In its first unilateral conduct case in over a decade, the U.S. Department of Justice (DOJ) and Texas Attorney General’s Office announced the simultaneous filing and settlement of monopolization claims against United Regional Health Care System of Wichita Falls, Texas, on Friday, February 25, 2011. The agencies accused United Regional of improperly coercing health insurers from contracting with other competing hospitals in the Wichita Falls area, thereby solidifying United Regional’s already dominant market position. The case appears to follow up on the Obama administration’s commitments to heighten antitrust enforcement in the healthcare industry, and to use the Sherman Act to challenge dominant firm conduct. The DOJ press release regarding the settlement is available at http://www.justice.gov/opa/pr/2011/February/11-at-249.html.

If accepted by the U.S. District Court for the Northern District of Texas, the settlement will last for seven years, and will prohibit the non-profit United Regional from conditioning the rates that it offers to commercial health insurers on whether those insurers contract with competing health-care providers, and from otherwise inhibiting those insurers from contracting with other providers. Additionally, United Regional may not retaliate against an insurer that contracts with a rival provider.

According to the Complaint, United Regional gained monopoly power in the markets for inpatient hospital services and several outpatient surgical services, as demonstrated by its 90% market share for inpatient acute care services and 65% market share for outpatient surgery in the Wichita Falls area. United Regional allegedly achieved this market position through its particular dominance in critical services lines such as obstetrics, cardiac surgery and high-level trauma care, making it a “must-have” participant for any regional insurer that wished to field a marketable coverage plan.

Having achieved this status, United Regional then allegedly coerced certain insurers into effectively exclusive contracts that offered significantly lower “discounts” if the insurers refused to contract with other providers in the Wichita Falls area. According to the Complaint, United Regional required that some insurers pay 15% to 27% more for its services if they contracted with other providers as well. Those insurers, understanding that they could offer competitive plans in the Wichita Falls area only with United Regional’s involvement, succumbed to the coercion by contracting exclusively with United Regional.

These exclusive contracts thus purportedly denied other area providers access to privately insured patients, resulting in less competition in the market for inpatient acute care services and outpatient surgery services delivered to privately insured patients residing in and around Wichita Falls.

Key Takeaways

 United Regional represents the first unilateral conduct action (Sherman Act, Section 2) brought by the DOJ since 1999. Since that time, the DOJ has focused its non-merger actions on concerted conduct governed by Section 1 of the Sherman Act—in October 2010, for example, bringing a Section 1 action against Blue Cross Blue Shield of Michigan for entering into a series of “most favored nation” (MFN) contracts that effectively set price floors in several markets in that state. The DOJ’s decision to file claims against United Regional as its first unilateral-conduct action in over a decade suggests that it viewed the case’s merits as particularly amenable to settlement. Because the action did not include any restraint-of-trade claims under Section 1 of the Sherman Act, its settlement may be less likely to attract follow-on actions by private plaintiffs.

 United Regional may signal an increased focus by the federal agencies on exclusive contracting practices, particularly in concentrated healthcare markets. This action, coupled with the MFN-related claims against BCBS Michigan, further suggests that the DOJ may be growing more inclined to examine any contracting practice that arguably prevents market entry and price-cutting, regardless of whether providers or insurers pursue the practice. These settlements, and recent FTC challenges to provider combinations, may indicate continuing scrutiny by the Obama administration on healthcare antitrust issues. Institutions on both sides of the managed-care relationship have reason to be more cautious about their contracting practices and acquisition plans than they may have been in the past, particularly in those markets where they already enjoy favorable market positions.