Antitrust agencies have made it clear that hospital mergers are a high enforcement priority. United States v Carolinas Healthcare System signals that hospital contracting practices may also be subject to challenge.

The complaint filed on June 9 2016 alleges that anti-steering provisions in the contracts of Carolinas Healthcare System violate Section 1 of the Sherman Act. According to the complaint, Carolinas Healthcare System – a hospital system with an alleged 50% market share in the Charlotte area – includes provisions in its contracts with Aetna, Blue Cross Blue Shield, Cigna and United that prevent the insurers from steering patients to lower-priced hospitals.

The contracts directly restrict steering by preventing the insurers from offering either narrow networks that exclude Carolinas Healthcare System or tiered networks that incentivise patients to use competitors of Carolinas Healthcare System. The contracts indirectly restrict steering by preventing the insurers from providing cost and quality information that patients could use to seek out lower-cost or higher-quality healthcare services. The complaint claims that these anti-steering provisions insulate Carolinas Healthcare System from competition and allow it to maintain higher prices.

The Department of Justice's (DOJ) support of selective contracting by insurers is nothing new.(1) The DOJ previously warned healthcare providers against the use of anti-steering and anti-tiering mechanisms in the joint DOJ and Federal Trade Commission (FTC) Statement of Antitrust Enforcement Policy.(2) The joint statement cautioned accountable care organisations against four types of conduct, including preventing or discouraging private payers from steering patients to certain providers through "anti-steering", "anti-tiering", "guaranteed inclusion", "most-favored-nation" or similar contractual clauses or provisions.

The DOJ's efforts to target anti-steering conduct in Carolinas mirror those taken in the credit card industry,(3) as well as a 2011 lawsuit in which the DOJ challenged a hospital system's insistence on exclusive contracts with health insurers.(4)

The DOJ's actions in Carolinas signal further strong support for health insurer steering and transparency initiatives. The use of tiered or narrow provider networks to control escalating provider costs has expanded significantly in recent years on the Affordable Care Act health insurance exchanges.(5) New efforts also are underway to improve cost and price transparency for patients. Carolinas is noteworthy because it appears to strongly embrace the increasing use of these tools to improve the efficiency of healthcare delivery.

Providers have challenged insurer decisions in order to exclude them from provider networks under the antitrust laws in private lawsuits that are currently percolating through the courts.(6) Absent evidence of collusion by the payers, such challenges often fail because the exclusion is considered to be a natural result of selective contracting by the health plan in an effort to lower costs, and the plaintiff cannot show an adverse impact on competition. Carolinas can be seen as further support for selective contracting and an attempt to hold providers accountable for conduct that impedes arrangements that ultimately result in the exclusion of providers from narrow or tiered provider networks. As a result of the Carolinas Healthcare System's restrictions, the complaint alleges that:

"individuals and employers in the Charlotte area pay higher prices for health insurance coverage, have fewer insurance plans from which to choose, and are denied access to consumer comparison shopping and other cost-saving innovations and more efficient health plans that would be possible if insurers could steer freely."

Carolinas has major implications for health plans and healthcare providers:

  • While much attention has focused on efforts by the FTC and DOJ with respect to hospital and health plan mergers, respectively, the case highlights that the DOJ will actively scrutinise provider conduct as well.
  • The case reaffirms DOJ support of selective contracting and shows the DOJ's willingness to fight aggressively to remove impediments to steering patients to low-cost or high-quality providers through narrow or tiered provider networks.
  • The case shows that the DOJ views transparency initiatives on price and quality as an indirect steering tool and a meaningful means of improving the efficiency of healthcare delivery.
  • The case encourages healthcare providers contemplating contractual restrictions on insurer steering to ensure that such restrictions are reasonably necessary to achieve legitimate business objectives.

For further information on this topic please contact Robert F Leibenluft, Leigh L Oliver, Justin W Bernick or Caitlin Russo at Hogan Lovells US LLP by telephone (+1 202 637 5600) or email (robert.leibenluft@hoganlovells.com, leigh.oliver@hoganlovells.com, justin.bernick@hoganlovells.com or caitlin.russo@hoganlovells.com). The Hogan Lovells website can be accessed at www.hoganlovells.com.

Endnotes

(1) See Improving Health Care: A Dose of Competition, ("When MCOs and other insurers have a credible threat to exclude providers from their networks and send patients elsewhere, providers have a powerful incentive to bid aggressively to be included in the network").

(2) Federal Trade Commission and Department of Justice Antitrust Division, Statement of Antitrust Enforcement Policy Regarding Accountable Care Organisations Participating in the Medicare Shared Savings Program, 76 Fed Reg 67026 (Oct 28 2011).

(3) See United States v American Express.

(4) See United States v United Regional Health Care System.

(5) For example, McKinsey Centre for US Health System Reform, Hospital networks: Evolution of the configurations on the 2015 exchanges.

(6) For example, Bristow Endeavor Healthcare v BCBSA (ND Okla 2016); Kissing Camels Surgery Center v Centura Health Corp (D Col 2015); Bay Area Surgical Mgmt v Aetna (ND Cal 2015); Tri State Advanced Surgery Center v Health Choice (ED Ark 2015); Medical Center at Elizabeth Place v Premier (SD Ohio 2014); New Mexico Oncology and Hematology v Presbyterian (DNM 2014).

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