The U.S. Department of Justice's loss to American Express sends a message to health care providers: Steering, tiering, exclusive dealing and other contractual arrangements that appear to suppress competition in one part of the market may be legitimate where the arrangements facilitate lower prices and better access to services in another part of the market, or have other valid business purposes.
The decision came Sept. 26 when the Second Circuit Court of Appeals reversed a judgment for the DOJ in a suit accusing AMEX of violating antitrust laws by initiating rules prohibiting merchants who accept AMEX's credit cards from steering its cardholders to other credit card brands. The court of appeals directed the district court to enter a judgment for AMEX, saying the trial court erred when it found that AMEX's anti-steering provisions were anticompetitive by focusing only on the interests of merchants and not also on those of cardholders.
The court of appeals said that the district court's approach "does not advance overall consumer satisfaction." It concluded that "[t]hough merchants may desire lower fees, those fees are necessary to maintaining cardholder satisfaction—and if a particular merchant finds that the cost of AMEX fees outweighs the benefit it gains by accepting AMEX cards, then the merchant may choose to not accept AMEX cards."
At issue was whether AMEX's nondiscriminatory provisions ("NDPs") in agreements with merchants prohibiting them from encouraging consumers to use other credit cards were anticompetitive. The court of appeals found that the trial court's ruling against AMEX was wrong in several ways, including its market definition, its analysis of AMEX's market power and its finding of an adverse effect on competition.
The district court wrongly concluded that the relevant product market consisted of services offered by credit card companies to merchants, while excluding services offered to cardholders. The Second Circuit said that the functions provided by the credit card industry are inter-dependent, and result in what is called a "two-sided market." The district court erroneously failed "to define the relevant product market to encompass the entire multi-sided platform."
In addition, the court of appeals said that the district court erroneously determined that AMEX had significant market power. The trial court found that AMEX was able to unilaterally impose price increases on merchants, but it did not acknowledge that AMEX's increase in merchant fees was necessary to provide increased benefits to cardholders, which amounts to a price reduction to cardholders. "A firm that can attract customer loyalty only by reducing its price does not have the power to increase prices unilaterally."
Also, the district court's erroneous market definition resulted in it wrongly finding that the NDPs had an anticompetitive effect on the market. The court of appeals said that "the market as a whole includes both cardholders and merchants, who comprise distinct yet equally important and interdependent sets of consumers sitting on either side of the payment-card platform." The DOJ made no showing at trial that the NDPs caused anti-competitive effects on the relevant market as a whole.
In 2011, the DOJ issued a policy giving guidance to accountable care organizations that said anti-steering provisions may raise antitrust concerns and should not be implemented by providers with a large market share. Federal Trade Commission and Department of Justice, "Statement of Antitrust Enforcement Policy Statement Regarding Accountable Care Organizations Participating In the Medicare Shared Savings Program," 76 Fed. Reg. 67026, 76030 (2011) ("An ACO with high PSA shares or other possible indicia of market power may wish to avoid . . . [p]reventing or discouraging private payers from directing or incentivizing patients to choose certain providers, including providers that do not participate in the ACO, through 'anti-steering,' 'anti-tiering,' 'guaranteed inclusion,' 'most-favored-nation,' or similar contractual clauses or provisions").
Healthcare markets have aspects of a two-sided market, including separate interests of insurers and of patients. As a result, after AMEX, claims that steering provisions initiated by providers are anticompetitive because they thwart competition with other providers in the market will likely be evaluated by fully considering the anticompetitive effect of the provisions on the entire marketplace, rather than taking the DOJ's more narrow enforcement view.
AMEX's analysis likely has ramifications for any case challenging steering provisions or other allegedly anticompetitive restraints in multi-sided markets. For example, Methodist Medical Center in Peoria, Illinois, brought suit against its rival, St. Francis Medical Center, also in Peoria, challenging St. Francis’ exclusive contracts with health insurers that allegedly foreclosed Methodist from competing for patients in the Peoria hospital market. Consistent with the analysis of antitrust violations that was used in AMEX, on Sept. 30 a federal district court granted summary judgment for St. Francis, saying:
"Market dynamics at each level impact the ultimate inquiry of whether a provider is foreclosed from competing for a commercially insured patient's business. Accordingly, whether Methodist was foreclosed from competition must be analyzed at each level in the distribution chain—its ability to compete to be included in a payer's network, the ability of end users to choose among plans that feature each hospital, and also the hospitals' ability to reach retail customers notwithstanding out-of-network status."
Applying this analysis at each level, the court found that the exclusive arrangements excluded Methodist from a limited portion of patients and, as a result, the arrangements did not violate antitrust law.