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CONTINENTAL ORTHOPEDIC APPLIANCES, INC. v. HEALTH

February 7, 1998

CONTINENTAL ORTHOPEDIC APPLIANCES, INC., NEW YORK ORTHOPEDIC, STAHL SURGICAL SUPPLY INC., UNITED ORTHOPAEDIC APPLIANCES, INC., A-1 SURGICAL AND MEDICAL SUPPLIES, INC., ARCHFAME, INC., ORTHO SURGICAL, J.C. ORTHOPEDIC CO., INC., DAY DRUG & ORTHOPEDIC TREATMENT FACILITY, ORTHOTIC CONSULTANTS, INC., JAMES CASE ENTERPRISES, INC., CERTIFIED ORTHOPEDIC, PROTHOTIC LABS, ELMONT PHARMACY & SURGICAL, FOOT MOLDS, INC., and A PERSONAL TOUCH GARMENT CORPORATION, on behalf of themselves and all others similarly situated, Plaintiffs, against HEALTH INSURANCE PLAN OF GREATER NEW YORK, INC., ADVANCED ORTHOPEDIC TECHNOLOGIES, INC., A wholly owned subsidiary of NOVACARE PROSTHETICS and ORTHOTICS, INC., NOVACARE PROSTHETIC and ORTHOTICS, INC., and ARIMED ORTHOTICS, PROSTHETICS, AND PEDORTHICS INC., ANDREW H. MEYERS, MATTHEW MIRONIS, STEVEN MIRONIS, BERNARD NEECK AND ANTHONY L. WATSON, Defendants.

ARTHUR D. SPATT, United States District Judge.


The opinion of the court was delivered by: SPATT

SPATT, District Judge.

 This putative class action seeks redress for alleged violations of the federal and state antitrust laws arising from the defendants' alleged unlawful and conspiratorial bid-rigging, price fixing, and termination and exclusion of all orthotic and prosthetic ("O&P") providers within the five boroughs of New York City and the surrounding six Counties of Nassau, Suffolk, Westchester, Rockland, Orange and Putnam, by the defendants Health Insurance Plan of Greater New York, Inc. ("HIP"), Advanced Orthopedic Technologies, Inc. ("Advanced"), Arimed Orthotics, Prosthetics and Pedorthics, Inc. ("Arimed"), and five individual officers and executives of the corporate defendants, beginning on or about July 31, 1995, and continuing to date. Presently before the Court is the defendants' motion to dismiss the plaintiffs' First Amended Complaint pursuant to Fed. R. Civ. P. 12(b)(6), for failure to state a claim upon which relief can be granted.

 I. BACKGROUND

 A. Factual background

 This lawsuit arises from a decision made by HIP, a health management organization ("HMO"), to enter into certain exclusive contracts for O&P service with Advanced and Arimed, which became effective on August 1, 1995 and February 13, 1997. Orthotics is the design, fabrication, fitting, and supervised use of custom-made braces and other devices that provide external support to treat musculoskeletal disorders. Prosthetics is the design, fabrication, and fitting of custom-made artificial limbs for patients who have lost limbs as a result of traumatic injuries, diabetes, cancer, mastectomy, vascular disease, or congenital disorders. The facts set forth below are taken from the First Amended Complaint.

 Effective August 1, 1995, Advanced and Arimed are alleged to be "preferred providers" in regard to O&P services provided to HIP's customers in the Counties of Queens, Nassau, Suffolk, Brooklyn, and Staten Island (collectively, the "Five County Region" or the "Lower County Region"), notwithstanding that these providers, combined, allegedly had at most six outlets in these counties. As a result of these contracts, the former O&P providers, including the plaintiffs, no longer will be the recipient of HIP's business in the Lower County Region. Simultaneously, each and every O&P provider who had previously attempted to become a HIP provider was forever foreclosed from becoming a member in the HIP network comprising of the Lower County Region.

 HIP allegedly did not notify any of the O&P providers of their termination or, upon information and belief, the affected enrollees. However, apparently some time later, HIP provided the following memorandum, which it delivered to each terminated provider who inquired as to its termination:

 
The Health Insurance Plan of Greater New York (HIP) has recently entered into agreements with Advanced Orthopedic Technology and Arimed whereby these two vendors will be preferred providers of O&P services for HIP members in the Queens-Long Island/Brooklyn and Staten Island Regions.
 
Any cases which have already been referred to your company will continue to be monitored by the HIP Alternate Care Utilization Management Department. However, any new cases as of August 1, 1995 will be referred to one of the preferred providers. If you have any questions or issues with regard to the above change[,] please feel free to contact the HIP Alternate Care Utilization Management Department at (212) 630-8203.
 
HIP would like to thank you for your past service to HIP Members and appreciates your anticipated cooperation with this transition.

 First Amended Complaint ("Am. Compl.") P 78.

 The plaintiffs allege that their termination and exclusion occurred despite their background, experience, training, competence, adherence to the ethics of the profession, good reputation, and the ability to work with others. All plaintiffs were Board-certified pursuant to the American O&P Association. ("AOPA") and the New York State O&P Association ("NYOPA"). Nevertheless, only one entity among the plaintiffs was allegedly afforded an opportunity to submit bids to HIP prior to their termination.

 On or about February 13, 1997, HIP disclosed that it had "extended" exclusive contracts to Advanced and Arimed to provide O&P services for "all HIP New York members" in the Counties of New York (i.e., Manhattan), Bronx, Westchester, Orange, Rockland, and Putnam (collectively, the "Upper County Region"). These territories were conferred to Advanced and Arimed even though in most counties comprising the Lower and Upper County Regions, Advanced and Arimed allegedly had only one or two sites, and in some counties, had no O&P sites at all to service HIP's customers. As a result of these contracts, the former O&P providers, including the plaintiffs, would no longer be the recipient of HIP's business in the Upper County Region. Simultaneously, each and every O&P provider who had previously attempted to become a HIP provider was forever foreclosed from becoming a member in the HIP network in the Upper County Region.

 The plaintiffs allege that, once again, HIP did not timely notify any of the affected O&P providers of their termination or, upon information and belief, the affected enrollees. Rather, HIP prepared a memorandum dated February 13, 1997, which mirrored the language of the July 31, 1995 termination letter, stating that HIP had "recently extended" its "agreements" with Advanced and Arimed "whereby these two vendors will be preferred providers of orthotic and prosthetic services for all HIP New York Members." Am. Compl. P 84. In a later memorandum dated March 15, 1997, which upon information and belief, was provided only to HIP personnel on a distribution list, HIP detailed the partitioning of the Upper County Region among Advanced and Arimed. Upon information and belief, HIP gave no explanation to its personnel for the sudden "extension" of coverage of the Upper County Region to Advanced and Arimed.

 The plaintiffs allege that their termination and exclusion occurred despite their background, experience, training, competence, adherence to the ethics of the profession, good reputation, and the ability to work with others. All plaintiffs were Board-certified pursuant to the AOPA and NYOPA. Nevertheless, none of the plaintiffs were allegedly afforded an opportunity to submit bids to HIP prior to their termination.

 The plaintiffs allege that "HIP, Advanced and Arimed agreed to carry out a plan whereby HIP would sharply cut its own costs by virtually eliminating the supply of O&P services to HIP enrollees, which services HIP had contracted to provide for its patients." Am. Compl. P 49. The defendants allegedly

 
combined, conspired and agreed to (1) terminate all HIP's O&P providers, except Advanced and Arimed ("A&A"); (2) channel all HIP's O&P patients to A&A; (3) artificially restrict the supply of O&P services to HIP's patients; (4) fix the prices A&A would charge for providing O&P services; and (5) rig the bidding process for HIP's O&P providers so that A&A would be the only ones chosen as HIP's preferred O&P providers.

 Am. Compl. P 68.

 The First Amended Complaint sets forth four antitrust claims, two based on federal law and the remaining based on state law. The first and second claims allege structural and tacit conspiracies, respectively, in violation of section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. The third and fourth claims allege companion antitrust conspiracy ...


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