Bundling, generically defined, is offering for sale at a single price two or more goods or services that the consumer otherwise could purchase separately. In the healthcare industry, bundling is ubiquitous. For example, some hospital systems offer to negotiate a single contract with health plans and other third party payors on behalf of all of their member hospitals. Some health plans propose “all products clauses” for purposes of enrolling providers in all of the plans’ networks in a particular geographic area.
Bundled discounting occurs when a seller offers a group of products (or services) at a lower price than the aggregate charge for the goods if purchased individually. For example, a group purchasing organization (GPO) may offer discounts based on volume purchasing across multiple product lines. Similarly, a hospital system may offer discounts to health plans that agree to include its hospitals as a preferred provider of primary, secondary, and tertiary services.
Bundled discounting often creates a procompetitive “win-win” by generating transactional and other efficiencies that create savings for the seller and allow the buyer to get more for less. In many instances, efficiencies arise because it costs less to sell a single customer multiple products at the same time than it costs to sell each of the products individually. In Jefferson Parish Hosp. District No. 2 v. Hyde, 466 U.S. 2, 12 (1984), the Supreme Court explained that “[b]uyers often find package sales attractive; a seller’s decision to offer such packages can merely be an attempt to compete effectively—conduct that is entirely consistent with the Sherman Act.” However, under certain circumstances, bundled discounting can harm consumer welfare and create monopolization concerns under Section 2 of the Sherman Act. Section 2 prohibits monopolization, attempts to monopolize, and conspiracies to monopolize. See 15 U.S.C. § 2.
Excerpt from Christine L. White & Heather Good, All Together Now? Evolving Antitrust Approaches to Bundled Discounting, 2 J. HEALTH & LIFE SCI. L., 47, 50-51 (April 2009).
The Ninth Circuit decision in Cascade Health Solutions v. PeaceHealth, 515 F.3d883 (9th Cir. 2008) established the presumptive legality of bundled discounts that do not exclude a hypothetical, equally efficient producer of competitive products—that is, products that compete with components of the bundled package. The PeaceHealth Court explicitly rejected the holding of LePage’s, Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003). Under LePage’s, bundled discounts offered by a monopolist are unlawful if they substantially foreclose portions of the market to a competitor that does not provide an equally diverse group of services—and therefore cannot make a comparable offer. The PeaceHealth decision created a circuit split over the appropriate legal standard for evaluating bundled discounting practices. The current circuit split reflects the difficulty in distinguishing between “good” and “bad” discounts.
Excerpt from Christine L. White & Heather Good, PeaceHealth: An Evolutionary Step in the Antitrust Analysis of Bundled Discounts, American Health Lawyers Assoc. (March 2009).