DOJ Suit Over Steering Restrictions Ends in Settlement

Health Update

On November 15, 2018, the Antitrust Division of the Department of Justice (DOJ) announced that it had settled its suit against Atrium Health over the imposition of “anti-steering” and “anti-transparency” restrictions in Atrium’s contracts with insurers. The settlement is a win for the DOJ. Under the settlement, Atrium has agreed not to enforce existing contracts that restrict steering and transparency, not to seek such provisions in new contracts, and not to penalize any insurer from using popular steering methods or providing transparency.

The DOJ and the North Carolina attorney general sued Atrium (formerly known as Carolinas HealthCare System) in North Carolina federal court in June 2016, alleging that Atrium used its dominant market power to prevent health insurers from directing consumers to lower-cost or better-value competitors by including certain provisions in its contracts with payers. The challenged provisions included (1) prohibitions on narrow insurance networks that exclude Atrium or tiered networks that place competing hospitals into the same top tier as Atrium, and (2) restrictions on payers’ ability to provide consumers and employers with information regarding the cost and quality of alternative health benefit plans. For further details on the litigation, see our previous articles in the July 2016 and April 2017 editions of “Health Update.”

The Atrium case was the DOJ’s second challenge to restrictions that prevented customer steering. As we previously reported, earlier this year the Supreme Court rejected the DOJ’s challenge to American Express’s “non-discrimination” rules that prevented merchants from steering customers to other credit card brands, finding that AmEx’s restrictions were not anticompetitive in the context of the “two-sided” payment card market.

While health insurance markets also could be viewed as two-sided—with payer-provider negotiations on one side and payer-consumer or payer-employer negotiations on the other—the healthcare industry has very different competitive dynamics from the credit card industry, and the model of competition discussed in the AmEx decision does not easily apply to a dominant hospital system exerting market power over a group of health insurers.

It is clear from the DOJ’s Competitive Impact Statement (filed with the proposed Atrium settlement) that the DOJ regards steering and transparency as important competitive tools in healthcare markets, since they enable patients to choose more cost-effective providers and thereby stimulate competition between providers. The DOJ states that Atrium’s steering restrictions reduced competition for inpatient hospital services in the Charlotte area by impeding its competitors’ ability to attract patients by offering lower prices to insurers and their members. The DOJ also notes that “because many of the most innovative healthcare plans in the country today are based on steering to more efficient providers, Atrium’s steering restrictions have also curbed the introduction of such plans and reduced choices for Charlotte-area consumers.”

Conclusion

Going forward, we expect to see further antitrust enforcement against dominant hospital systems that restrict innovative practices, such as narrow networks, tiered networks, reference-based pricing, centers of excellence and transparency into relative prices. As night follows day, private suits can be expected to follow. Major hospital systems should carefully consider whether restrictive provisions in insurer contracts expose them to potential antitrust risk.