### In the 

# United States Court of Appeals For the Seventh Circuit

____________________ No. 16

- 3791 M ETHODIST H EALTH S ERVICES C ORP

. , Plaintiff

- Appell ant ,

v. OSF H EALTHCARE S YSTEM d / b / a S AINT F RANCIS M EDICAL C ENTER , Defendant

- Appell ee

.

____________________ App eal from t he United States District Court for the Central District of Illinois

. No. 1: 13

- cv - 0 1054

- SLD

- JEH

— Sara L. Darrow , Judge

.

____________________ A RGUED A PRIL 13, 2017

— D ECIDED J UNE 9, 2017

____________________ Before P OSNER , M ANION , and K ANNE , Circ uit Judges

. P OSNER , Circuit Judge

. Methodist and Saint Francis are the two largest hospitals in Peoria, Illinois; Saint Francis is co nsiderably larger and more profitable than Methodist. On February 5, 2013, Methodist filed suit against Saint Francis in th e federal district court in central Illinois, charging Saint Francis with violating the Sherman Act to the detriment of Methodist, a competitor. The district judge granted su m-2 No. 16

- 3791
mary judgment in favor of S ain t Francis. Methodist had pleaded state

- law claims a s well, which the district judge also rejected; we have nothing to add to the judge’s discu s sion of those claims, beyond noting that they largely dupl i cated the Sherman Act claims. Methodist’s antitrust case is quite simple. Its essence is that because Sai nt Francis is the dominant hospital in the market s served by both hospitals (the market s co n sisting of acute

- care inpatient services and outpatient surg i cal services sold to commercial health insurers in an area in central Ill inois comprising Peoria, Tazew ell, and Woodford Counties , known as the “tri

- county area” ), it was able to persuade i nsurance comp a nies to enter into exclusive contracts with it ; and being exclusive, those contracts prevented the comp anies from contracting with Methodist, to the latter’ s detr iment. The contracts i n volve health insurance plans that use restricted

- provider networks , mea n ing that each plan has a network of hosp i tals and other health

- care pro viders that have agreed to charge the plan’s members specified rates

. Each plan enco urages its me m bers to use its in

- network hospitals, with “encouragement” taking the form either of charging the members higher prices for treatment at out

- of

network hospitals or by not covering treatment at such ho spitals at all. The exclusive contracts b etween S ain t Francis and the insurance companies re quired that for specified health i nsur ance plans S ain t Francis would be an in

- network hospital and Methodist an out

- of

- network one . The major plan was the Blue Cross Blue Shield PPO (“PPO” stands for Prefe rred Provider Organiz a tion ) , whose members constituted a third of all the comme r cially

- insured patients in the area . S ain tNo. 16

- 3791 3

Francis’s exclusive co n tracts covered more than half of all commercially

- insured patients in the area , and Methodist
co n tends that as a result it couldn’t obtain a sufficiently high volume of patients to enable it to invest in quality

- improving projects it otherwise w ould have unde r taken

. One reason for this disparity is that h eal th insurers r egard S ain t Francis as a “must have” hospita l, that is, a hosp ital with which the insurer must have a contract to provide hospital ser vices, because it provides certain inpatient se rvices that the other hospitals in the tri

- county area do not provide, such as solid

- organ transplants, neonatal intens ive
care and other sophisticated pediatric care , and, probably most i m portant, a Level 1 trauma center , certified by the state to “provide optimal care to trauma patients , [ including] all essential services in

- house, 24 hours per day.” Illinois Depar t ment of Public Health, “Trauma Program,” www.dph.illinois.gov/topics

- services/emergency

- prep ared
ness
- response/ems/trauma

- program (visited June 8 , 2017)

. Given the more extensive services offered by S ain t Fra ncis (further illustrated by its large number of bed s

— 6 16 to Methodist ’s 3 30 ), it’s no surprise that it attract s more co mmercial health insurance companies than Metho d ist does

— and p atients covered by commercial insurance are more pro f itable for hospitals than patients covered by government insurance. It ’s a lso no surprise that S ain t Francis should not want to share the health

- care insurers that have contracted to use its services thereby making S ain t Francis part of their hospital network

. But w hat is more common than exclusive dealing? It is i llustrated by requirements contracts, which are common , and legal, and obligate a buyer to purchase all, or a su b stantial4 No. 16

- 3791
portion of, its requirements of specific goods or se r vices from one supplier. S ain t Francis’s deals with the health i nsurance co m panies are a form o f requirements contract, for the deals require the companies to limit the network of pr oviders from which they obtain the health care that their i nsurance contracts obligate them to obtain for their insureds

. And an insurance company may get better rates f rom a ho spital in exchange for agreeing to an exclusive contract, as e xclusiv ity will drive a higher volume of business to the hosp ital. The co n tracts made by S ain t Francis are of fixed rather than indefinite, let alone perpetual, duration ; and when they t e r minate , the insurance companies are free to strike deals with other ho s pitals

— with Methodist, for example. It’s true that some exclusive

- dealing arrangements run afoul of the Sherman Act , see Roland Machinery Co. v. Dresser Industries, Inc. , 7 4 9 F.2d 380 , 394 (7th Cir. 1984) ; if S ain t Fra ncis had signed long

- term exclusive contracts with all the health insurance companies serving the tri

- county market, the d e struction of competition in health services might result in sky

- high prices for such services and the bankruptcy of the other hospitals in the market, such as Methodist. But there is no evidence of such dire consequences of S ain t Fra ncis’s exclusive contracts with insurance companies

— no ev idence for example that Methodist could not duplicate the specia l se r vices, such as Level 1 trauma care, that makes S ain t Francis so special ; apparently it has been able to raise hundreds of mi l lions of dollars for new investments

. Also no
ev idence that S ain t Francis’s exclusive contracts have a si gnificant exclusionar y effect, since most of the contracts e xpire every year or two, giving other hospitals, such as Met hodist, a shot at o b taining the next contract by outbidding S ain t Francis. The Blue Cross Blue Shield PPO contract aloneNo. 16

- 3791 5

accounts for more than half o f all p atients covered by a S ain t Francis exclusive co n trac t

— and it has expired every two or three years during the period that Methodist alleges it was excluded from the ma r ket

. If Methodist can’t outbid S ain t Francis

— if a health insu r ance company prefers to con tract with S ain t Francis, the logical inference is that S ain t Francis
o f fered the health insurer a better deal, doubtless based on its offering a broader and deeper range of services than Methodist does. Methodist has made its own exclusive co ntracts with insurance companies , a l though they cover fewer patients than S ain t Francis’s excl u sive contracts do

. As we’ve said before, “ c ompetition

- for

- the

- contract is a form of co mpetition that antitrust laws pr o tect rather than proscribe, and it is common.” Paddock Public a tions, Inc. v. Chicago Tribune Co. , 103 F.3d 42, 45 (7th Cir. 1996). A curious feature of the case is Methodist’s isol a tion

. Methodist devotes much of its brief to listing the co m mercial insurers that have allegedly been hurt by S ain t Fra n cis’s excl usive dealing , but none of those comp a nies is a plaintiff ; it doesn’t discuss any other hospitals, other than mentio n ing that there are four other (smaller) hospitals in the tri

- county
area. So far as appears, the overall effect of Saint Francis’s exclusiv e contracts in the tri

- county area may be slight; indeed Methodist may be the only victim. Metho d ist had sent a copy of its complaint to the Department of Ju s tice , but it declined to file a cas e of its own. Methodist could have tried to persuade the four o ther hosp i tals in the tri

- county area to join its suit as additional plai n tiffs , but there is no i n dication that it did. Methodist argues that S ain t Francis’s exclusive contracts “forced insurers and ultimately consu m ers to pay nearly $306 No. 16

- 3791

million more tha n they would have paid in a competitive market.” But Methodist is not the representative of any i nsurer or of any consumer; it ’ s simply an unsuccessful co mpetitor with a hospital that offers patients insured by health insur ance comp a nies more health care t han it does. And Methodist doesn’t have any theory of how S ain t Francis’s exclusive co n tracts could have caused prices to rise

. As the district judge concluded and we now conclude, Methodist failed to make a case. The grant of su m mary judgment in favor of S ain t Francis is ther e fore A FFIRMED

.