ROYAL MILE COMPANY, INC. et al v. UPMC et al
Filing
493
OPINION setting forth the reasons the motion for summary judgment 455 filed by Highmark, Inc. will be DENIED. An appropriate order will be entered. Signed by Chief Judge Joy Flowers Conti on 8/15/2017. (kjm)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
COLE’S WEXFORD HOTEL, INC.,
on its own behalf and on behalf of all
others similarly situated
Plaintiffs,
v.
HIGHMARK, INC.,
Defendant.
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) Civil Action No. 10-1609
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OPINION
CONTI, Chief District Judge
I.
Introduction
Pending before the court in this antitrust action is a motion for summary judgment
(ECF No. 455) filed by defendant Highmark, Inc. (“Highmark”). According to Highmark,
the undisputed facts of this case show that the injury complained about by plaintiff Cole’s
Wexford Hotel, Inc. (“Cole’s Wexford”) on its own behalf and on behalf of all others
similarly situated “is the direct result of Highmark’s constitutionally protected right to
petition Pennsylvania legislative and regulatory bodies to be permitted to offer small group
health plans through its affiliate,…[Highmark Health Insurance Company (“HHIC”)], and
the strictly qualified approvals that Highmark received from those governmental entities to
offer those small group plans.” (ECF No. 455 at 1.) Highmark argues that—under those
circumstances—the court should grant summary judgment in its favor because Cole’s
Wexford’s claims are barred by the Noerr-Pennington doctrine. (Id. (citing United Mine
Workers v. Pennington, 381 U.S. 657 (1965); E. Rr. Presidents Conference v. Noerr Motor
Freight, Inc., 365 U.S. 127 (1961).) Highmark argues that even if Cole’s Wexford’s claims
are not barred by the Noerr-Pennington doctrine, the undisputed facts of this case show that
“the filed rate doctrine prevents Cole’s Wexford from recovering damages from July 1, 2010
through June 30, 2011.” (ECF No. 455 at 1-2 (citing McCray v. Fid. Nat’l Title Ins. Co., 682
F.3d 229 (3d Cir. 2012).)
Based upon the court’s review of Highmark’s motion for summary judgment, the
parties’ submissions related to that motion, and the applicable law, Highmark is not entitled
to summary judgment. First, Cole’s Wexford in the third amended complaint does not allege
that any of Highmark’s constitutionally-protected conduct caused its injury. Under those
circumstances, the Noerr-Pennington doctrine does not provide Highmark immunity from
Cole’s Wexford’s antitrust claims. Second, the record does not show that the Pennsylvania
Insurance Department ("PID") had ratemaking authority with respect to the rates HHIC
charged to Cole’s Wexford during the relevant timeframe. The filed rate doctrine, therefore,
does not apply to bar Cole’s Wexford’s antitrust claims because using those rates to calculate
damages will not infringe upon the ratemaking authority of the PID. For those reasons, which
are explained fully in this opinion, Highmark’s motion for summary judgment will be
denied.
II.
Procedural History
This contentious and litigious case has been pending for nearly seven years. The court
set forth detailed recitations of the procedural history of this case in at least three other
opinions resolving dispositive motions. (ECF Nos. 240, 284, 301.) The court in this opinion
2
will set forth only the procedural history pertinent to the resolution of the motion for
summary judgment (ECF No. 455).
On October 1, 2014, Cole’s Wexford filed a third amended complaint against
Highmark and then-defendant UPMC.1 (ECF No. 286.) Cole’s Wexford set forth the
following counts against Highmark:
Count I—Violations of Section 1 of the Sherman Act, 15 U.S.C. § 1;
Count II—Conspiracy to Monopolize in Violation of Section 2 of the
Sherman Act, 15 U.S.C. § 2;
Count IV—Willful Acquisition and Maintenance of a Monopoly in the
Relevant Market for Private Health Insurance in Violation of Section 2 of the
Sherman Act, 15 U.S.C. § 2; and
Count VI–Willful Attempted Monopolization in Violation of Section 2 of the
Sherman Act, 15 U.S.C. § 2.
(ECF No. 286.) Highmark and UPMC each filed a motion to dismiss the third amended
complaint. (ECF Nos. 288, 290.) On September 1, 2015, the court denied the motion to
dismiss filed by Highmark and granted in part and denied in part the motion to dismiss filed
by UPMC. (ECF Nos. 301, 302.) The court permitted all claims against Highmark to proceed
and denied the request to strike the class allegations from the third amended complaint. (ECF
No. 301 at 61.) On November 16, 2015, Highmark filed an answer to the third amended
complaint. (ECF No. 314.)
1
On July 28, 2016, the court: granted the motion to certify the settlement class (ECF
No. 413) filed by Cole’s Wexford; granted the motion for final approval of settlement
between the settlement plaintiff class and UPMC (ECF No. 414); and issued a final judgment
order with respect to UPMC on all claims against it for purposes of Federal Rule of Civil
Procedure 58(a) (ECF No. 415). UPMC is, therefore, no longer a named defendant in this
case.
3
On August 22, 2016, Highmark filed a motion for hearing and scheduling order for its
motion for summary judgment. (ECF No. 424.) The court directed the parties to meet and
confer with the special master appointed in this case to oversee, among other things,
discovery, in order to develop a discovery plan with respect to Highmark’s proposed motion
for summary judgment. On November 17, 2016, Cole’s Wexford and Highmark filed a joint
notice of a proposed discovery schedule for summary judgment briefing. (ECF No. 449.)
On January 25, 2017, Highmark filed a motion for summary judgment, a brief in
support of the motion, a statement of undisputed material facts, and exhibits in support of the
motion. (ECF Nos. 455, 456, 457, 458, 459.)2 On February 24, 2017, Cole’s Wexford filed a
brief in opposition to Highmark’s motion, a response to Highmark’s statement of undisputed
material facts, its own statement of undisputed material facts, and exhibits in support of its
response. (ECF Nos. 470, 471, 472, 473.)3 On March 10, 2017, Highmark filed a reply brief
in support of its motion for summary judgment. (ECF No. 485.) On March 20, 2017, the
parties filed a combined concise statement of material facts. (ECF No. 487.)4
Highmark and Cole’s Wexford each filed a motion to file under seal various
submissions with respect to Highmark’s motion for summary judgment. (ECF Nos. 454,
468.) The court granted those motions. (ECF Nos. 454, 469.) These citations are citations to
the redacted versions of Highmark’s filings, which are accessible to the public. The court in
this opinion will cite to and quote from the under seal versions of these filings when
appropriate.
2
These citations are citations to the redacted versions of Cole’s Wexford’s filings,
which are accessible to the public. The court in this opinion will cite to and quote from the
under seal versions of these filings when appropriate. See supra n.2.
3
This citation is to the redacted version of the parties’ combined concise statement of
material facts. The court herein when appropriate will cite to and quote from the combined
concise statement of material facts that was filed under seal in this case. (ECF No. 488.)
4
4
III.
Factual Background
The factual background is derived from the undisputed evidence of record and the
disputed evidence of record viewed in the light most favorable to the nonmoving party. See
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986) (“The evidence of the nonmovant
is to be believed, and all justifiable inferences are to be drawn in his favor.”).
A. General Background About the Parties
Highmark is a private, national diversified health care insurer serving members
through its businesses in health insurance and through subsidiaries and affiliates which
provide health insurance, dental insurance, vision care, and reinsurance. (Combined Concise
Statement of Material Facts (“CCSMF”) (ECF No. 488) ¶ 1.) Highmark is part of the
Highmark Health enterprise, a diversified health and wellness system. (Id. ¶ 2.) Both
Highmark and Highmark Health are Pennsylvania nonprofit corporations with principal
places of business in Pittsburgh, Pennsylvania. (Id. ¶ 3.) Highmark is an independent licensee
of the Blue Cross and Blue Shield Association that offers and administers health insurance
benefit plans in Pennsylvania, West Virginia, and Delaware. (Id. ¶ 4.) One of Highmark's
Pennsylvania product service areas is the Western Pennsylvania region, which is a 29-county
area consisting of Allegheny, Armstrong, Beaver, Bedford, Blair, Butler, Cambria, Cameron,
Centre (part), Clarion, Clearfield, Crawford, Elk, Erie, Fayette, Forest, Greene, Huntingdon,
Indiana, Jefferson, Lawrence, McKean, Mercer, Potter, Somerset, Venango, Warren,
Washington, and Westmoreland counties. (Id. ¶ 5.) Highmark sells health insurance benefit
plans to individuals, small groups, and large groups in Western Pennsylvania. (Id. ¶ 6.)
Highmark's products include a variety of commercial indemnity and managed care health
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insurance products, along with Medicare supplemental and Medicare Advantage products.
(Id.¶ 7.) Highmark's Blue Cross plans operate as Hospital Plans, pursuant to 40 PA. CONS.
STAT. §§ 6101-6127. (Id. ¶ 8.) Highmark's Blue Shield plans operate as Professional Health
Service Plans, pursuant to 40 PA. CONS. STAT. §§ 6301-6335. (Id. ¶ 9.) HHIC was a “wholly
owned Blue-branded subsidiary” of Highmark that was “domiciled and licensed as a life,
accident and health insurer in Pennsylvania.” (Cashion Decl., Ex. 7 (ECF No. 462-1) at 2;
CCSMF (ECF No. 488) pl.’s ¶ 9.)5 HHIC was a for-profit company. (Id. at pl.’s ¶ 10.)
Cole's Wexford is a Pennsylvania corporation with its principal place of business
located in Wexford, Pennsylvania. (CCSMF (ECF No. 488) ¶ 10.) Cole’s Wexford seeks to
represent a class of those “who purchased small group health insurance coverage from, or
otherwise paid any small group plan premiums or portion thereof to, Highmark Health
Insurance Co., or a similar for-profit subsidiary of Highmark Inc., between approximately
July 1, 2010 and approximately March 21, 2012.” (Id. ¶ 11.) HHIC was Highmark’s only
subsidiary or affiliate that offered health insurance plans to small groups in Western
Pennsylvania and was not subject to express statutory rate-filing requirements during the
class period. (Id. ¶ 12.)
In the parties’ combined concise statement of material facts, Highmark numbered its
paragraphs starting on page five “1” through “126.” (ECF No. 488 at 5-44.) Plaintiff in its
separate statement of facts numbered its paragraphs “1” through “89” (id. at 45-65). The
court to differentiate whether it is citing to Highmark’s statement of facts in the combined
concise statements or plaintiff’s statement of facts in the combined concise statements will
refer to Highmark’s paragraphs by number alone, e.g., “(CCSMF (ECF No. 488) ¶ 16)” and
plaintiff’s paragraphs by inserting “pl.’s” before identifying the paragraph number, e.g.,
“(CCSMF (ECF No. 488) pl.’s ¶ 16)”.
5
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From at least 1998 until June 30, 2010, Cole’s Wexford purchased small group health
insurance from Highmark. (Id. ¶ 13.) From July 1, 2010, through June 30, 2012, Cole’s
Wexford purchased small group health insurance from HHIC. (Id. ¶ 14.) Cole’s Wexford
“exited the group health insurance market” beginning on July 1, 2012, and has not purchased
small group insurance or insurance from Highmark or HHIC since that date. (Id. ¶ 15.)
B. General Background About the Health Insurance Industry
The PID is an executive agency in the Commonwealth of Pennsylvania that oversees
the insurance industry. (CCSMF (ECF No. 488) ¶ 16.) The PID regulated all policies that
any insurer issued to individual subscribers in Pennsylvania during all relevant times. (Id. ¶
17.) Prior to July 1, 2010, the PID regulated all Highmark's health insurance products in
Western Pennsylvania, including those offered to small groups, because Highmark operated
as a hospital plan corporation and professional health services plan corporation. (Id. ¶ 18.)
Highmark was obligated to file base rates or rating formulas with the PID, and Highmark had
the ability to charge specific rates within a fifteen percent band around those rate or rating
formulas without filing those specific rates with the PID. (Id. ¶ 19; CCSMF (ECF No. 488)
pl.’s ¶ 4.)
Medical underwriting is a process in which insurance companies use questionnaires
regarding a subscriber's past medical history in order to classify the risk of the subscriber and
adjust rates charged to that subscriber for health insurance. (Id. ¶ 23.) Highmark never filed
with the PID rates that employed medical underwriting for small groups because the PID
informed Highmark that it would not approve any rates that employed medical underwriting
for small groups. (Id. ¶ 24.) The PID—as part of its rate-regulation—limited the weight that
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Highmark could place on Highmark's prior claims experience with a given group, when
setting renewal rates for existing small group business. (Id. ¶ 25.)
Prior to March 21, 2012:
the PID did not have express statutory authority to regulate the rates for-profit
commercial insurers charged to small-group subscribers of health insurance,
and for-profit commercial insurers were not required to file small group rates
with the PID (CCSMF (ECF No. 488) ¶ 26, pl.’s ¶ 5);
the PID required for-profit health insurers to file with the PID and receive
approval for the rates that they offered to individuals (id.¶ 27);
the PID required only hospital plan corporations, professional health services
plan corporations, and health maintenance organizations to file with the PID
their small group rates (id.¶ 27);
for-profit health insurers used medical underwriting and prior claims
experience to identify a group whose risk profile suggested that the group
would be costly to insure (id. ¶ 28);
for-profit health insurers offered a higher rate to high-risk small groups to
make it unlikely they would accept a for-profit insurer’s proposed rates.
(Declaration of William Cashion (“Cashion Decl.”) (ECF No. 459) ¶ 16);
because the PID did not regulate for-profit insurers’ rates, the for-profit
insurers could offer a low price to any one group without constraining what
they could charge to any other group (Cashion Decl. (ECF No. 459) ¶ 15); and
for Highmark—when regulated by the PID—to offer the healthiest small
groups comparable rates to those offered by its commercial competitors, it
would have had to offer lower rates to less healthy groups as well because of
the PID's rate-regulation restrictions (id. ¶ 19).
C. Highmark’s Lobbying Efforts
Highmark lobbied the Pennsylvania legislature for uniform regulation of all small
group insurers. (CCSMF (ECF No. 488) ¶¶ 32, pl.’s ¶ 6; Cashion Decl. (ECF No. 459) ¶ 23.)
8
On June 16, 2003, William Cashion (“Cashion”), Highmark's chief actuary, testified
before the Pennsylvania Senate Banking and Insurance Committee. (CCSMF (ECF No. 488)
¶ 33.) During this testimony, he made clear that it was important that any regulation must
apply uniformly to the rating and underwriting practices of all small group insurers. (Id.)
On April 5, 2005, Candy Gallaher (“Gallagher”), Highmark's then-Director of
Regulatory Affairs, testified before the Pennsylvania House Insurance Committee and
requested “small group reform legislation.” (Cashion Decl., Ex. 2 (ECF No. 459-2) at 4.)
During her testimony, she described what Highmark felt were the limitations that
Pennsylvania's regulatory structure placed on Highmark's ability to offer competitive rates
for the healthiest small groups, as well as the ability of its commercial for-profit competitors
to price high-risk small groups at rates significantly higher than Highmark could charge. (Id.
at 5-6.) She requested that the Pennsylvania legislature amend its regulatory framework so
that the same set of rules and regulations applied to all insurers, nonprofit and for-profit
alike. (Id. at 8.)
On August 9, 2005, Kenneth Melani (“Melani”), Highmark's then-president and chief
executive officer, submitted to the Pennsylvania House Insurance Committee comments for
the public record. (Cashion Decl., Ex. 3 (ECF No. 459-3) at 2-7.) Melani expressed his
opposition to the “two-tiered small employer insurance market,” explaining:
House Bill 1741 does not help the vast majority of small businesses for several
reasons. It will neither create more insurance choices for small companies nor
expand competition. On the contrary, it will perpetuate the distorted, twotiered small employer insurance market - one for small employers that have
the good fortune of having workers in good health and one for small
businesses that have the misfortune of having workers who have a random
injury and/or illness.
9
(Cashion Decl., Ex. 3 (ECF No. 459-3) at 4.) Melani sought uniform regulation of all small
group insurers. (CCSMF (ECF No. 488) ¶ 35.)
Highmark supported the testimony of Paul Fleischacker (“Fleischacker”), an actuarial
consultant, before the Pennsylvania House Insurance Committee on August 30, 2005.
(Cashion Decl., Ex. 4 (ECF No. 459-4).) Fleischaker testified, among other things, that:
With the exceptions of Pennsylvania and Hawaii, all states have enacted some
form of small group pricing reform.
…
As far as I know, all states (except Pennsylvania and Michigan) have a single
uniform pricing law and guidelines applicable to all insurers (commercial
insurers, Blues, HMOs, etc.) writing small group business in their states.
…
In summary, to achieve the goal of fair competition in market access and
availability to all Pennsylvanians, it is important to control antiselection and to
be able to manage the health care risk pool effectively and thus stabilize
premiums to the extent possible. I believe this is only possible with a single,
uniform rating law applicable to all carriers.
(Cashion Decl., Ex. 4 (ECF No. 459-4) at 4, 5, 14.)
On September 22, 2005, Deborah Rice-Johnson (“Rice-Johnson”), Highmark’s thensenior vice president for regional markets, testified before the Pennsylvania House Insurance
Committee. (CCSMF (ECF No. 488) ¶ 37.) Rice-Johnson’s testimony supported the passage
of House Bill 1240 as a step in the right direction toward requiring all insurers to follow the
same rules in setting rates for small employers. (Id.)
On March 12, 2009, James Fawcett (“Fawcett”), Highmark’s vice president for
strategic and large markets, testified before the Pennsylvania House Insurance Committee.
(Cashion Decl., Ex. 6 (ECF No. 459-6) at 4.) Fawcett—on behalf of Highmark—sought
“passage of legislation to reform small group health insurance,” and “to make insurance
more affordable for more small employers.” (Id.) Fawcett requested legislation that stabilized
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insurance premiums, expanded choice of health insurance options for small companies,
provided fairer market rules, i.e., “[a] common set of rules,” and provided Pennsylvania
employers “more competition and wider choices for all the risks in the smaller employer
marker—not just the health risks.” (Id. at 5-6.)
By 2009, Highmark’s efforts to lobby the Pennsylvania legislature to require uniform
regulation of all small group insurers in Pennsylvania were not successful. (Id. pl.’s ¶ 6.)
D. Highmark’s Plan of Withdrawal With Respect to Its Small Group Plans and
Applications to the PID and Pennsylvania Department of Health to Operate as a
Preferred Provider Organization
1. The Plan of Withdrawal
On October 13, 2009, Highmark filed a Plan of Withdrawal (the “plan of
withdrawal”) and met with the PID. (Cashion Decl. (ECF No. 459) ¶ 25; Cashion Decl., Ex.
7 (ECF No. 462-1).) The job of the PID is to review an insurance provider’s plan of
withdrawal and determine whether it complies with Pennsylvania law. (Declaration of Darien
M. Meyer (“Meyer Decl”), Ex. A (ECF No. 458-1) at 10-11.) Highmark informed the PID
that it wanted to withdraw all but one of its small group plans, i.e., its Medicare complement
product, and, instead, allow HHIC to offer plans to small groups as a for-profit entity.
(Cashion Decl. (ECF No. 459) ¶ 26; CCSMF (ECF No. 488) ¶¶ 40, 42-43.)
HHIC’s small group PPO products were designed to use the same network as
Highmark’s small group PPO products. (CCSMF (ECF No. 488) ¶ 45.) The plan of
withdrawal Highmark submitted to the PID and the Pennsylvania Department of Health
(“DOH”) provided:
Replacement coverage will be widely available. Small employers in western
Pennsylvania will have the option of a variety of PPO/Drug, PPO HDHP,
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EPO/Drug and Vision options available from HHIC. HMO options will
continue to be available from KHPW and Medicare Complement products will
continue to be available from HBCBS.
(Cashion Decl., Ex. 7 (ECF No. 462-1) at 7.)
2. Highmark’s Applications to the PID and the DOH to Operate as a Preferred
Provider Organization
Before a preferred provider organization (“PPO”) may enter the market in
Pennsylvania, it first must submit an application to the PID and the DOH and then wait sixty
days, after which it "may commence operations," absent a finding of deficiencies by either
agency. (Id. at pl.’s ¶ 17.) The PID’s or the DOH’s disapproval of a PPO application is
appealable. (Id. at pl.’s ¶ 18.) The PID generated a standardized application form for
companies to use when applying to operate a PPO. (CCSMF (ECF No. 488) pl.’s ¶ 14.) The
application form provides that it is to be used as an "application for review and approval of a
PPO under the provisions of 40 P .S. § 764a and 31 Pa. Code 152. l et seq." (Id. at pl.’s ¶ 15.)
On October 13, 2009—the same day on which Highmark filed its plan of withdrawal
with the PID—Highmark submitted to the PID and the DOH two applications: one for HHIC
to operate as a “risk-assuming PPO;” and one for HHIC to operate as an “ERISA-exempt
PPO” (together with the application to operate as a risk-assuming PPO, “PPO applications”).
(Cashion Decl., Ex. 9 (ECF No. 484-1) at 3, 6, 13.)
HHIC's PPO applications were submitted on the standardized application form. (Id. at
pl.’s ¶ 16.) Highmark filed its PPO applications to procure the PID’s and DOH’s
authorization for it to offer new products and for the purpose of implementing its plan to
offer policies to small groups under a system where HHIC could more accurately price the
plans to reflect the risk of the members. (CCSMF (ECF No. 488) ¶ 63; Cashion Decl. (ECF
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No. 490) ¶ 31.) The purpose of HHIC's PPO application was not to effectuate any changes in
any governing laws. (Id. at pl.’s ¶ 21.)
As a general matter, in 2009 through 2010, 31 PA. CODE § 152.4 governed the scope
of the review of PPO Applications by the DOH. (CCSMF (ECF No. 488) at pl.’s ¶ 28.) The
DOH reviewed PPO applications to determine whether the proposed PPO satisfied eight
criteria. (Id. at pl.’s ¶ 29.) PPOs that were "governed and regulated under the Employee
Retirement Income Security Act of 1974” (“EIRSA”) were required to “file a certificate to
that effect with the Commissioner and, to the extent that…[the PPO was] regulated under
ERISA,…[it was] not subject to other provisions of…[that] chapter.” (Id. at pl.’s ¶ 30.)
Accordingly, PPOs that were governed under ERISA were not subject to 31 Pa. Code §
152.4. (Id. at pl.’s ¶ 31.)
HHIC’s PPO application to operate as an ERISA-exempt PPO included a certificate
providing that HHIC was governed and regulated under ERISA (the “ERISA certificate”).
(Id. at pl.’s ¶ 32.) The ERISA certificate was specifically referred to in the section of the
PPO application for an ERISA exempt PPO in which HHIC selected the “PPO type” for that
application, i.e., ERISA Exempt. (Cashion Decl., Ex. 9 (ECF No. 484-1) at 13.) The DOH
was not required to review HHIC’s ERISA Exempt application because HHIC was governed
and regulated under ERISA. (CCSMF (ECF No. 488) at pl.’s ¶ 33.) The DOH, however, did
review HHIC’s ERISA-Exempt application. (Id. at pl.’s ¶ 34.)
The PPO applications to the PID and DOH provided:
“HHIC will operate as a member of the Highmark Inc. family of Blue
Cross and Blue Shield branded companies in the 49-county service area
of Highmark Inc. d/b/a Highmark Blue Cross Blue Shield, and d/b/a
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Highmark Blue Shield. Business will begin migrating to HHIC on July
1, 2010, with the transfer of small group business to HHIC with July 1,
2010 renewals. New small group business will be offered products
through that company beginning with July 1, 2010 effective dates”
(Cashion Decl., Ex. 9 (ECF No. 484-1) at 8, 16);
the difference in level of coverage between a network provider and
non-network provider would not be greater than twenty-percent
(CCSMF (ECF No. 488) 59); and
its policies did not contain any provision or arrangements that would
lead to the undertreatment or poor quality care of its subscribers (id. ¶
60).
On December 2, 2009, the PID sent Highmark a letter providing that the PID
concluded its review of Highmark’s plan of withdrawal, and the PID wanted to be “informed
of any issues” moving forward. (Cashion Decl., Ex. 8 (ECF No. 459-8) at 2.)
3. The DOH’s Independent Review of HHIC’s Applications
Even though Highmark submitted joint applications to the PID and the DOH, each
agency conducted its own review of the applications. (CCSMF (ECF No. 488) ¶ 65.) The
DOH conducted its review based upon its statutory mandate to ensure that the proposal
would not result in "undertreatment or poor quality care," and, in doing so, focused on the
viability of HHIC's proposed network to make sure that HHIC would provide its subscribers
with sufficient options for their healthcare. (Id. ¶ 66.) The DOH reviewed the information
that Highmark provided to its subscribers. (Id. ¶ 67.)
The DOH on two occasions asked for more information about the PPO applications.
(CCSMF (ECF No. 488) at pl.’s ¶ 35.) First, the DOH asked for “confirmation that the
application is for a PPO,” an opportunity to “review a copy of the member materials before
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they are finalized,” and “information regarding Network Access.” (Id. at pl.’s ¶ 36.) On
February 12, 2010, HHIC responded to the DOH’s inquiries. (Id.)
On March 15, 2010, the DOH asked HHIC questions on three other topics, which
included co-payments, whether “under the network arrangements for HHIC that beneficiaries
could go to a participating facility, yet still be billed by non-par providers,” and whether “Act
4 of 2009 appl[ied]” regarding “coverage for children.” (CCSMF (ECF No. 488) pl.’s ¶ 37.)
Highmark is not aware of any other communications with the DOH about the HHIC’s PPO
applications. (Id. at pl.’s ¶ 38.) On February 12, 2010, and again on March 23, 2010,
Highmark responded to questions from the DOH about the PPO applications. (Id. ¶ 68.)
On April 26, 2010, the DOH provided Highmark written approval of the PPO
applications. (Id. ¶ 69.) The DOH's approval:
“permit[ted] HM Health Insurance Company d/b/a Highmark Health Insurance
Company (HHIC) to establish, operate and maintain a risk-assuming PPO
under which it assumes traditional insurance-type financial risk regarding the
provision of insured health benefits plans set forth in the application to
insureds, and to provide preferred provider arrangements described therein.”
(CCSMF (ECF No. 488) ¶ 70 (quoting Cashion Decl., Ex. 35 (ECF No. 459-35) at
2.)
4. The PID’s Review of the PPO Applications
On November 25, 2009, the PID formally disapproved the PPO applications.
(CCSMF (ECF No. 488) ¶ 72.) The PID informed Highmark that it needed to submit an
individual conversion policy form for PID’s review and approval. (Id. ¶ 73.) An individual
conversion policy is an insurance policy that covers various circumstances in which a
subscriber is no longer eligible for insurance under the small group policy, e.g., a situation in
which the insurer discontinues the small group policy. (Id. ¶ 75.) At the relevant time, all
15
insurers that offered group policies, regardless whether they were commercial insurers, were
required to offer individual conversion policies. (CCSMF (ECF No. 488) ¶ 75, pl.’s ¶ 47.)
The PID had the authority to review and approve individual conversion policies and rates.
(Id. at pl.’s ¶ 48.) HHIC was required to comply with the individual conversion policy
requirements. (Id. at pl.’s ¶ 49.)6
The individual conversion rates are not at issue in this case; rather, it is HHIC’s smallgroup health insurance rates that form the basis for plaintiff’s measure of damages. (ECF No.
474 at 19 (“Plaintiff’s injury was not caused by any such review of individual conversion
rates (or by the approval of [the] PPO application).”)
6
Plaintiff in the third amended complaint alleges that it and the members of the
putative class paid HHIC “small group plan premiums,” and there are no allegations with
respect to individual conversion policies. (ECF No. 286 ¶ 11.) As discussed above, the
parties agree that the PID had the authority to review and approve individual conversion
policies. (CCSMF (ECF No. 488) pl.’s ¶ 48.) Plaintiff in the third amended complaint sets
forth the following factual allegations with respect to its injury:
This discontinue-and-migrate strategy for small group plans harmed the
Plaintiff class. Cole’s and other purchasers of small group insurance coverage
in the Plaintiff class paid artificially inflated, supracompetitive premiums to
Highmark Health Insurance Co. (and possibly to other for-profit Highmark
insurers), and these premiums were not filed with the PID. Once Highmark
was free of both meaningful competition (as a result of its conspiracy with
UPMC) and regulatory scrutiny (as a result of its migration strategy), it was
able to charge supracompetitive premiums to its small group customers. But
for the conspiracy, these purchasers of small group plans would have paid
lower premiums to Highmark Health Insurance Co. or other Highmark entities
whose small group premium amounts were not subject to any rate filing
requirement.
(ECF No. 276 ¶ 242 (emphasis added).) Plaintiff claims injury based upon rates that were not
subject to the PID’s approval, and agrees that the individual conversion policies were subject
to the review and approval of the PID. (Id.; CCSMF (ECF No. 488) pl.’s ¶ 48.) The
individual conversion policies, therefore, do not form the basis of plaintiff’s measure of
damages in this case.
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The PID’s letter dated November 25, 2009, explained the deficiency in the PPO
applications as follows:
The Department has completed its review of this filing and has but one
request. While the Group forms have been deregulated, Group Conversion
forms are still considered Individual forms, and, therefore, must be filed for
Department review. Please file the required Conversion forms under a separate
filing, referencing this filing as the Group that the Conversion form is to be
used with.
(Cashion Decl., Ex. 26 (ECF No. 459-26) at 2-3.) The PID in its letter dated November 25,
2009, did not identify any other deficiency with respect to the PPO applications. (CCSMF
(ECF No. 488) pl.’s ¶ 51.)
On February 12, 2010, Highmark submitted to the PID its individual conversion plan
rate application. (CCSMF (ECF No. 488) ¶ 76.) As part of this application, Highmark
provided HHIC’s proposed individual conversion plan rates, an actuarial memorandum
describing each of the factors that it used to calculate HHIC’s individual conversion plan
rates, and information about the benefits included in HHIC’s individual conversion plan
policy. (Id.) On February 15, 2010, Highmark submitted an individual conversion policy
form application to the PID. (Id. ¶ 90.) As part of this application, Highmark on behalf of
HHIC provided copies of the policies and forms that described the coverage, network, and
claims process for the individual conversion product. (Id.)
On February 22, 2010, the PID rejected the original individual conversion policy ratefiling. (Id. ¶ 77.) The PID requested that Highmark certify that it used the same process for
developing HHIC’s individual conversion plan rates as it used for developing its group rates,
and requested information regarding the “methodology, starting data, trends used, benefit
17
relativity factors applied to medical and drug components, administrative expenses PMPM,
retention-premium tax, risk charge, contingency charge and FIT percentages, and conversion
contract distribution.” (Id. ¶ 78.)
On March 9, 2010, Highmark submitted its revised individual conversion policy rate
application. (Id. ¶ 79.) In this revised submission, Highmark explained that HHIC developed
its rates based upon small group claim experience for the period of November 1, 2008,
through October 31, 2009, with run-out through November 30, 2009. (Id. ¶ 80.) In setting the
individual conversion policy rates, the fact that less healthy members were more likely to
purchase conversion products because healthier members were unlikely to pay the full
premium for an individual policy was considered. (Id. ¶ 81.) Highmark provided to the PID
for approval HHIC’s requested individual conversion policy rates. (Id. ¶ 82.) Highmark
separated HHIC’s rates for those policies that included only an individual subscriber, those
that included a subscriber and a child, those that included a subscriber and children, those
that included a subscriber and a spouse, those that included a subscriber, a spouse, and a
child, and those that included a subscriber, a spouse, and children. (Id. ¶ 83.)
On March 12, 2010, the PID rejected the revised individual conversion plan ratefiling because HHIC used demographic information in rating the conversion pool. (Id. ¶ 84.)
The PID informed Highmark that HHIC could not rate the conversion members as if they
were their own rating pool and that HHIC could not use age as a rating factor for these
individuals. (Id. ¶ 85.) The PID directed that HHIC rate its individual conversion plan
policies using the same restrictions that the PID applied to Highmark’s small groups. (Id. ¶
18
86.) On March 22, 2010, the PID rejected the form application and highlighted concerns it
had with certain benefit coverage and the process for submitting claims. (Id. ¶ 91.)
On March 29, 2010, Highmark submitted a second revised individual conversion
policy rate proposal to respond to the PID’s concerns. (CCSMF (ECF No. 488) ¶¶ 87, 92.) In
addition to responding to the PID’s written comments, Highmark amended the deductible
options for HHIC’s plans. (Id.) The previous age rating factor was replaced with one that
accounted only for the average age of the pool based upon Highmark's past small group
experience. (Id. ¶ 88.) In its revised rate application, Highmark proposed for HHIC separate
rates for Allegheny County and contiguous counties, Erie County and surrounding counties,
and the Altoona-Johnstown area. (Id. ¶ 89.)
In late April 2010—at approximately the same time that the PID and the DOH
approved HHIC's PPO applications—the PID approved the individual conversion plan ratefiling for HHIC. (Id. ¶ 93.)
E. The PID’s “Rating & Underwriting Questionnaire”
On February 16, 2010, the PID issued to the nine largest health insurers in
Pennsylvania, including Highmark, a "Rating & Underwriting Questionnaire" (“the
questionnaire”). (CCSMF (ECF No. 488) ¶ 96.) The reason for the questionnaire was, in part,
the PID's concerns over the use of medical underwriting practices in the small group
marketplace. (Id.) The questionnaire requested detailed information about rates the
commercial insurers charged small groups. (Zappala Decl., Ex. L (ECF No. 477-12) at 6-11.)
On March 9, 2010, Highmark submitted a response to the questionnaire that included
information about the different variables that Highmark considered when setting a small
19
group's premiums between 2008 and 2010. (Id. ¶ 97.) The main differences between
Highmark’s and HHIC’s rating processes were that HHIC would not employ the same caps
or limits on its ratings factors as those required to be used by Highmark, and HHIC intended
to use medical questionnaires for new clients and fully incorporate prior claims experience
information as part of its rating process for HHIC's rates. (Id. ¶ 98.)
On March 22, 2010, the PID requested that HHIC either clarify that the March 9,
2010, response covered HHIC's proposed rates—as opposed to Highmark’s rates—or to
submit an independent response—apart from Highmark’s response—to the questionnaire.
(CCSMF (ECF No. 488) ¶ 99.) On March 26, 2010, Highmark provided the following
response to the PID:
Highmark’s Response to Sections A, B, and C of the Questionnaire were not
intended to address HM Health Insurance Company (“HHIC”) as such
questions were expressly limited in scope to the time period of January 1, 2008
to the present. HHIC did not offer, and is not currently offering, any products
in Pennsylvania during the relevant time period; therefore, Sections A, B, and
C are not applicable to HHIC.
…
HHIC will be using medical questionnaires for new small group business and
will not be using the same rating factor-caps or limits as those currently used
by the Highmark Group.
…
Highmark, at this time, can not [sic] further respond on behalf of HHIC to
Section B of the Questionnaire as no other determinations have been made to
date regarding specific rating factors and ranges for HHIC’s small group
business.
(Cashion Decl., Ex. 19 (ECF No. 462-10) at 2-3.)
On March 31, 2010, the PID sent HHIC a series of requests for additional
information. (CCSMF (ECF No. 488) ¶ 102.) The PID questioned: (1) whether HHIC
intended to use health questionnaires for small groups; (2) what rating factors HHIC intended
20
to use; (3) whether HHIC intended to subdivide small groups for rating purposes; (4) whether
HHIC planned to use medical loss ratio or other predictive modeling risk score factors in
setting rates; (5) whether HHIC would offer any discounts, charges, or surcharges different
from those charged by Highmark; and (6) how HHIC intended to use rate bands or other
practices to vary small group rates. (Id.)
On April 7, 2010, Highmark informed the PID that—with respect to the requests for
additional information dated March 31, 2010—it would be premature for Highmark to
provide to the PID that information until its discussions with the PID commissioner about
Highmark’s “HHIC initiative” concluded. (Cashion Decl. (ECF No. 490) ¶ 50; Cashion
Decl., Ex. 30 (ECF No. 459-30) at 2.)
The PID used information that it received in response to the questionnaire to support
its legislative initiatives. (Meyer Decl., Ex. C (ECF No. 458-3) at 34.) The PID referenced
Highmark’s responses to the PID’s questionnaire in its discussions with Highmark about
HHIC. (Cashion Decl., Ex. 37 (ECF No. 462-24) at 5.) The PID as part of its negotiations
with Highmark with respect to HHIC’s PPO application wanted Highmark to support
legislation similar to House Bill 746. (Meyer Decl., Ex. C (ECF No. 458-3) at 37, 39.)
F. The PID’s Efforts to Prohibit the Use of Health Status Underwriting and the Use
of Medical Questionnaires by Health Insurance Companies in the Small Group
Market
From 2010 through 2014, then-PID commissioner, Joel Ario (“Ario”), attempted to
eliminate in the small group health insurance market health status underwriting and the use
of questionnaires by insurance companies. (Meyer Decl., Ex. C (ECF No. 458-3) at 17-19.)
Health status was only one of multiple factors that HHIC considered when calculating small
21
group rates. (Id. at pl.’s ¶ 76.) Health status is an “adjustment to the base rate associated with
the health status of the client.” (Zappala Decl., Ex. A (ECF No. 477-1) at 180.) Small group
rates were calculated by applying a number of factors against a “base rate” to generate a
small group's specific rate. (Id. at pl.’s ¶ 77.) In additional to health status, the other factors
applied against the base rate were: “affiliation,” “age,” “gender,” “area,” “benefits,”
“ClientSpecific l,”7 “ClientSpecific2,” “Graduated Deductible,” “Industry,” and Size.” (Id. at
pl.’s ¶ 78.)
The base rates for HHIC’s small group plans were never submitted to the PID for
review. (Zappala Decl., Ex. A (ECF No. 477-1) at 181.) HHIC submitted to the PID
summary information that was sufficient for an actuary to use to reconstruct the range of
rates HHIC was going to use. In other words, HHIC’s provided to the PID “enough
information for [the PID] to understand how…[HHIC] compare[d] to the other commercial
carriers[.]” (Id. at 185-86.) The PID did not need to approve the summary information
submitted by HHIC. (Id. at 186.)
Ario was of the view that insurers should not use medical underwriting practice
questionnaires and health status factors when deciding whether to insure small group
businesses. (Id. at 31-32.) The PID sought for the Pennsylvania legislature to adopt
legislation that would constrain the use of medical underwriting techniques by all insurers.
“ClientSpecific l” and “ClientSpecific2” factors were not necessarily related to health
status, but for purposes of ensuring that HHIC did not exceed the 25% cap on health status
factors, which HHIC agreed to in the agreement dated April 26, 2010, which is discussed
below, HHIC considered these factors to be related to health status. (CCSMF (ECF No. 488)
pl.’s ¶ 79.)
7
22
(CCSMF (ECF No. 488) ¶ 104.) The PID also actively supported legislation, i.e., House Bill
746, which would make all insurance carriers subject to PID-regulation. The PID wanted to
wait to approve HHIC’s PPO applications until that legislation was passed and in place.
(CCSMF (ECF No. 488) ¶ 107; Meyer Decl., Ex. C (ECF No. 458-3) at 35-36.)
G. The PID’s and Highmark’s Negotiations With Respect to HHIC’s PPO
Applications
The PID did not have statutory authority to mandate that all commercial small group
insurers comply with rating restrictions. (Id. at pl.’s ¶ 58.) Highmark's corporate
representative testified that the PID commissioner was "trying to get us to concede rating
provisions that we intended to deploy, and he was trying to convince us not to do that." (Id.
at pl.’s ¶ 59.) By March 2010, Highmark was in discussions with the PID regarding the PID
commissioner’s requests that HHIC agree to some rating restrictions. (Id. at pl.’s ¶ 60.)
HHIC and the PID had numerous communications in March 2010 and April 2010 with
respect to the PID's requests. (Id. at pl.’s ¶ 61.) The PID commissioner told the commercial
insurers “you need to reach some agreement with me because I might let HHIC's application
go forward.” (Declaration of Melissa Felder Zappala (“Zappala Decl.”), Ex. H (ECF No.
473-8) at 83.) The PID commissioner told HHIC: “you need to reach agreements with me
because I may not let your application go forward and you won't be on a level playing field
with commercials.” (Id.)
On April 1, 2010, representatives from Highmark met with representatives from the
PID and the governor’s office to discuss HHIC’s PPO applications. (CCSMF (ECF No. 488)
¶ 105.) During that meeting, Highmark expressed its concern that: (1) it could not raise its
rates enough to compensate for the increasing cost and risk to certain groups; and (2) it could
23
not get its rates low enough to compete for new business. (Id.) Notes taken by a Highmark
employee at the April 20, 2010 meeting provide that Ario stated the purpose of the meeting
was to “discuss two principles.” (Cashion Decl., Ex. 36 (ECF No. 462-23) at 3.) The notes
reflect the following with respect to the “two principles:”
a. To do no further harm in the market as of March 23, 2010. No movement
forward on the use of medical questionnaires/medical underwriting. The
only other Blue that uses medical questionnaires is Blue Cross of
Northeastern Pennsylvania.
b. The phase out of experience rating and demographic rating. And the
Commissioner wants to place rate caps on the commercials. He would like
to see 15%, but thinks that he can get Sam Marshall and company to agree
with a start of 25% and phase in lower caps.
(Cashion Decl., Ex. 36 (ECF No. 462-23) at 3.) Highmark expressed to Ario that it desired to
use the following for HHIC: (1) medical questionnaires; (2) health status for new business;
(3) health status for renewals; and (4) full demographics. (Id. at 4.) Ario told Highmark that
it did “not make sense” to create HHIC in light of pending health care reform that would take
place in 2014. (Id. at 3.) Highmark’s notes from the April 1, 2010 meeting provide that
David O’Brien, a representative from Highmark, asked Ario: “Okay, what is the bottom line
here? Are you saying that you will prevent us from going downstream?” (Cashion Decl., Ex.
36 (ECF No. 462-23 at 5.) Ario responded:
Yes to be transparent. The Governor supports [this] position. He will go to the
legislature and have them draft legislation to stop Highmark from using
medical questionnaires. He will issue an order blocking it. Or we may have to
fight in court.
(Id.) Highmark understood from the meeting that the PID would not approve HHIC’s PPO
application unless Highmark agreed upon certain rate limitations for HHIC. (Cashion Decl.
(ECF No. 490) ¶ 52.) Regardless whether PID had the “authority” to require HHIC to agree
24
to rate restrictions, HHIC claims it believed PID had the “ability” to effectively insist on such
an agreement, such as by “delay[ing] .... our ability to enter the market with HHIC using
these methods by withholding their approval of any of the applications.” (CCSMF (ECF No.
488) at pl.’s ¶ 65.) It was unclear at the time to the PID and to Highmark whether the PID
had the authority to deny HHIC’s PPO application unless HHIC agreed to certain terms and
conditions. (Zappala Decl., Ex. H (ECF No. 473-8) at 42-43.)
On April 20, 2010, Ario sent to Melani an email, which provided, among other things:
Last Thursday…I found out that your folks didn’t think it was workable to
keep the downstream company under rate regulation even if we agreed to
certain parameters like the 25% rate cap. This surprised me since I had said in
every discussion that the flexibility we would have with rate review was the
“grease” that could make a deal, but having heard your objection, I went back
to the commercials and worked out a simpler deal, which I sent to Dave later
Thursday night. The essence of the deal is to lock in the 25% renewal cap for
everyone, and then Highmark gets out of rate regulation for the downstream
company in exchange for agreeing not to use medical underwriting on new
business.
…
In conclusion, the choice is yours. You can continue working toward a deal
that is very close and that will get you the downstream flexibility you want,
with reasonable parameters to prevent disruption between now and 2014. Or
we can play it out in a more confrontational manner, where we have to look at
your downstreaming proposal with the worst case assumptions (ie. [sic] that
you won’t accept any of the rate constraints that other Blues might agree to
and therefore that we may end up with market disruptions and ultimately may
have trouble with HHS over the “unreasonable” rate increases that they are
charged with addressing between now and 2014). I hope you choose the
former.
(Cashion Decl., Ex. 37 (ECF No. 462-24) at 2-3.)
Highmark sent the PID commissioner a letter dated April 12, 2010, in which it offered
to have HHIC, among other things, discount up to 50% from the base rate utilized by
Highmark, or impose a surcharge of up to 25% above the base rate utilized by Highmark.
25
(Cashion Decl., Ex. 21 (ECF No. 462-12) at 3.) Highmark proposed that: (1) HHIC could
consider prior claims experience information in determining whether and how much to
discount or surcharge a particular group's rates when setting renewal rates; and (2) beginning
on January 1, 2011, HHIC could use medical underwriting to determine how much to charge
new small groups. (CCSMF (ECF No. 488) ¶ 109.)
On April 13, 2010, the PID responded to Highmark’s letter dated April 12, 2010, and
identified at least two issues that “need[ed] more work.” (CCSMF (ECF No. 488) ¶ 110.)
The PID’s letter dated April 12, 2010, provided:
[T]he letter does not provide any context as to what the real agreement is,
which is for the Insurance Dept [sic] and Highmark (and other insurers as
well) to work with the legislature to achieve a transition plan which is best for
individuals and small businesses in Pennsylvania. The fundamentals of that
plan, as discussed, are that no insurer adopt new rating practices that further
segment the market between now and 2014 (the changes we would allow
under paragraph 4 would be an exception to this “status quo” principle) and
that rate increases be capped and ideally ramped down between now and 2014.
(Cashion Decl., Ex. 22 (ECF No. 462-13) at 2.)
On April 23, 2010, Cashion, Ario and Randy Rohrbaugh (“Rohrbaugh”) of the PID
held a telephone conference to discuss the issues raised by Highmark’s letter dated April 12,
2010, and the PID’s response dated April 13, 2010. (CCSMF (ECF No. 488) ¶ 112.) As part
of the negotiations between Highmark and the PID with respect to HHIC’s PPO applications,
the PID informed Highmark that it would be amenable to HHIC utilizing medical
underwriting after 2010, if HHIC agreed to not use the health status rating factor to increase
rates by more than twenty-five percent with respect to that factor. (Id. ¶ 113.)
On April 24, 2010, Cashion sent an email to Ario, among others. (Cashion Decl., Ex.
24 (ECF No. 462-13) at 2-3.) Cashion in the email expressed concerns about the flexibility of
26
the “25% cap” agreed to by Highmark and the PID. (Id.at 2.) Cashion proposed the
following:
HHIC has modified the agreement letter (copy attached) to agree to a 25% cap
on the portion of a small group customer’s renewal rate increase that is
associated with a change in the health status factor used in the customer’s
renewal rate calculation. This would also apply to the rates offered to small
group customers transitioning from Highmark Inc. This limitation would apply
until July 1, 2011 effective dates. At that time HHIC would no longer be
subject to this limitation, unless the Department were able to get all of the
other 8 Major Health Insurers in PA to agree to this limitation, then HHIC will
also agree to continue with the limitation beyond June 30, 2011.
(Cashion Decl., Ex. 24 (ECF No. 462-13) at 2.)
On April 26, 2010, HHIC and the PID signed their agreement with respect to the
PID’s approval of HHIC’s PPO applications. (CCSMF (ECF No. 488) ¶ 115.) The April 26,
2010 agreement is entitled “CONFIDENTIAL” and provides:
This constitutes Notice pursuant to Section 707 of the Pennsylvania
Right-to-Know Law that this Letter contains Trade Secret and/or Confidential
Proprietary Information. Therefore, Highmark Inc. or HM Health Insurance
Company must, prior to the release of any portion of this Letter, be notified of
any request by a third party for access to this document, and the Trade Secret
and/or Confidential Proprietary Information identified by Highmark Inc. or
HM Health Insurance Company should be redacted before release.
(ECF No. 462-16 at 2.) The agreement provided that the PID and DOH would approve
HHIC's PPO application and individual conversion product filing, including the associated
rates. (Id.) In exchange for these approvals, HHIC agreed to "limit the rate increases for
renewing small group customers," including those that chose to transition from Highmark to
HHIC, "for adjustments associated with health status." (Id. ¶ 116.) Specifically, “for any
renewal rate increase, ... the portion of the renewal rate increase determined by a change in
the given small group customer's health status factor used in HHIC's rate making formula
27
will be limited to no more than 25%” for all policies with an effective date from July 1, 2010,
until July 1, 2011. (Id.) HHIC agreed that the 25% cap could remain in place after July 1,
2011, if the PID secured agreement from HHIC’s commercial competitors that they would
also accept the 25% cap. (Id. ¶ 117.) HHIC agreed that it would not use medical
questionnaires for small group policies with effective dates from July 1, 2010, until July 1,
2011, and that it would not use "health status factors" for new small group policies from July
1, 2010, until July 1, 2011. (Id. ¶ 118.) Although HHIC did not have the right to use "health
status factors" until July 1, 2011, the PID permitted HHIC to seek PID approval for its use of
“health status factors” starting as early as January 1, 2011. (Id. ¶ 119.) The PID did not place
any limits on HHIC’s ability to adjust factors other than the health status factor. (Zappala
Decl., Ex. A (ECF No. 477-1) at 187.) On April 26, 2010, the PID and DOH provided HHIC
a joint letter approving HHIC's PPO application. (CCSMF (ECF No. 488) ¶ 120.)
H. The PID’s follow-up to Highmark and HHIC about the questionnaire
On June 18, 2010—after HHIC and the PID reached an agreement with respect to
HHIC’s PPO applications—Highmark sent to the PID its response to the follow-up questions
to the questionnaire dated March 31, 2010. (Cashion Decl., Ex. 31 (ECF No. 462-19) at 2.)
Highmark explained to the PID via a letter dated June 18, 2010, that it was “unable to
provide a complete response of behalf of HHIC” because:
HHIC had not yet made final decisions regarding specific rating factors and
ranges it would utilize for HHIC’s small group business…[and] was, at that
point in time, in the midst of discussion with the [PID]…regarding the
business and rating practices HHIC would implement when it would begin to
offer products in Pennsylvania.
(Id.)
28
The parties dispute whether the questionnaire related to HHIC’s PPO applications.
(CCSMF (ECF No. 488) at pl.’s ¶ 81.) Christopher Monahan (“Monahan”), who was the
director of the PID’s Bureau of Market Actions at the time the questionnaire was received by
Highmark, testified during his deposition that:
he first reviewed the questionnaire in preparation for his deposition in this case
(Zappala Decl., Ex. F (ECF No. 477-6) at 19);
“when [his]…unit would conduct studies, [it]…would ask for information”
(id. at 20);
he “believe[d]…[the] information requested [in the questionnaire] was
requested as part of an analysis study of the industry” (id.);
the PID via the questionnaire was “looking for multiple use [sic] of
information” (id. at 21);
he could not recall whether the questionnaire “was limited to just HHIC” or if
the PID was “asking other insurance companies the same or similar questions”
(id. at 21-22);
the kind of study associated with the kind of questionnaire at issue in this case
“typically were aimed at industries not a particular company” (id. at 22);
he knew “with a certain level of certainty that [the PID]…never conduct[s]
studies on just a target entity....It’s more of how is the industry handling
changes to law or issues in [the]…market space” (id.);
although he could not “guarantee [it],” it would be a “fair statement” that the
“medical questionnaire rating factor analysis was most likely broader than just
Highmark or HHIC” (id. at 22-23);
he was not aware, i.e., he had no recollection, whether the questionnaire was
“related to Highmark/HHIC’s application for a PPO plan” (id. at 27);
his “area of enforcement doesn’t deal with PPO applications or approvals or
anything like that” (id.);
in March 2010, he would not have been involved in reviewing a PPO
application (id.);
29
based upon his review of the questionnaire, he did not “see anything linking
[i]t to a PPO application” (id.);
it is his understanding that the questionnaire “was a project separate and apart
from any application process[,]” and “[t]he entire study whatever the questions
may have been were not part of, at least from [his]…awareness, of any PPO
application process” (id.);
he was not the “individual within PID that Highmark would approach for help
in passing a law;” (id. at 41);
he was not the “right individual” to testify “about whether some part of PID
was regulating or attempting to regulate HHIC’s rates” (id. at 41); and
he did not know whether “there was any effort to regulate HHIC’s rates or use
of a medical questionnaire” (id. at 42.)
Ario testified in his deposition that: “the PID used some of the information it got in its
questionnaire to support some of the legislative initiatives it was trying to pass or supporting
in the legislature to basically level the playing field in the small group marketplace.”
(Zappala Decl., Ex. H (ECF No. 477-8) at 91.)
The April 26, 2010 agreement did not prevent HHIC from raising a small group
customer's rate more than 25% based on other non-health status factors or impose any
restrictions on HHIC's ability to raise or lower rates based upon non-health status factors.
(CCSMF (ECF No. 488) pl.’s ¶¶ 83-84.) Pursuant to the agreement, HHIC was not required
to first receive the approval of the PID with respect to its actual rates. (Cashion Decl., Ex. 25
(ECF No. 462-16).) Ario testified at his deposition that the PID retained authority “to ask
specific questions about a specific case.” (Zappala Decl., Ex. H (ECF No. 473-8) at 57.) Ario
explained:
30
They could never just say we're not telling you anything, but they didn't
necessarily have to give us all the information either. And they certainly
couldn't take one case and say, because we've got one case now, we want you
to show us everything that you've done as if you had filed the rates with us
originally for the whole block of business we're talking about. It would be a
surgical kind of disclosure.
(Id.) Ario agreed that the PID’s authority with respect to HHIC’s actual rates could be
described as the authority to investigate “the rates charged on the back end if PID received
complaints.” (Id. at 58.)
The PID—prior to rates being charged to consumers—did not review or approve the
total rates charged to small groups by HHIC. (CCSMF (ECF No. 488) pl.’s ¶ 86.) The PID
could not “determine, before rates [were] used, if the proposed rate increases
[were]…excessive, inadequate, or unfairly discriminatory.” (Zappala Decl., Ex. K (ECF No.
477-11) at 5.)
I. Highmark’s and HHIC’s conduct beginning on July 1, 2010
Because HHIC was a for-profit entity, HHIC—if approved as a PPO—was not
required to file any base rates or base formulas for small group health insurance products
with the PID until March 21, 2012. (Id. at pl.’s ¶ 19.) HHIC filed rates only for its individual
conversion product and a dental plan. (Id. at pl.’s ¶ 74.) Starting with renewals on July 1,
2010, Highmark did not offer health insurance options to small groups (other than its
Medicare complement product). (CCSMF (ECF No. 488) ¶ 121.) During the next renewal
period following July 1, 2010, small groups were able to choose a new policy through HHIC,
or choose to purchase an HMO product from Keystone Health Plan West, Inc. or plans
provided by other insurance companies offering small group plans in Western Pennsylvania.
(Id. ¶ 122.) After June 2011, Highmark did not have any active small group policies other
31
than its Medicare complement product. (Id. ¶ 123.) Highmark did not convert any policy
from Highmark to HHIC unless the small group itself had elected to do so during its renewal
period. (Id. ¶ 124.) Highmark did not take any action in the marketplace relating to its plan of
withdrawal until the PID confirmed that it had reviewed the plan or withdrawal. (Id. ¶ 125.)
HHIC did not take any action in the marketplace relating to its new PPO product application
until the PID and DOH approved the action. (Id. ¶ 126.)
J. Plaintiffs’ Allegations in the Third Amended Complaint
In the third amended complaint, Cole’s Wexford alleges that Highmark, the largest
health insurance provider in Western Pennsylvania, engaged in a conspiracy with UPMC, the
largest provider of medical care in that same region, to monopolize their respective markets.
(CCSMF (ECF No. 488) pl.’s ¶ 1.) Cole’s Wexford alleges that, beginning in 2002, UPMC
agreed to protect Highmark's dominant market position by, among other things: curtailing the
extent to which UPMC offered its own insurance coverage that would have competed with
Highmark; refusing to make its complete network available to competing health insurers; and
refusing to sell its insurance subsidiary to actual or potential competitors of Highmark. In
exchange, Highmark, among other things, agreed to stop supporting the West Penn
Allegheny hospital system, i.e., UPMC's principal competitor for the provision of health care
services in Western Pennsylvania, and to drop its "Community Blue" insurance coverage,
which offered lower-cost insurance options that used West Penn Allegheny's network. (Id. at
pl.’s ¶ 2.) Cole’s Wexford alleges that beginning on July I, 2010, Highmark migrated its
small group customers to HHIC, which was a for-profit subsidiary of Highmark and whose
32
premiums were not required to be filed with, reviewed by, or approved by the PID until
March 21, 2012. (Id. at pl.’s ¶ 3.)
IV.
Standard of Review
Summary judgment is appropriate if the record shows that there is no genuine dispute
with respect to any material fact and the movant is entitled to judgment as a matter of law.
FED. R. CIV. P. 56(a). The mere existence of a factual dispute, however, will not necessarily
defeat a motion for summary judgment. Only a dispute over a material fact—that is, a fact
that would affect the outcome of the suit under the governing substantive law—will preclude
the entry of summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
Even then, the dispute over the material fact must be genuine, such that a reasonable jury
could resolve it in the nonmoving party's favor. Id. at 248–49.
In deciding a summary judgment motion, a court must view the facts in the light most
favorable to the nonmoving party and must draw all reasonable inferences, and resolve all
doubts, in favor of the nonmoving party. Liberty Lobby, 477 U.S. at 255; Wishkin v. Potter,
476 F.3d 180, 184 (3d Cir. 2007); Doe v. Cnty. of Centre, PA, 242 F.3d 437, 446 (3d Cir.
2001); Woodside v. Sch. Dist. of Phila. Bd. of Educ., 248 F.3d 129, 130 (3d Cir.2001);
Heller v. Shaw Indus., Inc., 167 F.3d 146, 151 (3d Cir. 1999). A court must not engage in
credibility determinations at the summary judgment stage. Simpson v. Kay Jewelers, Div. of
Sterling, Inc., 142 F.3d 639, 643 n.3 (3d Cir. 1998).
One of the principal purposes of summary judgment is to isolate and dispose of
factually unsupported claims or defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323–24
(1986). The summary judgment inquiry asks whether there is a need for trial—“whether, in
33
other words, there are any genuine factual issues that properly can be resolved only by a
finder of fact because they may reasonably be resolved in favor of either party.” Liberty
Lobby, 477 U.S. at 250. In ruling on a motion for summary judgment, the court's function is
not to weigh the evidence or to determine the truth of the matter, but only to determine
whether the evidence of record is such that a reasonable jury could return a verdict for the
nonmoving party. Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150–51 (2000)
(citing cases); Liberty Lobby, 477 U.S. at 248–49.
The burden of showing that no genuine issue of material fact exists rests initially on
the party moving for summary judgment. Celotex, 477 U.S. at 323; Aman v. Cort Furniture
Rental Corp., 85 F.3d 1074, 1080 (3d Cir. 1996). The moving party may satisfy its burden
either by producing evidence showing the absence of a genuine issue of material fact or by
demonstrating that there is an absence of evidence to support the nonmoving party's case.
Marten v. Godwin, 499 F.3d 290, 295 (3d Cir. 2007) (citing Celotex, 477 U.S. at 325). A
defendant who moves for summary judgment is not required to refute every essential element
of the plaintiff's claim; rather, the defendant must only point out the absence or insufficiency
of plaintiff's evidence offered in support of one or more those elements. Celotex, 477 U.S. at
322–23. Once the movant meets that burden, the burden shifts to the nonmoving party to
“set forth specific facts showing that there is a genuine issue for trial” and to present
sufficient evidence demonstrating that there is indeed a genuine and material factual dispute
for a jury to decide. FED. R. CIV. P. 56(e); see Liberty Lobby, 477 U.S. at 247–48; Celotex,
477 U.S. at 323–25. If the evidence the nonmovant produces is “merely colorable, or is not
34
significantly probative,” the moving party is entitled to judgment as a matter of law. Liberty
Lobby, 477 U.S. at 249.
The nonmoving party must “do more than simply show that there is some
metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 586 (1986). To survive summary judgment, the nonmoving party must
“make a showing sufficient to establish the existence of [every] element essential to that
party's case, and on which that party will bear the burden of proof at trial.” Celotex, 477 U.S.
at 322. Furthermore, “[w]hen opposing summary judgment, the non-movant may not rest
upon mere allegations, but rather must ‘identify those facts of record which would contradict
the facts identified by the movant.’ ” Corliss v. Varner, 247 Fed.Appx. 353, 354 (3d Cir.
2007) (quoting Port Auth. of N.Y. and N.J. v. Affiliated FM Ins. Co., 311 F.3d 226, 233 (3d
Cir. 2002)).
V.
Analysis
The measure of damages set forth by plaintiff in the third amended complaint is the
difference between the “unregulated” rates HHIC charged plaintiff from July 1, 2010,
through March 21, 2012, and rates that HHIC would have charged the plaintiff but-for the
alleged UPMC-Highmark conspiracy. Highmark argues in its motion for summary judgment
that under the Noerr-Pennington doctrine it is immune from any liability for causing that
injury. (ECF No. 460 at 12.) Highmark explains it “could not (and did not) offer any
products through HHIC until the Commonwealth (including both the PID and DOH)
approved its application to offer small group products through HHIC.” (Id.) According to
Highmark, under those circumstances, Noerr-Pennington bars plaintiff’s claims in this case.
35
Plaintiff argues that it does not seek damages based upon the PID’s approval of
HHIC’s PPO applications; rather, plaintiff seeks damages based upon Highmark’s role in the
alleged UPMC-Highmark conspiracy, which is not the direct result of any governmental
action. According to plaintiff, “[t]he granting of the PPO Application merely made it
possible for Plaintiff to recover the damages it suffered,” which is “not sufficient to trigger
the Noerr-Pennington doctrine.” (ECF No. 474 at 5.) Secondly, plaintiff argues that
Highmark did not engage in petitioning conduct falling within the ambit of the NoerrPennington doctrine. (Id. 474 at 14.)
Highmark also argues that—at the very least—it is entitled to summary judgment
with respect to plaintiff’s claims for alleged damages arising between July 1, 2010, and June
30, 2011,8 because it had to “seek and obtain approval from the PID for the rates that HHIC
charged during those 12 months.” (ECF No. 460 at 15.) Highmark argues that it is, therefore,
immune from any liability for charging those regulated rates under the Noerr-Pennington
doctrine and because those rates were regulated by the PID, they cannot form the basis of
antitrust damages under the filed rate doctrine. (Id.) Plaintiff argues in response that—at a
minimum—“there is a dispute of material fact as to whether the PID ‘reviewed and
approved’ HHIC’s rates,” which prevents the entry of summary judgment on plaintiff’s
claims arising between July 1, 2010, and June 30, 2011, based upon either the filed rate
doctrine or the Noerr-Pennington doctrine. (Id. at 17-19.)
8
As discussed above, HHIC—pursuant to the agreement dated April 26, 2010—agreed
to certain limitations with respect to its small group rates charged during this time period.
(CCSMF (ECF No. 488) ¶¶ 115-20.) HHIC’s small group rates were not statutorily required
to be filed with the PID during that timeframe. 40 PA. CONS. STAT. § 3803(d) (2010).
36
Each of the parties’ arguments, the evidence of record related to those arguments, and
the applicable law will be addressed below.
A. The Noerr-Pennington Doctrine
Individuals and corporations, or combinations thereof, who devise monopolies or other
restraints on trade and competition are subject to liability under various antitrust laws,
including the Sherman Act. The Noerr-Pennington doctrine limits that liability when an
anticompetitive restraint or commercial environment is the product of “valid governmental
action” rather than solely the conduct of private actors. E. R.R. Presidents Conference v. Noerr
Motor Freight, Inc., 365 U.S. 127, 136 (1961). When market participants attempt to influence
the government to enact laws, regulations, or policies that produce anticompetitive effects,
they are exempt from antitrust liability when government activity directly causes the alleged
injuries. Id. The Noerr-Pennington doctrine is “rooted in the [Petition Clause9 of the] First
Amendment and fears about the threat of [antitrust] liability chilling political speech.” A.D.
Bedell Wholesale Co. v. Philip Morris Inc., 263 F.3d 239, 250 (3d Cir. 2001). This immunity
prevents antitrust laws from intruding upon the ability of individuals and groups to participate
in the activities of government, advocate desired changes, and contribute to the marketplace of
ideas. The basic tenets of Noerr-Pennington immunity are established in the trilogy of Noerr,
United Mine Workers of America v. Pennington, 381 U.S. 659 (1965), and California Motor
Transit Co. v. Trucking Unlimited, 404 U.S. 508 (1972).
“Congress shall make no law . . . abridging . . . the right of the people . . . to petition the
government for a redress of grievances.” U.S. CONST. AMEND. I.
9
37
In Noerr, a group of railroad companies launched a publicity campaign aimed at
discrediting trucking companies that they competed with for business in long-distance freight.
Noerr, 365 U.S. at 129. The trucking companies alleged a conspiracy directed at “creat[ing] an
atmosphere of distaste for the truckers among the general public,” and depriving them of
significant business by successfully persuading the Governor of Pennsylvania to veto a bill that
would have allowed truckers to carry heavier loads on state roads. Id. at 129-30. The Supreme
Court held that such campaigns to influence legislation do not violate the Sherman Act. Id. at
145. The Court distinguished actions typically held to violate the Sherman Act, such as “pricefixing agreements, boycotts, [and] market-division agreements,” from “two or more persons
[associating] together in an attempt to persuade the legislature or the executive to take
particular action with respect to a law that would produce a restraint or a monopoly.” Id. at
136. The Court recognized that “[i]t is neither unusual nor illegal for people to seek action on
laws in the hope that they may bring about an advantage to themselves and a disadvantage to
their competitors.” Id. at 139. The Court rejected extending antitrust liability for advocacy
directed at government by reason of “the [constitutional] right of the people to inform their
representatives in government of their desires with respect to the passage or enforcement of
laws.” Id. The Court explained that imposing antitrust liability for petitioning government,
even for advocating laws and policies with intended anticompetitive effects, is “depriv[ing] the
government of a valuable source of information and, at the same time, depriv[ing] the people
of their right to petition in the very instances in which that right may be of the most importance
to them.” Id.
38
Pennington involved a wage agreement between a miners’ union and companies that
provided coal to the Tennessee Valley Authority (“TVA”). Pennington, 381 U.S. at 659-60. A
provision in that agreement called for the coal companies to pay royalties to the union’s
retirement fund. Id. at 659. The union sued the coal companies when they withheld some
royalty payments. Id. at 659. The coal companies, in a counterclaim, alleged that the union,
colluding with other large coal companies, negotiated the wages in this Department of Laborapproved agreement to be so high as to effectively exclude smaller coal companies from TVA
contracts. Id. at 660. The Court criticized the lower courts’ inadequate consideration of Noerr
in evaluating this counterclaim. Id. at 669-71. The Court held that damages were unwarranted
for alleged injuries stemming from the agreement’s wages because the Secretary of Labor
participated in the wage negotiations and approved the final agreement. Id. The Court
explained: “Joint efforts to influence public officials do not violate the antitrust laws even
though intended to eliminate competition. Such conduct is not illegal, either standing alone, or
as part of a broader scheme itself violative of the Sherman Act.” Id. at 670. The Court held that
the actions of the union and coal companies did not violate the Sherman Act; rather, the action
setting the wages was that of “a public official who is not claimed to be a co-conspirator.” Id.
at 671.
In California Motor, a highway carrier initiated proceedings with a state regulatory
agency to defeat a competing carrier’s operating rights in that state. California Motor, 404 U.S.
at 509, 511. The affected carrier alleged a “concerted action” to initiate those proceedings to
preserve an anticompetitive advantage in transportation of goods. Id. at 509. The Supreme
Court recognized that businesses’ “use [of the] channels and procedures of state and federal
39
agencies and courts to advocate their causes and points of view respecting resolution of their
business and economic interests vis-á-vis their competitors” was integral to First Amendment
petition and association rights. Id. at 510-11. When a party petitions the government in such a
way as to effectively “bar [its] competitors from meaningful access to adjudicatory tribunals
and…usurp that decisionmaking process,” however, Noerr-Pennington immunity does not
exist. Id. at 511-12. The Court explained that the First Amendment “does not necessarily give
[petitioners] immunity from the antitrust laws” because the rights it provides may be regulated
“when they are used as an integral part of conduct which violates a valid statute.” Id. at 51314. The First Amendment “may not be used as the means or the pretext for achieving
‘substantive evils’…which the legislature has the power to control.” Id. at 515 (internal
citation omitted). Although the Court in California Motor held that the defendant was not
entitled to immunity in that case, the Court explained that “[t]he same philosophy [of Noerr
and Pennington] governs the approach of citizens or groups of them to administrative agencies
(which are both creatures of the legislature, and arms of the executive) and to courts, the third
branch of Government. Certainly the right to petition extends to all departments of the
Government.” California Motor, 404 U.S. at 510.
Plaintiff in the third amended complaint alleges it was injured because the alleged
UPMC-Highmark conspiracy led to inflated rates charged by HHIC. (ECF No. 286 ¶ 2.)
“Plaintiff does not claim to be injured by either the PPO Application or its approval.” (ECF
No. 474 at 12.) Highmark in its motion for summary judgment argues that but-for the PID’s
and DOH’s approval of the PPO applications, which permitted HHIC to act as a for-profit
small-group health insurer, HHIC could not charge plaintiff those supracompetitive rates.
40
Highmark’s argument oversimplifies the application of the Noerr-Pennington doctrine in this
case.
The Supreme Court has held that in a case that involves “a mixture of private and
public decisionmaking,” a private party’s conduct—despite being approved by a state
agency—will be subject to the antitrust laws and not immune from liability when “the private
party exercised sufficient freedom of choice” with respect to its conduct that caused antitrust
injury. Cantor v. Detroit Edison Co., 428 U.S. 595, 593 (1976) (plurality).10 In Cantor, the
10
In Cantor: Justice Stevens wrote for the plurality; Justices Stewart, Powell, and
Rehnquest dissented from the plurality opinion; Chief Justice Berger concurred in the
judgment and concurred in part; and Justice Blackmun concurred in the judgment. Cantor v.
Detroit Edison Co., 428 U.S. 595, 593 (1976).
The Second Circuit Court of Appeals explained the division of the Court in Cantor as
follows:
In Cantor, the plurality held that a tariff filed by an electric utility could not
evade scrutiny under the antitrust laws simply because it was filed in
accordance with state law and approved by a state agency. The Cantor
plurality stated that
nothing in the Noerr opinion implies that the mere fact that a
state regulatory agency may approve a proposal included in a
tariff, and thereby require that the proposal be implemented
until a revised tariff is filed and approved, is a sufficient reason
for conferring antitrust immunity on the proposed conduct.
Id. Chief Justice Burger did not concur in that portion of the plurality's opinion
discussing Noerr-Pennington, but his objection went to the plurality's
construction of the “state action” exemption doctrine under Parker v. Brown,
317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943), and he said nothing in
disagreement with the plurality's interpretation of Noerr. Justice Blackmun's
concurrence also did not address Noerr, but rather would rely on “a rule of
reason, taking it as a general proposition that state-sanctioned anticompetitive
41
plaintiff, “a retail druggist selling light bulbs,” sued the defendant, a distributor of electricity
and electric light bulbs, under §§ 1 and 2 of the Sherman Act and § 3 of the Clayton Act, 15
U.S.C. § 14. Cantor, 428 U.S. at 581. The defendant was “the sole supplier of electricity in
the relevant market and supplied its consumers with “almost 50% of the standard-size light
bulbs they use[d] most frequently.” Id. at 582. Pursuant to the defendant’s “light-bulbexchange program,” the defendant’s “[c]ustomers [were] billed for the electricity they
consume[d], but [paid] no separate charge for light bulbs.” Id. The defendant’s rates charged
to its consumers for electricity pursuant to the light-bulb-exchange program were “approved
by the Michigan Public Service Commission” (the “commission”). Id. The defendant was not
permitted to abandon the light-bulb-exchange program or otherwise change its rates without
the commission’s approval. Id. The defendant’s light-bulb-exchange program began in 1886;
the commission began regulating electric utilities in the relevant market in 1909; and the
commission first approved a rate filed by the defendant with respect to the light-bulbexchange program in 1916. Id. at 583. The plaintiff argued that the defendant’s light-bulbexchange program “foreclose[d] competition in a substantial segment of the light-bulb
market.” Id. The Court noted in its recitation of the facts that light-bulb distribution was not
regulated in the relevant market, and, therefore, the commission’s “approval of [the
defendant’s] decision to maintain such a program [did] not, therefore, implement any
statewide policy relating to light bulbs.” Id. at 585.
activity must fall like any other if its potential harms outweigh its benefits.”
428 U.S. at 610, 96 S.Ct. at 3127.
Litton Systems, Inc. v. Am. Tel. and Tel. Co., 700 F.2d 785, 808 (2d Cir. 1983).
42
The district court and the court of appeals held that the commission’s approval of the
light-bulb-exchange program exempted the defendant’s conduct from the federal antitrust
laws. Cantor, 428 U.S. at 581. The issue presented to the Supreme Court, among others, was
whether “private conduct required by state law is exempt from the Sherman Act.” Id. at 592.
The Court acknowledged that while the defendant could not maintain or abandon the lightbulb-exchange program without the approval of the commission, “the option to have, or not
to have, such a program [was] primarily” the decision of the defendant and not of the
commission. Id. at 594. The Court held that under those circumstances, the defendant’s
conduct was not exempt from the antitrust laws. Id. at 598.
The Ninth Circuit Court of Appeals in Sanders v. Brown, 504 F.3d 903 (9th Cir.
2007), distinguished Cantor and declined to follow the opinion in that case. In Sanders, the
plaintiff, a cigarette smoker, filed a class action against the defendants, “the nation’s largest
tobacco companies,” and the attorney general of the state of California, based upon a “Master
Settlement Agreement” (“MSA”) entered into by the defendants. Id. at 906. The court of
appeals explained the MSA as follows:
The MSA requires the four major tobacco companies—who, as the
initial signatories of the MSA, are known as the “Original Participating
Manufacturers”—to pay the states billions of dollars each year. The total
annual payments are based on a formula that considers inflation and the total
number of individual cigarettes sold in the fifty United States, the District of
Columbia and Puerto Rico. Each Original Participating Manufacturer (or
“OPM”) must annually contribute a portion of the total payment that is equal
to the OPM's share of that year's cigarette sales (the OPM's “market share”).
For example, if an OPM's market share is 25 percent, that OPM must
contribute 25 percent of that year's settlement payment.
Id. at 907. The California legislature—following the creation of the MSA—enacted two
statutes implementing the MSA. Id. The plaintiff—on behalf of the putative class—alleged,
43
among other things, that “the MSA…spawned a ‘cartel’ because it let…the participating
tobacco companies ‘raise prices without fear of losing sales or market share,’” i.e., the cartel
caused supracompetitive cigarettes prices, and that it “encouraged the states to pass anticompetitive laws protecting the alleged cartel from price competition.” Id. at 908.
The defendants filed motions to dismiss arguing that their conduct was immune to
antitrust liability under the Noerr-Pennington doctrine and the state action immunity
doctrine. Sanders, 504 F.3d at 910. The district court granted the motions to dismiss and
held, among other things, that “the defendants were entitled to Noerr–Pennington immunity
because their acts of negotiating and entering into the MSA constituted protected speech.” Id.
The court of appeals began its analysis by explaining that the “act of negotiating a settlement
with a state undoubtedly is a form of speech directed at a government entity.” Id. at 913. The
court then held: “Noerr–Pennington immunity protects a private party from liability for the
act of negotiating a settlement with a state entity. Immunity thus protects the tobacco
defendants from liability for the act of negotiating the MSA with the State of California.” Id.
The plaintiff, however, relied upon Cantor to argue that “even if Noerr–Pennington immunity
protects the defendants from liability for the MSA itself, it does not protect the tobacco
defendants from liability for increasing prices after the MSA.” Id.
The Ninth Circuit Court of Appeals rejected the plaintiff’s argument and declined to
follow Cantor, which it described as a “fragmented opinion.” 504 F.3d at 913. The court
explained:
Justice Blackmun, concurring separately, said he agreed with the plurality
“insofar as it holds that the fact that anticompetitive conduct is sanctioned, or
even required, by state law does not of itself put that conduct beyond the reach
44
of the Sherman Act.” Id. at 605, 96 S.Ct. 3110 (Blackmun, J., concurring in
the judgment).
Id. According to the court in Sanders, the Supreme Court in Allied Tube & Conduit Corp. v.
Indian Head, Inc., 486 U.S. 492 (1988), “undercut” its decision in Cantor. Sanders, 504 F.3d
at 913-14. The court in Sanders explained:
Subsequent cases cast doubt on the precedential value of this fragmented
opinion. The Court itself undercut the Cantor plurality in Allied Tube &
Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 108 S.Ct. 1931, 100 L.Ed.2d
497 (1988), in which the Court stated that “ ‘where a restraint upon trade or
monopolization is the result of valid governmental action, as opposed to
private action,’ those urging the governmental action enjoy absolute immunity
from antitrust liability for the anticompetitive restraint.” Id. at 499, 108 S.Ct.
1931 (quoting Noerr, 365 U.S. at 136, 81 S.Ct. 523) (internal alteration
omitted).
Sanders, 504 F.3d at 913-14.
The court in Sanders analyzed a decision from the Fifth Circuit Court of Appeals that
distinguished Cantor under similar facts. Sanders, 504 F.3d at 913 (citing Greenwood
Utilities Com’n v. Mississippi Power Co., 751 F.2d 1484 (5th Cir. 1985). In Greenwood, the
court did not “question the soundness of the decision in Cantor,” but held that the decision
was narrow and limited to circumstances in which the antitrust injury was caused by the
private party’s actions taken pursuant to an agreement. Id. at 1504. The court in Greenwood
explained that the Noerr-Pennington doctrine extends immunity to a private party for
antitrust injury caused by: (1) its constitutionally-protecting petitioning; and (2) the
government’s actions resulting from the private party’s constitutionally-protected petitioning.
Id. at 1504. The court explained that if a private party was not immune for governmental
action taken as a result of the private party’s constitutionally-protected petitioning, “First
Amendment petitioning privileges would indeed be hollow” and the Noerr-Pennington
45
doctrine would be meaningless “in the context of agreements with the government.” Id. at
1505.
The court in Sanders relied upon Greenwood to conclude that “Noerr–Pennington
immunity protects a private party from liability not only for the petition, but also for any
injuries that result ‘directly’ from valid government action taken on the petitioner's behalf.”
Sanders, 504 F.3d at 914. The court held:
This rule is dispositive of Sanders's case, to the extent the injury he
alleges—supracompetitive cigarette prices—resulted directly from the action
of the State of California, that is, from “the MSA and the Attorney General's
enforcement of the escrow statute and contraband statute.” Although
subsequent agreements by the defendants to engage in the “operation of
an output cartel” might not be immune from liability under this rule,
Sanders's complaint does not allege any such subsequent agreement in restraint
of trade. Therefore, because Sanders's complaint is based on injuries caused
directly by government action, Noerr–Pennington immunity shields the
tobacco defendants from liability for the alleged supracompetitive price
increases. Since Sanders's claim against the tobacco defendants is predicated
on these price increases, his claim against the tobacco defendants must fail.
Id. (emphasis added).
A review of Cantor, Sanders, and Greenwood shows that Cantor controls in this case,
and the Noerr-Pennington doctrine does not provide Highmark immunity from plaintiff’s
antitrust claims. In Cantor and in this case, the plaintiff complained about injury caused by
the actions taken by the private defendant. In Cantor, the plaintiff complained about the
monopoly created by the imposition of the light-bulb exchange program by the privatedefendant, which had been approved by the government. Cantor, 428 U.S. at 594. In this
case, plaintiff complains about the allegedly supracompetitive prices HHIC charged for
small-group health insurance as a result of the alleged UPMC-Highmark conspiracy. In
Sanders and Greenwood, the plaintiffs complained about injury directly caused by actions of
46
the government. In Sanders, the plaintiff complained about supracompetitive cigarette prices
caused by laws enacted and enforced by California, pursuant to the MSA. In Greenwood, the
plaintiff complained about actions taken by the Southeastern Power Administration
(“SEPA”), a division of the Mississippi Department of Energy. Greenwood, 751 F.2d at 1497
(noting that the plaintiff complained about “the activities of Mississippi Power and its
affiliates in the Southern Company that caused SEPA to make its initial decision to market
federal power exclusively in the Southern system's service area, allegedly giving rise to the
bilateral monopoly described by Copeland and allegedly influencing SEPA's decision not to
allocate power to Greenwood and the terms of its contract with Mississippi Power.).
The Supreme Court in Cantor instructed that when the injury complained about by the
plaintiff is the result of a choice made by the private defendant, the defendant’s conduct is
not protected by Noerr-Pennington doctrine. Cantor, 428 U.S. at 593. The undisputed
evidence of record in this case shows that Highmark—a private defendant—agreed to certain
rating limitations in the agreement dated April 26, 2010.11 Highmark was not required or
forced to charge plaintiff any rates in accordance with that agreement. The decisions to
11
The undisputed evidence of record shows that: Highmark submitted its PPO
applications to the PID and the DOH for their review; the PID and the DOH reviewed those
applications; and Highmark engaged in negotiations with the PID with respect to its approval
of those applications. It is not necessary for the court to determine as a matter of law whether
Highmark’s conduct in submitting the PPO applications to the PID and the DOH was
constitutionally-protected petitioning because plaintiff does not claim any injury caused by
that conduct. Plaintiff at trial, therefore, will not be permitted to argue to the jury that
Highmark’s submission of its PPO applications to the PID and the DOH and its negotiations
with respect to the agreement dated April 26, 2010, with the PID constituted anticompetitive
conduct in violation of the Sherman Act.
47
operate as a small-group health insurer and charge plaintiff allegedly supracompetitive rates
were made “in the boardroom” by Highmark and HHIC and not at the PID or the DOH.
Litton Systems, Inc. v. AT & T Co., 700 F.2d 785 (2d Cir.1983).12 Highmark—like the
defendant in Cantor—had sufficient “freedom of choice” to decide whether to act pursuant to
that agreement, Cantor, 428 U.S. at 593, and plaintiff does not complain of any action taken
by the PID or the DOH. Under those circumstances, Sanders and Greenwood are not
applicable to this case, and Highmark is not entitled to Noerr-Pennington immunity with
respect to plaintiff’s remaining claims. Highmark’s motion for summary judgment will be
denied on that basis.
12
The Second Circuit Court of Appeals in Litton Systems, Inc. v. AT & T Co., 700 F.2d
785 (2d Cir.1983), explained:
[I]n this case, as in Continental Ore Co. v. Union Carbide & Carbon Corp.,
370 U.S. 690, 707, 82 S.Ct. 1404, 1414, 8 L.Ed.2d 777 (1962), the NoerrPennington doctrine is “plainly inapposite” because AT & T was “engaged in
private commercial activity, no element of which involved seeking to procure
the passage or enforcement of laws.” The decision to impose and maintain
the interface tariff was made in the AT & T boardroom, not at the FCC;
AT & T's power to exclude Litton and other competitors from the telephone
terminal equipment market resulted not from the FCC's regulatory authority
but from AT & T's exclusive control of the telephone network. AT & T cannot
cloak its actions in Noerr-Pennington immunity simply because it is required,
as a regulated monopoly, to disclose publicly its rates and operating
procedures. The fact that the FCC might ultimately set aside a tariff filing does
not transform AT & T's independent decisions as to how it will conduct its
business into a “request” for governmental action or an “expression” of
political opinion. Similarly, the FCC's failure to strike down a tariff at the time
of its filing does not make the conduct lawful, particularly where, as in this
case, the agency specifically declines to rule on a tariff's legality.
Litton, 700 F.2d at 807-08 (emphasis added).
48
B. The Filed Rate Doctrine13
13
This court in three other opinions issued in this case applied the filed rate doctrine to
claims asserted or proposed by plaintiff. (ECF Nos. 240, 284, 301.) One treatise noted that
the court’s opinions dated September 27, 2013, (ECF No. 240), and August 21, 2014, (ECF
No. 284) applied the filed rate doctrine to claims in this case even though the “‘state action’
prongs [were]…not shown to be satisfied.” PHILLIP E. AREEDA & HERBERT HOVENKAMP,
ANTITRUST LAW ¶ 247 (Supp. 2017). “Under the state action doctrine, private entities
participating in state-administered price regulation can assert antitrust immunity if, inter alia,
‘the State provides active supervision of anticompetitive conduct undertaken by private
actors.’” McCray v. Fidelity Nat’l Title Ins. Co., 682 F.3d 229, 238 n.6 (3d Cir. 2012).
According to Areeda and Hovenkamp: “Extending the [filed rate] doctrine to state agencies
raises the troublesome issues that rate filings may serve to confer an effective antitrust
immunity in situations where antitrust’s ‘state action’ doctrine would not apply.” IA PHILLIP
E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶ 247e (4th ed. 2013). Areeda and
Hovenkamp explain that “[t]he most sensible approach would be to limit application of the
filed rate doctrine as applied to state regulators only when the regulatory regime in question
would qualify for state action immunity.” Id.
This court is bound to follow the decisions of the Court of Appeals for the Third
Circuit. In McCray, the court of appeals affirmed the decision of the district court to apply
the filed rate doctrine to bar federal antitrust claims based upon rates filed with the Delaware
Insurance Department, i.e., a state regulatory agency. The court of appeals did not analyze
whether the state action doctrine applied to that case and explained:
[T]here is no apparent requirement to reconcile the filed rate and state action
doctrines, as courts have generally applied them independently. See, e.g., Trigen–
Okla. City Energy Corp. v. Okla. Gas & Elec. Co., 244 F.3d 1220, 1224–25 (10th
Cir.2001) (dismissing claims under state action doctrine and as a result declining to
reach filed rate doctrine); City of Kirkwood v. Union Elec. Co., 671 F.2d 1173, 1182
(8th Cir.1982) (independently analyzing the filed rate doctrine and the state action
doctrine). Moreover, the doctrines do not completely overlap because the filed rate
doctrine, unlike the state action doctrine, does not provide complete immunity from
antitrust liability. See Essential Commc'ns, 610 F.2d at 1121.
McCray, 682 F.3d at 238 n.6. Based upon the analysis in McCray, a court may apply the
filed rate doctrine to federal antitrust claims arising from rates filed with a state regulatory
agency without conducting an analysis of the state action doctrine.
49
1. The parties’ arguments
Highmark argues that it is entitled to summary judgment “on plaintiff’s claims from
July 1, 2010 through June 30, 2011” because the measure of damages for that time period is
barred by the filed rate doctrine. Highmark explains:
Here, when the PID gave its approval for HHIC to operate as a PPO and sell
small group plans, the PID indisputably knew how HHIC intended to set its
rates, had access to HHIC’s rates, set rate limitations in the April 26
agreement, and investigated any complaints about those rates that it received.
Thus, the PID “in fact authorized” HHIC’s rates.
(ECF No. 485 at 13.) Plaintiff argues that “[a]t a minimum, there is a dispute of material fact
as to whether the PID ‘reviewed and approved’ HHIC’s rates.” (ECF No. 474 at 17.)
According to plaintiff, the PID did not review and approve HHIC’s rates, which were
submitted to the PID after it approved HHIC’s PPO applications. (Id. at 18.)
2. The filed rate doctrine, Keogh v. Chicago & Northwestern Ry. Co.,
260 U.S. 156 (1922)
The filed rate doctrine “‘bars antitrust suits based on rates that have been filed and
approved by federal agencies’” and state agencies.14 McCray v. Fidelity Nat’l Title Ins. Co.,
14
The court in Borough of Landsdale v. PP & L, Inc., recognized:
Numerous courts have held that the filed rate doctrine applies equally to rates
filed with state agencies. See Wegoland Ltd. v. NYNEX Corp., 27 F.3d 17, 20
(2d Cir.1994); Taffet v. Southern Co., 967 F.2d 1483, 1494 (11th Cir.1992)
(holding that the filed rate doctrine applies with equal force whether the rate at
issue was set by a state or federal rate-making authority); H.J., Inc. v.
Northwestern Bell Tel. Co., 954 F.2d 485, 494 (8th Cir.1992) (“the rationale
underlying the filed rate doctrine applies whether the rate in question is
approved by a federal or state agency”). The filed rate doctrine can be a
defense to both federal and state law actions based on the regulated rates. See
Ark. La. Gas Co. v. Hall, 453 U.S. 571, 578, 101 S.Ct. 2925, 69 L.Ed.2d 856
50
682 F.3d 229, 236 (3d Cir. 2012) (quoting Utilimax.com, Inc. v. PPL Engery Plus, LLC, 378
F.3d 303, 306 (3d Cir. 2004)).
When the filed rate doctrine applies, it is rigid and unforgiving. Indeed, some
have argued that it is unjust. See, e.g., Fax Telecommunicaciones Inc. v. AT &
T, 138 F.3d 479, 491 (2d Cir.1998); Ting v. AT&T, 319 F.3d 1126, 1131 (9th
Cir.2003). It does not depend on “the culpability of the defendant's conduct or
the possibility of inequitable results,” nor is it affected by “the nature of the
cause of action the plaintiff seeks to bring.” Marcus v. AT&T Corp., 138 F.3d
46, 58 (2d Cir.1998).
Simon v. Keyspan Corp., 694 F.3d 196, 205 (2d Cir. 2012).
The “explicit foundation” for the filed rate doctrine was set forth in Keogh v. Chicago
& Northwestern Ry. Co., 260 U.S. 156 (1922). See McCray v. Fidelity Nat’l Title Ins. Co.,
636 F.Supp.2d 332, 326 (D.Del. 2009). In Keogh, the Court held a shipper could not
maintain an antitrust lawsuit based upon rates charged by railroad carriers who allegedly
conspired together to fix freight transportation rates because “every rate complained of had
been duly filed by the several carriers with the Interstate Commerce Commission.” Keogh,
260 U.S. at 160. The shipper argued that competition was eliminated pursuant to the
conspiracy, which caused the increase in his rates. Id. at 161. The shipper sought damages
measured by the difference between the rates charged pursuant to the conspiracy and the
rates charged prior to the conspiracy going into effect. Id. at 160. The Court dismissed the
lawsuit identifying four reasons for its decision:
First, the Court reasoned that the rates charged to the shipper were determined
by the Interstate Commerce Commission to be “reasonable and
(1981) (finding that under the filed rate doctrine, “courts lack authority to
impose a different rate than the one approved by the Commission”).
Borough of Landsdale v. PP & L, Inc., 426 F.Supp.2d 264, 282-83 (E.D. Pa. 2006).
51
nondiscriminatory,” and it would be improper for the court to hold the carriers
liable based upon approved legal rates. Keogh, 260 U.S. at 162-63.
Second, the Court held that to permit the shipper to recover the difference
between the rate charged and a hypothetical lower rate would defeat the
purpose of Congress to prevent rate discrimination by “operat[ing] to give [the
shipper] a preference over his trade competitors.”15 Id. at 163.
Third, the Court found the shipper’s injury was based upon hypothesis. Id. at
163. The Court explained:
The burden resting upon the plaintiff would not be satisfied by
proving that some carrier would, but for the illegal conspiracy,
have maintained a rate lower than that published. It would be
necessary for the plaintiff to prove, also, that the hypothetical
lower rate would have conformed to the requirements of the Act
to Regulate Commerce. For unless the lower rate was one which
the carrier could have maintained legally, the changing of it
could not conceivably give a cause of action. To be legal a rate
must be nondiscriminatory.
…
But it is the Commission which must determine whether a rate is
discriminatory; at least, in the first instance….But by no
conceivable proceeding could the question whether a
hypothetical lower rate would under conceivable conditions
have been discriminatory, be submitted to the Commission for
determination. And that hypothetical question is one with which
plaintiff would necessarily be confronted at a trial.
Id. at 164.
Fourth, the Court refused to award damages under those circumstances
because the alleged damages, based upon a hypothetical rate that should have
been charged, were “purely speculative.” Id. at 164. The Court explained:
[R]ecovery cannot be had unless it is shown, that, as a result of
defendants' acts, damages in some amount susceptible of
15
The Court rejected the argument that to avoid discriminatory rates all shippers injured may
sue to recover based upon the difference in rates. Keogh, 260 U.S. at 164. The Court
reasoned that it was “highly improbable” all courts and juries would provide each shipper
“the same measure of relief.” Id.
52
expression in figures resulted. These damages must be proved
by facts from which their existence is logically and legally
inferable. They cannot be supplied by conjecture. To make
proof of such facts would be impossible in the case before us. It
is not like those cases where a shipper recovers from the carrier
the amount by which its exaction exceeded the legal rate.
Southern Pacific Co. v. Darnell-Taenzar Co., 245 U. S. 531, 38
Sup. Ct. 186, 62 L. Ed. 451. Here the instrument by which the
damage is alleged to have been inflicted is the legal rate, which,
while in effect, had to be collected from all shippers. Exaction
of this higher legal rate may not have injured Keogh at all; for a
lower rate might not have benefited him. Every competitor was
entitled to be put-and we must presume would have been put-on
a parity with him. And for every article competing with
excelsior and tow, like adjustment of the rate must have been
made. Under these circumstances no court or jury could say
that, if the rate had been lower, Keogh would have enjoyed the
difference between the rates or that any other advantage would
have accrued to him. The benefit might have gone to his
customers, or conceivably, to the ultimate consumer.
Id. at 164-65.
The Court, based upon the foregoing rationale, affirmed the decision of the Court of Appeals
for the Seventh Circuit dismissing the shipper’s claims against the carriers. Id. at 165.
The Court applied the principles set forth in Keogh in Square D Co. v. Niagara
Frontier Tariff Bureau, Inc., 476 U.S. 409 (1986). In Square D, a class of shippers sued
motor carriers and the ratemaking bureau for conspiring to fix rates for transporting freight.
Square D, 476 U.S. at 412. The shippers requested treble damages measured by the
difference between the rates they paid and rates they would have paid “in a freely
competitive market.” Id. at 413. The district court relied on Keogh and dismissed the
shippers’ claims for damages. Id. at 414. The court of appeals affirmed the district court’s
decision with respect to the filed rates. Id. The shippers appealed to the Supreme Court of the
United States. Id. at 410. The Supreme Court declined to distinguish Keogh from the case
53
before it based upon the rates that were charged to the shippers not being “challenged in a
formal ICC hearing before they were allowed to go into effect.” Id. at 417. The Court in
Square D noted that the rates were “duly submitted, lawful rates under the Interstate
Commerce Act in the same sense that the rates filed in Keogh were lawful,” and the shippers
under those circumstances were precluded from maintaining “a treble-damages antitrust
action.” Id. at 418.
3. The PID’s lack of authority to regulate the rates about which
plaintiff complains
“The filed rate doctrine applies to rates ‘properly filed with the appropriate ...
regulatory authority.’” McCray, 682 F.3d at 239 (quoting Ark. La. Gas Co. v. Hall, 453 U.S.
571, 577 (1981)). “It is the filing of the tariffs, and not any affirmative approval or scrutiny
by the agency that triggers the filed rate doctrine.” Norwood, Mass. v. N. England Pwr. Co.,
202 F.3d 408, 419 (1st Cir. 2000) (emphasis in original). In other words, “the rate must in fact
be ‘filed’ before the immunity takes effect.” IA PHILLIP E. AREEDA & HERBERT
HOVENKAMP, ANTITRUST LAW ¶ 247 (4th ed. 2013). “The form or details of the filed rate are
not relevant to the application of the filed rate doctrine; the rate need only be filed with an
agency responsible for overseeing such rates.” Borough of Landsdale v. PP &L, Inc., 426
F.Supp.2d 264, 283 (E.D. Pa. 2006) (citing Am. Tel. & Tel. Co. v. Cent. Office Tel., 524
U.S. 214, 222 (1998)). It is axiomatic, however, that “for a court to consider rates filed, and
thus protected by the filed rate doctrine, the statutory scheme must provide the regulatory
agency with authority to assess rates' compliance with statutory requirements for filed rates.”
In re Pa. Title Ins. Antitrust Litig., 648 F.Supp.2d 663, 674 (E.D. Pa. 2009); Arkansas
54
Louisiana Gas Co. v. Hall, 453 U.S. 571 (1981).16
One of the policies17 underlying the filed rate doctrine is the policy of
16
In Arkansas Louisiana Gas Co. v. Hall, 453 U.S. 571 (1981), the court considered
whether the filed rate doctrine “for[bade] a state court to calculate damages in a breach-ofcontract action based on an assumption that had a higher rate been filed, the [Federal Energy
Regulatory] Commission [(“FERC”)] would have approved it.” Id. at 573. The plaintiffs in
the trial court were the producers of natural gas, and the defendant was a customer who
purchased the defendant’s gas. Id. The parties entered into a contract for the sale of gas,
which contained a favored nations clause. That clause provided that if the defendant
purchased gas at a higher price from another seller, the plaintiffs were entitled to a higher
price for their sales to the defendant. Id. at 573-74. The plaintiffs—as required by law—filed
the contract and their rates with the FERC “and obtained from…[the FERC] a certificate
authorizing the sale of gas at the rates specified in the contract.” Id. at 574. At a later date,
the defendant purchased gas from another seller at a higher rate than it agreed to in its
contract with the plaintiffs and did not honor the favored nations clause in the contract. Id.
The plaintiffs filed suit against the defendant seeking damages measured by “an amount
equal to the difference between the price they actually were paid in the intervening years and
the price they would have been paid had the favored nations clause gone into effect.” Id.
The Supreme Court in Arkla noted that during the pendency of the legal proceedings,
the plaintiffs “gained ‘small producer’ status,” which meant they were no longer required to
make rate increase filings. Arkla, 453 U.S. at 575 n.4. The Court ultimately held that “the
filed rate doctrine prohibits the award of damages for Arkla’s breach during the period that
respondents were subject to the…[FERC’s] jurisdiction.” Id. at 584. The Court, in a footnote
inserted at the end of that sentence, explained: “There is no bar to damages for the period
after respondents gained ‘small producer status.” Id. at 585 n.14. Accordingly, Arkla
supports the notion that rates that are not subject to the authority of a regulator are also not
subject to the filed rate doctrine.
17
The Third Circuit Court of Appeals recognizes that there are two policies underlying
the filed rate doctrine, which are referred to as the “nondiscrimination strand” and the
“nonjusticiability strand” of the filed rate doctrine. In re N.J. Title Ins. Litig., 683 F.3d at
455-56.
The court of appeals has not recognized the two policies as “elements in determining whether
to extend the [filed rate] doctrine to new areas[,]” but has analyzed whether the facts of a
given case implicate either of the policies to determine whether the filed rate doctrine applies
to bar claims based upon properly filed rates. Id. at 456-60 (emphasis added); McCray, 682
F.3d at 241-42.
The nondiscrimination strand is concerned with “‘preventing carriers from engaging
in price discrimination as between ratepayers,’” and “recognizes that ‘victorious plaintiffs
would wind up paying less than non-suing ratepayers.’” Id. (quoting Wegoland Ltd. v.
55
nonjusticiability, i.e., the preservation of the “‘exclusive role of agencies in approving
rates…by keeping courts out of the rate-making process,’ a function that ‘regulatory agencies
are more competent to perform.’” In re N.J. Title Ins. Litig., 683 F.3d 451, 455 (3d Cir.
2012) (quoting Marcus v. AT&T Corp., 138 F.3d 46, 58 (2d Cir. 1998)). Courts have
recognized that:
“(1) legislatively appointed regulatory bodies have institutional competence to
address rate-making issues; (2) courts lack the competence to set ... rates; and
(3) the interference of courts in the rate-making process would subvert the
authority of rate-setting bodies and undermine the regulatory regime.” Sun
City Taxpayers' Assoc. v. Citizens Utils. Co., 45 F.3d 58, 62 (2d Cir.1995).
McCray, 682 F.3d at 242 (quoting Sun City Taxpayers’ Ass’n v. Citizens Utils. Co., 45 F.3d
58, 62 (2d Cir. 1995). The concept of nonjusticiability is not implicated in a case if the
pertinent agency was not granted the legal authority to regulate rates because the court
cannot infringe upon a rate-making authority that does not legally exist. Highmark did not
cite to and the court did not find any decision in which a court applied the filed rate doctrine
in the absence of a statutory scheme or other law providing the regulating agency the
authority to regulate the rates about which the plaintiff complained; indeed, even though
some courts in applying the filed rate doctrine have relaxed the requirement that rates be
literally filed with a regulating agency, the courts maintain that the regulating agency must
have the authority to regulate the rates and actually regulate those rates. See e.g., Wortman v.
NYNEX Corp., 27 F.3d 17, 21 (2d Cir. 1994)). The nondiscrimination strand is not
implicated in this case because plaintiffs are suing defendants “on their own behalf and on
behalf of all others similarly situated.” (ECF No. 286 at 1); McCray, 682 F.3d at 242. It is,
therefore, “unlikely that a victory would allow [plaintiffs] to pay less than other ratepayers.”
McCray, 682 F.3d at 242.
56
All Nippon Airways, 854 F.3d 606 (9th Cir. 2017) (discussing decisions in which the Court
of Appeals for the Ninth Circuit applied “the filed rate doctrine to circumstances in which the
relevant rates were not literally filed” but were regulated by agencies with authority to
regulate the rates); Texas Commercial Energy v. TXU Energy, Inc., 413 F.3d 503, 509 (5th
Cir. 2005) (holding the filed rate doctrine barred claims based upon market-based rates that
were not literally filed but were regulated by the Public Utility Commission of Texas, which
had the authority to regulate the rates); Utilimax.com, Inc. v. PPL Energy Plus, LLC, 378
F.3d 303 (3d Cir. 2004) (applying the filed rate doctrine to claims based upon market-based
rates that were not filed with, but were regulated by, the Federal Energy Regulatory
Commission, which had the authority to and actually regulated the rates); Borough of
Landsdale, 426 F.Supp.2d at 283 (same as Utilimax).18
Here, Highmark did not point to any legal authority to show that the PID had the legal
authority to regulate HHIC’s rates for its small group customers during the relevant time
period. The parties agree that under applicable law HHIC during the relevant timeframe was
not required to file its rates for approval with the PID. The governing statutory provision
18
At least one treatise calls into question the soundness of the decisions relaxing the
requirement that rates be literally filed with the regulating agency. IA PHILLIP E. AREEDA &
HERBERT HOVENKAMP, ANTITRUST LAW ¶ 247b (4th ed. 2013).
This seems to be an unwarranted extension of a doctrine that even the
Supreme Court concedes is justified only by precedent. As weak as Keogh’s
rationales for the filed rate doctrine were when they were first formulated, they
are virtually nonexistent when the rate in question is not subject to filing at all
and the firm has unrestrained power to set its own rates.
Id.
57
provides:
(d) Certain group rates exempt.—Except as provided in subsection (e), an
insurer shall not be required to file with the department rates for accident and
health insurance policies which it proposes to issue on a group, blanket or
franchise basis in this Commonwealth.
40 PA. CONS. STAT. § 3803(d) (2010).19 The court cannot conclude as a matter of law that the
PID during the relevant timeframe had rate-making authority over HHIC’s rates for its smallgroup customers. If the PID did not have rate-making authority over HHIC, a determination
by the court about the rates charged by HHIC during the relevant timeframe could not
infringe upon any applicable authority of the PID. The filed rate doctrine, therefore, does not
apply to bar plaintiff’s claims based upon rates HHIC charged plaintiff from July 1, 2010,
through June 30, 2011.
Highmark argues regardless whether the PID had the statutory authority to regulate
HHIC’s rates, the PID actually did regulate HHIC’s rates via the April 26, 2010 agreement,
and, therefore, the filed rate doctrine should apply to bar claims based upon those rates. That
argument is not persuasive to the court. Highmark’s argument disregards that for the filed
rate doctrine to apply, “the statutory scheme must provide the regulatory agency with
authority to assess rates' compliance with statutory requirements for filed rates.” In re Pa.
Title Ins. Antitrust Litig., 648 F.Supp.2d at 674. As discussed above, Highmark did not point
to any legal basis—statutory or otherwise—that provided the PID the authority to regulate
HHIC’s rates during the relevant time period. If HHIC was not statutorily required to submit
19
Highmark did not submit to the court any evidence to show that section 3803(e)
applied to HHIC at the relevant time and required it to file its small-group health insurance
rates with the PID.
58
its rates to the PID, the filed rate doctrine will not apply to bar a measure of damages based
upon those claims. Arkla, 453 U.S. at 585 n.14.20
Based upon the foregoing, the court discerns no basis upon which to apply the filed
rate doctrine to any claims remaining in this case. Highmark’s motion for summary judgment
with respect to the rates charged by HHIC from July 1, 2010, through June 30, 2011, will,
therefore, be denied.21
20
Whether the PID had the authority to review and withhold its approval of the PPO
applications is not in issue in this case and is an issue separate from whether the PID had the
legal authority to regulate HHIC’s rates. Another concern is that the record is not clear with
respect to the import of the 25% cap on the health status factor, i.e., whether there existed a
“calculable rate” based upon that limitation and the confidential agreement dated April 26,
2010. McCray, 682 F,3d at 240 (quoting Whitaker v. Frito-Lay, Inc., 88 F.3d 952, 961 (11th
Cir. 1996)). Even if the filed rate doctrine might apply the court cannot, based upon the
record presented, assess whether the PID’s actions constituted rate-regulation upon which the
court may not infringe. Courts have held that when it is unclear whether there is a properly
filed rate, and, therefore, whether the pertinent regulating agency had jurisdiction over the
complained-of rates, summary judgment should be denied. E. & J. Gallo Winery v. EnCana
Corp., 503 F.3d 1027, 1045 (9th Cir. 2007) (affirming the district court’s denial of the
defendant’s motion for summary judgment with respect to some of the plaintiff’s claims
based upon the filed rate doctrine because material issues of fact existed about whether the
rates about which the plaintiff complained were properly filed rates within the jurisdiction of
the regulating agency, i.e., the Federal Energy Regulatory Commission); Florida Mun. Power
Agnecy v. Florida Power & Light Co., 64 F.3d 614 (11th Cir. 1995) (remanding the motion
for summary judgment for the district court to make a factual determination about whether
the complained-about rates were subject to the jurisdiction of the regulating agency and,
thus, filed rates).
Although not addressed by the parties, Highmark’s arguments with respect to the filed
rate doctrine could be unavailing for another reason, i.e., the undisputed evidence of record
does not show that HHIC filed its small groups rates with the PID during the relevant
timeframe.
The filed rate doctrine “derives from the more general public utility rule that once a
rate is filed with a regulatory agency, the company is forbidden to charge a different rate.” IA
PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶ 247 (4th ed. 2013). A
review of decisions discussing the requirement of a filed rate shows that a filed rate is a rate
submitted to the regulating agency, which is made available for public view, i.e., the
published rate. See e.g., Brizendine v. Cotter & Co., 4 F.3d 457, 460 (7th Cir. 1993), vacated
59
21
on other grounds, 511 U.S. 1103 (1994); Maislin Indus., Inc. v. Primary Steel, Inc., 497 U.S.
116, 126 (1990); Ark. La. Gas Co. v. Hall, 453 U.S. 571, 577 (1981).
Here, Highmark argues that in connection with its negotiations with the PID with
respect to its PPO applications, “the PID reviewed and approved HHIC’s rate formulas for
July 1, 2010 through June 30, 2011[,]” and “[t]he PID demanded extensive rate-related
information prior to approving HHIC’s new small group products, and refused to approve
HHIC’s new small group products until it was satisfied with the rate formulas that HHIC
planned to use to charge small group rates.” (ECF No. 460 at 17.) As discussed above, the
applicability of the filed rate doctrine does not depend upon the extent of review conducted
by the regulatory agency; rather, it is the filing of the rate that “triggers” the doctrine.
McCray, 682 F.3d at 238-39 (“[T]he Supreme Court has never indicated that the filed rate
doctrine requires a certain type of agency approval or level of regulatory review. Instead, the
doctrine applies as long as the agency has in fact authorized the challenged rate.”). Highmark
did not submit to the court any evidence to show that HHIC’s rates to be charged from July
1, 2010, through June 30, 2011, were properly filed with the PID and published or were
otherwise made available for public view.
Highmark cannot rely upon the April 26, 2010 agreement as evidence that it filed its
rates with the PID because the undisputed evidence of record shows that: (1) HHIC during
the relevant timeframe was not statutorily required to file its rates with the PID; and (2) the
April 26, 2010 agreement was confidential, i.e., not available for public view. Under those
circumstances, it would be questionable whether the court could find as a matter of law that
HHIC’s rates for small group health insurance to be charged from July 1, 2010, through June
30, 2011, were filed rates, which may trigger the application of the filed rate doctrine.
As discussed above, courts in specific circumstances have not required that a rate be
literally filed with the regulating agency in order to invoke the filed rate doctrine.
Specifically, courts have held that (1) if a regulating agency has the authority to regulate
rates, and (2) exercises its authority to regulate rates, the filed rate doctrine may apply to bar
damages based upon those rates even if they were not technically filed with the regulating
agency. See e.g., Wortman, 854 F.3d at 606 (discussing cases); Texas Commercial Energy,
413 F.3d at 509; Utilimax, 378 F.3d at 303; Borough of Landsdale, 426 F.Supp.2d at 283.
The parties agree that from July 1, 2010, through at least June 30, 2011, the PID did
not have the statutory authority to regulate HHIC’s small-group health insurance rates.
Highmark argues that the PID regulated its rates via the April 26, 2010 agreement, but did
not point to any authority to show that the PID had the authority to regulate those rates.
There is evidence of record that if the PID received complaints about HHIC’s rates, the PID
had authority to investigate those rates. There is no evidence of record, however, that the PID
exercised that authority with respect to the rates complained about in this case and actually
investigated and regulated those rates. Those facts do not appear to satisfy the two-part test to
determine whether rates that were not technically filed with a regulating agency trigger the
application of the filed rate doctrine. Under those circumstances, the court would not be able
to find as a matter of law that HHIC’s rates were filed with the PID such that the filed rate
60
VI.
Conclusion
Plaintiff does not complain that Highmark’s constitutionally-protected conduct in
connection with the PPO applications caused it injury; rather, plaintiff alleges it was harmed
by by Highmark’s action—as opposed to any action by the PID or the DOH—of having
HHIC charge it allegedly supracompetitive rates, pursuant to the alleged UPMC-Highmark
conspiracy. The court under those circumstances cannot conclude that Highmark is entitled
to Noerr-Pennington-immunity in this case.
There is no evidence of record to show that the PID had rate-making authority with
respect to the rates charged by HHIC during the relevant time period. Under those
circumstances, the filed rate doctrine is not implicated, and the court cannot grant summary
judgment to Highmark based upon application of the filed rate doctrine.
For the foregoing reasons, Highmark is not entitled to summary judgment on any of
plaintiff’s claims set forth in the third amended complaint. Highmark’s motion for summary
judgment (ECF No. 455) will be DENIED. An appropriate order will be entered.
BY THE COURT,
Dated: August 15, 2017
/s/ JOY FLOWERS CONTI
Joy Flowers Conti
Chief United States District Judge
doctrine applies to bar any claim for damages based upon rates charged by HHIC from July
1, 2010, through June 30, 2011.
61
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