United States Court of Appeals For the First Circuit
No. 21-1115
ROBERTO VÁZQUEZ-RAMOS; IRMA VÁZQUEZ-RAMOS; CONJUGAL PARTNERSHIP VÁZQUEZ-RAMOS; JAVIER E. COLÓN-IRIZARRY; ADVANCED UROLOGY GROUP, LLC; LUIS M. MUÑIZ-COLÓN; WEST UROLOGY GROUP PSC; JUAN M. COLÓN- RIVERA; CARIBBEAN UROCENTRE, CSP,
Plaintiffs, Appellants,
v.
TRIPLE-S SALUD, INC.; HÉCTOR M. RODRÍGUEZ-BLÁZQUEZ; UROLOGICS, LLC; MSO OF PUERTO RICO, LLC; UROLOGIST, LLC,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO
[Hon. Silvia Carreńo-Coll, U.S. District Judge]
Before
Lynch and Kayatta, Circuit Judges, and Woodlock,* District Judge.
Jorge Martínez-Luciano, with whom Emil Rodríquez-Escudero and M.L. & R.E. Law Firm were on brief, for appellants. César T. Alcover, with whom Carla S. Loubriel Carríon and Casellas Alcover & Burgos, PSC were on brief, for appellees Urologics, LLC; Urologist, LLC; and Héctor Rodríguez-Blázquez. Luis R. Roman-Negron, for appellee Triple-S Salud, Inc. Iván J. Lladó, with whom Ramón E. Dapena and Morell Cartagena & Dapena were on brief, for appellee MSO of Puerto Rico, LLC.
* Of the District of Massachusetts, sitting by designation. December 8, 2022 KAYATTA, Circuit Judge. This appeal arises from the
dismissal under Federal Rule of Civil Procedure 12(b)(6) of an
attempted antitrust challenge to what look to be standard exclusive
dealing arrangements incident to the maintenance of closed health
care networks. Such challenges rarely succeed, largely because
such arrangements rarely pose significant harm to competition and
are often pro-competitive. See, e.g., Stop & Shop Supermarket Co.
v. Blue Cross & Blue Shield of R.I., 373 F.3d 57, 62, 65-66 (1st
Cir. 2004); U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d
589, 595 (1st Cir. 1993); Cap. Imaging Assocs., P.C. v. Mohawk
Valley Med. Assocs., Inc., 996 F.2d 537, 545-47 (2d Cir. 1993);
B&H Med., L.L.C. v. ABP Admin., Inc., No. 02-73615, 2004 WL
7347089, at *14 (E.D. Mich. Oct. 29, 2004), aff'd, 526 F.3d 257
(6th Cir. 2008). That being said, the issue now is not whether
the difficulty of prevailing on such claims is daunting. Rather,
the only issue is whether the amended complaint does enough to
"state a claim to relief that is plausible on its face." Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). For the following
reasons, we find that, in part, it does.
- 3 - I.
We begin by summarizing the relevant aspects of the two
public health insurance programs at issue before turning to
plaintiffs' claims and the proceedings below. In so doing, we
"accept[] all well-pleaded allegations of plaintiffs as true and
afford[] all inferences in the plaintiffs' favor." Arroyo-Melecio
v. Puerto Rican Am. Ins. Co., 398 F.3d 56, 65 (1st Cir. 2005).
A.
Prior to 1993, healthcare for medically indigent
populations in Puerto Rico was largely provided through publicly
owned facilities operated by local governments. In 1993, the
Commonwealth sought to improve the provision of public healthcare
on the island by passing Act 72, see P.R. Laws Ann. tit. 24, § 7001
et seq. (1993), which privatized most healthcare facilities and
created a new government-run healthcare plan (branded as Mi Salud
at the time of the relevant events). See id. § 7025. Mi Salud
operated as a public health insurance system funded mostly through
Medicaid grants and funds collected from the Commonwealth and
municipal governments. Act 72 also created the Puerto Rico Health
Insurance Administration ("ASES," by its Spanish acronym), see id.
§ 7001, and delegated the administration of Mi Salud to that
agency, see id. §§ 7003–04.
To implement Mi Salud, ASES divided Puerto Rico into
eight geographical regions and assigned a single private
- 4 - healthcare insurer to each region. The agency then entered into
contracts with the insurers to deliver the required services in
the insurers' respective regions. The designated insurers in each
region were tasked with contracting with healthcare providers to
provide covered services to Mi Salud patients in the region. As
relevant to this appeal, ASES retained defendant Triple-S Salud,
Inc. ("Triple-S") as the Mi Salud insurer for the Western Region
of Puerto Rico, an area encompassing over 200,000 medically
indigent patients.1
In conjunction with the federal government, the
Commonwealth also operates a health insurance system called the
Medicare Advantage Program (also known as Medicare Part C).
Medicare Advantage provides coverage to qualified beneficiaries
under the Medicare Act, 42 U.S.C. § 1395 et seq., which generally
covers elderly and disabled individuals. Private insurers enter
into contracts with the federal government to manage Medicare
Advantage plans for people in Puerto Rico. Medicare y Mucho Más
("MMM"), one such insurer, is one of the largest Medicare Advantage
Program coverage facilitators in Puerto Rico. Defendant MSO of
Puerto Rico, LLC ("MSO") is the administrator of the provider
network for the Medicare Advantage population insured by MMM and
1 In November 2018, Mi Salud was rebranded as Vital and abandoned the regional model. See Vázquez-Ramos v. Triple-S Salud, Inc., Civ. No.: 19-1527, 2020 WL 8513843, at *1 n.1 (D.P.R. Dec. 15, 2020).
- 5 - contracts with physicians and healthcare providers to serve MMM's
Medicare Advantage patients.
B.
Plaintiffs are urologists and urology practices with
offices in the Western Region of Puerto Rico. Until the summer of
2015, plaintiffs were under contract with Triple-S to provide
urology services to urology patients in the area. A subset of the
plaintiffs -- Dr. Roberto Vázquez-Ramos, Dr. Javier Colón-Rivera,
and Caribbean Urocentre, CSP ("Medicare Advantage plaintiffs") --
were also under contract with MSO to provide urology services to
qualified MMM Medicare Advantage patients in Western Puerto Rico.
In early 2015, unbeknownst to plaintiffs, Triple-S began
conversations with Dr. Rodríguez-Blázquez, a competitor urologist,
about having Dr. Rodríguez and companies owned by him
(collectively, "Urologics") become the exclusive provider of
urology services for Mi Salud patients in Western Puerto Rico.
MSO had similar conversations with Urologics regarding MMM
patients. After these conversations, Triple-S and MSO both
declined to renew their contracts with various plaintiffs and
instead both entered into separate agreements with Urologics for
Urologics to become their exclusive urology provider in Western
Puerto Rico. The amended complaint alleges two markets relevant
to plaintiffs' claims: the market of Mi Salud patients in Western
Puerto Rico and the market of MMM Medicare Advantage patients in
- 6 - Western Puerto Rico. Plaintiffs claim that the exclusive dealing
agreements excluded them from one or both of those markets in a
manner that constitutes both an unlawful agreement under section 1
of the Sherman Act, 15 U.S.C. § 1, and an unlawful acquisition and
use of monopoly power under section 2 of the Sherman Act, id. § 2.
Plaintiffs also allege parallel claims under the Commonwealth's
competition and tort laws. In neither instance do plaintiffs
allege any concerted action between Triple-S and MSO.
Plaintiffs assert that the exclusive dealing
arrangements have caused them to lose business and have made it
more difficult for patients to obtain adequate urology services in
Western Puerto Rico. Plaintiffs further contend that Mi Salud
patients have received lower quality care following the Triple-
S/Urologics agreement due to Urologics' purported inability to
sufficiently provide coverage to the region and to its alleged
practice of prioritizing profits over efficacy in its treatment
decisions.2
2 Urologics contends that ASES -- as the agency empowered to hear and resolve grievances over administration of the Mi Salud program -- has exclusive primary jurisdiction to resolve plaintiffs' claims as to the quality of urology services provided to Mi Salud patients. We have explained previously that "the primary jurisdiction doctrine has little to do" with federal antitrust cases "and it certainly does not go to the subject matter jurisdiction of the federal court." Arroyo-Melecio, 398 F.3d at 73; see also P.R. Mar. Shipping Auth. v. Fed. Mar. Comm'n, 75 F.3d 63, 67 (1st Cir. 1996). In any event, issues of patient care play no dispositive role in our decision concerning the sufficiency of plaintiffs' pleading.
- 7 - The district court granted defendants' motion to dismiss
plaintiffs' amended complaint. First, the court held that
plaintiffs lacked antitrust standing -- a prudential requirement
designed to ensure that plaintiffs are the proper parties to bring
federal antitrust claims. See Vázquez-Ramos v. Triple-S Salud,
Inc., Civ. No.: 19-1527, 2020 WL 8513843, at *3 (D.P.R. Dec. 15,
2020). Second, and in the alternative, the district court
concluded that the amended complaint failed to state a claim under
either section 1 or section 2 of the Sherman Act. See id. at *4-5.
Finally, having dismissed all the federal claims, the district
court declined to exercise supplemental jurisdiction over
plaintiffs' remaining Commonwealth law antitrust and tort claims
and dismissed those claims without prejudice. See id. at *5-6.
Dissatisfied with this outcome, plaintiffs timely appealed.
II.
We review a motion to dismiss de novo. Arroyo-Melecio,
398 F.3d at 65. Before delving into the merits of plaintiffs'
claims, we first consider whether plaintiffs have standing to
proceed with their federal antitrust action.
Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15,
26, create private causes of action for violations of federal
antitrust law.3 To bring such claims, plaintiffs must not only
3 Section 4 establishes that "any person who shall be injured in his business or property by reason of anything forbidden in the
- 8 - meet the typical requirements of Article III standing but also the
requirements of the so-called "antitrust standing" doctrine. See
Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of
Carpenters, 459 U.S. 519, 535 n.31 (1983). In this appeal, no
defendant contests plaintiffs' Article III standing. Nor have we
any doubts on that front. The only question is whether plaintiffs
also have antitrust standing.
The purpose of the antitrust standing doctrine is "to
avoid overdeterrence" and to "ensure that suits inapposite to the
goals of the antitrust laws are not litigated and that persons
operating in the market do not restrict procompetitive behavior
because of a fear of antitrust liability." Serpa Corp. v. McWane,
Inc., 199 F.3d 6, 10 (1st Cir. 1999) (quoting Todorov v. DCH
Healthcare Auth., 921 F.2d 1438, 1449 (11th Cir. 1991)). To
further this purpose, we seek to ensure that the prospective
antitrust plaintiff has suffered an injury of the kind antitrust
laws were intended to prevent, such that the plaintiff is a proper
party to bring a federal antitrust suit. To determine the
existence of antitrust standing consistent with this purpose, we
employ a six-factor test, assessing:
antitrust laws may sue therefor . . . and shall recover threefold the damages by him sustained." 15 U.S.C. § 15(a). And section 16 provides that "[a]ny person, firm, corporation, or association shall be entitled to sue for and have injunctive relief . . . against threatened loss or damage by a violation of the antitrust laws." Id. § 26.
- 9 - (1) the causal connection between the alleged antitrust violation and harm to the plaintiff; (2) an improper motive; (3) the nature of the plaintiff's alleged injury and whether the injury was of a type that Congress sought to redress with the antitrust laws ("antitrust injury"); (4) the directness with which the alleged market restraint caused the asserted injury; (5) the speculative nature of the damages; and (6) the risk of duplicative recovery or complex apportionment of damages.
RSA Media, Inc. v. AK Media Grp., Inc., 260 F.3d 10, 14 (1st Cir.
2001) (quoting Serpa, 199 F.3d at 10).
Five of the above factors plainly point towards
antitrust standing for plaintiffs in this case. The causal
connection here is patent: The exclusive dealing arrangements
plainly foreclose plaintiffs from selling their services to
Triple-S and MSO. The motive, as alleged, is to improperly
establish a monopoly for Urologics. The injury as alleged is
direct. And damages seem calculable by establishing the value of
lost sales. Conceivably, if consumers sued, there could be some
double recovery, but that seems speculative at this point.
The remaining factor -- whether the injury is an
"antitrust injury" -- is what gave the district court pause. The
Supreme Court has defined an "antitrust injury" as "injury of the
type the antitrust laws were intended to prevent and that flows
- 10 - from that which makes defendants' acts unlawful." Brunswick Corp.
v. Pueblo Bowl–O–Mat, Inc., 429 U.S. 477, 489 (1977). In other
words, the alleged injury must be "the type of injury the antitrust
violation would cause to competition." Sterling Merch., Inc. v.
Nestlé, S.A., 656 F.3d 112, 121 (1st Cir. 2011). Lack of an
antitrust injury is typically enough by itself to negate standing.
See RSA Media, 260 F.3d at 14.
The district court concluded that plaintiffs failed to
allege any antitrust injury that was caused by defendants'
allegedly anticompetitive arrangements. See Vázquez-Ramos, 2020
WL 8513843, at *3. With respect to the arrangement between Triple-
S and Urologics, the court acknowledged that, although "Triple-S
was the only option in the Western Region of Puerto Rico [Mi Salud
market]" and "[patients] in that market only had one choice of
insurer and therefore only one choice of urologist," the only
proper plaintiffs to bring an antitrust claim in that market "would
be the patients who are allegedly receiving inferior services,
i.e., the customers, not the individual doctors who lost out on
business when their services were no longer desirable." Id. And,
with respect to the arrangement between MSO and Urologics, the
court explained that there were "many other MMM providers in
addition to MSO available in Western Puerto Rico," so patients did
not have only one insurer and one urologist to choose from. Id.
- 11 - This meant that "there was no antitrust injury as to MSO." Id.4
For the following reasons, we disagree as to both of the challenged
exclusive dealing arrangements -- between Triple-S and Urologics
and between MSO and Urologics.
We consider first whether plaintiffs allege antitrust
injury as a result of the exclusive dealing arrangement between
Triple-S and Urologics. The amended complaint plainly alleges a
closed provider network in which all Triple-S insureds who want to
obtain urology services paid for by Triple-S must do business with
Urologics. That is to say, during the time period covered by the
exclusive dealing agreement, Urologics' competitors are excluded
from competing in the alleged market of Triple-S's 200,000 insureds
in Western Puerto Rico. Having been directly harmed by the alleged
elimination of competition in that alleged market, they have
plainly suffered an antitrust injury (assuming that the challenged
agreement is itself an antitrust violation). Nor is this by any
means surprising. The competitor of an entity granted exclusive
rights to a market is routinely the plaintiff that brings an
antitrust complaint as the party directly harmed by the elimination
4 Although plaintiffs bring independent claims under section 1 and section 2 of the Sherman Act, each of the alleged exclusive dealing arrangements provides the foundation of both corresponding claims. Accordingly, whether plaintiffs adequately alleged antitrust standing as to each claim depends on the same analysis. We therefore address them together.
- 12 - of competition in the foreclosed market. SAS of P.R., Inc. v.
P.R. Tel. Co., 48 F.3d 39, 44 (1st Cir. 1995) (explaining that a
presumptively proper plaintiff in an antitrust suit includes "a
competitor who seeks to serve [a threatened] market"). Thus, even
though plaintiffs are not competitors of Triple-S themselves, they
are competitors of Urologics and are suing in that capacity.
None of this belies the district court's observation
that the amended complaint also alleges that the challenged
agreements harm patients as well. But we see no reason why the
occurrence of that harm deprives plaintiffs of standing to sue for
the economic effects of being foreclosed from selling services in
an alleged market. In most exclusive dealing cases there will be
someone like the patients here, i.e., someone who would have bought
goods or services from plaintiff but for the exclusive dealing
rights acquired by plaintiff's competitor. Indeed, the extent of
such harm is relevant to determining whether the exclusive dealing
arrangement is reasonable. See infra Section III(B)(1). If
existence of such harm means that the vendor precluded from
competing in the market cannot sue, then the exclusive arrangements
most likely to be deemed unlawful cannot be challenged by those
with the greatest incentive to sue. So, too, remedying any harm
to consumers would not likely remedy the economic loss claimed by
these plaintiffs. For these reasons, among others, the allegations
- 13 - that the exclusive dealing arrangement harmed patients do not
provide a basis for denying standing to plaintiffs.
Triple-S (not joined by Urologics) attempts one final
argument, contending that there is no causal relationship between
its decision to enter into an exclusivity agreement with Urologics
and its decision not to renew its contracts with plaintiffs. Even
assuming that Triple-S has no independent obligation to continue
renewing its contracts with plaintiffs, that would not mean that
Triple-S's decision to decline to renew those contracts is
unrelated to its decision to enter into an allegedly
anticompetitive agreement with Urologics. Indeed, as plaintiffs
allege, the very purpose of the exclusive dealing arrangement
between Triple-S and Urologics was to make Urologics Triple-S's
sole urology provider in Western Puerto Rico. Given that goal, it
should come as no surprise that Triple-S, in furtherance of its
exclusivity arrangement with Urologics, declined to renew its
contracts with plaintiffs. It is thus entirely plausible that
Triple-S's decision not to deal with plaintiffs was causally
related to its pact to deal exclusively with Urologics.
In sum, at the motion to dismiss stage, the allegations
in the amended complaint plausibly establish that those plaintiffs
who could have serviced Triple-S's Mi Salud patients but for the
exclusive arrangement between Triple-S and Urologics have
antitrust standing to challenge that arrangement.
- 14 - B.
As for the exclusive dealing arrangement between MSO and
Urologics, the standing allegations in the amended complaint
against MSO are nearly identical to those against Triple-S. The
three Medicare Advantage plaintiffs claim that they were excluded
from competing in a market for urology services for MMM's Medicare
Advantage patients in Western Puerto Rico due to MSO's exclusivity
arrangement with Urologics. As with Triple-S, the amended
complaint alleges that the Medicare Advantage plaintiffs suffered
monetary losses as a result. Those losses, no less than the ones
alleged by foreclosed Mi Salud providers, appear on their face to
be of the type that the antitrust laws were intended to address.
As far as the district court's conclusion that there
were alternative purchasers of MMM services in Western Puerto Rico,
MSO acknowledges that the district court was in error when it
stated that there are other MMM facilitators in addition to MSO.
MMM works exclusively with MSO. As MSO explains in its briefing
before this court, there are nevertheless other Medicare Advantage
insurers (i.e., competitors of MMM) that operate in Western Puerto
Rico. Plaintiffs do not contest this point. However, the
significance of other available buyers of plaintiffs' services
bears more on the degree of market foreclosure, and less (if at
all) on whether the alleged foreclosure gives rise to antitrust
injury.
- 15 - In their briefing on antitrust standing, the Urologics
and MSO defendants at various points also argue that the Medicare
Advantage plaintiffs improperly defined the relevant market for
their antitrust claims. Neither of these defendants, however,
explain why the precise contours of the relevant market are
relevant to assessing antitrust standing in this case as compared
to the merits of those claims. Accordingly, we interpret
defendants' market definition contentions as speaking to whether
the Medicare Advantage plaintiffs adequately stated Sherman Act
section 1 and section 2 claims, which we address next.
III.
Satisfied that all plaintiffs have standing to bring
their federal antitrust claims, we proceed to assess whether the
amended complaint actually alleges antitrust claims. Our review
remains de novo. Arroyo-Melecio, 398 F.3d at 65.
Plaintiffs bring suit under two provisions of the
Sherman Act: section 1, which proscribes contracts and
conspiracies in restraint of trade; and section 2, which prohibits
the monopolization or attempted monopolization of an area of trade.
The district court held that plaintiffs failed to state a section 1
claim or a section 2 claim based on either the exclusive dealing
arrangement between Triple-S and Urologics or the arrangement
between MSO and Urologics. Vázquez-Ramos, 2020 WL 8513843, at
*4-5. We find that the district court erred in dismissing the
- 16 - claims involving Triple-S's arrangement with Urologics, but we
agree with the district court that the claims involving MSO's
arrangement must be dismissed. Our reasoning follows.
We start with an element common to both claims against
both parties: market power. Given that the amended complaint
alleges no per se violations of the Sherman Act, all of plaintiffs'
antitrust claims require "proof that [defendants] exercise[] or
could exercise a threshold degree of market power." Flovac, Inc.
v. Airvac, Inc., 817 F.3d 849, 853 (1st Cir. 2016); see Ohio v.
Am. Express Co., 138 S. Ct. 2274, 2285 (2018) (noting that "courts
usually cannot properly apply the rule of reason" in a section 1
claim "without an accurate definition of the relevant market");
Díaz Aviation Corp. v. Airport Aviation Servs., Inc., 716 F.3d
256, 265 (1st Cir. 2013) (explaining that "monopoly power" in the
context of a section 2 claim "is typically proven by defining a
relevant market and showing that the defendant has a dominant share
of that market"). To that end, plaintiffs must in due course
"adduc[e] enough evidence to permit a reasonable factfinder to
define the relevant market." Flovac, 817 F.3d at 853. The
relevant market is "the area of effective competition," Am.
Express, 138 S. Ct. at 2285 (quoting Walker Process Equip., Inc.,
v. Food Mach. & Chem. Corp., 382 U.S. 172, 177 (1965)), and
- 17 - includes both a "relevant geographic market" and a "relevant
product market," Flovac, 817 F.3d at 853.
Plaintiffs allege that the relevant market for the
agreement between Triple-S and Urologics is the narrow market of
Mi Salud's 200,000 insureds in Western Puerto Rico. If that were
the relevant market, then we would arguably have a case in which
the exclusive arrangement closes off 100% of the market -- enough
to get an adjudicator's attention depending on duration,
justification, and other factors bearing on whether the defendants
effectively dominate the market. See ZF Meritor, LLC v. Eaton
Corp., 696 F.3d 254, 271-72 (3d Cir. 2012); United States v.
Dentsply Int'l, Inc., 399 F.3d 181, 191-97 (3d Cir. 2005).
Conversely, defendants claim that the relevant market consists
more broadly of all urology patients, whether insured by Triple-S
or not, and not necessarily limited to Western Puerto Rico. There
are other insurers, they allege, to whom plaintiffs may sell their
services, as well as uninsured patients.
In Stop & Shop Supermarket Co. v. Blue Cross & Blue
Shield of Rhode Island, we confronted a similar antitrust challenge
to a health insurer's closed provider network raised following
partial summary judgment on claims of per se antitrust violations
and a directed verdict on the rule of reason antitrust claim. 373
F.3d 57 (1st Cir. 2004). We explained that "it was critical to
any attack on [an] exclusive dealing arrangement . . . that
- 18 - plaintiffs establish a relevant market and harm within it." Id.
at 66. We further explained that the relevant market is the market
for the "shut-out supplier," and is presumptively all customers,
"not just that smaller sub-group consisting of customers insured
by one or two insurers." Id. at 67; see also Flovac, Inc. v.
Airvac, Inc., 84 F. Supp. 3d 95, 104 (D.P.R. 2015), aff'd, 817
F.3d 849 (1st Cir. 2016) ("And where, as here, an antitrust
plaintiff neglects to 'define its proposed relevant market with
reference to the rule of reasonable interchangeability and cross-
elasticity of demand, or alleges a proposed relevant market that
clearly does not encompass all interchangeable substitute products
even when all factual inferences are granted in plaintiffs' favor,
the relevant market is legally insufficient.'" (quoting City of
New York v. Grp. Health Inc., 649 F.3d 151, 155 (2d Cir. 2011))).
That being said, "well-defined submarkets may exist"
inside a broad product market and may themselves "constitute
product markets for antitrust purposes." Brown Shoe Co. v. United
States, 370 U.S. 294, 325 (1962). The boundaries of a defined
submarket are "determined by examining such practical indicia as
industry or public recognition of the submarket as a separate
economic entity, the product's peculiar characteristics and uses,
unique production facilities, distinct customers, distinct prices,
sensitivity to price changes, and specialized vendors." Id.
- 19 - In affirming judgment for defendants in Stop & Shop, we
had the benefit of an evidentiary record including expert testimony
on the subject of market definition. Our reliance on an
evidentiary record in Stop & Shop was not aberrational. See U.S.
Healthcare, Inc., 986 F.2d at 599 (noting that, "[i]n practice,"
the "question [of] how to define the product market is answered in
antitrust cases by asking expert economists to testify" to issues
including "[u]sage patterns, customer surveys, actual profit
levels, comparison of features, ease of entry, and many other
facts"); see also Morales-Villalobos v. García-Lloréns, 316 F.3d
51, 55 (1st Cir. 2003) ("[T]he matter [of market definition] cannot
be resolved on the face of the complaint.").
Here, by contrast, we stand at the pleading threshold,
with a record yet to be fleshed out with evidence and expert
opinions. We therefore ask only whether the amended complaint
alleges facts that plausibly delineate a relevant market. As to
the Triple-S and Urologics arrangement, plaintiffs allege a market
defined by the following characteristics: the geography delimited
by ASES and Mi Salud (Western Puerto Rico), the indigency of the
patients that qualifies them for Mi Salud and curtails their
ability to seek healthcare elsewhere, and the reluctance of
patients to travel long distances for medical care.
Whether there is such a market remains to be seen.
Perhaps there is no sufficient reason to segment out Mi Salud
- 20 - patients from those covered by other insurers, or those who are
self-insured. Or perhaps many patients do travel between regions
for services. The point for now is two-fold: Questions of fact
remain about "the universe of products that are considered
'reasonably interchangeable by consumers for the same purposes,'"
Flovac, 817 F.3d at 854 (quoting United States v. E.I. du Pont de
Nemours & Co., 351 U.S. 377, 395 (1956)); and we typically "do not
require that the plaintiffs provide precise figures and
calculations at the pleading stage," for "[r]equiring such a high
burden would impose a nearly insurmountable bar for plaintiffs,"
In re Loestrin 24 Fe Antitrust Litig., 814 F.3d 538, 552 (1st Cir.
2016); Morales-Villalobos, 316 F.3d at 55 (determining that, at
the motion to dismiss stage, it was not yet clear whether the
market foreclosure was "a trivial percentage" or "nearly
complete," and thus the matter of market definition could not "be
resolved on the face of the complaint" because defining the
relevant geographic market "depends on circumstances").
As to the claims against MSO, the amended complaint
alleges as the market the MMM Medicare Advantage population of
Western Puerto Rico. The foregoing analysis applies equally to
this alleged market -- "the matter . . . cannot be resolved on the
face of the complaint." Morales-Villalobos, 316 F.3d at 55.
Whether that market definition provides any foundation for the
- 21 - claims against MSO on the merits is a matter we will separately
address.
Accordingly, we find that the amended complaint
adequately alleges a relevant market for purposes of parrying a
motion to dismiss as to both challenged exclusive dealing
arrangements. Whether the amended complaint in both instances
also alleges the other required elements of the asserted antitrust
claims is a matter to which we turn next, addressing separately
the two challenged arrangements.
1.
The amended complaint meets the requirements for stating
a Sherman Act section 1 claim against Triple-S and Urologics. A
section 1 claim has two components: "First, there must be
concerted action"; and "[s]econd, the actors' agreement must
involve either restrictions that are per se illegal or restraints
of trade that fail scrutiny under the rule of reason." Euromodas,
Inc. v. Zanella, Ltd., 368 F.3d 11, 16 (1st Cir. 2004). Section 1
also prohibits "only unreasonable restraints." Leegin Creative
Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 885 (2007)
(quoting State Oil Co. v. Khan, 522 U.S. 3, 10 (1997)).
As to the first component, and contrary to what
defendants claim, the arrangements as alleged plainly involve
concerted action: Urologics agreed to concede "certain discounts
- 22 - in favor of Triple-S, on account of the exclusive provider status
that was being granted" and to "split" certain savings alleged to
result from providing inferior and even harmful services. Indeed,
the reciprocity established by the agreement resulted in lower
prices for the insured patients, and thus for the insurer, and
will likely be touted by defendants as evidence that the agreement
is pro-competitive. In any event, the point for present purposes
is that the pleading alleges facts that plausibly establish
concerted action.
Moving to the second component, plaintiffs do not allege
any per se illegality. Accordingly, all parties agree that a rule
of reason analysis is appropriate for assessing the exclusive
dealing arrangement at issue. Under the rule of reason, courts
engage in a "fact-specific assessment of 'market power and market
structure . . . to assess the [restraint]'s actual effect' on
competition." Am. Express, 138 S. Ct. at 2284 (alteration in
original) (quoting Copperweld Corp. v. Indep. Tube Corp., 467 U.S.
752, 768 (1984)). The purpose of this inquiry is to distinguish
between restraints of trade "that are harmful to the consumer and
restraints stimulating competition that are in the consumer's best
interest." Leegin, 551 U.S. at 886.
Typically, courts apply a burden-shifting framework to
determine whether a restraint violates the rule of reason. See
Am. Express, 138 S. Ct. at 2284; see also Phillip E. Areeda &
- 23 - Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust
Principles and Their Application ¶ 1820a (5th ed. 2021). First,
the plaintiff must "prove that the challenged restraint has a
substantial anticompetitive effect that harms consumers in the
relevant market." Am. Express, 138 S. Ct. at 2284. Then, the
burden shifts to the defendant to demonstrate "a procompetitive
rationale for the restraint." Id. Finally, the burden shifts
back to the plaintiff to establish that "the procompetitive
efficiencies could be reasonably achieved through less
anticompetitive means." Id. Importantly, applying this framework
usually requires some fairly detailed facts, the ascertainment of
which is often beyond the scope of a Rule 12(b)(6) inquiry. See
PLS.Com, LLC v. Nat'l Ass'n of Realtors, 32 F.4th 824, 839–40 (9th
Cir. 2022) (explaining that "whether the alleged procompetitive
benefits of [the challenged restraint] outweigh its alleged
anticompetitive effects is a factual question that the district
court cannot resolve on the pleadings"); see also E. Food Servs.,
Inc. v. Pontifical Cath. Univ. Servs. Ass'n, 357 F.3d 1, 5 (1st
Cir. 2004) (describing the assessment as a "fact-intensive
process").
As recounted in greater detail above, plaintiffs allege
that the exclusive dealing arrangement between Triple-S and
Urologics has shut them out of a plausibly relevant market
entirely. The result of this exclusion has been an elimination of
- 24 - their ability to compete and an alleged reduction in the quality
of urology services for Mi Salud patients in Western Puerto Rico.
Taking the allegations in the amended complaint as true, plaintiffs
have, for pleading purposes, demonstrated "reduced output . . .
[and] decreased quality in the relevant market," which constitute
"[d]irect evidence" of anticompetitive effects. PLS.Com, LLC, 32
F.4th at 834 (quoting FTC v. Ind. Fed'n of Dentists, 476 U.S. 447,
460 (1986)). We reiterate that "[i]t is not for the court to
decide, at the pleading stage, which inferences are more plausible
than other competing inferences"; rather, we may "only accept as
true all factual allegations contained in a complaint, make all
reasonable inferences in favor of the plaintiff, and properly
refrain from any conjecture as to whether conspiracy allegations
may prove deficient at the summary judgment or later stages."
Evergreen Partnering Grp. v. Pactiv Corp., 720 F.3d 33, 45 (1st
Cir. 2013). To do otherwise would "frustrate the purpose of
antitrust legislation and the policies informing it." Id. at 47.
As an alternative argument, Urologics points to a Letter
of Intention and Confirmation of Preliminary Agreement between
Triple-S and Urologics and to a participating physician agreement
that contains a clause granting either party the right to terminate
the agreement without cause on thirty days' notice. Urologics
contends that the termination clause of the latter is incorporated
into the former. If that were so, any possible market constraint
- 25 - would likely be de minimis. U.S. Healthcare, 986 F.2d at 596.
But the cross-referencing language to which Urologics points
refers to the incorporation of "obligations," and thus arguably
not rights.5 So whether either party retains the right to terminate
the exclusive dealing arrangement on short notice remains to be
seen.
To be sure, at subsequent stages in this litigation,
plaintiffs' claim that the challenged arrangement harms
competition in a relevant market may prove to be overblown, or
defendants might well show that the exclusive dealing arrangement
between Triple-S and Urologics actually has a procompetitive
effect. But at this stage, we are obliged to "accept[] all well-
pleaded allegations of the plaintiffs as true and afford[] all
inferences in the plaintiffs' favor." Arroyo-Melecio, 398 F.3d at
65.
We therefore conclude that plaintiffs have stated a
Sherman Act section 1 claim based on the exclusive dealing
arrangement between Triple-S and Urologics.
2.
We next assess whether plaintiffs adequately plead a
Sherman Act section 2 claim against Triple-S and Urologics. The
5 The clause reads: "any obligation that arises from the contract of a participating provider . . . [will] also be applicable to this agreement" (emphasis supplied).
- 26 - key questions for establishing a section 2 violation are whether
the plaintiff has demonstrated that one of the defendants possessed
"monopoly power in the relevant market" and whether that defendant
acquired or maintained that power by "improper means." Town of
Concord v. Bos. Edison Co., 915 F.2d 17, 21 (1st Cir. 1990); see
also Arroyo-Melecio, 398 F.3d at 66 (explaining that a section 2
claim "requires monopoly or near monopoly power in some market,
and a wrongful exclusionary act designed to enhance such power in
that market or to achieve an improper advantage in another market"
(quoting Town of Norwood v. New Eng. Power Co., 202 F.3d 408, 420-
21 (1st. Cir. 2000))).
We assume for the purposes of the motion to dismiss, as
with the section 1 claim, that the relevant market for the
section 2 claim is Mi Salud patients needing urological care in
Western Puerto Rico. Plaintiffs allege that Urologics is the sole
provider of urology services to Mi Salud patients in Western Puerto
Rico, giving it monopoly power in the relevant market and leaving
patients with only one choice of provider. Plaintiffs also allege
that Urologics acquired this monopoly power not through any skill
or merit but through improper means, namely an anticompetitive
exclusive dealing arrangement with Triple-S that was designed to
monopolize the relevant market and keep plaintiffs from competing
in that market. We have noted that "exclusive dealing" is an
improper means of maintaining monopoly power for the purposes of
- 27 - section 2. See Fraser v. Major League Soccer, L.L.C., 284 F.3d
47, 61 (1st Cir. 2002) ("In section 2 cases, the wrongful act is
usually one designed to exclude competitors from the market (e.g.,
predatory price, exclusive dealing)."). Together, these
allegations are sufficient, at the pleading stage, to establish a
plausible section 2 claim against Triple-S and Urologics.
Triple-S and Urologics argue in response that there can
be no section 2 violation because Triple-S's position as the
exclusive insurer for the Mi Salud program in Western Puerto Rico
was conferred to it by the government of Puerto Rico through a
contract with ASES. That is, they contend that Triple-S's monopoly
power was the product of state action rather than any allegedly
anticompetitive conduct involving the defendants. This argument,
however, misses a crucial detail. Plaintiffs' amended complaint
does not target only the monopoly power held by Triple-S as the
sole insurer in the relevant market. Rather, plaintiffs point to
the alleged monopoly held by Urologics as the sole provider of
urology services in that market. It is this monopoly power over
the provision of urology services that was allegedly created by
the exclusive dealing agreement between Triple-S and Urologics.
Accordingly, defendants' arguments that identify Triple-S as the
relevant holder of monopoly power miss the mark.
- 28 - C.
The Medicare Advantage plaintiffs' challenge to the
exclusive dealing agreement alleged to exist between MSO and
Urologics fares less well. As the reader may recall, the Medicare
Advantage plaintiffs define the market in which they compete as
limited to Medicare Advantage patients in one area of Puerto Rico
(Western Puerto Rico). Their amended complaint, though, does not
allege that MSO controls a substantial portion of that market.
Rather, plaintiffs point only to MSO's alleged control of physician
contracts with MMM, which plaintiffs in turn describe as "one of
the largest Medicare Advantage providers in Puerto Rico." This
misalignment between the relevant market as defined in the amended
complaint and the allegations of MMM's size in a much wider market
eschewed by the amended complaint leaves the amended complaint
well short of alleging at least some facts making it plausible
that plaintiffs will present a "showing of foreclosure of
substantial dimensions" that is "the essential basis . . . for an
attack on an exclusivity clause." U.S. Healthcare, Inc., 986 F.2d
at 596-597; see Am. Express, 138 S. Ct. at 2284 (plaintiffs must
demonstrate that defendant's decision to exclusively purchase from
one provider could possibly have "a substantial anticompetitive
effect that harms consumers in the relevant market"). Simply put,
the amended complaint does not allege facts plausibly pointing to
- 29 - any substantial degree of foreclosure of the alleged market.6 As
such, it fails to allege a violation of either sections 1 or 2 of
the Sherman Act. See, e.g., E. Food Servs, 357 F.3d at 8-9.
IV.
We therefore reverse the district court's order
dismissing plaintiffs' federal antitrust claims concerning the
arrangement between Triple-S and Urologics, and affirm the
district court's order dismissing plaintiffs' federal antitrust
claims concerning the arrangement between MSO and Urologics.
Because we find that the federal claims of the plaintiffs who
challenge the Triple-S/Urologics arrangement were improperly
dismissed, we also vacate the district court's decision to decline
to exercise supplemental jurisdiction over the Commonwealth law
claims of those plaintiffs. The parties will bear their own costs.
6 Even as to this different, wider market, plaintiffs' allegation is the equivalent of saying that there are an uncertain number of potential purchasers in the market, with some unknown number being among the largest, and MMM is just one of those.
- 30 -