Motion-Secondary: UFCW & EMPLOYERS BENEFIT TRUST ON BEHALF OF VS. SUTTER HEALTH et al

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                                1   Xavier Becerra
                          Attorney General of California
                      2   Kathleen Foote                                                                         ELECTRONICALLY
                          Senior Assistant Attorney General
                      3   Michael Jorgenson                                                                         F  I  L   E  D
                                                                                                                 Superior Court of California,
                          Supervising Deputy Attorney General                                                     County of San Francisco
                      4   Cheryl Lee Johnson (SBN 66321)
                          Esther La (SBN 160706)                                                                     12/18/2020
                                                                                                                 Clerk of the Court
                      5   Emilio Varanini (SBN 163952)                                                             BY: JUDITH NUNEZ
                          Deputy Attorneys General                                                                            Deputy Clerk
                      6   455 Golden Gate Avenue, Suite 11000
                          San Francisco, CA        94102-7004
                      7   Tel 415.510.3541 / Fax 415.703.5480
                          E-mail: Emilio.Varanini@doj.ca.gov
                      8   Attorneys for Plaintiff, People of the State of
                          California
                      9
                          Richard L. Grossman (SBN 112841)
                    10    Philip L. Pillsbury Jr. (SBN 072261)
                          Pillsbury & Coleman, LLP
                    11    600 Montgomery Street, 31st Floor
                          San Francisco, CA 94111
                    12    Tel 415.433.8000 / Fax 415.433.4816
                          Email: UEBT@pillsburycoleman.com
                    13    Lead Counsel for Plaintiff UFCW & Employers Benefit
                          Trust and the Class (Additional Counsel not listed)
                    14

                    15                            SUPERIOR COURT OF THE STATE OF CALIFORNIA
                    16                                          COUNTY OF SAN FRANCISCO
                    17    UFCW & Employers Benefit Trust, on behalf                  Case No. CGC 14-538451
                          of itself and all others similarly situated                Consolidated with
                    18                                                               Case No. CGC-18-565398
                                            Plaintiffs,
                    19                                                               REPLY IN SUPPORT OF PLAINTIFFS’
                                   vs.                                               MOTION TO EXCLUDE EXPERT
                    20                                                               OPINION OF DR. GOWRISANKARAN
                          Sutter Health, et al.,                                     THAT KAISER AND SUTTER COMPETE
                    21                                                               IN THE SAME ANTITRUST MARKET
                                            Defendants.                              (REDACTED)
                    22
                                                                                     Date:             April 30, 2019
                    23    People of the State of California, ex. rel.                Time:             3:00 p.m.
                          Xavier Becerra,                                            Dept.:            304
                    24                                                               Judge:            Hon. Anne-Christine Massullo
                                            Plaintiff,
                    25                                                               Action Filed:     April 7, 2014
                                   vs.                                               Trial Date:       August 12, 2019
                    26
                          Sutter Health,
                    27                                                                     PUBLIC - CONTAINS MATERIAL
                                            Defendant.                                  SEALED BY ORDER OF THE COURT
                    28


                                        REPLY RE: MOTION TO EXCLUDE EXPERT OPINION - Case No. CGC 14-538451
                     1                                              TABLE OF CONTENTS
                                                                                                                                          Page
                     2
                         I.       INTRODUCTION...................................................................................................................1
                     3
                         II.      LEGAL ARGUMENT ............................................................................................................2
                     4
                                  A.       Sargon Standard ..........................................................................................................2
                     5
                                  B.       Dr. Gowrisankaran Failed to Analyze Whether Substitution Between Kaiser and
                     6                     Sutter Would Occur if Sutter Raised Its Prices. .............................................................2

                     7            C.       The State of California Has Not “Conceded” That Kaiser and Sutter Compete in
                                           the Same Product Market. ............................................................................................4
                     8
                                  D.       Dr. Gowrisankaran’s Unsupported Opinion About Kaiser Cannot Be Saved by
                     9                     Sutter’s Invocation of Brown Shoe. ..............................................................................5

                    10            E.       Dr. Gowrisankaran’s Opinion Is Not Supported by Facts Meeting the
                                           Requirements for Determining the Relevant Antitrust Market .......................................6
                    11
                                           1.       Dr. Gowrisankaran’s Kaiser-Entry Charts Do Not Analyze Substitution
                    12                              in Response to Any Price Increase. ...................................................................6

                    13                     2.       Self-Funded Payors May Offer Kaiser and Non-Kaiser Plans, but that
                                                    Hardly Supports Dr. Gowrisankaran’s Opinion.................................................8
                    14
                                           3.       The Ho and Lee Article Regarding “Insurer Competition in Health Care
                    15                              Markets” Does Not Support Dr. Gowrisankaran’s Opinion. ..............................9

                    16                     4.       Sutter Failed to Show That Dr. Gowrisankaran Should Be Able to Rely
                                                    on Lay Documents and Testimony to Support His Opinion...............................9
                    17
                         III.     CONCLUSION .....................................................................................................................10
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                                                                                    i
                                              UEBT’S OPPOSITION TO SUTTER’S MOTION TO DECERTIFY CLASS
                     1                                            TABLE OF AUTHORITIES

                     2                                                                                                                 Page(s)
                     3                                                  FEDERAL CASES
                     4   AD/SAT, Div. of Skylight, Inc. v. Associated Press,
                     5        181 F.3d 216 (2nd Cir. 1999) ....................................................................................................3,6

                     6   Brown Shoe Co. v. United States,
                              370 U.S. 294 (1962)......................................................................................................................5
                     7
                         Cal. v. Sutter Health Sys.,
                     8        130 F. Supp. 2d 1109 (N.D. Cal. 2001) .......................................................................................4
                      9   In re Cox Enters., Inc. Set-Top Cable Television Box Antitrust Litig.,
                              2014 WL 107674 (W.D. Okla. Jan. 9, 2014) ...............................................................................6
                    10

                    11    Encana Oil & Gas, Inc. v. Zaremba Fam. Farms, Inc.,
                              2015 WL 12883545 (W.D. Mich. Sept. 18, 2015) .......................................................................3
                    12
                          Fed. Trade Comm’n v. Advocate Health Care Network,
                    13        841 F.3d 460 (7th Cir. 2016) .....................................................................................................1,4
                    14    Geneva Pharm. Tech. Corp. v. Barr Labs. Inc.,
                              386 F.3d 485 (2d Cir. 2004) .........................................................................................................3
                    15

                    16    Ky. Speedway, LLC v. Nat’l Ass’n of Stock Car Auto Racing, Inc.,
                              588 F.3d 908 (6th Cir. 2009) ........................................................................................................5
                    17
                          Lenox MacLaren Surgical Corp. v. Medtronic, Inc.,
                    18        762 F. 3d 1114 (10th Cir. 2014) ...................................................................................................4

                    19    In re Live Concert Antitrust Litig.,
                              863 F. Supp. 2d 966 (C.D. Cal. 2012) .......................................................................................5,6
                    20
                          Nobody in Particular Presents, Inc. v. Clear Channel Commc’ns, Inc.,
                    21
                              311 F. Supp. 2d 1048 (D. Colo. 2004) .........................................................................................3
                    22
                          Reifert v. S. Cent. Wisc. MLS Corp.,
                    23        450 F.3d 312 (7th Cir. 2006) ........................................................................................................5

                    24    In re Se. Milk Antitrust Litig.,
                              2010 WL 8228839 (E.D. Tenn. Dec. 8, 2010) .............................................................................2
                    25
                          Times-Picayune Publ’g Co. v. United States,
                    26        345 U.S. 594 (1954)......................................................................................................................3
                    27
                          United States v. Am. Express Co.,
                    28        2014 WL 2879811 (E.D.N.Y. June 24, 2014)..............................................................................3

                                                                                    ii
                                              UEBT’S OPPOSITION TO SUTTER’S MOTION TO DECERTIFY CLASS
                     1   United States v. E. I. du Pont de Nemours & Co.,
                              351 U.S. 377 (1956) .....................................................................................................................3
                     2
                                                                          STATE CASES
                     3
                         Apple Inc. v. Super. Ct.,
                     4
                              19 Cal. App. 5th 1101 (2018) .......................................................................................................2
                     5
                         Exxon Corp. v. Sup. Ct.,
                     6        51 Cal. App. 4th 1672 (1997) .......................................................................................................3

                     7   People v. Moore,
                              51 Cal. 4th 386 (2011)................................................................................................................10
                     8
                         Sargon Enters., Inc. v. Univ. of S. Cal.,
                     9        55 Cal. 4th 747 (2012)...............................................................................................................2,3
                    10
                                                                    OTHER AUTHORITIES
                    11
                         2B Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 536 (3rd ed. 2007)................................... 3
                    12
                         CACI No. 3413 ............................................................................................................................1, 10
                    13
                         Gowrisankaran, Evaluating the Impact of a Hospital Merger Using the Difference-
                    14        in-Difference of Prices, Int’l J. of the Econ. of Bus. (2010). ..........................................................4
                    15    Steven Tenn, The Price Effects of Hosp. Mergers: A Case Study of the Sutter–
                    16        Summit Transaction, 18 Int’l J. of Economics of Business 75–76 (2011) .......................................4

                    17    U.S. Dep’t of Justice & F.T.C., Horizontal Merger Guidelines .................................................4,8,10

                    18    Von Kalinowski, Antitrust Laws and Trade Reg.           § 24.02[2][b], at 24–70 (Matthew
                              Bender 2d ed.) ...............................................................................................................................5
                    19

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                                                                                   iii
                                              UEBT’S OPPOSITION TO SUTTER’S MOTION TO DECERTIFY CLASS
                     1   I.       INTRODUCTION
                     2            Sutter does not dispute the fundamental premise of Plaintiffs’ motion: Dr. Gowrisankaran did not

                     3   analyze substitution between Sutter and Kaiser in response to a price increase.           Nor does Sutter dispute

                     4   that an antitrust market consists only of substitutable products or firms that constrain prices.          See Fed.

                     5   Trade Comm’n v. Advocate Health Care Network, 841 F.3d 460, 469 (7th Cir. 2016) (antitrust market

                     6   includes only those “competitors that . . . substantially constrain [the firm’s] price-increasing ability”

                     7   (quotation marks omitted)).      Thus, the sole question is whether an expert opining about the relevant

                     8   antitrust market must assess whether consumers would substitute between Product A and Product B in

                     9   response to a price increase.     Because the answer is “yes,” Plaintiffs’ motion should be granted.

                    10            Though Plaintiffs disagree with all of Dr. Gowrisankaran’s opinions on their merits, Plaintiffs

                    11    challenge just one—that Kaiser and Sutter compete in the same antitrust market.              Dr. Gowrisankaran fails

                    12    to support this opinion with the requisite analysis.      Under the applicable antitrust standards, it’s not just a

                    13    matter of showing that Kaiser and Sutter both have hospitals, or that documents refer to them as

                    14    “competitors.”    Instead, Dr. Gowrisankaran must analyze whether there is an appropriate level of

                    15    substitution between the two in response to price changes.         For example, CACI 3413 suggests a review

                    16    of “whether a small increase in the price of one product would cause a considerable number of customers

                    17    of that product to switch to a second product” or, conversely, whether “a significant increase in the price

                    18    of one product does not cause a significant number of consumers to switch to a second product.”                 Since
                    19    Dr. Gowrisankaran has not even attempted to analyze substitution to Kaiser in response to any price

                    20    increase, this opinion must be excluded.

                    21            Sutter’s response is telling—using much of its Opposition to argue that the Guidelines’

                    22    significant and non-transitory increase in price (“SSNIP”) test is not required.         This straw man argument

                    23    is irrelevant, as Plaintiffs have never suggested that the SSNIP test is the only method of measuring

                    24    substitution that results from a price increase.     But there must be some comparable analysis that looks

                    25    beyond anecdotal materials.      And though Dr. Gowrisankaran claims that he “analyze[s] the extent at

                    26    which there would be substitution to Kaiser in the event of a 5 percent price increase,” he did not.            Thus,

                    27    Dr. Gowrisankaran not only fails to do a SSNIP test, he also fails to provide any appropriate economic

                    28    analysis under the applicable legal standards.

                                                                                    1
                                        REPLY RE: MOTION TO EXCLUDE EXPERT OPINION - Case No. CGC 14-538451
                     1            Instead, Dr. Gowrisankaran bases his opinion on four points, none of which analyzes substitution

                     2   in response to price increases.     First, in response to Plaintiffs pointing out fundamental errors in his

                     3   Kaiser-entry charts, Exs. 15–171, and that the charts fail to support his opinion, Sutter does not dispute

                     4   that (1) there is no significant difference between the subject hospitals and the control group; and (2) that

                     5   most of the decline in commercial market share in the subject hospitals came in the years before Kaiser

                     6   entered the various markets.      There is no evidence of any effect on price, no evidence of substitution to

                     7   Kaiser, nor any assessment of how much substitution—even if observed—would have been sufficient to

                     8   warrant inclusion of Kaiser in the antitrust market.       His remaining factors are equally insufficient as,

                     9   again, none provide analysis about substitution or the effect of price increases as required.           In sum, none

                    10    of the materials provides any basis upon which to base his opinion about Kaiser.

                    11    II.      LEGAL ARGUMENT
                    12            A.       Sargon Standard
                    13            Sutter frames the issue as a “battle of the experts.”      But Plaintiffs have not asked the court to

                    14    “choos[e] between competing expert opinions.”           Opp. at 16.   Rather, Plaintiffs challenge the “materials

                    15    and methodologies” behind Dr. Gowrisankaran’s “proposed expert opinion evidence.”                   Apple Inc. v.

                    16    Super. Ct., 19 Cal. App. 5th 1101, 1120 (2018).        Under Sargon, “substantive law help[s] define the type

                    17    of matter on which an expert may reasonably rely” in forming an opinion.             Sargon Enters., Inc. v. Univ.

                    18    of S. Cal., 55 Cal. 4th 747, 775–76 (2012).       Accordingly, “[i]f there is a legal standard which essentially
                    19    dictates the methodology which an expert must employ in arriving at his conclusion in a given case; or if

                    20    there is a legal standard regarding the data that expert chooses; and if that expert has deviated from either

                    21    or both of those standards, then excluding that opinion on the basis of Daubert”—or Sargon—“is

                    22    appropriate.”   In re Se. Milk Antitrust Litig., 2010 WL 8228839, at *6 (E.D. Tenn. Dec. 8, 2010).

                    23            B.       Dr. Gowrisankaran Failed to Analyze Whether Substitution Between Kaiser and
                                           Sutter Would Occur if Sutter Raised Its Prices.
                    24
                                  Sutter mistakenly claims that Plaintiffs “argu[ed] that expert testimony on product market
                    25
                         definition must take the form of an empirical SSNIP test.”         Opp. at 14 (emphasis added).       Plaintiffs did
                    26

                    27   1
                           Unless otherwise noted, citations in the form of “Ex. _” refer to exhibits to the Declaration of Russell
                    28    Taylor filed in support of Plaintiffs’ March 8, 2019 motion.

                                                                                    2
                                        REPLY RE: MOTION TO EXCLUDE EXPERT OPINION - Case No. CGC 14-538451
                     1   no such thing.    Plaintiffs noted only that a SSNIP test is “[a] common method to identify the market

                     2   participants.”   Mem. at 4.    Plaintiffs never asserted that it was the only method.2

                     3            But whatever the method, to define an antitrust market an economist must evaluate whether

                     4   “consumers would respond to a slight increase in the price of one product by [substituting] to another

                     5   product.”   AD/SAT, Div. of Skylight, Inc. v. Associated Press, 181 F.3d 216, 227 (2nd Cir. 1999) (per

                     6   curiam).   An antitrust market consists of products that are “reasonably interchangeable by consumers for

                     7   the same purposes.”     Exxon Corp. v. Sup. Ct., 51 Cal. App. 4th 1672, 1682 (1997).            “[T]wo products or

                     8   services are reasonably interchangeable where there is sufficient cross-elasticity of demand,” which

                     9   “exists if consumers would respond to a slight increase in the price of one product by [substituting] to

                    10    another product.”    AD/SAT, 181 F.3d 216, 227.        Substitution in response to a “slight” price increase is

                    11    what constrains a firm’s ability to raise prices.    Geneva Pharm. Tech. Corp. v. Barr Labs. Inc., 386 F.3d

                    12    485, 496 (2d Cir. 2004); Times-Picayune Publ’g Co. v. United States, 345 U.S. 594. 612 n.31 (1954) (the

                    13    “relevant market” excludes “product[s] to which, within reasonable variations in price, only a limited

                    14    number of buyers will turn . . .    products whose ‘cross-elasticities of demand’ are small.”).3

                    15            Such cases provide the “substantive law,” which sets “the type of matter on which an expert may

                    16    reasonably rely” in forming an opinion.       Sargon Enter., 55 Cal. 4th at 770 (2012).       Because an antitrust

                    17    market is defined by cross-elasticity of demand, to define a market an expert must analyze whether “a

                    18    slight decrease in the price of [Product A] causes a considerable number of customers of [Product B] to
                    19    switch to [Product A].”     United States v. E. I. du Pont de Nemours & Co., 351 U.S. 377, 400 (1956);

                    20
                         2
                           Accordingly, Sutter’s cases where courts have “rejected such a requirement” are beside the point.
                    21    Opp. at 12, 13 (citing Nobody in Particular Presents, Inc. v. Clear Channel Commc’ns, Inc., 311 F.
                          Supp. 2d 1048, 1081–83, 1120 (D. Colo. 2004); Encana Oil & Gas, Inc. v. Zaremba Fam. Farms, Inc.,
                    22
                          2015 WL 12883545, at *5 (W.D. Mich. Sept. 18, 2015); United States v. Am. Express Co., 2014 WL
                    23    2879811, at *13–14 (E.D.N.Y. June 24, 2014)).           If anything, those cases reveal that consideration of
                          pricing is critical to defining a market.    In Nobody in Particular, the expert found “evidence of distinct
                    24    price and of pricing patterns” after analyzing competitors’ pricing over time.           311 F. Supp. 2d at 1083–
                          84.  In Encana Oil, the expert also compared competitors’ pricing over time (in the form of bids for
                    25    leases to drill for oil and gas).  2015 WL 12883545, at *4.         In American Express, the experts “amassed
                          considerable evidence” of substitution based upon “a variety of sources, including surveys of consumer
                    26
                          behavior.”   2014 WL 2879811, at *13–*14.          Nothing in the decision, which held only that a SSNIP test
                    27    is not required, suggests that an expert needn’t analyze substitution in response to a price increase.
                          3
                           From “[t]hese indisputable propositions,” economists developed the “SSNIP” or “hypothetical
                    28    monopolist” test.    2B Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 536 (3rd ed. 2007).

                                                                                    3
                                        REPLY RE: MOTION TO EXCLUDE EXPERT OPINION - Case No. CGC 14-538451
                     1   Lenox MacLaren Surgical Corp. v. Medtronic, Inc., 762 F. 3d 1114, 120 (10th Cir. 2014) (affirming

                     2   exclusion of expert opinion about market definition where expert failed to, among other things, “calculate

                     3   the cross-elasticity of demand to determine which products were substitutes”).

                     4            Dr. Gowrisankaran agrees:       “Market definition focuses solely on demand substitution factors, i.e.,

                     5   on customers’ ability and willingness to substitute away from one product to another in response to a

                     6   price increase or a corresponding non-price change such as a reduction in product quality or service.”

                     7   Gowrisankaran Decl., ¶ 14 n. 11 (quoting Guidelines); Ex. 9 at 224:2–5 (testifying “it’s important to do

                     8   stuff that’s broadly similar to a SSNIP test which is to characterize the extent of substitutability”).          Dr.

                     9   Gowrisankaran even claims that he “did analyze the extent at which there would be substitution to Kaiser

                    10    in the event of a 5 percent price increase.”     Ex. 9 at 221:5–9.     But that claim is false and Sutter makes no

                    11    effort to respond to this point.

                    12            C.       The State of California Has Not “Conceded” That Kaiser and Sutter Compete in
                                           the Same Product Market.
                    13
                                  Quoting an outdated federal case, Sutter claims that California has already “conceded” that
                    14
                         Kaiser and Sutter are substitutes.     Opp. at 10–11 (citing Cal. v. Sutter Health Sys., 130 F. Supp. 2d 1109,
                    15
                         1119 (N.D. Cal. 2001)).      This is disingenuous; as the block quote in Sutter’s Opposition makes clear, this
                    16
                         “concession” was made only “for the purposes of [that] case.” Sutter Health Sys., 130 F. Supp. 2d at
                    17
                         1119.   Further, the concession was made based on a test for market definition that is now universally
                    18
                         discredited.   See Advocate Health Care Network, 841 F.3d at 472.            Further, that case and its aftermath
                    19
                         illustrate the dangers of defining a market too narrowly.        As courts have noted, after Sutter’s acquisition,
                    20
                         Summit “raised its prices by 29 to 72 percent, much more than a control group had.”               Id. (citing Steven
                    21
                         Tenn, The Price Effects of Hosp. Mergers: A Case Study of the Sutter–Summit Transaction, 18 Int’l J. of
                    22
                         Economics of Business 75–76 (2011)).4          As Tenn explained, “[s]upport for a wider market implies that
                    23
                         the judge believed Summit and Alta Bates faced competition from numerous other hospitals,” including
                    24
                         Kaiser.   Tenn, supra, at 6.   Tenn also critiqued treating Kaiser as a relevant competitor because it
                    25
                         “compete[s] with other hospitals only indirectly since Kaiser is a vertically integrated health care
                    26
                         4
                    27     Dr. Gowrisankaran: “Tenn has laid out a convincing and robust case that prices increased at Summit
                          following the merger.”     Gowrisankaran, Evaluating the Impact of a Hospital Merger Using the
                    28    Difference-in-Difference of Prices, Int’l J. of the Econ. of Bus. (2010).

                                                                                    4
                                        REPLY RE: MOTION TO EXCLUDE EXPERT OPINION - Case No. CGC 14-538451
                     1   provider that serves patients covered by its health plans.”       Id. at 8. If anything, the dramatic rise in prices

                     2   at Summit following Sutter’s acquisition shows that Kaiser’s presence does not constrain Sutter’s prices

                     3   and thus does not compete in the same product market.

                     4            D.       Dr. Gowrisankaran’s Unsupported Opinion About Kaiser Cannot Be Saved by
                                           Sutter’s Invocation of Brown Shoe.
                     5
                                  Rather than apply accepted economic methods, Sutter now argues that a market can be defined
                     6
                         through the “practical indicia” articulated by the Supreme Court in Brown Shoe Co. v. United States, 370
                     7
                         U.S. 294, 325 (1962).5     But considering one of the six Brown Shoe indicia is neither sufficient, nor the
                     8
                         role of an expert.   Such “practical indicia” merely supplement, not supplant, quantitative analyses of
                     9
                         cross-elasticity of demand: “While the ‘practical indicia’ . . .      are important considerations in defining a
                    10
                         market, they were never intended to exclude economic analysis altogether.”              Reifert v. S. Cent. Wisc.
                    11
                         MLS Corp., 450 F.3d 312, 320 (7th Cir. 2006).6          Thus, an “assumption of competition where products or
                    12
                         services appear to be similar is insufficient.     Id. at 318. Instead, “[a]ctual data and a reasonable analysis
                    13
                         are necessary to demonstrate that a product or service is a good substitute for another.”           Id.
                    14
                                  Even   when   courts   are willing  to  “assume[    ] that an  expert  economist    may,   under  appropriate
                    15
                         circumstances, define the relevant product market through an entirely qualitative assessment of the ‘practical
                    16
                         indicia’ identified in Brown Shoe,” experts cannot opine about the antitrust market if the expert “focuses
                    17
                         almost entirely on a single Brown Shoe factor (industry/public recognition), with little relevant analysis of the
                    18
                         remaining six factors.”    In re Live Concert Antitrust Litig., 863 F. Supp. 2d 966, 986, 993 (C.D. Cal. 2012);
                    19
                         cf. 2 J. Von Kalinowski, Antitrust Laws and Trade Reg.           § 24.02[2][b], at 24–70 (Matthew Bender 2d ed.)
                    20    (“Industry recognition . . . does not suffice to establish a submarket.”). Experts who rely on “industry/public
                    21    recognition” invariably over-rely on the views of market participants, which can be easily assessed by a jury
                    22    without the help of an expert.    This is precisely what Dr. Gowrisankaran did here, and expert opinions that
                    23
                         5
                           The Brown Shoe practical indicia are: “industry or public recognition, . . .          the product’s peculiar
                    24    characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to
                          price changes, and specialized vendors.”        Brown Shoe, 370 U.S. at 325.
                          6
                    25     This is assuming Brown Shoe has anything to do with product markets.                Brown Shoe held:      “The outer
                          boundaries of a product market are determined by the reasonable interchangeability of use or the cross-
                    26    elasticity of demand between the product itself and substitutes for it.”         370 U.S. at 325.    Then, “within
                          this broad market, well-defined submarkets may exist,” which may de determine through practica
                    27
                          indicia.  Id. (emphasis added); see also Ky. Speedway, LLC v. Nat’l Ass’n of Stock Car Auto Racing,
                    28    Inc., 588 F.3d 908, 918 (6th Cir. 2009).      Submarkets are not an issue here.

                                                                                    5
                                        REPLY RE: MOTION TO EXCLUDE EXPERT OPINION - Case No. CGC 14-538451
                     1   merely channel the views of industry participants are “neither sufficiently reliable nor sufficiently helpful to

                     2   the trier of fact.” Live Concert, 863 F. Supp. 2d at 986, 993; AD/SAT, 920 F. Supp. 1287, 1297 n.7 (S.D.N.Y.

                     3   1996) (market definition cannot rest on “laymen’s comments made in a competitive business environment.”).7

                     4            E.       Dr. Gowrisankaran’s Opinion Is Not Supported by Facts Meeting the
                                           Requirements for Determining the Relevant Antitrust Market
                     5
                                           1.       Dr. Gowrisankaran’s Kaiser-Entry Charts Do Not Analyze Substitution in
                     6                              Response to Any Price Increase.

                     7            In their Opening Brief, Plaintiffs demonstrated that Dr. Gowrisankaran could not rely on the

                     8   charts he created purporting to show that entry of Kaiser was associated with a reduction in share of

                     9   commercial patients at 3 of Sutter’s 24 General Acute Care hospitals.            See Exs. 15–17.    Entry by Kaiser

                    10    is not equivalent to a Sutter price increase (and especially not a slight price increase, which is the focus of

                    11    market definition).   Ex. 9 at 218:7–8     (Dr. Gowrisankaran: “I mean, a hospital facility entering is

                    12    certainly not equivalent to a price increase.”).     Moreover, these charts are fundamentally flawed in that

                    13    they present data in a misleading way (using two different axes with different scales), use the wrong

                    14    comparative control set of hospitals, and, in one of the charts, the wrong comparative individual hospital.

                    15    Plaintiffs also showed that, even without these fundamental errors, the charts do not support Dr.

                    16    Gowrisankaran’s opinion and provided no basis to conclude that Kaiser competes with Sutter.

                    17            Sutter does not dispute these conclusions or argue the charts provide any analysis of price

                    18    impacts.   Dr. Gowrisankaran’s reliance on the charts suffers from the fundamental and fatal problem that

                    19    they say nothing about price at all, let alone demonstrate that Kaiser would be a substitute for Sutter if
                          Sutter increased its prices.   This failure alone disqualifies reliance on the charts as a basis for his opinion.
                    20
                          And even if the charts showed some substitution—which they do not—Dr. Gowrisankaran doesn’t
                    21
                          attempt to analyze whether such substitution would be sufficient to constrain Sutter’s prices.            At most, he
                    22
                          can say that the Sutter hospitals’ share of commercial charges declined both before, and after, a Kaiser
                    23
                          hospital opened in the general area, as well as in the Sutter control group.        Since this says nothing about
                    24
                          whether Sutter and Kaiser compete in the same product market, the charts do not support his opinion.
                    25

                    26   7
                           Sutter cites In re Cox for the proposition that experts can define antitrust markets based on “practical
                          indicia including industry recognition.”      Opp. at 13 (citing In re Cox Enters., Inc. Set-Top Cable
                    27
                          Television Box Antitrust Litig., 2014 WL 107674 (W.D. Okla. Jan. 9, 2014)).               But there, unlike here, the
                    28    expert also analyzed “retail prices” and “sensitivity to price changes.”         2014 WL 107674, at *2–*4.

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                                        REPLY RE: MOTION TO EXCLUDE EXPERT OPINION - Case No. CGC 14-538451
                     1            More specifically, while Dr. Gowrisankaran claims that the charts show a decline in Sutter’s

                     2   share of commercial charges due to Kaiser’s entry into three geographic areas, in fact the charts clearly

                     3   establish the opposite—that changes in Sutter patient mix began years before Kaiser’s entry and that

                     4   there was no discernible change in those trends after..       See Exs. 15–17.     The charts provide no basis for

                     5   opining about any substitution between Sutter and Kaiser, let alone the requisite sufficient substitution.8

                     6            For example, the Sutter Delta Medical Center exhibited a roughly 25% drop in the three years

                     7   before Kaiser even entered the market, a decline that certainly cannot be attributed to the subsequent

                     8   Kaiser entry.   See Ex. 15.   And in the years following the Kaiser entry (at least potentially a more

                     9   relevant time period), the Sutter Delta decline was roughly equal to the decline experienced by the Sutter

                    10    all-market control group.     Thus, this chart shows absolutely zero correlation (let alone causation) between

                    11    Sutter’s declines and Kaiser entry into the market, and therefore does not provide any basis on which Dr.

                    12    Gowrisankaran could base his opinion.         The other two charts are similar.     See Exs. 16, 17.

                    13            Finally, even if there were a valid showing of a reduction in Sutter’s commercial share following

                    14    Kaiser entry — which is not the case — the charts still fail to demonstrate that there was any substitution

                    15    to Kaiser (as opposed to another non-Sutter hospital, or a decline for some other reason).            The charts say

                    16    nothing about price and nothing about substitution.        For all these reasons, the charts provide absolutely

                    17    no basis on which Dr. Gowrisankaran can properly base his opinion.9

                    18            Selectively quoting the Guidelines, Sutter asserts that they endorse Dr. Gowrisankaran’s reliance

                    19    on his Kaiser-entry charts as a means of defining the market to include Kaiser.           But Sutter is wrong.

                    20
                         8
                           Dr. Gowrisankaran suggests that Kaiser entry may have impacted commercial-patient volume even
                    21
                         before the Kaiser facilities opened their doors.       Decl. at ¶¶ 42–44.    He speculates this effect may have
                    22   arisen because Kaiser may have enrolled individuals in its health plan, but hospitalized them at Sutter
                         while it was building its own facility.     Id.  Even if true, this would not affect the hospital’s commercial
                    23   volume.    As Dr. Vistnes explains, Kaiser patients treated at a Sutter hospital are categorized as “Other
                         Third Party – Managed Care” patients, a subset of commercial patients.              Thus, contrary to Dr.
                    24   Gowrisankaran’s claims, there is no reason to expect a preopening impact on Sutter hospitals’ share of
                         commercial charges.      Instead, those pre-entry divergences (caused by the pre-entry decline of the nearby
                    25
                         Sutter hospital) suggest that any post-Kaiser divergences may just as likely be attributed to the same
                    26   unknown causes rather than being attributed to Kaiser’s entry.           Vistnes Report, p. 39 n. 160.
                         9
                           As Dr. Vistnes testified, looking at entry events can be “useful” in certain circumstances, but the
                    27
                          analysis must adhere “more closely to how economists assess market definition.”                    Zeng Decl. 1(m)
                    28    803:12–21.    That is, the analysis must take into account effects on prices .        Id.

                                                                                    7
                                        REPLY RE: MOTION TO EXCLUDE EXPERT OPINION - Case No. CGC 14-538451
                     1   Sutter is quoting the part of the Guidelines addressing “evidence of adverse competitive effects,” not

                     2   market definition, which is discussed later in the Guidelines.        Opp. at 14 (citing Guidelines, § 2,

                     3   “Evidence of Adverse Competitive Effects,” not § 4, “Market Definition”).              Under the Market Definition

                     4   section, the Guidelines state only that “[e]vidence of competitive effects can inform market definition.”

                     5   Guidelines, § 4 (emphasis added).       The Guidelines thus do not permit defining the market based

                     6   exclusively on evidence of competitive effects.        Finally, an entry study does not obviate the need to look

                     7   at substitution in response to pricing as part of defining a market.       “[E]vidence that a reduction in the

                     8   number of significant rivals offering a group of products causes prices for those products to rise

                     9   significantly can itself establish that those products form a relevant market.” Guideline, § 4 (emphasis

                    10    added).

                    11                     2.       Self-Funded Payors May Offer Kaiser and Non-Kaiser Plans, but that
                                                    Hardly Supports Dr. Gowrisankaran’s Opinion.
                    12            Plaintiffs demonstrated that Dr. Gowrisankaran cannot base his opinion on the fact that some,
                    13    unspecified number of self-funded payors offer both Kaiser and non-Kaiser insurance plans, as he failed
                    14    to perform any analysis regarding how much substitution would occur in response to a price increase.
                    15            Sutter argues that Dr. Gowrisankaran needed only to show that “the products at issue are
                    16    ‘reasonably interchangeable by consumers’” and that his “analysis” of incentivizing is sufficient.             Opp. at
                    17    16.  But he doesn’t analyze how many such dual offerings exist, whether self-funded payers regularly
                    18    incentivize their members to choose Kaiser vs. non-Kaiser insurance plans based on a slight increase in
                    19    price, or whether any such substitution exists and if so, in what numbers.          Dr. Gowrisankaran provided
                    20    no analysis whether such dual offerings is proof of cross-elasticity of demand.           As noted in Plaintiffs’
                    21    Opening Brief, just because a dealer may sell both cars and motorcycles doesn’t mean the two compete
                    22    in the same antitrust market or that one is a substitute for the other; it may be the case, but an expert
                    23    needs to analyze the market to determine whether such substitution would occur in response to a price
                    24    increase.  Dr. Gowrisankaran has done none of this analysis.
                    25             The only new arguments Sutter makes in response to this point is to attach a couple of seemingly
                    26    random documents—one showing the obvious, that health plans compete with Kaiser, and another
                    27    showing that San Ramon provides its employees with different co-pays for each of its health plan
                    28    alternatives.  Zeng Opp. Decl. Ex. 4, 5.      Neither document mentions Sutter, competition between Kaiser

                                                                                    8
                                        REPLY RE: MOTION TO EXCLUDE EXPERT OPINION - Case No. CGC 14-538451
                     1   and Sutter, or substitution between Kaiser and Sutter.        At most, they compare insurance pricing, not

                     2   hospital pricing, and do not provide any support for showing substitution between Sutter and Kaiser.

                     3                     3.       The Ho and Lee Article Regarding “Insurer Competition in Health Care
                                                    Markets” Does Not Support Dr. Gowrisankaran’s Opinion.
                     4            Unable to locate any academic literature supporting his opinion that Kaiser competes with
                     5   providers such as Sutter, Dr. Gowris