Could the Steward Health v. BCBS Trial Revitalize Monopolization Law?

It’s nearly unheard of for a monopolization case to go to trial, but the Steward Health v. Blue Cross & Blue Shield of Rhode Island case is doing just that—and may help revive America’s moribund monopolization law, opines Chris Sagers of Cleveland State University.

 

 

In a little-noticed decision a few weeks ago, a veteran federal judge in Rhode Island sent a remarkable antitrust case to trial. Steward Health v. Blue Cross & Blue Shield of Rhode Island is striking not only because it’s a “monopolization” case—challenging the unilateral conduct of one big firm—and not only because it becomes the virtually unheard-of monopolization case that goes to trial. It is remarkable because Judge William Smith, a well-regarded Republican appointee, sent it to trial on a long, scholarly opinion critical of existing law and putting in question certain conventions about what big firms may legally do. Among his targets were controversial language of the late Justice Scalia and a leading opinion by then-judge Neil Gorsuch. It is still early for predictions, but Steward Health could trigger reconsideration of some of the thorniest present barriers to effective antitrust.

 

Throughout all the talk of the past few years about America’s monopoly problem, a technical issue has quietly loomed, mostly unnoticed in the larger debate: the American law of monopolization is all but dead. We have a rule against harmful conspiracies that we enforce with some vigor, and we enforce our merger law to a degree as well, but our rule against unilateral conduct goes essentially unused. That failure is important because, whether it really is noticed or not, it is key to popular dissatisfaction with antitrust. Something seems wrong in the law’s unwillingness to control big firms for their very bigness, even as we vigorously attack conspiracies, often enough among the small and powerless.

 

It was a grave perversity to many, for example, when the Justice Department sued book publishers in 2012 for fixing e-book prices. The real villain was the rapacious monopolist Amazon, critics said, and suing its suppliers was the worst thing government could do. For those who thought the lawsuit was nevertheless important (like me), it was admittedly awkward to say the solution was to sue Amazon, too, if and when it abused its power. Everyone knew that such a monopolization claim, under current law, would be very tough.

 

The American law of monopolization is all but dead. We have a rule against harmful conspiracies that we enforce with some vigor, and we enforce our merger law to a degree as well, but our rule against unilateral conduct goes essentially unused.

Well, a case like Steward Health could reopen some of the seemingly closed questions by which conservative orthodoxy has rendered this law inert. Plaintiff Steward Health, a hospital system in Massachusetts, wanted to acquire a struggling, small hospital in Woonsocket, Rhode Island. All parties agreed that no one could viably run that hospital unless its patients could be insured by defendant Blue Cross & Blue Shield of Rhode Island. Like the thirty-five other Blues, BCBSRI is very big in its territory. They very possibly have gotten all their dominance through unsavory means, and it so happens that a separate, long-running suit in Alabama potentially jeopardizes the whole system of agreements by which they’ve done it.

 

Anyway, monopolization plaintiffs must show not just that a defendant is big and powerful, but that it got its power by improperly “excluding” competitors. While it’s fine to exclude them just by selling a better product or selling it more cheaply—that’s just competition, after all—other exclusion can be illegal, like contracts or pressure tactics that tie up suppliers or customers. Steward Health involved one of the most controversial means of exclusion, the “refusal to deal.” Refusal-to-deal cases happen to have gotten very difficult, and therein lies the bigger political story of Steward Health. In this context conservative antitrust has betrayed with a rare and presumably unintended candor that it often is less an economic argument than a political one.

 

When BCBSRI learned of Steward’s effort to buy the Woonsocket hospital, the parties negotiated over prices at which it would cover Steward’s Rhode Island patients. But negotiations failed, and Steward claims that BCBSRI sabotaged them. It turns out that Steward aspires to innovate in health care business models, including by insuring some of its patients itself. Its entry therefore threatened BCBSRI’s own business directly. In short, Steward claimed that BCBSRI just refused to deal, on terms it would have given to other hospital firms, because it didn’t want another competitor.

 

The refusal-to-deal caselaw has always had some flavor of non-economic, libertarian individualism, valuing individual freedom for its own sake, even when the “individual” is a corporate monopoly. But that qualified, limited instinct evolved in these conservative latter days to became a strong presumption against any government interference.

 

The bias reached its peak in a 2004 case called Verizon Communications v. Law Offices of Curtis V. Trinko. There Justice Scalia notoriously quoted the 1919 Supreme Court decision United States v. Colgate for “the long recognized right of trader or manufacturer . . . freely to exercise his own independent discretion as to parties with whom he will deal.” However, rather like reading the “right to bear arms” without “a well-regulated militia,” he left something out of that quotation. As Judge Smith noted in a delicious little footnote in his Steward Health opinion, Colgate itself had said that firms enjoy that right only “[i]n the absence of any purpose to create or maintain a monopoly[.]

 

In any case, Trinko and Colgate are not the only authority on refusals-to-deal, and as Steward Health proceeds it may shed light on Trinko’s unresolved tension with another Supreme Court case, a more plaintiff-friendly 1985 decision called Aspen Skiing v. Aspen Highlands Skiing. Among the lower courts to have struggled in rationalizing these matters was a decision by then-Judge Gorsuch, with which Judge Smith explicitly disagreed and which read Aspen Skiing very narrowly indeed.

 

What really is so important is that any number of courts would have seen in Steward Health no more than ordinary, bilateral price negotiations that happened not to go the plaintiff’s way. As in Aspen Skiing, however, Judge Smith found evidence in BCBSRI’s own internal documents and its past conduct suggesting that it really just wanted Steward out of the state, because it didn’t want competition in health insurance. The critical lesson is not what he ultimately decides really happened between the parties. It is his ruling that when a firm gets really big, even the most ordinary business conduct can be judged by antitrust, rather than avoided entirely on the exaggerated fears and speculation on which conservative economics has largely deadened antitrust.

 

With a few exceptions, Steward Health has gotten no press coverage outside Rhode Island. But if the parties stick out this litigation through trial and appeals, we will at a minimum have important new guidance on the American law of monopolization. We could also get one of the most important monopolization decisions in recent memory, possibly pumping life into the moribund law, and—because it could well set up a legal disagreement among the lower appellate courts—perhaps the first Supreme Court monopolization decision in many years.

 

Chris Sagers is the James A. Thomas Distinguished Professor of Law at Cleveland State University, where he teaches antitrust and other courses. He is author of Apple, Antitrust and Irony, forthcoming from Harvard University Press, and co-author of Sullivan, Grimes & Sagers, Antitrust: An Integrated Handbook

 

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