Opinion ID: 6324834
Heading Depth: 2
Heading Rank: 1

Heading: Allegations in the SAC

Text: Marion Diagnostic Center, LLC and Marion Healthcare, LLC are small healthcare providers in Marion, Illinois. Like many such providers, they join group purchasing organiza‐ tions (“GPOs”), which negotiate contracts on behalf of their 1 According to Defendants, Plaintiffs erroneously named Cardinal Health, Inc. as a Defendant. The relevant distribution entity is Cardinal Health 200, LLC. No. 21‐1513 3 members for medical products. These GPO‐manufacturer contracts are known as “Net Dealer Contracts.” GPOs present the terms of the Net Dealer Contracts to providers, who can either accept the terms or attempt to negotiate directly with a manufacturer. If a provider accepts the terms of a Net Dealer Contract, the provider then enters a “Distribution Agree‐ ment” with a distributor.2 Under this scenario, a provider purchases medical products directly from a distributor, who charges the prices agreed to in the Net Dealer Contract plus a markup for the distributor’s services. BD is the leading national manufacturer of the three prod‐ ucts at issue: BD controls 60% of the market for conventional syringes, 60% of the market for safety syringes, and 55% of the market for safety IV catheters. According to the Providers, these products are commodities, meaning that they are effec‐ tively interchangeable with competitors’ products. Nonethe‐ less, BD charges significantly higher prices than its competi‐ tors: 11% more for conventional syringes, 36% more for safety syringes, and 37% more for safety IV catheters. 2 The Providers argue that the Distribution Agreements often have one‐ sided termination clauses, meaning that distributors can terminate those contracts, but providers cannot. Defendants object that the Providers in‐ appropriately supplemented the SAC through their brief opposing the motion to dismiss. Compare Agnew v. Nat’l Collegiate Athletic Ass’n, 683 F.3d 328, 348 (7th Cir. 2012) (“[I]t is a basic principle that the complaint may not be amended by the briefs in opposition to a motion to dismiss, nor can it be amended by the briefs on appeal.”), with United States ex rel. Hanna v. City of Chicago, 834 F.3d 775, 779 (7th Cir. 2016) (Rule 8 allows a plaintiff to add facts to the complaint “by affidavit or brief—even a brief on ap‐ peal.”). Because this fact does not alter our analysis, we need not decide whether the Providers raised it too late. 4 No. 21‐1513 Cardinal and McKesson are two of the largest distributors of the Products. The distribution market entails warehousing, processing orders, marketing, and tech support. Notably, the Providers have not alleged that either Cardinal or McKesson has market power in the distribution market, which includes at least four major players. The Providers also concede that they do not purchase BD products from Cardinal. They allege only that they have purchased the Products from McKesson. Complicating matters further, the Distributors make “Dealer Notification Agreements” with BD, in which the Distributors agree to distribute BD’s Products in accordance with the Net Dealer Contracts. Plaintiffs allege that BD is engaged in two vertical conspir‐ acies to restrain trade in the relevant product markets. Specif‐ ically, they allege that BD has a quid pro quo with Cardinal and McKesson. First, the Net Dealer Contracts lock providers into long‐term contracts for BD products through sole‐source or dual‐source provisions, “penalty pricing” rebate provi‐ sions, and bundling. Second, Cardinal and McKesson enforce those contracts, monitor providers’ compliance, and supply BD with purchasing information, going above and beyond the terms of the Distributors’ contractual obligations to BD. Third, Cardinal and McKesson coerce providers into buying only BD products through alleged misrepresentations about the quality or availability of competitors’ products, even when doing so is inconsistent with their own self‐interest. Cardinal, for example, allegedly promotes BD’s products over its competing in‐house brand, Covidien. Fourth, BD rewards these Distributors with various incentives. The Providers allege that BD has engaged in other anti‐ competitive acts in furtherance of the conspiracies. Namely, No. 21‐1513 5 BD has made false claims about its own products while dis‐ paraging the products of its rival, Retractable, and BD has been found liable for infringing Retractable’s patents. Addi‐ tionally, BD has entered exclusionary contracts with large healthcare providers (outside the GPO system) that bundle the three products at issue with other BD products. These al‐ legations appeared in the FAC, which this court previously held failed to state a claim. Marion I, 952 F.3d at 842–43. According to the Providers, all of this conduct amounts to antitrust injury by allowing BD to inflate the prices of the Products above competitive levels. The SAC further alleges that the conspiracies harm innovation in the relevant product markets by deterring potential entrants, thereby reducing product quality and safety.