antitrust plaintiffs’

imagination. We refuse to do this.

16a

‘The second case on which LRCC relies, Hospital

Corp. of America v. F.T.C., 807 F.2d 1381 (7th Cir.

1986), is equally unavailing. Because market defini-

tion was not at issue in that case, see id. at 1388, it

stands for no more than that a city could, given the

right allegations, be a relevant geographic market. ©

We do not dispute this conclusion, nor does it affect

our analysis in this case.

6 In addition, LRCC cites a series of district

court cases in support of their relevant geo-

graphic market. See United States v. Long Is-

land Jewish Med. Ctr., 983 F. Supp. 121, 141-

42 (E.D.N.Y. 1997); HTI Health Servs., Inc. v.

Quorum Health Group, Inc., 960 F. Supp. 1104,

1126 (S.D. Miss. 1997); Santa Cruz Med. Clinic

v. Dominican Santa Cruz Hosp., No. C93 20613

RMW, 1995 WL 853037, at *8-11 (N.D. Cal.

Sept. 7, 1995). These cases stand only for the

proposition that, given the correct allegations, a

small city area can constitute a relevant geo-

graphic market and are therefore not helpful to

LRCC. In fact, Santa Cruz Med., cuts against

LRCC, as it notes, "Ideally, an area should be

defined where few patients leave an area and

few patients enter an area to obtain hospital

services.” 1995 U.S. Dist. LEXIS 21032, [WL] at

*8 (emphasis added).

Moreover, we do not mean to endorse the idea

that a firm's trade area is equivalent to a relevant

geographic market. There is voluminous case law

cautioning against such a holding. See, e.g., Bathke,

64 F.3d at 346; Unity Hosp., 208 F.3d at 662; Gordon

v. Lewistown Hosp., 423 F.3d 184, 212 (3d Cir. 2005);

Surgical Care Ctr. of Hammond, L.C. v. Hosp. Serv.

17a

Dist. No. 1 of Tangipahoa Parish, 309 F.3d 836, 840

(5th Cir. 2002); see also Herbert Hovenkamp, Fed-

eral Antitrust Policy, § 3.6d, at 119 (8d ed. 2005)

("trade area’ and the ‘relevant market’ are precisely

reverse concepts"). Because plaintiffs must identify

consumers alternatives, the relevant geographic

market will often be larger than a firm's trade area.

This well-established principle does not alter our

holding. We hold only that where, as here, an anti-

trust plaintiff alleges that a firm competes in and

draws its customers from a specified geographic

area, it cannot then limit the relevant geographic

market to a location smaller than that area based

solely on the fact that consumers must travel to that

smaller area to obtain the relevant service or prod-

uct. To do so would allow antitrust plaintiffs to ger-

rymander the relevant geographic markets into arti-

ficially narrow locations, as LRCC has attempted to

do here.

We are well aware of our court's reluctance to

dismiss antitrust complaints before the parties have

had an opportunity to fully conduct discovery.

Huelsman v. Civie Ctr. Corp., 873 F.2d 1171, 1174

(8th Cir. 1989) (stating that a "dismissal. . . on the

pleadings should be ‘granted sparingly and with cau-

tion.) (citation omitted). However, more discovery in

this case could not cure the defects in LRCC's legal

theory as to either the relevant product or geo-

graphic market. Without a showing as to the proper

relevant market, LRCC cannot establish the neces-

sary predicate for their antitrust claims. For this

reason, we affirm the district court's dismissal of

LRCC's antitrust claims.

III. Costs Claim 7

18a

7 On July 16, 2009, LRCC submitted to us,

pursuant to Federal Rule of Civil Procedure

28(7), a letter indicating that Baptist Health

should be judicially estopped from seeking dis-

covery-related copying costs because it had pre-

viously argued that such costs are not taxable.

See Platte River Ins. Co. v. Baptist Health, et

al., No. 4:07cv0036 SWW, 2009 U.S. Dist.

LEXIS 64197, 2009 WL 2044610 (E.D. Ark.

July 10, 2009). Because LRCC's previous posi-

tion took place in an unrelated proceeding

against a different party, we find that Baptist

Health is not estopped from taking its current

position. See Hossaini v. W. Mo. Med. Ctr., 140

F.3d 1140, 1142 (8th Cir. 1998) ("The doctrine

of judicial estoppel prohibits a party from tak-

ing inconsistent positions in the same or related

litigation.").

Rule 54(d) of the Federal Rules of Civil Procedure

gives district courts the power to tax costs in favor of

a prevailing party. These awards, however, must fit

within 28 U.S.C. $ 1920, which enumerates the costs

that a district court may tax. Crawford Fitting Co. v.

J.T. Gibbons, Inc., 482 U.S. 437, 441-42, 107 S. Ct.

2494, 96 L. Ed. 2d 385 (1987). The section at issue in

this case, $ 1920(4), states that a judge may tax

“costs of making copies of any materials where the

copies are necessarily obtained for use in the case.’

District courts have broad discretion over the award

of costs to a prevailing party under $ 1920, and we

review such a decision for abuse of discretion. Zotos

v, Lindbergh Sch. Dist., 121 F.3d 356, 363 (8th Cir.

1997). "An abuse of discretion occurs where the dis-

trict court rests its conclusion on clearly erroneous

1Y¥a

factual findings or erroneous legal conclusions.”

Lankford v. Sherman, 451 F.3d 496, 503-04 (8th Cir.

2006). Here, the district court declined to tax as costs

Baptist Health's expenses related to copying docu-

ments to be produced in discovery. Baptist Health

cross-appeals this holding and, in the event we re-

verse the district court, argues that costs for scan-

ning documents and reproducing Electronically

Stored Information ("ESI") fall within "copies of any

materials" as used in $ 1920(4). Because there is no

allegation of erroneous factual findings, we address

whether the district court's holding hinges on erro-

neous legal conclusions.

The threshold issue here is whether the district

court erred in declining to tax discovery-related copy-

ing expenses. It is unclear whether the district court

ruled as a matter of law or as a matter of its discre-

tion. We believe, however, that it is fair to read the

opinion as an exercise of the district court's discre-

tion. Therefore, we confine our holding to the conclu-

sion that the district court did not abuse its discre-

tion. We reach this conclusion for two reasons.

First, Baptist Health does not cite, nor are we

aware of, any decision that requires a district court to

tax discovery-related expenses. We note that there

are cases suggesting that a district court may tax

costs for discovery-related copying. See, e.g., Slagen-

weit v. Slagenweit, 63 F.3d 719, 721 (8th Cir. 1995)

(per curiam) (upholding award of costs for a deposi-

‘10n copy, despite the fact that the deposition was not

.itroduced at trial). These cases are at most permis-

sive, and do not compel the district court to tax such

costs. Moreover, cases from other circuits that have

explicitly addressed discovery-related copying costs

20a

have done so only to the extent that they have found

a district court did not abuse its discretion in taxing

such costs. See, e.g., E.E.0.C. v. W&O, Inc., 213 F.3d

600, 623 (11th Cir. 2000); Illinois v. Sangamo Const.

Co., G57 F.2d 855, 867 (7th Cir. 1981).

Second, numerous district courts within the

Eighth Circuit have refused to tax discovery-related

copying costs. See, e.g., Jones v. Nat'l Am. Univ., No.

CIV. 06-5075-KES, 2009 U.S. Dist. LEXTS 60854,

2009 WL 2005293, at *6 (D.S.D. July 8, 2009) (stat-

ing that copies of papers "necessarily obtained for

use in the case" covers only the "cost of actually try-

ing a case in the courtroom"); Moore v. Daimler-

Chrysler Corp., No. 4:06CV757 CDP, 2007 U.S. Dist.

LEXIS 34756, 2007 WL 1445591, at *1 (E.D. Mo.

May 11, 2007) (same); Sphere Drake Ins. PLC ov:

Trisko, 66 F. Supp. 2d 1088, 1093-94 (D. Minn. 1999)

(same); Emmenegger v. Bull Moose Tube Co., 33 F.

Supp. 2d 1127, 1133-34 (E.D. Mo. 1998) (same).

Given this, we cannot find that the district court

«bused its discretion. Because we affirm the district

court on this threshold issue, we do not reach the is-

sue of whether costs for scanning documents and re-

producing ESI are taxable under $ 1920(4).

1V. Conclusion

For the foregoing reasons, we affirm the district

court on both the antitrust and costs claims.

Z2la

OPINION OF UNITED STATES DISTRICT

COURT FOR THE EASTERN DISTRICT OF

ARKANSAS DELIVERED AND ENTERED

AUGUST 29, 2008

LITTLE ROCK CARDIOLOGY CLINIC, PA, et

al., Plaintiffs

vs.

BAPTIST HEALTH; Arkansas Blue Cross and

Blue Shield; USAble Corporation; Baptist

Medical System HMO, Inc.; and HMO Partners,

Inc., Defendants

NO. 4:06CV01594 JLH

573 F. Supp. 2d 1125

Before HON. J. LEON HOLMES, District Judge.

OPINION AND ORDER

This is an antitrust case alleging violations of sec-

tions 1 and 2 of the Sherman Act, 15 U.S.C. $$ 1 and

2. The plaintiffs seek treble damages under section 4

of the Clayton Act, 15 U.S.C. $ 15, and injunctive re-

lief under section 16 of the Clayton Act, 15 U.S.C. §

26. The complaint was initially filed by Little Rock

Cardiology Clinic, P.A., against Baptist Health on

November 2, 2006. Little Rock Cardiology Clinic, as

the name indicates, is a professional association of

cardiologists practicing medicine in Little Rock. Bap-

tist Health is a nonprofit corporation that eperates

five hospitals in Arkansas, including one in Little

Rock and one in North Little Rock.

22a

Although the initial complaint named only Bap-

tist Health as a defendant, it alleged that Arkansas

Blue Cross and Blue Shield, a nonprofit mutual in-

surance company, and Baptist Health conspired to

restrain trade in, and to monopolize the market for,

cardiology services for privately insured patients in a

sixteen county area of central Arkansas in violation

of sections 1 and 2 of the Sherman Act. The com-

plaint also alleged that Baptist Health attempted to

monopolize and has monopolized the same market.

Before Baptist Health responded to the complaint,

an amended complaint was filed, making substan-

tially the same allegations as the initial complaint

except that seven of the physicians who practice with

Little Rock Cardiology Clinic, and their individual

professional associations, were added as plaintiffs. A

little more than a year: after the initial complaint

was filed, the plaintiffs moved for leave to file a sec-

ond amended complaint, and that motion was

granted. The second amended complaint added as

defendants Arkansas Blue Cross and Blue Shield,

USAble Corporation, Baptist Medical System HMO,

Inc., and HMO Partners, Inc. USAble Corporation is

a wholly-owned subsidiary of Arkansas Blue Cross

and Blue Shield. HMO Partners, Inc., which is

owned by Baptist Medical System HMO, I[nc., and

USAble Corporation, operates an HMO named

Health Advantage.! The defendants then moved to

dismiss the second amended complaint for failure to

state a claim upon which relief can be granted. The

Court concluded that the second amended complaint

failed to state a claim upon which relief could be

granted but, over the defendants’ objections, gave the

plaintiffs leave to file a third amended complaint.

23a

The plaintiffs filed their third amended complaint on

March 27, 2008.

1 This opinion will refer to Arkansas Blue

Cross and Blue Shield, USAble Corporation,

and HMO Partners, Inc., collectively as "Blue

Cross,’ unless expressly stated or the context

indicates otherwise.

The alleged wrongdoing for which the plaintiffs

seek relief in this case began as a response to the

opening of the Arkansas Heart Hospital in Little

Rock in 1997. The owners of that hospital included

cardiologists who practiced at Little Rock Cardiology

Clinic, who were on staff at the Baptist Hospital in

Little Rock, and who participated in the Arkansas

FirstSource network. FirstSource was a network of

providers used by all of the health plans offered by

Blue Cross and its affiliates. Shortly after Arkansas

Heart Hospital opened, the Little Rock Cardiology

Clinic and the doctors who practiced there were ex-

cluded from the FirstSource network. According to

the third amended complaint, the cardiologists at the

Little Rock Cardiology Clinic are the only specialists

in the state of Arkansas excluded from that network.

The motive for excluding them from the network, ac-

cording to the third amended complaint, was to pro-

tect Baptist Health from competition by Arkansas

Heart Hospital. Further, in May 2003, Baptist

Health adopted an ‘economic credentialing policy" to

prohibit any doctor from having or maintaining staff

privileges at any Baptist Health facility if that doctor

directly or indirectly holds an interest in a competing

hospital, which is defined as any hospital in the state

of Arkansas. ‘he enforcement of that policy was pre-

liminarily enjoined in February 2004 and has not

24a

been enforced since then. See Baptist Health v. Mur-

phy, 365 Ark. 115, 226 S.W.3d 800 (2006). *

2 For opinions in previous actions filed in fed-

eral court, see Ark. Blue Cross & Blue Shield v.

St. Vincent Infirmary Med. Ctr., No.

4:07CV00813, 2007 U.S. Dist. LEXIS 92101,

2007 WL 4287842 (E.D. Ark. Dec. 5, 2007); Ark.

Blue Cross & Blue Shield v. St. Vincent Infir-

mary Med. Ctr., No. 4:08CV00662, 2006 U.S.

Dist. LEXIS 22024, 2006 WL 796949 (E.D. Ark.

Mar. 27, 2006); Murphy v. Baptist Health, No.

4:;04CV0112, 2004 U.S. Dist. LEXIS 12080,

2004 WL 1474655 (E.D. Ark. Feb. 24, 2004).

The third amended complaint alleges seven

claims for relief under the Sherman Act. Count I al-

leges that the defendants have engaged in an unlaw-

ful contract combination, concerted action, or con-

spiracy to exclude competition and unreasonably re-

strain interstate commerce in a market for services

to cardiology patients in violation of section 1 of the

Sherman Act. Counts II, III, and IV allege a conspir-

acy to monopolize, attempt to monopolize, and mo-

nopolization of a market for services to cardiology

patients in violation of section 2 of the Sherman Act.

The claims for relief alleged in Counts I-IV are the

same claims for relief that were alleged in the first

three versions of plaintiffs’ complaint. The new

claims for relief alleged for the first time in the third

amended complaint are Counts V, VI, and VII, which

allege a conspiracy to monopolize, attempt to mo-

nopolize, and monopolization of a market for private

health insurance in violation of section 2 of the

Sherman Act. The third amended complaint also

added Count VIII, which seeks injunctive relief.

25a

The defendants have moved to dismiss the third

amended complaint pursuant to Rule 12(b)(6) of the

Federal Rules of Civil Procedure. Baptist Health °

argues, in part, that the case cannot be allowed to go

forward based on the third amended complaint be-

cause the relevant market alleged is incoherent and

therefore incapable of forming the basis on which ad-

judication of these antitrust claims can proceed. Blue

Cross joins to a large extent in the arguments of

Baptist Health but also contends that the claims

against it are barred by the statute of limitations.

Baptist Health, in turn, has adopted by reference

Blue Cross's arguments as to the statute of limita-

tions. All defendants argue that these plaintiffs have

no standing to assert the section 2 claims pertaining

to insurance services. 4

3 “Baptist Health" in this opinion will include

the wholly-owned subsidiary, Baptist Medical

System HMO, Inc., unless expressly stated or

the context indicates otherwise.

4 Because Counts V-VII are dismissed on

other grounds, the Court will not address the

issue of whether the plaintiffs have standing to

assert the section 2 claims pertaining to insur-

ance services.

The Court has concluded that all of the plaintiffs’

damages claims are barred by the statute of limita-

tions except the claims against Baptist Health as-

serted in Counts I-IV; and that plaintiffs’ claims for

injunctive relief are barred by laches. The Court has

also concluded that the relevant market alleged for

Counts I-IV in the third amended complaint is, in-

deed, incoherent, and that this incoherence results

not from inadequate draftsmanship or the absence of

26a

discovery but from an incurable defect in the legal

theory; which is to say that the Court does not be-

lieve that the deficiencies can be cured by further

amendment. Therefore, the third amended complaint

in its entirety will be dismissed with prejudice.

I. THE STANDARD FOR RULING ON A 12(b)(6)

MOTION

Rule 8(a) of the Federal Rules of Civil Procedure

provides that a pleading that states a claim for relief

must contain a short and plain statement of the

claim showing that the pleader is entitled to relief.

Rule 12(6)(6) authorizes a party to move to dismiss

an action based upon the failure to state a claim

upon which relief can be granted. The pleading must

give the defendant fair notice of what the... claim

is and the grounds upon which it rests.” Bell Atlantic

Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955,

1964, 167 L. Ed. 2d 929 (2007) (quoting Conley v.

Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 2 L. Ed. 2d 80

(1957)). Although Rule 8(a)(2) does not require de-

tailed factual allegations, that rule does require

"more than labels and conclusions, and a formulaic

recitation of the elements of a cause of action will not

do.” Id. at 1965. “While the court must accept allega-

tions of fact as true when considering a motion to

dismiss, the court is free to ignore legal conclusions,

unsupported conclusions, unwarranted inferences

and sweeping legal conclusions cast in the form of

factual allegations.” Wiles v. Capitol Indem. Corp.,

280 F.3d 868, 870 (8th Cir. 2002); see also Taxi Con-

nection v. Dakota, Minn. & Eastern R.R. Corp., 513

F.3d 823, 826 (8th Cir. 2008) (stating that the court

is not required to accept "mere conclusions” alleged

in the complaint). "The plaintiff must assert facts

27a

that affirmatively and plausibly suggest that the

pleader has the right he claims... . rather than facts

that are merely consistent with such a right.” Stalley

ex rel. U.S. v. Catholic Health Initiative, 509 F.3d

517, 521 (8th Cir. 2007) (citing Twombly, 127 S. Ct.

at 1964-66).

Il. THE STATUTE OF LIMITATIONS

Actions seeking damages pursuant to section 4 of

the Clayton Act are subject to the four-year statute

of limitations provided in section 4B of the Clayton

Act, 15 U.S.C. $ 156. Here, the initial complaint,

which was filed on November 2, 2006, named Baptist

Health as the only defendant and asserted only the

claims relating to the market for “cardiology services

for privately insured individuals.” Compl. PP 32, 37,

47, 54. On December 17, 2007, the plaintiffs filed

their second amended complaint adding Arkansas

Blue Cross and Blue Shield, USAble Corporation,

Baptist Medical System HMO, Inc., and HMO Part-

ners, Inc., as defendants. The claims relating to the

market for health insurance were added in the third

amended complaint, which was filed on March 27,

2008. The third amended complaint alleges that an

illegal combination began no later than early 1997

(paragraph 132i), that USAble Corporation termi-

nated its contract with the plaintiffs in June of 1997

(paragraph 132), that HMO Partners terminated its

contract with the plaintiffs in September of 1997

(paragraph 137), and that the defendants had ac-

quired monopoly power in the hospital services and

private insurance markets by 2001 (paragraph 82).

All of these events occurred more than four years be-

fore the plaintiffs filed the original complaint on No-

28a

vember 2, 2006, or the second amended complaint on

December 17, 2007. °

5 For purposes of ruling on the motions to

dismiss, the Court will assume, without decid-

ing, that all claims relate back to the second

amended complaint as to the defendants first

named in that complaint and back to the origi-

nal complaint as to Baptist Health. No argu-

ment is made that the claims against defen-

dants other than Baptist Health relate back to

the original complaint under Fed. R. Civ. P.

15(e)(L(C).

The plaintiffs argue that they have alleged facts

to show a continuing conspiracy or continuing viola-

tion within four years of the filing of the complaint

and the second amended complaint and, therefore,

their claims are not barred by the statute of limita-

tions.

The classic statement of the continuing violation

doctrine is found in Hanover Shoe, Inc. v. United

Shoe Mach. Corp., 392 U.S. 481, 88 S. Ct. 2224, 20 L.

Ed. 2d 1231 (1968). United monopolized the shoe

machinery industry. Hanover was a shoe manufac-

turer and one of United's customers. Starting in

1912, United would not sell machinery to shoe manu-

facturers but, instead, used its monopoly power to

require shoe manufactvrers to lease its machinery.

Hanover filed suit in 1955. In rejecting United's ar-

surnent that Hanover's claim was barred by the

statute of limitations, the Supreme Court said:

United has also advanced the argument

that because the earliest impact on Hano-

29a

ver of United's lease only policy occurred

in 1912, Hanover's cause of action arose .

during that year and is now barred by the

applicable Pennsylvania statute of limita-

tions. The Court of Appeals correctly re-

jected United's argument in its supple-

mental opinion. We are not dealing with a

violation which, if it occurs at all, must oc-

cur within some specific and limited time

span. Cf. Emich Motors Corp. v. General

Motors Corp., 229 F.2d 714 (C.A.7th Cir.

1956), upon which United relies. Rather,

we are dealing with conduct which consti-

tuted a continuing violation of the

Sherman Act and which inflicted continu-

ing and accumulating harm on Hanover.

Although Hanover could have sued in

1912 for the injury then being inflicted, it

was equally entitled to sue in 1955.

Id. at 502 n.15, 88 S. Ct. at 2236 n.15. The critical

distinction made by the court in Hanover Shoe is the

distinction between ‘a violation which, if it occurs at

all, must occur within some specific and limited time

span’ and "conduct which constituted a continuing

violation of the Sherman Act and which inflicted con-

tinuing and accumulating harm" on the plaintiff. The

Emich Motors case -- which the court cited as an ex-

ample of "a violation which, if it occurs at all, must

occur within some specific and limited time span" --

was a case 1n which a dealer was terminated as part

of a conspiracy between GM, GMAC, and others to

control the financing of automobile purchases by

compelling dealers to use the financing offered by

30a

GMAC. Emich Motors, 229 F.2d at 715. The terse

discussion in Hanover Shoe does not explain why a

dealer termination, which results in an ongoing ex-

clusion from a business relationship with the manu-

facturer, is an example of a violation "which... must

occur within some specific and limited time.” Hano-

ver Shoe, 392 U.S. at 502 n.15, 88 S. Ct. at 2236 n.15.

The Eighth Circuit discussed the continuing vio-

lation theory in Midwestern Machinery v. Northwest

Airlines, 392 F.3d 265 (8th Cir. 2004). Although the

purpose of the discussion there was to explain why

the continuing violation theory “oes not apply to a

case alleging that a merger violated section 7 of the

Clayton Act, all parties have urged the Court to ac-

cept that case as controlling authority. The discus-

sion in Midwestern Machinery begins with the obser-

vation that the typical antitrust continuing violation

occurs in a price-fixing conspiracy actionable under

section 1 of the Sherman Act."when conspirators con-

tinue to meet to fine-tune their cartel agreement.” Id.

at 269. “These meetings are overt acts that begin a

new statute of limitations because they serve to fur-

ther the objections of the conspiracy.” Jd. Outside the

context of a RICO or Sherman Act conspiracy, “new

overt acts must be more than the unabated inertial

consequences of the initial violation.” 7d. at 270. In

explaining the distinction in footnote 15 of Hanover

Shoe, Midwestern Machinery says that the Supreme

Court "endorsed the Third Circuit's reasoning that

United's conduct ‘went beyond a mere continuation

of the refusal to sell; it collected rentals on leases and

entered into new leases when old machinery was no

longer in working condition and required replace-

ment.” Id. (quoting Hanover Shoe, Inc. v. United

Shoe Mach. Corp., 377 F.2d 776, 794 (3d Cir. 1967),

gla

aff'd in part and rev'd in part, 392 U.S. 481, 88 S. Ct.

2224, 20 L. Ed. 2d 1231 (1968)). The distinction that

Midwestern Machinery then draws is between ac-

tively using an unlawful policy to maintain a monop-

oly and passively implementing anti-competitive

policies, such as a refusal to deal. Jd. When the latter

occurs, "[e]xisting competitors must act when a rival

initiates anticompetitive policies that do not require

additional anti-competitive action to implementl,]"

because "implementation is only a reaffirmation of

the policy's adoption, and the statute begins to run

as soon as the competitor suffers injury.” Jd. As to

the former, "[oJnly where the monopolist actively re-

initiates the anti-competitive policy and enjoys bene-

fits from that action can the continuing violation

theory apply.” Jd. at 271. "This distinction between

‘new and accumulating injury on the plaintiff (which

restart[s] the statute of limitations) and unabated

inertial consequences of previous acts (which do not)

allows the statute of limitations to have effect and

discourages private parties from sleeping on their

rights." Jd. (citation omitted).

The other Fighth Circuit decisions that must be

noted are Lomar Wholesale Grocery v. Dieter's

Gourmet Foods, Inc., 824 F.2d 582 (8th Cir. 1987);

and Pioneer Co. v. Talon, Inc., 462 F.2d 1106 (8th

Cir. 1972).

In Pioneer, the plaintiff sold Talon's products at

wholesale. When Talon learned that Pioneer was

selling its products at discount prices, it refused to

sell to Pioneer thereafter. The issue was whether the

statute of limitations accrued when Talon gave no-

tice to Pioneer that it would no longer sell products

to it or when subsequent orders were refused. Pio-

32a

neer, 462 F.2d at 1107. The Eighth Circuit held that

the cause of action accrued when orders were re-

fused, not when notice was given, because even

though Valon gave notice that it would refuse future

orders, "it terminated nothing of legal significance”

because, unlike the plaintiff in Eniich Motors, it had

no contract to terminate. Jd. at 1108.

In Lomar Wholesale Grocery, the Eighth Circuit

again addressed the issue of when the cause of action

of a terminated distributor accrued and held that the

cause of action accrued when the termination first

occurred, not on subsequent occasions when requests

for reinstatement were denied. Lomar Wholesale

Grocery, 824 F.2d at 586. The court rejected the ar-

gument that the later denials of requests for rein-

statement were tantamount to refusal to fill orders

that had been placed subsequent to notice of termi-

nation, which Pioneer found would start the period of

limitations anew. Id. In rejecting the analogy with

Pioneer, the court said that refusing a specific order

was a "fresh instance” of a refusal to deal whereas

declining a request for reinstatement as a distributor

was “merely the abatable but unabated inertial con-

sequences" of conduct that occurred outside the pe-

riod of limitations and therefore conduct that did not

give rise to a new cause of action. Lomar Wholesale

Grocery, 824 F.2d at 586. (quoting Poster Exch., Inc.

v. Nai'l Screen Serv. Corp., 517 F.2d 117, 128 (5th

Cir. 1975)).

Pioneer and Lomar Wholesale Grocery are more

pertinent to the case at hand than many cases that

the parties have cited because they are cases in

which the injury to the plaintiff was caused by a re-

fusal to deal, which is the situation here. Although

33a

the plaintiffs have asserted section 2 claims for mo-

nopolization, attempt to monopolize, and conspiracy

to monopolize, the injury to them -- the injury that

gives rise to their claims for damages and for which

they seek injunctive relief -- is a refusal to deal. As

noted above, the third amended complaint alleges

that USAble, acting for Blue Cross, terminated its

network provider agreements with Little Rock Car-

diology Clinic and its doctors in June 1997, while

HMO Partners did so in September 1997. That there

were provider agreements that were terminated dis-

tinguishes this case from Pioneer, where “nothing of

legal significance” was terminated.

With this discussion of the case Jaw in mind, we

turn to the acts that the plaintiffs allege show a con-

tinuing violation within four years of the filing of the

complaint and the second amended complaint.

34a

A. WHETHER PLAINTIFFS' CLAIMS ARE

BARRED BY LIMITATIONS AS TO DEFEN-

DANTS OTHER THAN BAPTIST HEALTH

The plaintiffs first argue that an overt act oc-

curred in January 2006 when they were allowed back

into some but not all of the network. Understanding

the plaintiffs’ argument, as well as the reason why

that argument fails, requires some historical back-

ground.

The Arkansas General Assembly enacted the Ar-

kansas Patient Protection Act of 1995, Ark. Code

Ann. § 23-99-201 et seg., popularly known as the "any

willing provider” statute, in 1995. That statute pro-

hibited insurers from using monetary incentives or

penalties to affect a health plan beneficiary's choice

of health care provider, and it required that every

qualified health care provider who is willing to ac-

cept a health plan's terms, conditions, and fee sched-

ule be allowed to participate. Ark. Code Ann. $ 23-99-

204. The statute excluded self-funded or other health

benefit plans that are exempt from state regulation

by virtue of ERISA. ARK. CODE ANN. § 23-99-209.

On January 31, 1997, this Court entered an order

permanently enjoining enforcement of that Act on

the grounds that it was preempted by ERISA. See

Prudential Ins. Co. of America v. Nat'l Park Med.

Ctr., Inc., 964 F. Supp. 1285 (E.D. Ark. 1997).

Shortly thereafter, this Court entered an amended

order stating that the any willing provider statute

was preempted only as related to ERISA plans. On

appeal, the Eighth Circuit held that the any willing

provider statute was preempted in its entirety by

ERISA, not only as it related to ERISA plans. Pru-

dential Ins. Co. of America v. Natl Park Med. Ctr.,

35a

Inc., 154 F.3d 812 (8th Cir. 1998). On April 2, 2003,

the Supreme Court held that a similar statute in

Kentucky was not preempted. Kentucky Ass'n of

Health Plans, Inc. v. Miller, 538 U.S. 329, 123 S. Ct.

1471, 155 L. Ed. 2d 468 (2003). Ultimately, on Au-

gust 2, 2005, this Court lifted the injunction against

enforcement of the any willing provider statute ex-

cept with respect to self-funded ERISA plans and

certain civil penalties.

According to paragraph 164 of the third amended

complaint, after the injunction against enforcement

of the any willing provider statute was lifted, in

January 2006 the plaintiffs were allowed back into

the network with Arkansas Blue Cross and Blue

Shield and HMO Partners but not as to "FirstSource

or any network used by employer self-insured plans’

so that "for the roughly 50% of the privately insureds

in Arkansas who are covered by employer self-

insurance programs,” the plaintiffs "remain out of

network." This last phrase is key: as to plans that

are preempted by ERISA, the plaintiffs "remain out

of network." Similarly, paragraph 62 alleges that the

plaintiffs were excluded from the network in 1997,

and "the defendants have never permitted the plain-

tiffs back into the FirstSource network.” The action

taken by the defendants in early 2006 was not a new

and independent act that inflicted new and accumu-

lating injury on the plaintiffs. As to those persons

covered by employer self-insured plans, the plaintiffs’

situation now is the same as it was in 1997 when

they were first excluded from the managed care net-

work as a whole. The action of the defendants in

early 2006, allowing the plaintiffs into the network

to the extent that the any willing provider statute

could be enforced, helped the defendants; it did not

36a

injure them. The decision continuing their exclusion

from the network for employer self-insured programs

was merely a reaffirmation of the decision in 1997 to

exclude them from the network as to those programs.

The plaintiffs have also argued that Blue Cross's

refusal to reimburse the cath lab opened by Little

Rock Cardiology Clinic in 2003 is another new and

independent act that inflicted new and accumulating

injury on the plaintiffs. Little Rock Cardiology Clinic

had been excluded from the Blue Cross networks for

six years by the time that the cath lab was opened.

According to the third amended complaint, during

that time, Little Rock Cardiology Clinic, its doctors,

and their patients made numerous requests to be re-

admitted into the network, but Blue Cross and HMO

Partners "refused to budge from the exclusion."

Third Am. Compl., P 141. During that time, when-

ever a physician left Little Rock Cardiology Clinic,

that doctor was “immediately reinstated to in-

network status in both the PPO and the HMO."

Third Am. Compl., P 142. Conversely, whenever a

doctor joined Little Rock Cardiology Clinic, that doc-

tor was excluded from the network. Third Am.

Compl., P 143. Nothing in the third amended com-

plaint offers any reason to believe that Blue Cross's

refusal to reimburse Little Rock Cardiology Clinic's

cath lab was anything other than the unabated iner-

tial consequence of the 1997 decision not to do busi-

ness with Little Rock Cardiology Clinic.

"Most courts see no continuing violation when the

initial refusal to deal is ‘irrevocable, immutable,

permanent and final.” If PITILLIP E. AREEDA &

HERBERT HOVENKAMP, ANTITRUST LAW P

320c, at 294 (3d ed. 2007) (quoting Multidistrict Ve-

37a

hicle Air Pollution v. General Motors Corp., 591 F.2d

68, 72 (9th Cir.), cert. denied, 444 U.S. 900, 100 S. Ct.

210, 62 L. Ed. 2d 136 (1979)). If ever a refusal to deal

was ‘irrevocable, immutable, permanent, and final,’

this one was. Throughout every change in the mar-

ketplace, Blue Cross has adhered to the policy

adopted in 1997 that, to the extent permitted by law,

it would refuse to deal with Little Rock Cardiology

Clinic and its doctors. "In such circumstances, im-

plementation is only a reaffirmation of the policy's

adoption, and the statute begins to run as soon as

the competitor suffers injury.” Midwestern Mach.,

392 F.3d at 270.

Although not alleged in the third amended com-

plaint, the plaintiffs also argue that Blue Cross

committed an overt act in 2007. The alleged overt act

in 2007 was taken in response to a suit filed in state

court by Little Rock Cardiology Clinic and others

against Blue Cross to recover damages sustained

while enforcement of the any willing provider statute

was enjoined. In response to the action for damages

filed in state court, Blue Cross filed an action in this

Court seeking to enjoin pursuit of the state-court ac-

tion. Blue Cross argued that the state-court action

for damages was inconsistent with the injunction,

and, therefore, this Court should enjoin pursuit of

the state-court action. This Court dismissed the

complaint for lack of subject matter jurisdiction. See

Ark. Blue Cross & Blue Shield v. St. Vincent Infir-

mary Med. Ctr., No. 4:07CV813, 2007 U.S. Dist.

LEXIS 92101, 2007 WL 4287842 (E.D. Ark. Dec. 5,

2007). The action filed in this Court in 2007 did not

seek to exclude the plaintiffs from competing in the

market, however defined, and was not a new and in-

dependent act in furtherance of an antitrust viola-

38a

tion that inflicted new and accumulating injury to

the plaintiffs. Midwestern Mach., 392 F.2d at 271. It

was a defensive move -- a response to a complaint for

damages -- raising in this Court a good faith defense

that also could be and presumably was raised in

state court after this Court dismissed for lack of ju-

risdiction.

As to Arkansas Blue Cross and Blue Shield, US-

Able Corporation, Baptist Medical System HMO,

Inc., and HMO Partners, Inc., the plaintiffs’ claims

are barred because the third amended complaint al-

leges no acts occurring within four years of the filing

of the second amended complaint on December 17,

2007, other than the unabated inertial consequences

of the decision in 1997 not to deal with Little Rock

Cardiology Clinic and its physicians. As to those four

defendants, all of the plaintiffs’ claims are barred by

the statute of limitations.

B. WHETHER PLAINTIFFS' CLAIMS AGAINST

BAPTIST HEALTH ARE BARRED BY LIMITA-

TIONS

As mentioned, Baptist Health was named as a de-

fendant in the original complaint, which was filed on

November 2, 2006. Baptist Health adopted its eco-

nomic credentialing policy in 2003, which was less

than four years before that complaint was filed. The

adoption of the economic credentialing policy can

fairly be regarded as an overt act in furtherance of

the alleged monopolization of a market for hospital

services for cardiology patients and cannot fairly be

regarded as the unabated inertial consequences of

previous acts. Baptist Health has argued that the

plaintiffs have not been injured by the economic cre-

39a

dentialing policy because enforcement of it was pre-

liminarily enjoined in 2004, but the third amended

complaint sufficiently alleges that the plaintiffs were

injured by the enactment of the policy. Therefore, the

claims in Counts I-IV are not barred by limitations

as to Baptist Health.

The third amended complaint alleges in Count V

that Baptist Health was part of the conspiracy to

monopolize the private insurance market and in

Count VI that it was part of the attempt to monopo-

lize that market. ® The plaintiffs argue that Baptist

Health's adoption of the economic credentialing pol-

icy in May 2003 is an overt act in furtherance of the

conspiracy to monopolize the private insurance mar-

ket. As noted, that act occurred less than four years

before the initial complaint was filed in this case, so,

if it could fairly be regarded as an act in furtherance

of the conspiracy to monopolize the private insurance

market, the claims against Baptist Health alleging

conspiracy and attempt to monopolize the private in-

surance market would not be barred by limitations,

assuming that the claims in Counts V and VI relate

back to the original complaint.

6 As noted above, Baptist Health is not named

in Count VII.

The factual allegations regarding the economic

credentialing policy appear in paragraphs 146

through 154 of the third amended complaint. Para-

graph 146 alleges that in late 2002 Baptist Health

learned that neurosurgeons and orthopedists on staff

at Baptist Health planned to form a specialty hospi-

tal, which Baptist Health called the "spine hospital,’

and that the economic credentialing policy resulted

40a

from efforts to protect Baptist Health from the spine

hospital. According to paragraph 147, the purpose of

the economic credentialing policy was to stifle com-

petition from competing hospitals. That paragraph

states, in part, ‘the President of Baptist Health has

admitted under oath that the primary purpose, and

the only purpose he could think of, for the policy was

to discourage specialty hospitals from entering the

marketplace and to exclude them from it.” Assuming

these allegations to be true, the purpose of the eco-

nomic credentialing policy was to stifle competition

in the market for hospital services, not to stifle com-

petition in the market for private insurance.

Paragraph 149 alleges that minutes of a meeting

of the executive committee of Baptist Health show

that there was to be "reconfirmation with Blue Cross

regarding no access to network;’ meaning the net-

work from which the plaintiffs were excluded in

1997. Thus, the involvement of Blue Cross was to

confirm the status quo. No other involvement by

Blue Cross in Baptist Health's economic credential-

ing policy is alleged. No allegation is made that Blue

Cross requested that Baptist Health adopt that pol-

icy, nor that Baptist Health intended, when it

adopted the policy, to benefit Blue Cross. Indeed, as

noted, the specific factual allegation is that the pur-

pose of the policy was to prevent specialty hospitals

from competing with Baptist Health, not that its

purpose was to assist Blue Cross. The third amended

complaint does not allege that Blue Cross acted in

2003 to exclude from the network any physicians

who had not already been excluded; and, as noted

above, according to the third amended complaint, the

cardiologists at Little Rock Cardiology Clinic are the

only specialists in the state who have been excluded.

4la

So far as the private insurance market is concerned,

Baptist Health's economic credentialing policy

changed nothing.

Although paragraph 223 alleges in conclusory

fashion that adoption of the economic credentialing

policy by Baptist Health in 2003 was an overt act in

furtherance of the conspiracy to monopolize the pri-

vate insurance market, the Court is not required to

accept that conclusion. See Twombly, 127 S. Ct. at

1965; Stalley, 509 F.3d at 521; Wiles, 280 F.3d at

870. The detailed factual pleadings in paragraphs

146 through 154 -- which the Court must and does

accept as true -- belie the conclusion in paragraph

223 that the economic credentialing policy was an

overt act in furtherance of a conspiracy or an attempt

to monopolize the market for private insurance. It is

true that plaintiffs’ theory of the case is that Baptist

Health and Blue Cross conspired each to aid the

other in building two reciprocally reinforcing mo-

nopolies; but, even if that is true, Baptist Health's

economic credentialing policy was, according to the

third amended complaint, an action taken by Baptist

Health to protect Baptist Health from competition

from specialty hospitals, not an action taken by Bap-

tist Health to protect Blue Cross from competition in

the private insurance market. Any connection be-

tween that policy and the private insurance market

is too attenuated for the adoption of that policy to be

deemed a continuing violation of the antitrust laws

in the private insurance market. The third amended

complaint, therefore, alleges no overt act in further-

ance of the conspiracy or attempt to monopolize the

private insurance market within four years of the

date that the plaintiffs filed their initial complaint in

this action. The claims asserted against Baptist

42a

Health in Counts V and VI are barred by the statute

of limitations.

As noted above, the claims against Baptist Health

in Counts I-IV are not barred by the statute of limi-

tations, so the Court must address the substance of

those counts to rule on the motion to dismiss as to

them.

Il. THE RELEVANT MARKET FOR COUNTS I-

IV

Because no per se violation of section I is alleged,

it is necessary for the plaintiffs to allege a valid rele-

vant market on the section 1 claim as well as on the

section 2 claims. Double D Spotting Serv., Inc. v.

Supervalu, Inc., 136 F.3d 554, 560 (8th Cir. 1998).

If an antitrust complaint requires proof

of a relevant market the plaintiff must al-

lege such a market in its complaint, in-

cluding the geographic market. In addi-

tion, the pleading must be comprehensi-

ble, sufficiently particular to put the de-

fendant on notice of the alleged market's

boundaries, and plausible, or perhaps

merely "conceivable."

IIB PHILLIP E. AREEDA, HERBERT HOVENK-

AMP & JOHN L. SOLOW, ANTITRUST LAW P 531f

(3d ed. 2007) (footnotes omitted). Although courts

should be hesitant to dismiss antitrust actions before

discovery, and although the definition of the relevant

market requires a factual inquiry into the commer-

cial realities faced by consumers, there is no prohibi-

43a

tion against dismissing an antitrust claim pursuant

to Rule 12(b)(6) for failure to plead a relevant mar-

ket. Queen City Pizza, Inc. v. Domino's Pizza, Inc.,

124 F.3d 430, 436 (3d Cir. 1997). "[Cjourts have not

hesitated to dismiss antitrust claims where it is clear

that the alleged relevant market is too narrow, im-

plausible, defined solely by franchise agreement, or

simply not defined anywhere in the pleadings." Fer-

guson Med. Group, L.P. v. Missouri Delta Med. Ctr.,

No. 1:06CV8, 2006 U.S. Dist. LEXIS 53493, 2006 WL

2225454, at *3 (E.D. Mo. Aug. 2, 2006).

A relevant product market has two components --

a product market and a geographic market. Bathke v.

Casey's Gen. Stores, Inc., 64 F.3d 340, 345 (8th Cir.

1995)). We turn first to the relevant product market.

A. THE PRODUCT MARKET

The third amended complaint alleges:

22. The relevant product is those medi-

cal services that cardiology patients re-

ceive exclusively in a hospital from a car-

diologist. These include all interventions

involving the heart and the more complex

interventions involving peripheral arter-

ies and organs.

23. That patients obtain cardiology

services only in conjunction with associ-

ated hospital services means that the

relevant cardiology services and hospital

services are not distinct products for pur-

poses of antitrust analysis. See Jefferson

Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S.

44a

2, 43, 104 S. Ct. 1551, 80 L. Ed. 2d 2

(1984) (O'Connor, J., concurring).

The third amended complaint also alleges that there

are two separate health insurance markets, one for

government programs, most significantly Medicare

and Medicaid, and one for private insurance. The

third amended compiaint further alleges:

35. This case involves the private insur-

ance market, the hospital services market,

and the cardiology services market. The

first relevant product market at issue in

this lawsuit (a market to be examined for

competitive injury) is the market for car-

diology procedures obtained in hospitals

by patients covered by private insurance.

In general, this product market includes

all interventions involving the heart and

the more complex peripheral interven-

tions.

36. The second relevant product mar-

ket at issue in this lawsuit (also to be ex-

amined by competitive injury) is the mar-

ket for private health insurance. This

market includes group health insurance

plans, individual health insurance plans

and employer self-insured health plans.

38. The hospital services market in

general (as opposed to for cardiology pro-

cedures) is also a subject of inquiry in this

lawsuit, but plaintiffs do not assert dis-

tinct injury in this market. This general

45a

hospital services market is a source of de-

fendants’ market power that has been

used for anticompetitive purpose and ef-

fect.

Count I alleges that the defendants have engaged

in “anticompetitive conduct for the purpose of re-

straining commerce in the market for hospital ser-

vices for cardiology patients covered by private in-

surance.’ Count II is entitled "Conspiracy to Monopo- .

lize - Cardiology Procedures’ and alleges that the de-

fendants “have combined and conspired to monopo-

lize the market for hospital services for privately in-

sured cardiology patients ... ." Similarly, Count III

is entitled "Attempt to Monopolize - Cardiology Pro-

cedures’ and alleges, ‘defendants have attempted to

monopolize the market for hospital services for pri-

vately insured cardiology patients ... ." Likewise,

Count IV is entitled "Monopolization -- Cardiology

Procedures" and alleges, "Baptist Health has and

continues to possess monopoly power in the market

for hospital services for privately insured cardiology

patients."

1. Assuming That The Relevant Product Mar-

ket Is Defined in Terms of Cardiologist's Ser-

vices, Counts I-IV of The Third Amended Com-

plaint Must Be Dismissed.

We have quoted at length from the third amended

complaint because the first difficulty is determining

what the plaintiffs intend to allege as the product

market for Counts I-IV. Because the plaintiffs are

cardiologists, one might expect that the product

46a

market would be services offered by cardiologists,

and some paragraphs in the third amended com-

plaint appear so to state. Paragraph 22, for example,

defines the relevant product market as medical ser-

vices that cardiology patients receive in a hospital

from a cardiologist.

If that is the product market -- services offered by

cardiologists to hospitalized patients -- then the sec-

tion 2 claims asserted in Counts II, III, and IV neces-

sarily fail. No defendant offers the services that car-

diologists offer, which is to say that no defendant

competes in the market for cardiology services. "Mo-

nopoly exists when one firm controls all or the bulk

of a product's output and no other firm can enter the

market, or expand output, at comparable costs.” IIB

ANTITRUST LAW P 408a (footnote omitted). More

simply, a monopoly is a market condition in which

“only one economic entity produces a_ particular

product or provides a particular service" or the mar-

ket condition approaches that level of concentration.

BLACK’S LAW DICTIONARY 1028 (8th ed. 2004).

No one can monopolize a market if he does not pro-

duce the product or deliver the services constituting

that market, which is to say that no one can monopo-

lize a market in which he does not compete. No one

can attempt to monopolize a market without at-

tempting to compete in that market. No one can con-

spire to monopolize a market unless at least one of

the coconspirators competes in that market. No de-

fendant in this case offers the services that cardiolo-

gists offer, so no defendant in this case competes in

the market of services offered by cardiologists. Even

if the market is limited to services provided by cardi-

ologists in a hospital, and even if it is limited to ser-

vices provided by cardiologists in a hospital to pa-

47a

tients who are privately insured, nevertheless, no de-

fendant competes or is alleged to compete in that

market. No defendant has market power in that

market. Cf. Gordon v. Lewistown Hosp., 272 F. Supp.

2d 393, 421 n.24 (M.D. Pa. 2003) ("The {hospital . . .

is not a participant in the physician services aspects

of these markets and, therefore, cannot possess mar-

ket power in those markets."). Thus, as a matter of

law, Counts II, III, and IV fail to state a claim for re-

lief if the relevant product market consists of ser-

vices offered by cardiologists.

The section I claim also must be dismissed if the

relevant product market consists of services offered

by cardiologists. If a defendant has no market power

in the relevant market, the plaintiff must allege ad-

verse effects on competition in the relevant market,

which in this instance would mean an adverse effect

on competition among cardiologists, such as _ in-

creased prices for services offered by cardiologists or

a decline in either the quality or quantity of services

offered by cardiologists. Minn. Ass‘n of Nurse Anes-

thetists v. Unity Hosp., 208 F.3d 655, 662 (8th Cir.

2000); Flegel v. Christian MHosp., Northeast-

Northwest, 4 F.3d 682, 688-89 (8th Cir. 1993). If the

product market is limited to medical services offered

by cardiologists in a hospital to patients who are pri-

vately insured, the plaintiffs would need to allege

adverse effects on competition in that market, such

as increased prices for services by cardiologists to

privately insured patients in hospitals, or a decline

in either the quality or quantity of services by cardi-

vlogists to privately insured patients in hospitals.

Minn. Ass'n of Nurse Anesthetists, 208 F.3d at 662.

However, the third amended complaint makes no

such allegations.

48a

The third amended complaint touches on the is-

sue of competition among cardiologists only in paria-

graphs 49 and 50, which are in the section of the

third amended complaint describing the alleged geo-

graphic market, not in the section describing the al-

leged product market. Paragraphs 49 and 50 allege:

49. Little Rock is also where Arkansas's

cardiologists are located. According to in-

formation from the Arkansas Medical

Board, there are 138 cardiologists in the

entire state of Arkansas, and 51 of them

reside in the Central Public Health Re-

gion cities of Conway, Hot Springs, Little

Rock, North Little Rock, and Pine Bluff.

Of these 51, 41 are in Little Rock and

North Little Rock. This is 80% of the total

from the Region, and 29% of the state-

wide total. As between Little Rock and

North Little Rock, 33 cardiologists are in

Little Rock and 8 are in North Little Rock.

The reason why cardiologists reside in the

Little Rock market in these numbers is

that it is the largest market for cardiology

services in the state, retaining the over-

whelming majority of Little Rock patients

who seek cardiology services and drawing

large numbers of patients from around the

state for medical procedures that require

hospital services.

50. In addition, a larger percentage of

the cardiologists who perform in-hospital

procedures known as interventional cardi-

ology, including the plaintiffs, are located

49a

in Little Rock rather than outside of Little

Rock.

Nowhere does the third amended complaint allege

that the anticompetitive conduct of the defendants

has resulted in cardiologists raising their prices for

privately insured patients in hospitals or, for that

matter, any other patients. Nowhere does the third

amended complaint allege that the anticompetitive

conduct of the defendants has caused a decline in the

number of cardiologists or in the quality of the ser-

vices offered by cardiologists. Because the third

amended complaint is silent as to the impact on

competition among cardiologists, as distinct from the

impact on the plaintiffs, and because no defendant

has market power in the market for services offered

by cardiologists, if the product market consists of

services offered by cardiologists, Count I, which al-

leges a restraint of trade in violation of section 1 of

the Sherman Act, like Counts IT, III, and [V, fails to

state a claim for relief and therefore must be dis-

missed. Dunn & Mavis, Inc. v. Nu-Car Driveaway,

Inc., 691 F.2d 241, 245 (6th Cir. 1982) (‘Since the

complaint does not allege facts suggesting that

Chrysler's refusal to deal had any significant anti-

competitive effect on the market, there is no rule of

reason case alleged.’).

2. Assuming That The Plaintiffs Intend to Al-

lege That The Product Market Includes Both

Cardiologists’ Services and Hospital Services,

Counts I-IV of The Third Amended Complaint

Must Be Dismissed.

50a

The third amended complaint contains extensive

allegations of harmful effects on competition among

hospitals that admit cardiology patients. The sum-

mary of these allegations is that the Arkansas Heart

Hospital provides better quality services while charg-

ing lower prices than the Baptist Hospital in Little

Rock. See Third Am. Compl., PP 166-173.

The observation that the third amended com-

plaint alleges adverse effects on competition among

hospitals that admit cardiology patients brings us to

an alternative way of construing the third amended

complaint's allegations regarding the relevant prod-

uct market. Although paragraph 22 alleges that the

relevant product market consists of medical services

provided by cardiologists to patients in hospitals, the

next paragraph alleges that, because patients obtain

these cardiology services only in conjunction with as-

sociated hospital services, “the relevant cardiology

services and the hospital services are not distinct

products for purposes of antitrust analysis.’ Para-

graph 35 alleges that the case involves the private

insurance market, the hospital services market, and

the cardiology services market, and, ‘[t/he first rele-

vant product market at issue in this lawsuit (a mar-

ket to be examined for competitive injury) is the

market for cardiology procedures obtained in hospi-

tals by patients covered by private insurance.” This

sentence, consistently with paragraph 23, appears to

conflate the market for services offered by cardiolo-

gists to hospitalized patients with the market for

services offered by hospitals to cardiology patients,

so that the alleged product market is a single “mar-

ket for cardiology procedures obtained in hospitals by

patients covered by private insurance,” Counts I-IV

of the third amended complaint describe the market

S5la

as "the market for hospital services for cardiology pa-

tients covered by private insurance’ or “the market

for hospital services for privately insured cardiology

patients” without distinguishing between a market

for services offered by cardiologists to hospitalized

patients and a market for services offered by hospi-

tals to cardiology patients. Viewing all of these alle-

vations together, it appears that the key to under-

standing the plaintiffs’ theory as to the relevant

product market is the assertion in paragraph 23 of

the third amended complaint that cardiology services

and hospital services “are not distinct products for

purposes of antitrust analysis’ for cardiology pa-

tients who require hospitalization. The plaintiffs

likewise argue in their brief in response to the mo-

tions to dismiss that, because a cardiology patient in

the relevant market must have both a hospital and a

cardiologist, the services offered by a hospital and

the services offered by a cardiologist to such a pa-

tient comprise a single product for purposes of anti-

trust analysis.

Thus, it appears that the plaintiffs intend to al-

lege that the services offered by a hospital and the

services offered by a cardiologist to hospitalized car-

diology patients constitute one product for purposes

of antitrust analysis; and they justify treating the

services of the hospital and the services of the cardi-

ologist as one product on the basis that a hospital-

ized cardiology patient needs both a hospital and a

cardiologist. That a hospitalized cardiology patient

needs both a hospital and a cardiologist is undoubt-

edly true; the legal conclusion that therefore the ser-

vices offered by hospitals and the services offered by

cardiologists to hospitalized cardiology patients are

52a

in the same product market is false. The leading

treatise on antitrust law explains:

Substitutes are goods that can replace

one another and thus "compete" for the

user's purchase. For example, Chevrolets

are substitutes for Fords, and coal in

many uses is a substitute for natural gas.

By contrast, complements are goods that

are most efficiently made or used to-

gether. For example, gasoline and auto-

mobiles are complements, as are computer

hardware and software, toasters and

bread, or beef and leather. If two goods

are produced most efficiently when they

are made together, such as beef and

leather, or lumber and sawdust, we speak

of "complements in production.’ If two

goods are consumed most efficiently when

used together, such as bread and toasters

or hardware and software, we speak of

complements in demand,’ or ‘comple-

ments in consumption.”

When two goods are in the same rele-

vant market -- that is, substitutes rather

than complements -- a price increase in

one typically occasions a price increase 1n

the other. For example, if coal and natural

gas are in the same market, a reduction in

coal output will increase the demand tor

natural gas, thus causing its price to in-

crease, as well as the coal price. Indeed,

the entire concept of a ‘market includes

the notion that the prices of the goods in

58a

the market tend to be uniform, or to rise

and fall together.

In contrast, when goods are comple

ments in demand, their prices tend to

move in opposite directions. For example,

gasoline and automobiles are comple-

ments, because a driver needs both. A sig-

nificant output reduction and price in-

crease in gasoline will cause less driving,

which will reduce the demand for cars,

causing a price decrease there.

Importantly, when the goods at issue

are complements, the presence of market

power in one says virtually nothing about

the presence of market power in the other,

even if a firm makes both. For example, a

firm could be a monopoly producer of both

cars and gasoline, a competitive producer

of both, or a monopoly producer of one and

a competitive producer of the other. A firm

might have a monopoly in software, such

as the Windows operating system, while

computers, which are the complementary

product that make Windows valuable, are

sold in a highly competitive market.

It should be clear that a relevant mar-

ket consists only of goods that are rea-

sonably close substitutes for one another.

Economists have understood markets this

way for more than a century. The Su-

preme Court has indicated that relevant

markets are composed of substitutes by

defining market boundaries in terms of

cross-elasticity of demand. That term

54a

speaks of the rate at which people will

substitute one item in response to a price

increase in a different item -- a compari-

son that applies only to a relationship of

substitution.

- a

Grouping complementary goods into

the same market is not only economic

nonsense, it also undermines the rationale

for the policy against monopolization or

collusion in the first place. One "monopo-

lizes" a market by reducing output, and

once certain output is removed from the

market, the remaining output experiences

increase demand and a rise in prices.

Thus a monopolist might monopolize the

market for gasoline by reducing output

from the competitive level of, say,

1,000,000 barrels, to a monopoly level of

700,000, with the result that demand in-

tensifies for that which remains and the

market clearing price rises. No such result

obtains when one aggregates complemen-

tary goods into the same market. For ex-

ample, grouping gasoline and tires in a

“market” suggests that an output decrease

in gasoline would permit an increase in

tire prices. In fact, it will do just the oppo-

site.

In grouping non substitutable and

complementary parts into a single rele-

vant market, the Ninth Circuit invoked

the "commercial reality" that a service

provider needed access to all the parties in

5ba

order to provide service for Kodak photo-

copiers, and that the only inventory of “all

parts’ was Kodak's warehouse. But many

"commercial realities” describe a particu-

lar market situation, and their invocation

should not become an after-the-fact ra-

tionalization for a conclusion that is com-

pletely inconsistent with the economic ra-

tionale for defining markets. It is also a

commercial realty that one must have

both a toaster and bread to make toast, or

both gasoline and an automobile to drive.

In sum, a “commercial reality" pro-

vides evidence of a single relevant market

if it tends to show the economic conditions

meeting the criteria for a relevant market

-- namely, that items in the proposed

market are substitutes for one another,

that customers can respond to a price in-

crease in one by using the other instead,

that suppliers can respond to price in-

creases in one item by switching to pro-

ducing it rather than the other, or that

firms have to compete with one another to

make the sale.

IIB ANTITRUST LAW P 565a (footnotes omitted);

see also Abraham uv. Intermountain Health Care, Inc.,

461 F.3d 1249, 1264 (10th Cir. 2006); United States

v. Microsoft Corp., 346 U.S. App. D.C. 330, 253 F.3d

34, 86 (D.C. Cir. 2001).

The plaintiffs attempt to avoid the conclusion

that their services and those of Baptist Health are in

56a

separate markets by asserting that the question is

one of fact, not of law, but that assertion is wrong.

Assuming as true the well-pleaded and irreproach-

able allegation that hospitalized cardiology patients

require services from both a cardiologist and a hospi-

tal, what follows is not that both sets of services are

in the same product market but rather the opposite -

- the two sets of services are complements, not sub-

stitutes, and therefore are not in the same product

market. This is not a factual question, but a legal

one: does the law provide that, because a hospital-

ized cardiology patient requires both a cardiologist

and a hospital, the services of the cardiologist and

the services of the hospital are in the same product

market? The answer is no.

The plaintiffs cite Justice O'Connor's concurring

opinion in Jefferson Parish Hosp. Dist. No. 2 v. Hyde,

466 U.S. 2, 43, 104 S. Ct. 1551, 1574, 80 L. Ed. 2d 2

(1984) (O'Connor, J., concurring), for the proposition

that, because hospitalized cardiology patients re-

quire both a cardiologist and a hospital, the two ser-

vices are not distinct products for antitrust purposes.

Justice O'Connor's concurring opinion did say that

there was no sound economic reason for treating sur-

gery and anesthesia as separate services. Id. at 43,

104 S. Ct. at 1574. However, the opinion of the Court

said, ‘the hospital's requirement that its patients ob-

tain necessary anesthesiological services from Roux

combined the purchase of two distinguishable ser-

vices in a single transaction.” Id. at 24, 104 S. Ct. at

1564-65 (majority opinion); see also Konik v. Cham-

plain Valley Physicians Hosp. Med. Ctr., 733 F.2d

1007, 1017 (2nd Cir. 1984) ("In light of the Supreme

Court's recent ruling in Hyde, there seems to be little

question that the Hospital's operating room facilities

57a

and the provision of anesthesiology service must be

viewed as separate services.”") In Hyde, the hospital

sold its services and those of anesthesiologists in a

single transaction, and, when that arrangement was

challenged as an illegal tie, the district court, the

court of appeals, and the Supreme Court all held

that anesthesiological services and hospital services

were separate services. The reason was that "con-

sumers differentiate between anesthesiological ser-

vices and other hospital services... .' Hyde, 466

U.S. at 23, 104 S. Ct. at 1564. Here, no allegation is

made that any hospital sells its services and those of

cardiologists in a single transaction and no allegation

is made that consumers fail to differentiate between

them. The behavior of buyers and sellers as alleged

in the third amended complaint is inconsistent with

the argument that services offered by cardiologists to

hospitalized patients are services offered by hospitals

to cardiology patients as one product. 7

7 The plaintiffs’ argument on this point is also

inconsistent with their (so far successful) ar-

gument in state court that Baptist Health's

economic credentialing policy constitutes tor-

tious interference with the doctor-patient rela-

tionship. See Baptist Health v. Murphy, 365

Ark. at 123-25, 226 S.W.3d at 807-08.

Finally, as support for their argument that the

services offered by a hospital to cardiology patients

and the services offered by a cardiologist to hospital-

ized patients should be regarded as a single product

for antitrust purposes, the plaintiffs cited at oral ar-

gument the following paragraph from the Areeda

treatise:

58a

Often the “clustering” problem goes

away with more careful attention to the

precise input that is being monopolized.

Consider a relevant market for "surgical

services. Clearly, a heart bypass is not a

substitute for an appendectomy, and nei-

ther one is a substitute for the surgical

repair of a gunshot wound. But the prob-

lem of clustering non substitutes vanishes

when we realize that any source of mo-

nopoly power lies in the facility, in this

case the hospital's operating room and

supporting equipment. Thus, for example,

a local telephone company may have mo-

nopoly power over its telephone network,

which we can describe as a relevant mar-

ket, notwithstanding that the various ser-

vices dependent on the network, which in-

clude voice conversations, fax transmis-

sions, and Internet access, may not be

good substitutes for each other. While in

Grinnell the Supreme Court considered it-

self to be clustering noncompetitive prod-

ucts, such as fire and burglary alarm pro-

tection, the then-existing technology of the

central station alarm protection industry

indicates that the adopted grouping was

not "clustering" at all, but the simple pro-

vision of remote protective services and

alarm connections through a single tele-

phone line, with a single operator moni-

toring the various alarms.

59a

IIB ANTITRUST LAW P 565c. The plaintiffs con-

strue this paragraph to say services offered by a sur-

geon and services offered by a hospital may be "clus-

tered" for purposes of defining a relevant market, but

that is not what the paragraph says. What the para-

graph says is that, even though an appendectomy is

not a substitute for surgical repair of a gunshot

wound, when the hospital offers its services for an

appendectomy and for repair of a gunshot wound, it

is not offering two services but only one: a facility for

surgery -- an operating room and supporting equip-

ment. This paragraph does not say that the hospi-

tal's services and those of the surgeon can be clus-

tered for purposes of defining a product market. This

paragraph is part of a section of the treatise devoted

to explaining the principle, "Most fundamentally,

goods cannot be clustered unless there is a sufficient

basis for inferring that the defendant has the re-

quired degree of market power over each of the goods

in the cluster." Jd. Here, as has been noted, Baptist

Health does not compete in the cardiologists’ services

market; it has no market share and therefore no

market power in the market for cardiologists’ ser-

vices. Therefore, the relevant product market cannot

include both the services offered by hospitals and the

services offered by cardiologists.

In summary, if the plaintiffs intend to allege that

the relevant product market consists of services of-

fered by cardiologists to privately insured hospital-

ized patients, Counts I-IV of the third amended com-

plaint fail to state a claim upon which relief can be

granted because no defendant competes in that mar-

ket and the third amended complaint contains no al-

legations of an adverse effect on competition in that

market; and, if the plaintiffs intend to allege that,

60a

because hospitalized cardiology patients need both a

hospital and a cardiologist the services of both must

be treated as one for purposes of determining the

relevant product, Counts I-IV of the third amended

complaint must be dismissed for failure to state a

claim because, as a matter of law, complementary

products sold separately are not in the same product

market.

3. The Relevant Product Market for Counts I-IV

Cannot Be Defined by Reference to Whether

The Patients Who Receive Services Are Pri-

vately Insured.

As the defendants have noted, the allegations re-

garding the relevant product market for Counts I-IV

of the third amended complaint have yet another dif-

ficulty, and on this one there is no doubt as to what

the plaintiffs irtend to allege: the plaintiffs intend to

restrict the relevant product market to services of-

fered to patients who have private insurance. In

other words, Counts I-lV of the third amended com-

plaint exclude from the relevant product market ser-

vices offered to hospitalized cardiology patients cov-

ered by Medicare or Medicaid, and they also exclude

from the relevant product market services offered to

cardiology patients who have no insurance. Thus, the

plaintiffs propose to define the product market, in

part, by how different customers pay for the services

-- which is not the way that the product market is

defined.

The argument that the product market can be

defined in part by reference to whether purchasers

pay with private insurance, through a government

program, or otherwise, is a novel argument for which

6la

there is little or no precedent, but, even without

precedent, the Court has no doubt that defining the

product market in this manner is inconsistent with

the basic notion of a product market. How a pur

chaser pays for a product is irrelevant to the ques-

tion of what the product is or whether the purchaser

would consider that item or service interchangeable

with another. As a standard jury instruction explains

it, "in determining the product market, the basic idea

is that the products within it are interchangeable as

a practical matter from the buyer's point of view." 3A

KEVIN F. O'MALLEY, JAY E. GRENIG & WIL-

LIAM C. LEE, FEDERAL JURY PRACTICE & IN-

STRUCTIONS: CIVIL § 150.66 (5th ed. 2001). From

the buyer's point of view, there may be an issue as to

whether the services offered by one physician are in-

terchangeable with the services of another or

whether the services offered’ by one hospital are in-

terchangeable with those of another, but how the

buyer pays for the services is not relevant to the

question of which services are interchangeable with

one another.

During oral argument, when asked for the best

authority for the proposition that the product market

can be limited in terms of how consumers pay for the

services, counsel for the plaintiffs cited Reazin uv.

Blue Cross & Blue Shield of Kansas, Inc., 899 F.2d

951 (10th Cir. 1990). In Reazin, the product market

was ‘private health care financing.” Id. at 959 & n.

10. Reazin may be relevant to the plaintiffs’ argu-

ments that they have standing to sue for monopoliza-

tion of the market for private health insurance as al-

leged in Counts V-VII of the third amended com-

plaint, but it offers no support for the argument that

the product market alleged in Counts I-IV -- the

62a

market for services to hospitalized cardiology pa-

tients -- can be defined by reference to whether the

patients pay for those services with private insur-

ance.

The reason that the plaintiffs wish to define the

product market as services to privately insured pa-

tients is that the wrongful act of which they com-

plain and for which they seek equitable and mone-

tary relief is their exclusion from the FirstSource

network. The notion that the market for a service

provider excluded from a healthcare network can be

limited to consumers with private insurance was re-

jected in Stop & Shop v. Blue Cross & Blue Shield of

Rhode Island, 373 F.3d 57 (1st Cir. 2004), where the

court held:

Unfortunately for [plaintiffs'’ expert's]

market definition, the concern in an ordi-

nary exclusive dealing claim by a shut-out

supplier is with the available market for

the supplier. Here, for Walgreen and Stop

& Shop, their potential customers are pre-

sumptively all retail customers for pre-

scription drugs -- not just that smaller

subgroup who are insured or reimbursed.

To say that some sub-group of customers

is foreclosed proves nothing by itself about

the impact on pharmacies.

Id. at 67. Here, for the cardiologists at the Little

Rock Cardiology Clinic who are excluded from the

FirstSource network, their potential customers are

all persons who need cardiologists’ services, not just

that smaller subgroup who are insured or reim-

63a

bursed. To say that these cardiologists are foreclosed

from the FirstSource network says nothing about the

impact on competition among cardiologists. For each

of the first four counts in the third amended com-

plaint, a proper market definition would have to in-

clude all cardiology patients, or at least all hospital-

ized cardiology patients. See also Brokerage Con-

cepts, Inc. v. U.S. Healthcare, Inc., 140 F.3d 494, 513-

14 (3d Cir. 1998).

B. THE GEOGRAPHIC MARKET

The geographic market “includes the geographic

area in which consumers can practically seek alter-

native sources of the product, and it can be defined

as ‘the market area in which the seller operates."

Double D Spotting Serv., 136 F.3d at 560 (quoting

Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320,

327, 81 S. Ct. 623, 628, 5 L. Ed. 2d 580 (1961)). "A

geographic market is determined not by where con-

sumers actually go for a particular product or ser-

vice, but rather by where they could go should the

defendants’ prices become anticompetitive." Ferguson

Med. Group, 2006 U.S. Dist. LEXIS 53493, 2006 WL

2225454, at *2; see also Bathke, 64 F.3d at 345. Al-

though this is ordinarily a factual inquiry, courts

have not hesitated to dismiss antitrust claims where

it is clear that the alleged geographic market is too

narrow or implausible. Ferguson Med. Group, 2006

U.S. Dist. LEXTS 53493, 2006 WL 2225454, at *3.

The third amended complaint defines the rele-

vant geographic market as the cities of Little Rock

and North Little Rock. On the face of it, it seems im-

plausible that the geographic market for cardiolo-

gists who practice in Little Rock or North Little Rock

64a

or for hospitals in Little Rock and North Little Rock

would be limited to the city limits, and the parties

have cited no comparable case in which the geo-

graphic market coincided with the city limits. 2

JOHN MILES, HEALTH CARE & ANTITRUST

LAW § 12:11 (2008) ("Arbitrary geographical and po-

litical boundaries rarely should constitute relevant

geographic markets for antitrust purposes because

their establishment's [sic] usually based on factors

other than competitive relationships among the hos-

pitals in the area."). Moreover, the third amended

complaint includes factual allegations that are in-

consistent with the definition of the geographic mar

ket, and the method of defining the geographic mar-

ket, as explained in the third amended complaint, is

flawed as a matter of law.

Although the trade area for a business and the

relevant geographic market in which it competes are

not identical, it seems logical that the relevant geo-

graphic market will not be smaller and usually will

be larger than the trade area because, by definition,

the business is competing for customers throughout

its trade area, so that area must be in the geographic

market; and, in addition to the trade area, the geo-

graphic market must include places to which that

business's customers could turn to obtain the prod-

uct. Cf. Bathke, 64 F.3d at 346.

Paragraph 51 of the third amended complaint al-

leges that the hospitals in Little Rock serve not only

99.5% of residents in Little Rock, "but also a large

percentage of residents from around the state who

need cardiology services in. hospitals.” “Where sub-

stantial immigration occurs, the outlying area may

need to be included in the relevant geographic mar-

65a

ket even if outmigration is small.” 2 HEALTH CARE

& ANTITRUST LAW § 12:11. Paragraph 161 of the

third amended complaint alleges that a cardiologist

in El Dorado, which is 117 miles from Little Rock

(nearly the same distance from Little Rock as is

Memphis), referred patients to the Arkansas Heart

Hospital because Baptist Health had no room for

admitting more cardiology patients. Paragraph 43 of

the third amended complaint alleges:

The hospitals in surrounding areas that

offer cardiology services, such as Conway

Regional Medical Center and hospitals in

Searcy, ® are not equipped to receive sig-

nificant numbers of cardiology patients

from Little Rock, and some of the more

sophisticated cardiology procedures are

available only at Little Rock hospitals. For

this reason, Little Rock hospitals attract

patients in large numbers from outside of

Little Rock for cardiology procedures, but

Little Rock cardiology patients rarely go

outside of the Little Rock market for these

Services.

8 The use of the phrase “such as,” indicates

that there are surrounding cities other than

Conway and Searcy in which hospitals that

admit cardiology patients are located. In light

of the allegations in paragraph 49, presumably

these cities would include Pine Bluff and Hot

Springs.

These allegations show, first, that the market

urea in which the seller operates is larger than sim-

ply the cities of Little Rock and North Little Rock

66a

and, secondly, that there are competitors, such as the

Conway Regional Medical Center and hospitals in

Searcy, to which at least some cardiology patients

who currently seek medical services in Little Rock or

North Little Rock could turn. If the hospitals in those

cities offer services to cardiology patients, it follows

that there must be cardiologists also offering services

there. Paragraph 49 of the third amended complaint

indicates that ten cardiologists reside in Conway,

Hot Springs, or Pine Bluff. Even if these hospitals

and cardiologists could not receive significant num-

bers of cardiology patients from Little Rock and

North Little Rock, that fact alone would not exclude

them from the geographic market. The third

amended complaint, itself, makes clear that some

cardiology patients who could seek medical services

in Little Rock or North Little Rock instead seek

treatment in surrounding cities such as Conway and

Searcy, and so, at a minimum, Conway and Searcy

must be included in the geographic market even if

very few cardiology patients who reside in Little

Rock or North Little Rock currently seek treatment

in Conway or Searcy.

Paragraph 45 alleges, in pertinent part, “of the

privately insured cardiology patients who reside in

Little Rock and its surrounding areas, which are the

zip codes that begin with 722 and 721, 84.7% use

hospitals in Little Rock. ‘he remaining 15.3% of car-

diology patients in these zip codes use hospitals in

North Little Rock and Conway." Paragraph 46 then

alleges:

The area covered by the 722 and 721

three-digit zip codes is larger than the

geographic market at issue, which is the

67a

cities of Little Rock and North Little Rock.

On information and belief, the percentage

of cardiology patients in Little Rock and

North Little Rock who use hospitals in

Little Rock exceeds 85% and approaches

95%.

No reason appears for excluding from the geo-

graphic market the “surrounding areas” described in

paragraph 45 where some of the residents use hospi-

tals in Conway. Mayflower, for instance, has a 721

zip code and is between North Little Rock and Con-

way so that its residents could seek medical services

in either city. Sherwood, which has four zip codes, all

of which start with 721, is contiguous with North

Little Rock. No reason appears for excluding Sher-

wood and Mayflower from the geographic market;

and the same can be said of other surrounding areas.

There is no apparent reason why Cabot, which is be-

tween North Little Rock and Searcy, would not be

included in the relevant geographic market. Both

common sense and the allegations in the complaint

indicate that cardiology patients in these surround-

ing areas, such as Mayflower, Sherwood, and Cabot,

can and do obtain services in Little Rock and North

Little Rock. Accepting the allegations in the com-

plaint as true, it also would seem that cardiology pa-

tients who live in Mayflower could turn to Conway

for treatment, while cardiology patients who live in

Cabot could turn to Searcy or Cabot for treatment.

No reason appears for limiting the relevant geo-

graphic market to the city limits of Little Rock and

North Little Rock other than to gerrymander the

geographic market.

68a

If the geographic market were not implausible on

its face, little might be required in the complaint to

survive a motion to dismiss, but where, as here, the

geographic market alleged in the complaint appears

implausible, more detailed pleading to justify the al-

leged geographic market may be required. See IIB

ANTITRUST LAW P 531f, at 238-40.

The plaintiffs justify limiting the relevant geo-

graphic market to Little Rock and North Little Rock

by alleging that as many as 95% of cardiology pa-

tients in Little Rock and North Little Rock seek car-

diology services in Little Rock or North Little Rock.

For purposes of ruling on the motion to dismiss, the

Court must and does assume that that fact is true.

Nevertheless, the fact that nearly every cardiology

patient in Little Rock and North Little Rock cur-

rently seeks cardiology services in Little Rock or

North Little Rock does not mean that Little Rock and

North Little Rock may be defined as the relevant

geographic market. This approach to defining the

relevant geographic market was rejected by the

Eighth Circuit in Morgenstern v. Wilson, 29 F.3d

1291 (8th Cir. 1994). In Morgenstern, a cardiac sur-

geon in Lincoln, Nebraska, prevailed at trial on his

claim other surgeons in Lincoln had monopolized the

market for cardiac surgery. On appeal, the Eighth

Circuit reversed because the plaintiffs geographic

market was, as a matter of law, too narrow, and be-

cause he could not show monopoly power in a prop-

erly drawn geographic market. In that case, the

plaintiff presented expert testimony that the geo-

graphic market included 26 counties and extended

some 200 miles from Lincoln but excluded Omaha

“because patients overwhelmingly went to the closest

hospital.” Id. at 1297. The Eighth Circuit held that

69a

that method of defining the geographic market was

invalid as a matter of law because it did not address

where patients couid practically turn for alterna-

tives. Id. at 1296-97. Likewise, in Ferguson Medical

Group, the plaintiff proposed a geographic market

that included areas from which 80-90% of its and the

defendant's patients came, but the court held that

the proposed geographic market was invalid as a

matter of law because it was "based on where defen-

dant's customers actually go for services, not where

the customers could practically turn for services’ and

that "consumer preference, alone, is not a sufficient

basis on which to determine a geographic market.”

Ferguson Med. Group, 2006 U.S. Dist. LEXIS 53493,

2006 WL 2225454, at *4; see also Surgical Care Ctr.

of Hammond, L.C. v. Hosp. Serv. Dist. No. 1, 309

F.3d 836, 840 (5th Cir. 2002); Minn. Ass'n of Nurse

Anesthetists, 208 F.3d at 662; Federal Trade Comm'n

v. Tenet, 186 F.3d 1045, 1052 (8th Cir. 1999). If the

plaintiffs’ method of defining the geographic market

were valid, antitrust plaintiffs could define a market

by identifying any small area around the defendant's

location in which nearly all potential customers pa-

tronize the defendant. If the geographic market could

be defined in that manner, if everyone within a block

of a hospital always seeks treatment at that hospital,

the geographic market could be as small as one

block, which is absurd.

In short, as to Counts I-IV, not only does the third

amended complaint fail to allege a coherent product

market, it also fails to allege a proper geographic

market.

IV. COUNT VIII

70a

Count VIII seeks an injunction “compelling the

defendants to admit plaintiffs to their plans for self-

insured employees and to reimburse the LRCC cath

lab on the same terms as they reimburse hospitals

that provide the same services.” Third Am. Compl., P

247. Having dismissed Counts I-IV for failure to

state a claim for relief, the Court cannot award in-

junctive relief on those claims, so the only issue is

whether the Court should entertain plaintiffs’ claims

for injunctive relief for the antitrust violations in the

market for private insurance alleged in Counts V-

VII.

The period of limitations provided in section 4B of

the Clayton Act does not apply to claims for equita-

ble relief. II ANTITRUST LAW P 320g. However, an-

titrust claims for equitable relief are subject to the

equitable doctrine of laches. Jd. The doctrine of la-

ches provides that an equitable claim is barred if the

plaintiff is guilty of unreasonable and inexcusable

delay that results in prejudice to the defendant.

Midwestern Mach., 392 F.3d at 277. Some courts

have said that the four-year statutory limitation pe-

riod for damage actions should be used as a guideline

in considering whether claims for equitable relief are

barred. If! ANTITRUST LAW P 320g, at 326; IT&T

Corp. v. General Tel. & Elec. Corp., 518 F.2d 913,

928 (9th Cir. 1975), overruled on other grounds, Calt-

fornia v. American Stores Co., 495 U.S. 271, 110 S.

Ct. 1853, 109 L. Ed. 2d 240 (1990); see also Aurora

Enters., Inc. v. Nat'l Broad. Co., Inc., 688 F.2d 689,

694 (9th Cir. 1982) ("If the district court had explic-

itly applied that guideline, it would have correctly

dismissed a request for injunctive relief on the

ground of laches."); Kaiser Aluminum & Chem.

Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d

7la

1045, 1057 (5th Cir. 1982). However, ‘the operation

of laches departs from that of statutes of limitations

in that laches is more flexible." Goodman v. McDon-

nell Douglas Corp., 606 F.2d 800, 805 (8th Cir. 1979).

The application of laches requires the court "to exam-

ine all aspects of the equities affecting each case." /d.

at 806. In the Fighth Circuit, the "statute of limita-

tion is a rough rule of thumb in considering the ques-

tion of laches, and constitutes a pertinent factor in

evaluating the equities.” Reynolds v. Heartland

Transp., 849 F.2d 1074, 1075-76 (8th Cir. 1988); see

also Midwestern Mach., 392 F.2d at 277. In Rey-

nolds, the court affirmed application of laches based

on unreasonable delay by the plaintiff without dis-

cussing whether the delay had caused prejudice to

the defendant.

According to the third amended complaint, the

conspiracy to monopolize the private insurance mar-

ket began no later than 1997, the alleged injury to

the plaintiffs occurred when the plaintiffs were ex-

cluded from the defendants’ managed care network

in 1997, and Blue Cross had achieved a monopoly in

that market by 2001. Nevertheless, the plaintiffs did

not allege their claims regarding the private insur-

ance market until March 27, 2008, when they filed

the third amended complaint. The statute of limita-

tions expired long before these claims were asserted.

These plaintiffs waited almost eleven years after

they were excluded from the network and almost

seven years after the defendants allegedly had

achieved monopoly power in the private insurance

market before seeking relief. The wrongful conduct

was not hidden. These plaintiffs knew immediately

when they were excluded from the network. In view

of the history of litigation between these parties, it

72a

would be too much to say that they slept on their

rights; but it is not too much to say that they slept on

their rights to equitable relief under the Sherman

and Clayton Acts.

The plaintiffs have offered no justification for

their delay. None of the parties specifically ad-

dressed the issue of prejudice. The defendants have

not cited any prejudice that the delay caused nor

have the plaintiffs argued that the Court should not

invoke the doctrine of laches inasmuch as the defen-

dants have cited no prejudice to them. Here, the de-

lay has been lengthy, and the statute of limitations

has long since run. Had the plaintiffs offered some

reasonable justification for the delay or argued that

laches should not apply because the defendants have

suffered no prejudice, the Court might hold that the

equitable claims are not barred by laches; but in the

absence of one or the other, in considering all of the

equities, the Court has concluded that the balance

weighs in favor of dismissing the equitable claims as

barred by laches. Count VIII is therefore dismissed.

CONCLUSION

The Court has concluded, with some reluctance

and perhaps belatedly, that the third amended com-

plaint must be dismissed with prejudice. Nearly two

years after the commencement of this action, "there

continues to be no hint of a coherent and promising

antitrust claim.” Eastern Food Seruvs., Inc. v. Pontifi-

cal Catholic Univ. Servs. Ass'n, Inc., 357 F.3d 1, 9

(1st Cir. 2004). The plaintiffs may have one or more

claims for intentional interference with contractual

relationships or business expectancies; they may

have claims for damages arising under the any will-

73a

ing provider statute; and they may have other

claims. But they have no viable antitrust claims.

Their continued inability to plead a coherent rele-

vant market has led the Court to the conclusion that,

not only must Counts I-IV be dismissed, but also that

they must be dismissed with prejudice. The third

amended complaint also shows that Counts V, VI,

and VII are barred by the statute of limitations. Ex-

cept as to Baptist Health, the claims asserted in

Counts I-IV also are barred by the statute of limita-

tions. The claims for equitable relief are barred by

laches. Therefore, the third amended complaint in its

entirety is dismissed with prejudice.

IT IS SO ORDERED this 29th day of August,

2008.

/s/ J. Leon Holmes

J. LEON HOLMES

UNITED STATES DISTRICT JUDGE

74a

SHERMAN ANTITRUST ACT,

15 U.S.C. § 1

§ 1. Trusts, etc., in restraint of trade illegal; penalty

Every 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, is hereby declared to be illegal. Every person

who shall make any contract or engage in any com-

bination or conspiracy hereby declared to be illegal

shall be deemed guilty of a felony, and, on conviction

thereof, shall be punished by fine not exceeding $

100,000,000 if a corporation, or, if any. other person,

$ 1,000,000, or by imprisonment not exceeding 10

years, or by both said punishments, in the discretion

of the court.

75a

SHERMAN ANTITRUST ACT,

15 U.S.C. § 2

§ 2. Monopolization; penalty

Every person who shall monopolize, or attempt to

monopolize, or combine or conspire with any other

person or persons, to monopolize any part of the

trade or commerce among the several States, or with

foreign nations, shall be deemed guilty of a felony,

and, on conviction thereof, shall be punished by fine

not exceeding $ 100,000,000 if a corporation, or, if

any other person, $ 1,000,000, or by imprisonment

not exceeding 10 years, or by both said punishments,

in the discretion of the court.

76a

SHERMAN ANTITRUST ACT,

15 U.S.C. § 15

§ 15. Suits by persons injured

(a) Amount of recovery; prejudgment interest. Ex-

cept as provided in subsection (b), any person who

shall be injured in his business or property by reason

of anything forbidden in the antitrust laws may sue

therefor in any district court of the United States in

the district in which the defendant resides or is

found or has an agent, without respect to the amount

in controversy, and shall recover threefold the dam-

ages by him sustained, and the cost of suit, including

a reasonable attorney's fee. The court may award

under this section, pursuant to a motion by such per-

son promptly made, simple interest on actual dam-

ages for the period beginning on the date of service of

such person's pleading setting forth a claim under

the antitrust laws and ending on the date of judg-

ment, or for any shorter period therein, if the court

finds that the award of such interest for such period

is just in the circumstances. In determining whether

an award of interest under this section for any period

is just in the circumstances, the court shall consider

only--

(1) whether such person or the opposing party, or

either party's representative, made motions or as-

serted claims or defenses so lacking in merit as to

show that such party or representative acted inten-

tionally for delay, or otherwise acted in bad faith;

(2) whether, in the course of the action involved,

such person or the opposing party, or either party's

representative, violated any applicable rule, statute,

or court order providing for sanctions for dilatory be-

77a

havior or otherwise providing for expeditious pro-

ceedings; and

(3) whether such person or the opposing party, or

either party's representative, engaged in conduct

primarily for the purpose of delaying the litigation or

increasing the cost thereof.

(b) Amount of damages payable to foreign states and

instrumentalities of foreign states.

(1) Except as provided in paragraph (2), any person

who is a foreign state may not recover under subsec-

tion (a) an amount in excess of the actual damages

sustained by it and the cost of suit, including a rea-

sonable attorney's fee.

(2) Paragraph (1) shall not apply to a foreign state

if--

(A) such foreign state would be denied, under sec-

tion 1605(a)(2) of title 28 of the United States Code

(28 USCS § 1605(a)(2)|, immunity in a case in which

the action is based upon a commercial activity, or an

act, that is the subject matter of its claim under this

section;

(B) such foreign state waives all defenses based

upon or arising out of its status as a foreign state, to

any claims brought against it in the same action;

(C) such foreign state engages primarily in com-

mercial activities; and

()) such foreign state does not function, with re-

spect to the commercial activity, or the act, that is

the subject matter of its claim under this section as a

procurement entity for itself or for another foreign

state.

78a

(c) Definitions. For purposes of this section--

(1) the term "commercial activity” shall have the

meaning given it in section 1603(d) of title 28, United

States Code [28 USCS §$ 1603(d)|, and

(2) the term "foreign state’ shall have the meaning

given it in section 1603(a) of title 28, United States

Code [28 USCS $ 1603(a)].

7¥a

THE PETITIONERS’ THIRD AMENDED

COMPLAINT FILED IN THE UNITED STATES

DISTRICT COURT EASTERN DISTRICT

OF ARKANSAS ON MARCH 27, 2008

NO. 4-06-cv-1594-JLH

THIRD AMENDED COMPLAINT

Plaintiffs, for their complaint against

defendants, state and allege:

a This is an antitrust action under

Sections 1 and 2 of the Sherman Act. Defendants

Baptist Health and Blue Cross, directly and through

their wholly owned subsidiaries and their jointly

owned caplive company, HMO Partners, have

monopoly power in the markets for hospital services

and private insurance for cardiology patients in

Little Rock and North Little Rock.

Z, Hospital services and health insurance

are closely linked, critical and interdependent

services for cardiology patients. Interventional

cardiology heart procedures gencrally must take

place in a hospital, using hospital services, and

patients must have insurance, from either a

government program such as Medicare or Medicaid,

or from a private insurer, in order to pay for the

hospital and physician services. For this reason,

cardiology patients who must receive their treatment

in a hospital require access to a_ hospital, a

cardiologist, and a source of insurance.

3. These defendants have combined their

hospital and insurance market positions in an

exclusive dealing arrangement that creates

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insurmountable barriers to entry in and the power to

force exit from their service markets, including the

market for cardiology patients, and this combination

has prevented competition, resulting in higher prices

for hospital services and insurance premiums, lower-

quality hospital care and lack of patient choice.

Potential health-insurance competitors of Blue Cross

and HMO Partners are barred from entry because

they cannot secure Baptist Health in an insurance

network and therefore cannot offer a competitive

insurance product. Other hospitals cannot enter or

expand in the market because the defendants’

exclusive-dealing arrangement denies them access to

80% of the insured patients in the geographic

market, those enrolled in Blue Cross and HMO

Partners plans, and this makes it impossible for

other hospitals to compete for privately insured

patients. As part of defendants’ anticompetitive

actions in their exclusive-dealing arrangement and

exercise of monopoly power, defendants have

excluded plaintiffs from Blue Cross and HMO

Partners’ insured patients, and they have attempted

to exclude the plaintiffs from practicing at all at

Baptist Health hospitals.

JURISDICTION AND VENUE

4, This Court has jurisdiction of plaintiffs’

claims for relief under Section 4 of the Clayton Act

(15 U.S.C. §15) as a result of defendants’ violations of

Sections 1 and 2 of the Sherman Act (15 U.S.C. 8§1]1

and 2) as hereinafter alleged. Venue is proper under

28 U.S.C. §§1391(b) and (c) and 15 U.S.C. §§15 and

22 in that defendants reside and transact business

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and are found in the judicial district of this Court,

and the claims arose in this district.

THE PARTIES

5. Plaintiff Litthe Rock Cardiology Clinic,

P.A., (“LRCC”), is a_ professional association of

cardiologists located in Little Rock, Arkansas and

has provided high quality cardiology § specialty

services since 1975.

6. Plaintiffs Dr. Bruce E. Murphy, and

Bruce E. Murphy, M.D. P.A., Dr. Scott L. Beau and

Scott L. Beau, M.D. P.A., Dr. David C. Bauman and

David C. Bauman, M.D.P.A., Dr. D. Andrew Henry

and D. Andrew Henry, M.D.P.A., Dr. David M. Mego

and David M. Mego, M.D.P.A., Dr. Paulo Ribeiro and

Paulo Ribeiro, M.D.P.A., Dr. William A. Rollefson

and William A. Rollefson, M.D. P.A. are cardiologists

and the professional corporations through which

they practice at LRCC. Each individual plaintiff is a

shareholder in LRCC.

7. Defendant Baptist Health is a non-

profit corporation organized under the laws of

Arkansas, with its principal place of business in

Little Rock, Arkansas. It operates five hospitals in

Arkansas, the largest being the 585-bed Baptist

Health Center in Little Rock, and is the largest

hospital company in Arkansas. Baptist Health is

organized as a tax-exempt not-for-profit charitable

organization.

8. Defendant Arkansas Blue Cross and Blue

Shield, (“BCBS” or “Blue Cross”), is an Arkansas

non-profit mutual insurance company with its

principal place of business in Little Rock, Arkansas.

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9. Defendant USAble Corporation

(““USAble”) is an Arkansas corporation, a wholly

owned subsidiary of BCBS and a fifty percent owner

of HMO Partners, Inc. Its board of directors, officers

and actions are dominated by BCBS, and its actions

are in reality and for purposes of the antitrust laws

the actions of BCBS.

10. Defendant Baptist Medical System HMO,

Inc. (“Baptist HMO”) is an Arkansas corporation, a

wholly owned subsidiary of Baptist Health, and a

fifty percent owner of HMO Partners, Inc. Its board

of directors, officers and actions are dominated by

Baptist Health, and its actions are in reality and for

purposes of the antitrust laws the actions of Baptist

Health.

11. Defendant HMO Partners, Inc. (“HMO

Partners”) is an Arkansas corporation created by

Baptist and BCBS, through their wholly owned

subsidiaries, to pool the resources of Baptist and

BCBS and to exercise their market power in

insurance and hospital services. HMO Partners

operates Health Advantage, the largest HMO in

Little Rock, central Arkansas, and the State of

Arkansas.

12. Baptist, directly and through Baptist

HMO, and BCBS, directly and through USAble, and

HMO Partners, have combined forces to monopolize

hospital and private insurance for cardiology

patients in the Little Rock market.

13. These defendants have combined and

acted in concert unlawfully to exclude the plaintiffs

from access to cardiology patients covered by BCBS

and HMO Partners health plans and to attempt to

exclude the plaintiffs and their patients from the

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hospital facilities of Baptist Health, all in order to

protect the defendants from competition.

THE RELEVANT MEDICAL PROCEDURES

AND PRODUCT MARKETS

14. Cardiology procedures include procedures

directly relating to the heart and its arteries, such as

diagnostic procedures’ involving imaging- or

interventional procedures such as to clear blockages,

or to install a pacemaker, and procedures that

involve the entire arterial system of the human body,

such as clearing blockages in arteries in the neck,

brain, legs, kidneys and other organs, and diagnostic

procedures relating to these arteries. Procedures

that involve systems other than the heart are known

as “peripheral procedures.”

15. In general terms, “diagnostic procedures”

are those that are intended to diagnose problems in

the heart and arteries. Diagnostic procedures may

involve invasive procedures such as catheterization

or imaging procedures such as CIT scans.

“Interventional procedures,” in general terms, are

procedures designed to correct problems in the heart

or arteries, such as clearing blockages.

16. Traditionally, hospital services for

cardiology patients have been provided only in a

hospital on either an in-patient or an out-patient

basis. For instance, cardiology patients at Baptist

Health may be admitted to the hospital for in-patient

services, typically including overnight stays, or they

may be admitted on an out-patient basis for services

that typically do not require an overnight stay. In

recent years, however, cardiological procedures that

once required hospital admission may be performed

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at a stand-alone cardiology facility known as a “cath

lab.” LRCC has had a cath lab for 5 years. The

LRCC cath lab provides diagnostic and peripheral

interventional procedures and competes directly with

area hospitals for patients for these services. The

peripheral interventional procedures performed

outside of hospitals are those that involve low risk of

complication and therefore do not require immediate

access to hospital facilities.

17. This case involves the full range of

interventional cardiology heart procedures. that

Baptist Health provides on either an in-patient or

out-patient basis.

18. Medicare, Medicaid and private

insurance payors pay separately for the technical, or

facility, fee, which is for the services of the hospital

or cath lab, and for the professional, or physician,

fee. These are sometimes known as the “technical

component” and the “professional component” of

reimbursement payments.

19. When a patient needs an interventional

cardiology procedure that requires hospital services,

which is any interventional procedure involving the

heart and many of the peripheral interventions,

there is no reasonable substitute. The patient

requires both a hospital and a cardiologist.

20. If the cardiologist could provide the

service outside of a hospital, then the service would

be outside of the relevant product market, and the

cardiologist would have an economic incentive to

provide the service in his or her office or clinic.

21. If a hospital could provide the service

without a cardiologist, then the service would be

outside the relevant product market.

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22. The relevant product is those medical

services that cardiology patients receive exclusively

in a hospital from a cardiologist. These include all

interventions involving the heart and the more

complex interventions involving peripheral arteries

and organs.

23. That patients obtain these cardiology

services only in conjunction with associated hospital

services means that the relevant cardiology services

and hospital services are not distinct products for

purposes of antitrust analysis. See Jefferson Parish

Hosp.. Dist. No. 2. v. Hyde, 466 U.S. 2, 43 (1984)

(O’Connor, J., concurring).

24. Cardiologists and hospitals collaborate to

deliver these services to cardiology patients because

both the physician and the facility are essential to

the patients. Collaborating groups of hospitals and

cardiologists are rivals of other groups for cardiology

patients. Plaintiffs routinely collaborate with

Arkansas Heart Hospital in providing services to

cardiology patients, while other’ cardiologists

routinely collaborate with Baptist Health and seek to

serve the same population. In this manner plaintiffs

compete with Baptist Health in the relevant market.

25. The medical procedures that require

hospital services in conjunction with cardiology

services are described by reference to Diagnostic

Related Groups (“DRGs”), which are the universally

recognized billing codes for hospitals and physicians

for health care, both for private insurance and for

Medicare and Medicaid purposes. The specific DRGs

in the relevant market include, but are not limited

to, the following DRGs as defined in 2007: DRG 556,

555, 124, 125, 554, 558, 515, 138, 518, 557, 479, 552,

553, 1389, and 551. The product market includes anv

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additional medical procedures for which patients

obtain cardiology services only in conjunction with

hospital services.

How Patients Pay for the Relevant Medical

Procedures

26. Patients do not. typically pay directly for

health care; they rely on private insurance or

government insurance benefits.

27. ‘There are, therefore, two separate health

insurance markets, depending on who pays for

medical care. One market is government programs,

most significantly Medicare and Medicaid. Patients

in this market have free choice of providers, and the

providers must accept the government benefit in full

payment for service. Baptist Health and the

plaintiffs are in this market. ‘There are substantial

market data available for Medicare-paid cardiology

services in hospitals.

28. The other market is private insurance.

Patients in this market typically have employer-

sponsored group health insurance plans, but it

includes federal employees as well as_ those

individuals who’ purchase _ individual health

insurance policies. In addition, many employers

provide self-insurance plans in which the employers

provide the health insurance benefits themselves,

using an insurance company such as BCBS as a

Third Party Administrator to manage the plan.

Even in these cases, however, the employer usually

will have an insurance policy in place as a limit to its

liability for health care benefits under the plan.

29. The private insurance market is

dominated by “managed care” products, which have

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largely replaced traditional “indemnity” insurance in

Arkansas.

30. In order to obtain the full benefit of the

employer's group insurance plan, private insured

patients in managed care plans must use the health

care providers (both hospitals and doctors) that are

“in network.” Patients may go out of network but

typically will pay more for service as a consequence.

In FTC v. Tenet Health Care Corp., 186 F.3d 1045,

1055 (8th Cir. 1999), the Court stated: “[T]he issue of

access to a provider through an insurance plan is

determinative of patient choice. Essentially, the

evidence shows that patients will choose whatever

doctors or hospitals are covered by their health

plan.”

31. A privately insured patient’s choices of

hospital and doctor for the cardiology services at

issue in this case are largely constrained and

determined by the hospitals and physicians included

in the network utilized by his or her health plan.

32. The government-insurance and private-

insurance markets are separate markets because

patients cannot substitute one for the other

regardless of price differences. Patients obtain

Medicare or Medicaid based on age or income; these

government’ benefits cannot be “purchased.”

Medicare patients could choose to be covered by

private insurance rather than Medicare, but this

would be irrational in almost all cases because

Medicare is for the most part a government benefit to

those who qualify.

33. Because of the division of the health care

market into segments based on who pays for the

services, there are two separate insurance markets

for hospital services for cardiology patients —

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government-benefit insurance and private insurance

-- that exist in the same geographic footprint.

34. Of the total population in the Little Rock

market (as defined below) and in the state of

Arkansas, between 15% and 20% of adults are

uninsured. They either pay for health care out of

their own pockets, or they rely on indigent care or no

care. These people are not in either product market.

Of the 80% to 85% of the total population who are

covered by private insurance or government

insurance, roughly half fall into the government-

insurance market and half fall into the private-

insurance market.

35. This case involves the private insurance

market, the hospital services market, and the

cardiology services market. The first relevant

product market at issue in this lawsuit (a market to

be examined for competitive injury) is the market for

cardiology procedures obtained in hospitals’ by

patients covered by private insurance. In general,

this product market includes all interventions

involving the heart and the more complex peripheral

interventions.

36. The second relevant product market at

issue in this lawsuit (also to be examined for

competitive injury) is the market for private health

insurance. This market includes group health

insurance plans, individual health insurance plans

and employer self-insured health plans.

37. People requiring service in_ these

markets cannot obtain a reasonable substitute

outside of them. ‘There is no cross-elasticity of

supply between those in these markets and other

service providers, so pricing in these markets is not

constrained by other sources of supply.

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38. The hospital services market in general

(as opposed to for cardiology procedures) is also a

subject of inquiry in this lawsuit, but plaintiffs do

not assert distinct injury in this market. This

general hospital services market is a source of

defendants’ market power that has been used for

anticompetitive purpose and effect.

THE RELEVANT GEOGRAPHIC MARKET

39. The relevant geographic market for this

case is the cities of Little Rock and North Little

Rock. This geographic market, as defined, may be

called “Little Rock” in this complaint. This is the

area in which this lawsuit analyzes competition in

both the market for cardiology procedures obtained

in hospitals by patients covered by private insurance

and the market for private health insurance.

40. <A_ relevant geographic market for

antitrust purposes is not defined by the service area

or trade area of the parties to the lawsuit. Instead it

is defined by the geographic area in which consumers

can obtain reasonable substitutes for the relevant

product or service.

41. Cardiology patients in Little Rock

overwhelmingly seek medical procedures _ that

require hospital services from one of the hospitals in

Little Rock that offers these procedures, including

Baptist Health (in both Little Rock and North Little

Rock), Arkansas Heart Hospital, St. Vincent’s

Infirmary (in both Little Rock and North Little

Rock), UAMS and Arkansas Children’s Hospital,

which handles only pediatric cases. Baptist Health

includes both Baptist-Little Rock, the flagship

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hospital, and its companion, Baptist-North Little

Rock.

42. Cardiology patients in Little Rock who

seek hospital services do not leave Little Rock for

hospitals outside of these cities because these

patients do not consider hospitals outside of Little

Rock to be reasonable substitutes for Little Rock

hospitals with respect to cardiology procedures.

43. The hospitals in surrounding areas that

offer cardiology services, such as Conway Regional

Medical Center and hospitals in Searcy, are not

equipped to receive significant numbers of cardiology

patients from Little Rock, and some of the more

sophisticated cardiology procedures are available

only at Little Rock hospitals. For this reason, Little

Rock hospitals attract patients in large numbers

from outside of Little Rock for cardiology procedures,

but Little Rock cardiology patients rarely go outside

of the Little Rock market for these services.

44. In addition, employers located in and

around Little Rock offer health plans that include

Little Rock hospitals. Cardiology patients as a rule

do not travel more than a few miles for the acute

medical procedures involved in this case if they have

a choice, and those who do have a choice and the

means and desire to travel for these procedures are

far more likely to choose to go to major cardiology

centers outside of Arkansas, such as the Cleveland

Clinic or hospitals in Houston, New York or Chicago,

than to places such as Russellville, Pine Bluff, or Hot

Springs. Medical insurance is a highly valued

employee benefit. An employer that adopted a plan

causing employees to travel to receive medical care

would find itself at a disadvantage in attracting the

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best employees. For this reason, distant providers

are not in the relevant geographic market.

45. Hospital Cost Utilization Project

(HCUPS)' data by zip code show that 99.5% of

privately insured cardiology patients from the area

with zip codes beginning with the three digits 722,

which is Little Rock proper, use hospitals within

Little Rock. Of the privately insured cardiology

patients who reside in Little Rock and _ its

surrounding areas, which are covered by zip codes

that begin with 722 and 721, 84.7% use hospitals in

Little Rock. The remaining 15.3% of cardiology

patients in these zip codes use hospitals in North

Little Rock and Conway.

46. The area covered by the 722 and 721

three-digit zip codes is larger than the geographic

market at issue, which is the cities of Little Rock and

North Little Rock. On information and belief, the

percentage of cardiology patients in Little Rock and

North Little Rock who use hospitals in Little Rock

exceeds 85% and approaches 95%.

' The Healthcare Cost and Utilization Project (HCUP, pronounced "H

Cup") is a family of health care databases and related sofiware tools and

products developed through a Federal-State-Industry partnership and

sponsored by the Agency for Healthcare Research and Quality (AHRQ).

HCUP databases bring together the data collection efforts of State data

organizations, hospital assoctations, private data organizations, and the

Federal government to create a national information resource of patient-

level health care data.” See http://www.hcup-us .ahrq.eov/overview jsp.

These data were purchased by plaintiffs from the Arkansas Department of

Health.

92a

Destinations of Little Rock Cardiac Patients

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47. Using the data for all patients, as

opposed to privately insured patients, shows that

76% of all patients from the 722 and 721 zip codes

use hospitals in Little Rock. Thus privately insured

patients in this area are significantly more likely

than government-insured patients to seek their

hospital care from Little Rock hospitals.

48. Little Rock is the area from which

Baptist Health draws its largest share of cardiology

patients and in which it faces its most significant

competition for cardiology patients.

49. Little Rock is also where Arkansas’s

cardiologists are located. ‘According to information

from the Arkansas Medical Board, there are 138

cardiologists in the entire state of Arkansas, and 51

of them reside in the Central Public Health Region

cities of Conway, Hot Springs, Little Rock, North

Little Rock, and Pine Bluff. Of these 51, 41 are in

Little Rock and North Little Rock. This is 80% of the

total from the Region, and 29% of the state-wide

total. As between Little Rock and North Little Rock,

33 cardiologists are in Little Rock and 8 are in North

Little Rock. The reason why cardiologists reside in

the Little Rock market in these numbers is that it is

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the largest market for cardiology services in the

state, retaining the overwhelming majority of Little

Rock patients who seek cardiology services and

drawing large numbers of patients from around the

state for medical procedures that require hospital

services.

50. In addition, a larger percentage of the

cardiologists who perform in- hospital procedures

known as interventional cardiology, including the

plaintiffs, are located in Little Rock rather than

outside of Little Rock.

51. The 722 zip codes contain 15 of the

state’s 55 hospitals (27% of the total) and 2,712 of the

state’s 7,827 hospital beds (35%). Most of the

hospitals outside of the Little Rock are primary and

secondary care hospitals that do not provide acute

care. The 722 zip-code-area hospitals serve not only

99.5% of residents in Little Rock, but also a large

percentage of residents from around the state who

need cardiology services in hospitals.

MARKET STRUCTURE

52. Cardiology patients who require

hospital services require three elements for their

medical care: a hospital, a cardiologist and a health

insurance plan. Cardiologists, hospitals and insurers

all compete to serve the same patients.

53. Until the early 1990’s patients who had

private insurance were typically covered’ by

traditional indemnity plans, which permitted the

* Because interventional cardiology procedures can result in a dissection

of a vein or artery, they must be performed in a facility that has a cardiac

surgery facility. This imphes an acute care hospital, the type typically

found only in larger towns and cities.

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patient free choice of cardiologist and hospital. The

insurance plan would make the same payment,

called the usual and customary charge, to every

health care provider, for the same service. Medicare

and Medicaid operated similarly.

54. Since the early 1990's, private health

insurance has moved from indemnity plans _ to

networks, which limit the included health care

providers. Indemnity plans are an insignificant

component of the market. A network is a group of

health care providers, including hospitals and

physicians, who are assembled for use by a health

insurance managed care plan. Several different

managed care plans may use the same network of

providers.

55. The two principal forms of managed

care plans, usually provided’ through one’s

employment, are health maintenance organizations

(“HMOs”) and _ preferred provider organizations

(“PPOs”). Many of the largest employers self-insure

and, in those cases, their health plans are managed

by Third Party Administrators (“I'PAs”), which

typically are insurance companies. As a practical

matter, there is little difference between these self-

insured (also known as retained risk) plans and the

HMO and PPO products offered by insurers.

Typically, employers cap their exposure to self-

insurance losses with a stop-loss insurance product

that insures them against the risk of excessive

health care costs.

56. HMOs, PPOs and self-insured plans

operate through networks of health care providers,

including physicians and hospitals. A network is

created by contracts with the health care providers

for the terms of payment and participation in the

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network. Whereas in traditional indemnity plans

the payment for health care was based on the usual

and customary charge, in a network the terms of

payment are based on a contractual “allowable

charge,” which is a significant discount from the

provider’s actual charge for the service.

57. In an HMO, if the insured obtains

medical services through specified health care

providers that are in the HMO network, the insured

pays only a specified per-visit charge or no charge.

But if the insured patient member goes “out of

network,” ie., to a provider not a member of the

HMO, the patient may be required to pay all or a

substantial portion of the provider’s actual (as

opposed to allowed) charges. In a similar fashion, in

a PPO, if the insured goes to a doctor in the PPO

network, the insured patient is required to make

only a modest “co-payment,” often in the range of

10% of the allowed charges up to an annual limit.

However, if a PPO member chooses a physician who

is “out of network,” the insured may face a co-pay up

to 50% of the physician’s actual (as opposed to

allowed) charges, except in the case of emergency

care. For the vast majority of patients, the

unreimbursed portion of “out-of-network” physician

and hospital charges is so high that patients will

seek treatment only from health care providers in

the plan’s insurance network, as the Eighth Circuit

recognized in FTC v. Tenet Health Care, supra.

58. The success of an insurance network

depends in large measure on the identity of the

participating health care providers: an insurance

company cannot offer a competitive product unless

the network contains a mix of doctors and hospiiais

that are convenient, competent and cover the full

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range of anticipated health care needs of the

employees of the company that will purchase the

plan. Without an attractive mix of providers in a

network, an insurance company cannot successfully

market a health plan product.

59. The success of health care providers

also depends in large measure on access to or

inclusion in health plan networks, because the

networks determine the providers with whom their

insured patients will do business.

60. Defendants have linked their market

power in the hospital and insurance markets

through their exclusive dealing arrangements. In

these arrangements, defendants’ insurance

customers must use Baptist Health hospital services,

which freezes out hospital competition for Baptist

Health. Particularly before the Any Willing Provider

statute was permitted to be enforced in Arkansas in

2005, Baptist Health refused to do business with any

insurance company other than the defendants, and

this prevented entry of new insurance competition

and forced the exit of insurers who were in the

market. This exclusive-dealing arrangement

restrained competition in both the hospital and

private insurance markets and continues to have an

effect on the market, because it helped vault all

defendants into the monopoly positions that they

currently enjoy.

61. When the defendants introduced their

managed care products into the market, USAble

created a network of providers called “Arkansas

FirstSource Network.” The defendants used this

network for all of their health insurance plans.

Specifically, BCBS and USAble used it for their PPO

plans, and HMO Partners used it for its HMO plans.

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The defendants also used this network for their self-

insured plans. From the creation of these managed

care products in the early to mid-1990s, this single

network was the sole network used for the

defendants’ various PPO, HIIMO and self-insured

plans. When the defendants were forced to open up

their networks in 2005 when the Any Willing

Provider Act was permitted to operate in Arkansas,

BCBS and USAble created a separate network, “True

Blue,” for admission of any willing providers,

including the plaintiffs. The defendants converted

FirstSource to a network that serves only self-

insured plans, and they have maintained FirstSource

as an exclusive network with Baptist Health as a

hospital provider.

62. The plaintiffs were admitted into the

FirstSource network when the network was first

established, and they remained in that network until

their unlawful exclusion in 1997. The defendants

have never permitted the plaintiffs back into the

FirstSource network.

63. On information and belief, the plaintiffs

are the only group of specialists in the market who

were excluded from the FirstSource network.

64. The’ exclusive-dealing arrangement

between Baptist Health and BCBS is the most

salient feature of the health care market in Little

Rock and has been for a decade.

65. This structure of the Little Rock health

care market is well known and _ documented

nationally. The Center For Studying Health System

Change, www.hschange.org, funded by The Robert

Wood Johnson Foundation and _ affiliated with

Mathematical Policy Research, Inc., has published a

series of reports on the health care market in Little

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Rock based on interviews and site visits conducted

every two years beginning in September 1996. These

reports are authoritative works on the history of the

health care market in Little Rock, and they confirm

the market power of the defendants in the relevant

market as detailed in this complaint. These reports

are available at no charge at the web site cited

above. Each of the reports discussed below is

incorporated herein by reference.

66. The Report of the first site visit, “Health

System Change in Little Rock, Arkansas,” published

in July 1997 based on a site visit in 1996, begins

with the defendants’ combination as the most

significant fact about the Little Rock health care

market:

Perhaps the most potent force in the

market today is the recent alliance

between two established, home-grown

institutions: Little Rock-based Baptist

Health, the largest hospital system in

central Arkansas, and Blue Cross and

Blue Shield of Arkansas (BCBSA),

which covers close to half of all

commercially insured lives in_ the

metropolitan area. These entities

joined forces in 1994 to form the area’s

most highly subscribed HMO. Baptist

Health is also the preferred hospital

provider for BCBSA’s sizeable PPO

business, a business that stands to gain

from the insurer’s successful bid for the

newly combined state employee and

public teacher pool [which included

70,000 employees].

99a

Exhibit A at page 1; page 7.

67. The Report anticipated that new

providers and insurers would enter the Little Rock

market because health care costs were high. “While

established insurers and providers are looking for

new ways to control health care costs, national

health care companies are entering the market and

seeking to unseat the dominant local players by

driving down health care spending.” I/d..at 1. “All

eyes are ...on the Arkansas Heart Hospital, an

institution being built by MedCath, .. . which opened

its doors in early 1997 and is positioning itself to lure

lucrative cardiology patients away from several other

area hospitals.” Jd. at 2. “National health insurance

companies are also a growing presence in the Little

Rock market. The companies’ include

Healthsource; Prudential . . . and _ United

HealthCare.” Id.

68. BCBS dominated the insurance market,

but it did not have a monopoly at that time, and it

had been subject to competition: “BCBSA, a not-for-

profit corporation that dominates the local insurance

market, covers more than 40 percent of commercially

insured insured lives in the area. However, like the

hospital sector, control of Little Rock’s HMO market

is mixed, with an increasing number of national, for-

profit insurance companies and HMO chains,

including United HealthCare and Healthsource,

making substantial inroads over the last several

years.” Id. at 4.

69. Hospitals and insurers had begun to

align in networks, most of which were not exclusive.

The defendants’ alliance, however, was exclusive and

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was the most powerful. The “most powerful area

health system is Baptist Health,” and “Baptist

Health has secured its position in the Little Rock

market [through] its strategic partnership with

BCBSA, and its physician affiliates are equity

partners in the area’s biggest HMO, Health

Advantage.” Jd. at 8. “In return for its equity share,

Baptist retains the exclusive contract for general

inpatient services for the HMO’s 40,000-plus

members. In addition, Baptist serves as the

preferred provider for BCBSA’s PPO products.” Id.

70. Baptist’s most significant competitor

was St. Vincent, which was. aligned with

Healthsource, but that arrangement suffered from

high costs, and there was “a rocky relationship”

between St. Vincent’s and Healthsource. Jd. at 9.

Another competitor of Baptist Health was the

“emerging presence of Columbia/HCA,” which bought

Doctor’s Hospital in 1994. Jd. AHH opened in

March 1997 “and poses a significant threat [to local

institutions] because cardiology programs are

reportedly big moneymakers.” /d. at 10.

71. Even though AHH did not have a

managed care arrangement, at the time it was able

to compete for traditional indemnity patients.

“Arkansas Heart Hospital has yet to secure a

managed care contract, and its investors anticipated

limited success in this regard given the equity

position of its major competitors in two of the area’s

most highly subscribed HMOs.” But this “does not

restrict [the] ability to compete for patients enrolled

in traditional health insurance plans.” The opening

of AHH also “has generated significant competition

for specialized nursing and mid-level technical staff.”

Id.

10la

42. In the insurance market, Blue Cross

and HMO Partners faced significant competition and

actually suffered financial losses in the market.

Three relatively new national health insurers had

entered the market since 1994, creating “increased

marketing efforts and premium competition.” In

1996, “BCBSA announced a $22 million operating

deficit and a $5 million operating deficit for Health

Advantage. This is another indication that

competitive pressure may be _ holding down

premiums.” Jd. at 12.

ta Based on the market conditions in 1996,

the 1997 Report predicted that competition and “the

pace of change in Little Rock is likely to increase.”

Id. at 18. This prediction did not come to pass.

74. The 1999 Report, based on a September

1998 site visit, observed that despite earlier

expectations, “national firms have not usurped locals’

market share.” Exhibit B at 1. The defendants, with

their exclusive arrangement and market power, now

faced “few outside pressures.” Jd. “During the past

two years, the anticipated threat of outside entrants

failed to materialize, as national firms did not

capture significant market share from locally based

competitors. Many of these firms have either

reduced their presence or retreated from the market

altogether.” Jd. at 3.

75. In the insurance market, the Report

found that Prudential and MHealthsource were

backing away from the market and that, “despite

outside pressures, Arkansas Blue Cross Blue Shield

has retained its domin

This text is long and has been trimmed here. Open the source document for the complete record.