Legal Alert: Court Grants Partial Summary Judgment in Favor of Hospitals in Nurse Wage-Fixing Lawsuit

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[authors: John Allgood, Todd Seelman]

Executive Summary:  On March 22, 2012, a Michigan federal district court granted summary judgment on some, but not all, antitrust claims alleged in a nurse wage-fixing lawsuit against five Detroit-area hospitals. 

Plaintiffs' complaint alleged two antitrust claims under §1 of the Sherman Act:  (1) a horizontal price-fixing conspiracy whose purpose was to depress nurse wages among the hospitals (analyzed as a per se violation which obviates the need to prove competitive harm in the relevant market) ("Count I") and (2) a horizontal information-exchange conspiracy whose purpose was to regularly exchange detailed, non-public nurse compensation information among the hospitals (analyzed under the rule of reason which requires proof of competitive harm in the relevant market) ("Count II").  In granting summary judgment as to Count I, the district court observed that – while a very close call – in examining all of the evidence in a light most favorable to the plaintiffs, there was insufficient evidence produced that tended to exclude the possibility of independent action by the hospitals.  In examining the same evidence, however, the district court denied summary judgment on the plaintiffs' Count II claim, leaving that claim to be decided by a jury.

Originally filed in 2006, the antitrust lawsuit – captioned Cason-Merenda  v. Detroit Medical Center  (Civil Action No. 2006-cv-15601-GER-DAS) – was filed by two registered nurses in the Eastern District of Michigan (Southern Division) on behalf of themselves and a class of registered nurses employed by the defendant hospitals between December 12, 2002 and December 15, 2006.  The class members were alleged to number in the thousands.  The lawsuit was originally filed against eight Detroit-area hospitals; however, by the time of the summary judgment decision, three of the hospitals had formally settled with the plaintiffs and two of the last five defendants had entered into tentative settlement agreements.  The motion for class certification is still pending.

The factual underpinnings supporting Counts I and II are largely the same.  The plaintiffs alleged and produced evidence to show that from December 2002 to the present, the eight hospitals routinely exchanged detailed, non-public nurse compensation-related information which was then used to artificially depress current and future nurse wages.  The information exchanges occurred through three mechanisms:  (a) direct communications between competitor hospitals' human resource staff; (b) industry meetings and health care industry organizations to which the defendant hospitals belonged; and (c) third-party surveys sponsored by the defendant hospitals. 

As to direct communications between hospital human resource staff, the plaintiffs submitted evidence that tended to show that it was not uncommon for human resource employees (who were responsible for determining nurse compensation) to telephone and/or meet on an ad hoc basis with their counterparts at other defendant hospitals and freely provide current nurse compensation-related information upon request.  Such communications also occurred as part of periodic hospital-hospital surveys.

As to communications through industry meetings and health care industry organizations, the evidence produced by the plaintiffs suggested that industry meetings were used as opportunities to disseminate and exchange wage-related information.

As to the third-party surveys, the district court noted that while the hospitals purportedly based their third-party surveys on Statement 6 of the 1996 Department of Justice/Federal Trade Commission "Statements of Antitrust Enforcement Policy in Health Care" (the "1996 DOJ/FTC Guidelines"), the plaintiffs provided evidence that tended to show that the defendant hospitals substantially deviated from those guidelines.  Under the 1996 DOJ/FTC Guidelines, an antitrust "safety zone" existed for health care providers who conducted written surveys on (a) the prices for health care services or (b) the wages, salaries, or benefits of health care personnel – if such written surveys satisfy the following conditions: (1) the written survey was managed by a third-party provider; (2) the data provided by participants was more than three months old, and (3)(i) there were at least five providers reporting data on which the statistics were based, (ii) no individual provider's data represented more than 25% on a weighted basis, and (iii) the data was sufficiently aggregated to prevent the recipients of the survey from identifying  the amount the providers charged or compensation paid by any particular provider. 

The plaintiffs put forth evidence that the defendant hospitals deviated from the 1996 DOJ/FTC Guidelines by:  (1) permitting the defendant hospitals to participate in the survey "design"; (2) exchanging data that was less than three months old (and in some cases even current or future data was used); and (3) unmasking the survey participants and disaggregating the survey results so that recipients knew which defendant hospitals were paying or charging specific prices.

In granting summary judgment in the hospitals' favor on Count I, the district court observed (and the plaintiffs acknowledged) that since there was no direct evidence of an explicit agreement to fix wages, the question would turn on whether the plaintiffs provided sufficient evidence that tended to exclude the possibility that the defendants acted independently.  In evaluating permissible inferences to be drawn from ambiguous evidence, and considering the factual record as a whole, the district court found the evidence supporting an inference of an unlawful wage-fixing agreement to be equally as strong as an inference that the hospitals' conduct was independent, which required a finding in the hospitals' favor.  In the end, what the district court found lacking in the factual record was evidence of coordinate use (unity of purpose) with the exchanged wage information.  In short, while it was clear that the hospitals freely exchanged wage-related information, it was unclear what "they" did with it.  A lack of post-exchange parallel pricing conduct (i.e., coordinated price reductions in nurse wages) cut against an inference of an unlawful conspiracy to depress nurse wages.   

That said, the district court also held that Count II would survive summary judgment, leaving the plaintiffs free to convince the jury that the hospitals' agreement to exchange wage information had harmed competition generally and the plaintiffs individually.  

Employers' Bottom Line:

Lawsuits alleging price fixing (employee wages) have become more common, especially in the health care industry.  Employers who exchange current wage information with competitors may be at risk for such lawsuits.  Ford & Harrison attorneys can provide you with guidance on the legal ramifications of exchanging wage information.  If you have questions regarding the issues discussed in this Legal Alert or other issues relating to sharing wage information, please contact the Ford & Harrison attorney with whom you usually work or the authors of this Alert, John Allgood, jallgood@fordharrison.com or Todd Seelman, tseelman@fordharrison.com.