The antitrust agencies have made it clear that hospital mergers are a high enforcement priority. A new lawsuit, United States v. Carolinas Healthcare System, brought by the Department of Justice (DOJ) and the North Carolina Attorney General signals that hospital contracting practices also may be subject to challenge.

The complaint filed on June 9, alleges that anti-steering provisions in the contracts of Carolinas Healthcare System (CHS) violate Section 1 of the Sherman Act. According to the complaint, CHS, a hospital system with an alleged 50 percent 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. First, the contracts “directly” restrict steering by preventing the insurers from offering either narrow networks that exclude CHS or tiered networks that incentivize patients to use CHS’ competitors. Second, 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 CHS from competition, allowing CHS to maintain higher prices.

DOJ’s support of “selective contracting” by insurers is nothing new.1 DOJ previously warned health care providers against the use of anti-steering and tiering mechanisms in the 2011 joint DOJ and FTC Accountable Care Organizations Antitrust Policy Statement.2 That statement cautioned ACOs against four types of conduct, including “preventing or discouraging private payors from steering patients to certain providers, such as through “anti-steering,” “anti-tiering,” “guaranteed inclusion,” “most favored nation,” or similar clauses. In addition, DOJ’s efforts to target anti-steering conduct in this case mirror those taken by DOJ in the context of the credit card industry,3 as well as a 2011 lawsuit in which DOJ challenged a hospital system’s insistence on exclusive contracts with health insurers.4

DOJ’s actions in this lawsuit 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 exchanges5 New efforts also are underway to improve cost and price transparency for patients.

DOJ’s lawsuit 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 to exclude them from provider networks under the antitrust laws in private lawsuits that are currently percolating through the courts.6 Often such challenges fail (absent evidence of collusion by the payers) 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. The Carolinas lawsuit 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. Indeed, the complaint alleges that, as a result of CHS’ restrictions, “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.”

The lawsuit has major implications for both 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 DOJ will actively scrutinize provider conduct as well.
  • The case reaffirms DOJ support of selective contracting and shows 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 DOJ also views transparency initiatives on price and quality as a meaningful means of improving the efficiency of healthcare delivery, and amount to an “indirect” steering tool.
  • Health care providers contemplating contractual restrictions on insurer steering should ensure that such restrictions are reasonably necessary to achieve legitimate business objectives.