Opinion ID: 620898
Heading Depth: 3
Heading Rank: 2

Heading: The Concession Issue

Text: Northshore argues that these principles do not matter in the end because, it says, plaintiffs conceded that their case for common impact depended on uniform nominal price increases. In support, Northshore relies primarily on Dranove’s confirmation at the hearing on the motion for class certification that “the viability of [his] method” came down to whether Northshore “really [did] increase prices at a uniform rate across services.” Dkt. 418 at 41. On cross-examination, however, Dranove clarified that his “DID analysis can be performed with or without the uniformity.” Id. at. 57. These statements, seemingly contradictory on their face, are easily reconciled once it is remembered that Dranove proposed two alternative methodologies: one in which the uniformity of mergerrelated price increases was presumed, and another in which such uniformity was absent. Which method to use depended on the degree of uniformity. If price increases were, as Dranove initially believed, entirely or largely uniform, then he proposed to show the merger’s impact on the individual class members by simply plugging the average price increase imposed by any given contract into his DID analysis. App. 1904-06, 1909, 1926, 1931, 2523-25, 2530, 2584. In those circum30 No. 10-2514 stances, the average price would accurately reflect the individual price increases found in that contract. If the average contract price went up an average of 20 percent, and all of the services in that contract experienced uniform price increases, each individual service also went up 20 percent in price. App. 1909, 2523, 2571. This specific methodology relied on uniform nominal price increases, but the actual evidence was not that simple. As Dranove implicitly acknowledged in his reply report, if a contract’s individual service prices went up at non-uniform rates due to Northshore’s unequal exercise of market power, then DID analysis using that contract’s overall average price increase would reveal little about the merger’s antitrust impact on individual class members covered by that contract. App. 2523 n.1. According to Dranove, however, it would be most unusual for a firm possessing market power in a geographic market to exercise that power selectively to increase the prices of only some of its services. App. 193133, 2539. For this reason, Dranove believed that any non-uniform price increases observed in Northshore’s contracts with insurers could be explained by what he called “restructuring,” or changes in price resulting from variations in Northshore’s marginal costs or the re-bundling of component services discussed above. App. 2530, 2543-45. Such restructuring, he said, was unrelated to market power, meaning that services exhibiting non-uniform price increases could be treated as if they were subject to the same percentage price increase imposed on all other No. 10-2514 31 services covered in the same contract. App. 2543-44. If, for example, the price for one service went up 30 percent while all other services in that same contract went up only 20 percent, that additional 10 percent increase would not be treated as an exercise of market power for purposes of his DID analysis. Only the 20 percent increase shared by all other services in the same contract would reflect the use of market power. App. 2544. As a result, he explained, any non-uniform price increases imposed in a single contract with an insurance provider did not foreclose his use of that contract’s average price increase to calculate accurately the impact to all patients covered by that contract. App. 2545. Even if non-uniform price increases in a contract resulted not from restructuring but from Northshore’s differential exercise of market power across different services, Dranove explained that he could still use those contracts to show impact on the class members. At his deposition, Dranove explained that if his review of documents revealed a lack of uniformity unexplained by restructuring, he would simply “adapt the methodology.” Dkt. 284, Ex. I at 113, 157-58. In his initial report, Dranove explained that he could adapt his analysis if needed to accommodate “selective” price increases regarding certain services. App. 1932. And his reply report showed exactly how he would do that. The reply report emphasized that the DID analysis was fully capable of addressing non-uniform price increases: “it is still possible to apply a common methodological framework to measure impact even [when Northshore] increased prices for different services at different rates.” App. 2539. As noted 32 No. 10-2514 above, he would do so simply by conducting as many DID analyses as there were non-uniform price increases in a particular insurer’s contract with Northshore. App. 2540. In this way, Dranove explained, he would be able to calculate “different overcharges across different service categories” despite any non-uniform increase in the prices charged for those services. App. 2540-41. In other words, uniformity of nominal price increases was not necessary to Dranove’s proposed methodology for determining antitrust impact to the proposed class. This explains why Dranove was willing (though perhaps a little too reluctant for his own good) to concede the non-uniformity of the price increases in Northshore’s post-merger contracts. In fact, Dranove acknowledged several times that Northshore’s prices did not always increase uniformly, explaining that Northshore “almost invariably increase[d] prices at the same rate,” App. 2523, and that price increases “are applied across-the-board for all or nearly all services,” App. 2524, in the “vast majority of cases.” App. 2525 (emphases added). He acknowledged that one contract called for “a dramatic decrease in the price” for some services at the same time it “impose[d] a significant increase in the price of other service[s].” App. 2543.