Seventh Circuit reminds district courts that hypothetical-monopolist test remains ‘best approach’ for geographic-market analysis in healthcare context
Vasquez v. Indiana Univ. Health, Inc., et al.  is a resurrected antitrust suit brought by a local vascular surgeon against Indiana University Health (“IU Health”) and its subsidiary, Bloomington Hospital. The Seventh Circuit reversed and remanded, concluding that the district court had erred in dismissing the surgeon’s alleged geographic market. Finding that the surgeon’s alleged market was plausible, the Seventh Circuit expounded in its ruling that even if the panel had agreed with the district court that the Complaint contained contradictions, contradictory pleadings are permissible pursuant to Fed. R. Civ. P. 8(d)(3).
The relevant facts are as follows:
Dr. Ricardo Vasquez, a vascular surgeon practicing in Bloomington, Indiana, alleges that since he began his practice in 2006, IU Health—a health system in Indiana—has achieved considerable market power in the region, dominating Bloomington’s medical industry. Bloomington is the largest metro area in southwestern Indiana, requiring a one-to-two-hour drive to reach a comparable metro area. Consequently, Vasquez argues that the vascular surgery market in Bloomington is inherently local, putting pressure on insurers to provide care in Bloomington itself. Otherwise, patients in Bloomington—who expect local care given their metro location—would have to travel inconvenient, costly distances to receive continuity of care.
Vasquez sought and obtained admitting privileges at three hospitals in the area—Bloomington Hospital, Monroe Hospital and Indiana Specialty Surgery Center—ultimately performing over 95 percent of his inpatient procedures at Bloomington Hospital. In 2010, however, IU Health acquired Bloomington Hospital. Then, in May 2017, IU Health acquired Premier Healthcare, an independent physician group based in Bloomington. With the Premier acquisition, IU Health employed 97 percent of the primary-care providers (“PCPs”) in Bloomington and over 80 percent of PCPs in the wider region. Vasquez alleges that soon after the Premier acquisition, IU Health launched a systemic and targeted scheme to destroy Vasquez’s practice and reputation, retaliating against Vasquez’s decision to maintain an independent practice. Vasquez claims that his refusal to be employed by IU Health led to IU Health threatening to revoke Vasquez’ privileges at Bloomington Hospital in June 2018 and following through on said threat in April 2019.
IU Health currently possesses a 92.5 percent market share of impatient discharges in the Bloomington area, controlling 35 of the 36 family practice physicians and internists. Vasquez claims that by acquiring nearly all PCPs in Bloomington, IU Health attained control of who those PCPs can refer patients to for specialty services, thereby “decid[ing] where surgeries are performed and which surgeries are available to area patients, payors, and other healthcare providers.” The alleged percentage of vascular surgeons in the Bloomington area employed by IU Health is 75 percent. Vasquez alleges that IU Health uses its monopoly over primary care services to force patients to see IU Health employed vascular surgeons, to their detriment, as IU Health can then charge more, lower quality of care, and prevent patients from receiving certain vascular surgery services from IU Health vascular surgeons completely. Vasquez claims is the only remaining independent vascular surgeon in Southern Indiana.
The District Court opinion
Vasquez brought several claims against IU Health and its subsidiary before the Southern District of Indiana: (1) monopolization and attempted monopolization, pursuant to 15 U.S.C. § 2, Ind. Code § 24-1-2-2, and Ind. Code § 24-1-2-7; (2) an anticompetitive merger in violation of 15 U.S.C. § 18 against IU Health and Bloomington Hospital; (3) breach of contract against Bloomington Hospital; and (4) defamation against all Defendants.
The district court dismissed each of Vasquez’s claims, holding that Vasquez had failed to properly allege a geographic market for his antitrust claims. The district court rejected Vasquez’s alleged market on several grounds, each of which largely focused on patients’ alleged travel and options.
First, the district court viewed Vasquez’s geographic market definitions as “contradictory,” asserting that Vasquez could not, on one hand, assert that the market for healthcare services was “local” and that patients preferred to stay within Bloomington for care, but on the other, assert that many patients traveled several hours to Bloomington for care. The Court opined that it was “incongruent” that Bloomington would be the appropriate geographic market if a significant portion of IU Health patients regularly traveled a substantial distance to get to Bloomington. Second, the district court concluded that Vasquez’s alternative geographic market definition of Southern Indiana was similarly contradictory as Vasquez had failed to “explain how patients at the northern end of his alternative geographic market would be similarly strained” as those transferred from the southern end. Third, the district court described Vasquez’s proposed market as one not reflective of “the commercial reality of the industry,” noting that Vasquez’s “inclusion of some geographic areas but the exclusion of others is inexplicable and contradictory.”
The district court ultimately held that Vasquez’s geographic market definition was “facially implausible,” and therefore, failed as a matter of law pursuant to both the Sherman and Clayton Act.
The Seventh Circuit’s reversal
The Seventh Circuit panel wholly disagreed with the district court’s assessment. The three-judge panel emphasized in its reversal that a complaint need only allege “one plausible geographic market to survive a motion to dismiss” and concluded that a rational jury could find Bloomington, Indiana was such a market.
Both a Sherman Act and Clayton Act claim require sufficient allegations as to the relevant market. “The geographic market inquiry focuses on the area that the defendant’s customers affected by the challenged conduct could practicably turn to for other suppliers if the defendant were to seek to raise its price or restrict its output.” To adequately plead a relevant market, a plaintiff must include both the market area in which the seller—in this case, IU Health—operates, and the area to which the purchaser—the patients—can turn to for services.
The Seventh Circuit, however, reiterated that the standard for such analysis remains FTC v. Advocate Health Care Network, which endorses the “hypothetical monopolist test” to evaluate geographic healthcare markets. The test asks, “what would happen if a single firm became the only seller in a candidate geographic region.” If the hypothetical monopolist “could profitably raise prices above competitive levels,” then the region is a relevant geographic market, whereas if “customers would defeat the attempted price increase by buying from outside the region,” then it is not a relevant market and the test needs to be redone using a larger region. Describing the test as the “best approach to geographic-market analysis in the healthcare context,” the panel proceeded to explain that as applied to Vasquez’s allegations, “a hypothetical vertically integrated monopolist that controlled the hospital, the equipment, and most of the surgeons would be well-positioned to engage in anticompetitive practices.” The panel also accepted as plausible Vasquez’s claim that Bloomington residents who are willing to travel to Indianapolis for specialist care may not be willing to drive several hours for routine primary care. To the panel, this was another “plausible account[ ] of how a hypothetical monopolist could wield anticompetitive power in Bloomington’s vascular-surgery market.”
The panel stressed that the hypothetical-monopolist test concerns, as the test itself states, hypotheticals—not reality. It admonished the district court on several grounds. First, the panel reiterated that the Federal Rules of Civil Procedure permit contradictory pleadings, thereby making the district court’s criticism misplaced. Second, even if the Federal Rules did not permit contradictory pleadings, the panel did not find Vasquez’s allegations contradictory. Rather, the Seventh Circuit explained that Vasquez’s allegations pertain to two different groups of people—urban and rural patients—who understandably would have different expectations and market behaviors. Accordingly, it is plausible that patients who reside in Bloomington would expect medical care close to home, while patients in surrounding rural communities would expect to travel further for care. The panel criticized the district court for failing to “attempt to situate that tension in any antitrust market-analysis doctrine,”  and explained that the geographic market for an antitrust claim does not have to correspond to the comprehensive market that the monopolist serves. After all, “[a]t the fringes, even a monopolist is likely to face competition.”
The Seventh Circuit instructed the district court to dismiss and reverse, stressing in its decision that the appropriate object of a geographic-market analysis, pursuant to Advocate Health, is the smallest market a hypothetical monopolist could dominate. Accordingly, the flow of patients—while useful to define the borders of an alleged market—remains a single piece of data that is not dispositive. Some “fuzziness” as to market boundaries is to be expected, and should not be a basis for granting a motion to dismiss.
The Seventh Circuit Vasquez decision presents two key takeaways:
- The merits of an alleged geographic market generally should not be evaluated at this early of a stage in a litigation. The question of whether a geographic market is sufficient for pleading purposes is its plausibility—not its probability.
- While a contradiction can undermine a market’s plausibility in some cases—for example, if it shows that the alleged market fails the hypothetical-monopolist test—contradictions themselves usually are usually improper grounds to reject an alleged geographic market at the motion to dismiss stage.
*Brittany Nieves Nyovanie is an Associate in Washington, DC
 See Vasquez v. Indiana Univ. Health, Inc., 40 F.4th 582 (7th Cir. 2022).
 Complaint, Vasquez v. Indiana Univ. Health, Inc., et al., No. 1:21-cv-01693-JMS-MG (S.D. Ind. June 11, 2021)
 Id. ¶ 31.
 Id. ¶¶ 1, 45.
 Id. ¶¶ 6, 65-66
 Id. ¶ 1.
 Id. ¶ 3.
 Id. ¶ 4.
 Id. ¶ 5.
 Vasquez v. Indiana Univ. Health, Inc., No. 1:21-cv-01693-JMS-MG, 2021 WL 5163420, at *3 (S.D. Ind. Nov. 5, 2021), rev’d and remanded, 40 F.4th 582 (7th Cir. 2022).
 Id. at *5.
 Id. at *6.
 See Vasquez v. Indiana Univ. Health, Inc., 40 F.4th 582 (7th Cir. 2022).
 The Seventh Circuit accepted the district court ‘s explanation of the statutory substantive standards: the Sherman Act claim “requires a showing of possession of monopoly power in the relevant market and the willful acquisition or maintenance of that power,” and relatedly, a Clayton Act claim requires “a showing that the acquisition of the assets of another substantially lessens competition in a specific product and geographic market.” Vasquez, 2021 WL 5163420, at *5 (internal quotation marks and citations omitted).
 Vasquez, 841 F.3d at 585, citing FTC v. Advocate Health Care Network, 841F.3d 460 (7th Cir. 2016). Vasquez, 841 F.3d at 585.
 Id. at 586.
 See Fed. R. Civ. P. 8(d)(3).
 Id. at 587.
 Id. (citing United States v. E. I. du Pont de Nemours & Co., 353 U.S. 586, 593 (1957)
 Id. at 587-88.