In a time of economic crisis, when hospitals, like most other businesses, are struggling to operate within a constrained budget, Memorial Hermann Healthcare System (“Memorial Hermann”) agreed Jan. 26, 2009 to pay $700,000 to settle claims of the Texas Attorney General alleging that Memorial Hermann orchestrated an agreement among health plans not to do business with a new competitor, Town and County Hospital (“Town and Country”). According to the complaint, Memorial Hermann, which owns and operates acute care hospitals furnishing inpatient care, is the largest hospital system in the Houston area. Town and County, a physician-owned hospital, opened in November 2005. Before opening, Town and County approached insurers to enter into contracts to be included in those insurers’ hospital networks. Memorial Hermann allegedly took steps to discourage insurers from entering into contracts with Town and Country, including sending notification of an intent to terminate its contract with one insurer as to all Memorial Hermann facilities, and subsequently renegotiating a contract with the insurer for substantially higher rates. According to the complaint, the rate increase proposed by Memorial Herman exceeded any increase reflective of a reasonably foreseeable change in volume resulting from increased competition from Town and Country. Memorial Hermann also was alleged to have notified another insurer of a 25 percent rate increase after learning that that insurer was considering entering into a contract with Town and Country. According to the Texas AG, that increase exceeded any reasonably expected economic impact of increased competition. Pursuant to the settlement agreement, Memorial Hermann has agreed to refrain from engaging in the foregoing conduct and pay $700,000 to the Texas AG as partial reimbursement for the cost of the investigation.  

Comment: Now more than ever, especially in light of the current economic woes and the new administration’s stated intention to focus on health care and antitrust enforcement, it is essential that health care providers be prepared for an increase in antitrust enforcement activities at the state and federal levels, and be ready to ensure that contract negotiations are conducted with this in mind. What may be intended to be merely tough negotiation tactics designed to increase revenue or reduce costs may be viewed by government authorities as anti-competitive conduct when coupled with other factors. The decision of a health care provider, or group of health care providers, to revise contractual arrangements to respond to changes in the competitive environment should take care to support proposed changes with objective data. Further, exclusive arrangements between health care providers and suppliers, while often considered to be pro-competitive, should be approached with careful consideration.