Academic journal article Missouri Law Review

Bundled Discounts: The Ninth Circuit and the Third Circuit Are on Separate LePage's: Cascade Health Solutions V. PeaceHealth

Academic journal article Missouri Law Review

Bundled Discounts: The Ninth Circuit and the Third Circuit Are on Separate LePage's: Cascade Health Solutions V. PeaceHealth

Article excerpt

I. INTRODUCTION

Most courts and commentators agree that the ultimate goal of antitrust is efficiency. Accordingly, an antitrust aim is to guarantee competitive markets, which both increases output and lowers prices to the benefit of consumers. Bundled discounts, packages of goods put together by a seller that are sold at a lower price than if each good were purchased separately, may provide a means of enhancing competition. Such bundles are prevalent in nearly every market including fast food value meals, season tickets to sporting events, and buy one, get one half-price schemes.

Sellers provide bundled discounts for a variety of reasons including the reduction of transaction costs, engendering customer loyalty, or sometimes in response to pressure from large, diversified buyers. (2) These discounts often result in increased output and decreased prices, which are consumer welfare increasing outcomes. However, it is possible for a seller who has multiple products to use bundled discounts to exclude an efficient competitor who only sells one product. (3) This exclusionary conduct is exactly what antitrust laws are meant to discourage. However, because bundled discounts are so pervasive and are often procompetitive, any liability rules governing their legality should be narrowly drawn to avoid chilling such a desirable practice. (4)

In 2003, the Third Circuit decided a case, LePage's, Inc. v. 3M, involving a plaintiff that claimed the defendant's bundled discount was exclusionary. (5) The Third Circuit held the bundling practices of office supply manufacturer 3M to be in violation of antitrust laws. (6) However, in doing so, the court failed to set an effective standard to evaluate the anticompetitive nature of bundled discounts. In a recent decision, Cascade Health Solutions v. PeaceHealth, the Ninth Circuit strayed from the approach set forth in the LePage's decision and set a cost-based standard to be used in the analysis of bundled discounts. (7) While the standard set in Peacehealth is a positive step in analyzing bundled discounts, the Ninth Circuit may not have reached far enough. Because bundled discounting is typically a procompetitive practice, the court should fashion as narrow a rule as possible. It is possible to theorize a situation where, under the Ninth Circuit's standard, a competitor could bring a successful lawsuit against a bundled discounter even though the competitor could offer an equally competitive bundle if it collaborated with another firm. Therefore, the standard set forth by the Ninth Circuit falls short by ignoring the possibility of rival competitors collaborating to compete with a bundled discounter.

II. FACTS AND HOLDING

The primary actors in Cascade Health Solutions v. PeaceHealth are McKenzie-Willamette Hospital (8) (McKenzie) and PeaceHealth. McKenzie and PeaceHealth are the sole providers of hospital care in Lane County, Oregon. (9) McKenzie operates one hospital in Lane County with 114 beds, while PeaceHealth operates three facilities with a combined 464 beds. (10) McKenzie and PeaceHealth both offer primary and secondary care, (11) but PeaceHealth offers tertiary care as well. (12) McKenzie brought a claim of attempted monopolization against PeaceHealth contending the healthcare provider was predatorily pricing them out of the market by offering discounts to insurers if they used PeaceHealth as their exclusive provider of hospital care. (13)

In 2001, PeaceHealth was the only preferred provider of hospital care for Regence BlueCross BlueShield of Oregon (Regence). (14) Later that year, McKenzie requested to participate in the Regence preferred provider plan (PPP) and offered Regence a ten percent discount off its standard rates. (15) As Regence's contract with PeaceHealth approached its annual renewal, Regence solicited two proposals from PeaceHealth (one with PeaceHealth remaining as the exclusive provider and another including McKenzie). …

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