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NorthBay Healthcare Group, Inc. v. Kaiser Foundation Health Plan, Inc.

United States District Court, N.D. California, San Francisco Division

March 30, 2018



          LAUREL BEELER United States Magistrate Judge.


         Plaintiffs NorthBay Healthcare Group and NorthBay Healthcare Corporation (collectively, “NorthBay”) operate two hospitals in Solano County, California. NorthBay brings this action against (1) Kaiser Foundation Health Plan, Inc. (“Kaiser Health Plan”), a health insurer; (2) Kaiser Foundation Hospitals, Inc. (“Kaiser Hospitals”), the operator of two other hospitals in Solano County; and (3) the Permanente Medical Group, Inc. (“Permanente”), which manages doctors that work at Kaiser Hospitals' hospitals. NorthBay alleges violations of the Sherman Antitrust Act and various California state-law claims.

         The court previously granted the defendants' motion to dismiss NorthBay's original complaint, holding that NorthBay had failed to plead a violation of the federal antitrust laws and declining to exercise supplemental jurisdiction over NorthBay's state-law claims. NorthBay Healthcare Grp. v. Kaiser Found. Health Plan, Inc., No. 17-cv-5005-LB, 2017 WL 6059299 (N.D. Cal. Dec. 7, 2017) (NorthBay I). The court granted leave for NorthBay to amend its complaint. NorthBay filed a First Amended Complaint (“FAC”). But the FAC still fails to plead a cognizable antitrust claim. Among its other deficiencies, the FAC fails to plead that NorthBay suffered any causal antitrust injury. The court dismisses NorthBay's antitrust claims and declines to exercise supplemental jurisdiction over NorthBay's state-law claims, and therefore dismisses NorthBay's FAC in full, with leave to amend.


         1. The Defendants

         Defendant Kaiser Health Plan is the largest health-care-service plan in the United States.[2] Over 11.8 million people in nine states and the District of Columbia are enrolled in health insurance from Kaiser Health Plan.[3] In Northern California, over 4.1 million people are enrolled in Kaiser Health Plan.[4] Kaiser Health Plan has a market share of 86% of the commercial insureds in Solano County in 2016 and 88% in 2017.[5]

         Defendant Kaiser Hospitals operates hospitals throughout the United States, including two hospitals with emergency departments in Solano County: Kaiser Permanente Vallejo Medical Center in Vallejo and Kaiser Permanente Vacaville Medical Center in Vacaville.[6] Kaiser Hospitals' Vacaville hospital is the county-designated Level II Trauma Center for Solano County.[7]

         Defendant Permanente is a medical group comprised of physician-owned, for-profit partnerships and professional corporations.[8] Permanente provides and manages the physicians who service Kaiser Health Plan enrollees at Kaiser Hospitals' hospitals, including Kaiser Hospitals' Vallejo and Vacaville hospitals.[9]

         Kaiser Health Plan, Kaiser Hospitals, and Permanente are “separate legal entities” and “separate economic actors.”[10] They are parties to legal agreements with one another, however, whereby Permanente doctors service Kaiser Health Plan enrollees at Kaiser Hospitals.[11] The three defendants collectively use the registered trademark or trade name “Kaiser Permanente.”[12] Kaiser Hospitals has noted that “separate legal entities are responsible for managing the integrated health care system in California: [Kaiser Health Plan]; [Kaiser Hospitals]; and The Permanente Medical Group, Inc. (TPMG), which contracts with [Kaiser Health Plan] in Northern California.”[13]

         2. NorthBay's Allegations

         NorthBay operates two hospitals in Solano County: NorthBay Medical Center in Fairfield and NorthBay VacaValley in Vacaville.[14] NorthBay's Fairfield hospital is a county-designated Level III Trauma Center.[15]

         2.1 Kaiser Hospitals Cancelled a Services Agreement with NorthBay in 2016

         NorthBay's hospitals provide emergency medical services to patients, including Kaiser Health Plan enrollees.[16] Since 2010, the number of Kaiser Health Plan enrollees treated by NorthBay each year has steadily increased, rising from more than 540 patients in 2010 to over 770 patients in 2016 and 889 patients in 2017.[17]

         In 2010, NorthBay and Kaiser Hospitals entered into an Agreement for Non-Referral Hospital Services for Kaiser Permanente Members (“Agreement”).[18] The Agreement set forth the rates that Kaiser Health Plan would pay NorthBay for emergency medical services NorthBay provided to Kaiser Health Plan enrollees.[19] (It is unclear how an agreement between NorthBay and Kaiser Hospitals could bind Kaiser Health Plan with respect to paying NorthBay, but that is what the FAC alleges.[20])

         On May 20, 2016, NorthBay received a letter on “Kaiser Permanente” letterhead announcing the termination of the Agreement effective September 18, 2016.[21] The letter referred to Kaiser Hospitals' and “Kaiser Permanente”'s expectation that NorthBay would not seek reimbursement from any “member” of Kaiser Health Plan.[22] The letter did not provide an explanation on behalf of Kaiser Hospitals (or any other person or entity) for the termination.[23] The letter stated, among other things, “[w]e appreciate the relationship we have enjoyed over the last several years, and would be happy to discuss ways we can continue working productively together to advance Kaiser Permanente's mission of providing high-quality, affordable health care services and improving the health of our members and the communities we serve.”[24]

         Shortly after September 20, 2016, Kaiser Health Plan began reimbursing NorthBay at less than half the rate specified in the 2010 Agreement.[25] NorthBay alleges that Kaiser Health Plan has refused to pay reasonable-and-customary rates for services NorthBay provided to Kaiser Health Plan enrollees.[26]

         According to NorthBay, there is no legal limit on the billing rates that hospitals in California can set to charge for their services.[27] Hospitals can charge whatever rates they want - the only limitation upon them are market forces.[28] According to NorthBay, if a hospital does not have a contract with a payer, the payer is billed and is expected to pay at the hospital's full billing rates.[29]NorthBay claims that following the termination of the Agreement, NorthBay was not required to accept anything less than full payment at its full billing rates from Kaiser Health Plan.[30] NorthBay calculates that since the termination of the Agreement, Kaiser Health Plan has underpaid it more than $26.8 million for services it provided to Kaiser Health Plan enrollees.[31]

         2.2 Kaiser Hospitals “Steers” Trauma Patients to Its Hospitals

         Solano County designates hospital trauma facilities to provide certain levels of services.[32] For example, Level II facilities must have specialty surgeons on call.[33]

         When paramedics arrive on scene to transport a patient to a medical facility, they must “activate” trauma services if the patient meets certain medical criteria.[34] Upon activation, the paramedic calls the “trauma base station, ” where a physician assesses the patient's medical condition and routes the ambulance either to a Level II or III designated trauma facility.[35] If a trauma patient has Level II injuries (like a gunshot wound to the head or severe blunt head injury), the trauma base hospital must route the patient to the county-designated Level II trauma center - i.e., Kaiser Hospitals' Vacaville hospital.[36] If a trauma patient has Level III injuries, the trauma base hospital must route the patient to the nearest Level III trauma facility.[37]

         In October 2016, Kaiser Hospitals successfully lobbied Solano County to designate its Vacaville hospital as the county's base hospital for trauma care.[38] NorthBay alleges that Kaiser Hospitals' Vacaville hospital “regularly uses its routing power in order to route Level III trauma patients to harm rival hospitals.”[39] NorthBay's FAC does not allege any examples of this practice, however. It cites to three examples of patients being transported to Kaiser Hospitals - but it does not allege that any of these patients were Level III trauma patients. NorthBay therefore does not allege any examples of the supposed Level-III-patient steering of which it complains.[40] (To the contrary, in its Opposition, NorthBay expressly states that at least one of these three patients was a Level II trauma patient and therefore was not an example of Level-III-patient steering.[41])

         2.3 Permanente Doctors Call Emergency Medical Providers for Kaiser Health Plan Enrollees to Take Them to Kaiser Hospitals

         NorthBay alleges that “Kaiser Permanente” maintains an on-call urgent-care line and implicitly alleges that the line is staffed by Permanente on-call physicians.[42] Patients with acute-care conditions that require immediate medical assistance often call this urgent-care line for confirmation that they should seek immediate acute-care medical services.[43] NorthBay asserts that county guidelines specify that if the on-call physician determines that a Kaiser Health Plan enrollee needs emergency medical transportation, the physician should instruct the patient to hang up and dial 911 for emergency transportation routing in accordance with the county's emergency-routing protocol.[44] NorthBay alleges that Permanente physicians that staff the on-call urgent-care line instead routinely directly call emergency transportation providers for patients (instead of making the patient hang up and call 911) and route the providers to patients' houses with instructions to take patients to a Kaiser Hospitals facility.[45] NorthBay states that Permanente does this to ensure that Kaiser Health Plan enrollees stay within the “Kaiser Permanente” system.[46](NorthBay does not provide any facts to support its allegation that this “routinely” happens. NorthBay also does not explain why this would be improper, nor does it allege that Kaiser Health Plan enrollees who dialed 911 would not be taken to Kaiser Hospitals facilities anyway.[47])

         2.4 Kaiser Hospitals “Steers” Underinsured Patients Away From Its Hospitals

         NorthBay alleges that Kaiser Hospitals steers underinsured and uninsured patients away from its hospitals to NorthBay's.[48] It cites two examples in support of these allegations:

         First, NorthBay cites to an instance where Kaiser Hospitals called to inform NorthBay that it was transferring a homeless patient to NorthBay.[49] Kaiser Hospitals told NorthBay that the patient had received cancer treatment with NorthBay, had Partnership HealthPlan, and was “assigned” to NorthBay.[50] After obtaining the patient's detailed information from Kaiser Hospitals, NorthBay saw that the patient had state Medi-Cal coverage.[51] NorthBay also saw that the patient had been to NorthBay only once and had not been treated for cancer there.[52] NorthBay alleges that Kaiser Hospitals wanted to avoid the cost of treating this patient and sought to shift that burden onto NorthBay.[53] (NorthBay does not allege what happened with this patient or whether he actually was transferred or not.)

         Second, NorthBay cites to an instance where Kaiser Hospitals called NorthBay about a patient with abdominal pain and questionable kidney failure.[54] Kaiser Hospitals insisted that NorthBay take the patient because he had established care with NorthBay as his primary hospital and indicated that its own emergency department was full.[55] NorthBay asserts that the patient had not in fact established NorthBay as his primary hospital.[56] NorthBay also alleges that the patient had Medicare A & B coverage with minimal AARP secondary insurance, and as a result, Kaiser Hospitals did not want to take on the financial costs of his care.[57] (Again, NorthBay does not allege what happened with this patient or whether he actually was transferred or not.)[58]


         A complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief” to give the defendant “fair notice” of what the claims are and the grounds upon which they rest. See Fed. R. Civ. P. 8(a)(2); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A complaint does not need detailed factual allegations, but “a plaintiff's obligation to provide the ‘grounds' of his ‘entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a claim for relief above the speculative level . . . .” Id. (internal citations omitted).

         To survive a motion to dismiss, a complaint must contain sufficient factual allegations, which when accepted as true, “‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. “The plausibility standard is not akin to a ‘probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (quoting Twombly, 550 U.S. at 557). “Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of ‘entitlement to relief.'” Id. (quoting Twombly, 550 U.S. at 557) (internal quotation marks omitted).

         If a court dismisses a complaint, it should give leave to amend unless the “the pleading could not possibly be cured by the allegation of other facts.” Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir. 1990).


         1. Governing Law

         Causal antitrust injury is an essential element of both a monopolization claim and a conspiracy-to-monopolize claim under Section 2 of the Sherman Antitrust Act. Allied Orthopedic Appliances, Inc. v. Tyco Health Care Grp. LP, 592 F.3d 991, 998 (9th Cir. 2010) (causal antitrust injury is an element of a monopolization claim, along with (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power) (quoting Cal. Computer Prods., Inc. v. IBM Corp., 613 F.2d 727, 735 (9th Cir. 1979)); Paladin Assocs., Inc. v. Mont. Power Co., 328 F.3d 1145, 1158 (9th Cir. 2003) (causal antitrust injury is an element of a conspiracy-to-monopolize claim, along with (1) existence of a combination or conspiracy to monopolize, (2) an overt act in furtherance of the conspiracy, and (3) the specific intent to monopolize) (citing United States v. Yellow Cab Co., 332 U.S. 218, 224-25 (1947)). Because “causal antitrust injury is a substantive element of an antitrust claim, . . . the fact of injury or damage must be alleged at the pleading stage.” Somers v. Apple, Inc., 729 F.3d 953, 963 (9th Cir. 2013).

         “‘Antitrust injury' means ‘injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful.'” Somers, 729 F.3d at 963 (quoting Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977)). Antitrust injury has five elements: “(1) unlawful conduct, (2) causing an injury to the plaintiff, (3) that flows from that which makes the conduct unlawful, . . . (4) that is of the type the antitrust laws were intended to prevent, ” and (5) that “the injured party be a participant in the same market as the alleged malefactors, meaning the party alleging the injury must be either a consumer of the alleged violator's goods or services or a competitor of the alleged violator in the restrained market.” Id. (citations and internal quotation marks omitted).

         “It is not enough to show that one's injury was caused by illegal behavior.” Pool Water Prods. v. Olin Corp., 258 F.3d 1024, 1034 (9th Cir. 2011) (citing Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 109 (1986); Brunswick, 429 U.S. at 485-86). “‘To show antitrust injury, a plaintiff must prove that his loss flows from an anticompetitive aspect or effect of the defendant's behavior, since it is inimical to the antitrust laws to award damages for losses stemming from acts that do not hurt competition.'” Id. (emphasis in original) (quoting Rebel Oil Co. v. Atl. Richfield Co., 51 F.3d 1421, 1433 (9th Cir. 1995)). “‘If the injury flows from aspects of the defendant's conduct that are beneficial or neutral to competition, there is no antitrust injury, even if the defendant's conduct is illegal per se.'” Id. (citing Rebel Oil, 51 F.3d at 1433). Among other things, “[a] decrease in one competitor's market share . . . affects competitors, not competition. . . . Increased concentration may make anticompetitive action more likely, but in and of itself it does not amount to antitrust injury.” Id. at 1036 (citing Cargill, 479 U.S. at 116; Brunswick, 429 U.S. at 486-87); accord Les Shockley Racing, Inc. v. Nat'l Hot Rod Ass'n, 884 F.2d 504, 508 (“[R]emoval of one or a few competitors need not equate with injury to competition. . . . [C]laimants must plead and prove a reduction of competition in the market in general and not mere injury to their own positions as competitors in the market.”) (citing cases).

         2. Application

         2.1 NorthBay Fails to Plead Injury of the Type the Antitrust Laws Were Intended to Prevent

         NorthBay's claims fail because it has not pleaded injury of the type the antitrust laws were intended to prevent. As the court previously held with respect to NorthBay's original complaint, “NorthBay does not allege any antitrust injury or harm to competition generally. It alleges injury only to itself.” NorthBay I, 2017 WL 6059299, at *9. This is insufficient to plead an antitrust claim.

         NorthBay's FAC fares no better. With respect to its complaints about the 2010 Agreement, NorthBay's allegations, at their core, are that the defendants should give it - NorthBay - more money so that it - NorthBay - can invest more money in its - NorthBay's - chosen projects.[59] This does not plead an ...

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