U.S. Department of Justice Sues North Carolina Hospital System for Insisting on Anti-Steering Provisions in Insurance Reimbursement Contracts

by Sheppard Mullin Richter & Hampton LLP
Contact

On June 9, 2016, the Antitrust Division of the United States Department of Justice (“DoJ”) filed a complaint against the Charlotte-Mecklenburg Hospital Authority, d/b/a Carolinas Health Care System (“CHS”) in the United States District Court for the Western District of North Carolina. (United States of America and State of North Carolina v. Charlotte Mecklenburg Hospital Authority). The complaint accuses CHS of using “contract restrictions that prohibit commercial health insurers in the Charlotte area from offering patients financial benefits to use less expensive health care services offered by CHS’s competitors.” (Complaint, Preamble) In effect, the complaint is attacking a type of widely used contracting provision in which acute care hospital systems seek to prohibit insurance company payors from using “steering” restrictions, which would otherwise be used to steer their insured patients to lower cost health care providers, including lower-cost hospitals, in exchange for lower premiums in so-called “narrow network” insurance plans. The complaint then alleges that CHS has an approximately 50% share of the market for acute inpatient hospital care in the Charlotte metropolitan area, allegedly conferring market power on CHS.

The complaint is potentially significant for a number of reasons. First, it is a comparatively rare example of a federal antitrust agency claim directly against a health care provider that does not involve a challenge to a proposed merger or acquisition transaction. While litigation between health care providers and health care insurance carriers is no longer rare, and is on the increase, government antitrust cases involving allegedly improper insurance contract provisions are not common. The only recent example of a federal agency antitrust claim against either a carrier or provider involving reimbursement contracts is fairly recent litigation by the Antitrust Division against the Blue Cross entity in Michigan for insisting on a particular type of “most-favored-nation” clause which, among other things, required hospitals contracting with Blue Cross to charge other payors more than they charged Blue Cross. See United States v. Blue Cross Blue Shield of Michigan, 809 F. Supp. 2nd 665 (E.D. Mich. 2011).

DoJ contends that this market power has enabled CHS to negotiate high reimbursement rates for treating insured patients, and CHS has apparently established itself as the most expensive hospital in Charlotte according to the Complaint. To protect its market position, CHS has allegedly imposed steering restrictions in its contracts with insurers. Moreover, CHS has allegedly prohibited  insurers from allowing CHS’s competitors to do the same.

CHS also allegedly prevents insurers from offering networks that feature hospitals competing with CHS in the top tiers of reimbursement, and also allegedly prevents insurers from offering narrow networks that include only CHS’s competitors. Finally, CHS is accused of imposing restrictions in its insurance contracts designed to impede insurers from providing truthful information to consumers about the value, cost and quality of CHS’s health care services compared to CHS’s competitors.

It is also noteworthy that while the economic theory of DoJ’s case is an alleged abuse of single firm market power by the largest hospital in Charlotte, North Carolina, the case is not brought in whole, or even in part, under Section 2 of the Sherman Act. Instead, it is pleaded exclusively as an allegedly anticompetitive agreement in violation of Section 1 of the Sherman Act between CHS and various insurance carriers.

Without identifying any specific offending provisions in any contracts with particular insurers, the complaint alleges instead only generally that some form of steering restriction exists in CHS’s contracts “with all four of these insurers.” (Complaint, ¶16.) Some contracts allegedly contain contract language “prohibiting steering outright,” while others allegedly give CHS the right to terminate its agreement with the insurer if the insurer “engages in steering.” Id. The only description of actual negotiations is a single allegation that for “years insurers have tried to negotiate to remove steering restrictions . . . .” (Complaint, ¶26.)

Finally, the government understandably makes no suggestion that the allegedly illegal agreements should be subject to any per se legality standard. The relationship between the major carriers and CHS is clearly a vertical one, in which the plans are alleged to purchase services from CHS for their insureds, and therefore clearly a vertical relationship subject to the rule of reason.

If this matter is not resolved quickly, the discovery could be very interesting. Since the rule of reason applies, discovery will likely involve seeking evidence about whether negotiations between the plans and CHS explicitly made the existence and form of anti-steering provisions part of a larger economic negotiation over the terms of any reimbursement agreement. For example, while it remains to be seen how CHS intends to defend the case, it seems likely that as part of a rule of reason analysis, arguments will be made that these anti-steering provisions are efficient and enable CHS to provide better care at equal or lower cost.

In any event, the Complaint obviously serves as a useful reminder of potential risks created by demands for contractual provisions seeking to exclude competing providers from insurance reimbursement by provider entities that can plausibly be accused of possessing market power in a local geographic health care market. The risk thereby created must now be seen as not only involving potential antitrust claims by competing providers (which has already occurred elsewhere), but involving claims by federal antitrust enforcement agencies as well.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sheppard Mullin Richter & Hampton LLP | Attorney Advertising

Written by:

Sheppard Mullin Richter & Hampton LLP
Contact
more
less

Sheppard Mullin Richter & Hampton LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.