On August 17, 2016, the US Court of Appeals for the Third Circuit held in Deborah Heart & Lung Center v. Virtua Health, Inc. that, when alleging an illegal restraint of trade in violation of Section 1 of the Sherman Act where there is no evidence of market power, plaintiff must show anticompetitive effects on the geographic market as a whole ( (3d Cir. Aug. 17, 2016)).

In Deborah, the plaintiff, a charity hospital in southern New Jersey, alleged that the defendants, Virtua and a group of cardiac physicians, violated Section 1 by agreeing to send patients needing advanced cardiac interventional procedures (ACIs) to a Philadelphia-area hospital and not plaintiff's hospital, an illegal exclusive dealing arrangement. The plaintiff alleged that the purpose of the agreement was to cause the plaintiff to go out of business by forcing consumers to obtain ACI procedures elsewhere when, absent the agreement, they would have chosen the plaintiff's hospital.

The Third Circuit held that, under the rule of reason, plaintiff failed to sufficiently allege a Section 1 violation. The court noted that plaintiff was unable to satisfy the second prong of the rule of reason analysis (anticompetitive effects on the relevant product and geographic markets) because it failed to allege:

The court stated that although plaintiff may have alleged anticompetitive effects on the patients entering defendant hospital's emergency room, the geographic market was defined as three to five counties in New Jersey and portions of Philadelphia. Therefore, to adequately show anticompetitive effects, plaintiff was required to show anticompetitive effects in the entirety of that area.

The court reasoned that its holding followed the US Supreme Court's holding in Jefferson Parish Hospital District No. 2 v. Hyde, in which the Supreme Court found the relevant geographic market for anesthesiologist services to be the New Orleans metropolitan area, and not simply one hospital in the area (466 U.S. 2 (1984)). Similar to the facts in Jefferson Parish, the court noted that patients could choose to obtain ACIs at many other hospitals in the geographic market, despite the alleged agreement.

For more information on how courts analyze potential Section 1 violations, see Practice Note, Analyzing Restraints of Trade under the Rule of Reason. For more information on antitrust in the healthcare market, see Practice Note, Healthcare Competition: Providers and Insurers.