Friday, January 17, 2014

Cascade Health v. Peacehealth case brief summary

Cascade Health v. Peacehealth case brief summary

PeaceHealth and McKenzie (Cascade) were the only two hospitals in Lane County (the jury determined geographical market) providing primary and secondary acute care services (common services like setting bones), the relevant product market. PeaceHealth was the dominant provider of tertiary care (i.e., invasive cardiovascular surgery and intensive neonatal care), holding approximately 90% of tertiary services and providing 75% of primary and secondary care services. McKenzie alleged that PeaceHealth offered bundled discounts on tertiary services if insurers made PeaceHealth their sole provider of all services. 

The Court considered the appropriate legal standard for bundled discounts and selected a “discount attribution” standard that was distinct from the LePage standard. Consequently, the court vacated the judgment and remanded for consideration under the new standard.
  • All insurers who purchased all services from PeaceHealth received lower reimbursement rates than those insurers who purchased tertiary services from PeaceHealth and at least some services from McKenzie.
Legal Considerations
  • The “discount attribution” test requires that the total discount the bundle provides (compared to the sum of the prices of all individual goods) must be applied to the competitive good. If the total discount takes the price of the competitive good below its average variable cost, the bundling is anticompetitive.
  • The Court doesn't appear to be doing any recoupment analysis, although it looks close enough to predatory pricing to require some price-cost comparison.
  • The test isn’t nearly as Π-friendly as Le Page but is not nearly as Δ-friendly as Brooke Group.
If the courts were to follow Cascade, we would have three different tests:
  • Predatory pricing
  • Non-price exclusion
  • Bundled discounts

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