Outbundled KCI Wins Big Court Case

Edition: December 2002 - Vol 10 Number 12
Article#: 1379
Author: Repertoire

The ground appears to be getting more shaky for big manufacturers who bundle their market-share-leading products with other offerings, particularly if they appear to be trying to use their market share advantage in one product area to shut down competitors in another.

A jury in the U.S. District Court for the Western District of Texas recently awarded San Antonio-based Kinetic Concepts as much as $520 million in a federal antitrust suit the company brought against Hillenbrand Industries and its Hill-Rom unit for just that very thing. Hillenbrand was expected to appeal the verdict. The decision came after five weeks of testimony and three days of deliberation by the jury.

Specialty-bed-maker KCI had alleged that Batesville, IN-based Hill-Rom signed contracts with GPOs and individual hospitals that bundled together hospital beds and headwalls – product areas dominated by Hill-Rom – with specialty beds. KCI charged that Hill-Rom was using its overwhelming muscle power in hospital beds to bury KCI’s specialty bed business. KCI said that Hill-Rom enticed GPOs and hospitals with deep discounts on hospital beds if the GPOs and hospitals would buy the company’s specialty beds as well. Such a strategy could ultimately drive KCI out of business, because it relies on sales of its specialty beds so heavily.

According to Texas Lawyer magazine, in reaching the $173.6 million figure (which can automatically be tripled to $520), the San Antonio jury found that KCI had proved that:

· Hill-Rom attempted to monopolize the specialty bed market.

· KCI suffered injury in its business or property as a material result of Hill-Rom's attempted monopolization.

· Hill-Rom engaged in contracts, combinations or conspiracies that unreasonably restrained competition in the specialty bed market.

· KCI suffered injury to its business or property as a material result of Hill-Rom's unreasonable restraint of competition.

· Hill-Rom entered into tying arrangements as that term is defined in the judge's instructions.

· KCI suffered injury in its business or property as a material result of Hill-Rom's tying arrangements.

· Hillenbrand directed, controlled or participated in the conduct of Hill-Rom with respect to the above conclusions.

Turnaround During Negotiations

Acting as an expert witness on behalf of KCI was Patti King, former national accounts director of the company, and now a principal with King Roswell LLC, a health care consulting firm in Georgia. She was the lead negotiator in negotiations with Premier in 1996 on behalf of KCI.

In those negotiations, Premier had originally committed to considering standard hospital beds, specialty beds and headwalls on a product-by-product basis, she says. Ultimately, however, the GPO reversed course and signed a bundled agreement with Hill-Rom, with negative results for both KCI and Stryker, she adds. As a result, KCI had to close service centers because of reduced demand for their specialty beds in hospitals.

“You can imagine the impact on KCI of losing the second largest GPO in the nation [Novation being the largest],” says King. “Had the Senate investigations [of GPO practices in April of this year] not occurred, and the bundling allowed to continue, what would happen to innovation in health care? KCI wouldn’t be able to survive. Other companies wouldn’t be allowed to flourish. If you’re locked out, especially in the hospital market, there is a dangerous probability you will be permanently out.”

“That was my message to the jury,” she says. “My concern is that when these practices are accepted and companies cannot enter the marketplace, and products that can save lives aren’t available – that’s a big issue. It blocks innovation from getting to the marketplace, it restrains consumer choice, who in this case are care givers and patients, and that does not serve the greater good of healthcare.”

Hillenbrand’s lawyers would not comment for this article because of the anticipated appeal of the decision.