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U.S. Department of Justice Settles Anti-Steering Suit Against Hospital System; First Such Settlement After Amex SCOTUS Decision

On November 15, 2018, the Antitrust Division of the U.S. Department of Justice settled a two-and-a-half year long lawsuit against Atrium Health, a North Carolina hospital system formerly known as the Carolinas HealthCare System, enjoining Atrium’s anti-steering provisions against health plans. This article discusses the DOJ/Atrium settlement in light of the recent Ohio v. American Express Supreme Court decision, which concerned anti-steering provisions in the two-sided credit card network services market. We previously reported on the DOJ’s suit against Atrium here, and analyzed the implications of the SCOTUS Amex decision on health insurance here.

In U.S. v. Charlotte Mecklenburg Hospital Authority d/b/a Carolinas Healthcare System, the DOJ challenged Atrium’s contractual provisions restricting health insurance plans from steering patients away from the hospital system – also known as “anti-steering” provisions – as an anticompetitive restraint of trade under Section 1 of the Sherman Act. The DOJ alleged that plans in the Charlotte area that steer patients to cheaper hospitals and physicians result in more cost-effective healthcare services, and that Atrium’s anti-steering provisions caused higher prices for customers. According to a DOJ press release, Atrium’s anti-steering provisions “prevent health insurers from promoting innovative health benefit plans and more cost-effective healthcare services to consumers,” especially “plans that give patients financial incentives to choose cheaper hospitals and physicians.”

Pursuant to the settlement, Atrium agreed to drop its anti-steering provisions without admitting guilt or paying a fine. The Proposed Final Judgment specifically enjoins Atrium from enforcing anti-steering provisions described above against the major commercial insurers in the Charlotte area, including without limitation Aetna, Blue Cross and Blue Shield of North Carolina, MedCost, and UnitedHealthcare.

The two-and-a-half year long DOJ/Atrium legal battle came at a time of great uncertainty over anti-steering provisions in two-sided markets, paralleling the American Express case that ultimately went up to the Supreme Court. The DOJ tried to distinguish Amex in prior briefing (on which the district court did not rule), arguing that Amex is “inapplicable” and “wrongly decided.” But it appears to us that the DOJ’s claims in this case, which must be taken as true at the motion to dismiss stage, are fully consistent with the Supreme Court’s reasoning in Amex because the DOJ did look at both sides of the health insurance platform by pleading that Atrium’s anti-steering provisions on insurers harmed patients and the competitive process (as opposed to analyzing just the merchant side and not the consumer side, as in Amex). Notably, the DOJ’s brief addressed the Second Circuit’s holding before cert petitions had been filed in the Supreme Court, while the parties settled the suit after the Supreme Court had decided the case and upheld the Second Circuit’s decision. Accordingly, it is not clear if the DOJ will continue to reflexively assert “one-sided” relevant markets in healthcare cases.

Importantly, the DOJ/Atrium settlement permits the type of steering that the American Medical Association and the Ohio State Medical Association found particularly troubling in their joint amicus brief to the Supreme Court in Amex. After explaining that health insurance and narrow networks are obvious two-sided markets, the AMA and OSM expressed concern with “anti-referral provisions that are imposed upon physicians by dominant entities.” In other words, they were concerned about insurance companies overruling providers and steering patients to cheaper alternatives. By enjoining Atrium, a hospital system provider, from enforcing anti-steering provisions in its payor contracts, the DOJ appears to be opening the door to steering by insurance companies.

It will be interesting to see if insurers in North Carolina will create or resume plans that steer patients to less expensive hospitals and physicians, and if such networks will be challenged in court.

The case is U.S. v. Charlotte Mecklenburg Hospital Auth., 3:16-cv-00311-RJC-DCK (W.D.N.C.). Case documents are available at https://www.justice.gov/atr/case/us-and-state-north-carolina-v-charlotte-mecklenburg-hosptial-authority-dba-carolinas.

Copyright © 2019, Sheppard Mullin Richter & Hampton LLP.

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David Garcia Sheppard Mullin complex civil litigation attorneyantitrust law
Partner

David Garcia is a partner in Sheppard, Mullin, Richter & Hampton LLP's Century City office, where he is also the Office Managing Partner. He is a litigator with a broad background in complex civil litigation for major U.S. companies, including extensive class action and multidistrict litigation experience. His practice focuses  principally on antitrust litigation and counseling with particular emphasis on the entertainment industry, provider side healthcare mergers and the intersection between antitrust and intellectual property in litigation and joint ventures.

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Nadezhda Nikonova, Antitrust and Trade Regulation Attorney, Sheppard Mullin
Associate

Nadezhda Nikonova is an associate in the Antitrust and Trade Regulation Practice Group in the firm's San Francisco office. Her practice focuses on high-technology cartel and monopolization cases. She has special experience working with expert witnesses and applying sophisticated economic analysis to antitrust law.

Ms. Nikonova earned her J.D. from the University of California, Berkeley School of Law (Boalt Hall), where she was awarded the Certificate in Business Law. During law school, she was the Editor-in-Chief of the Berkeley Business Law Journal, clerked at the Federal Trade Commission’s Bureau of Competition, and served as a research assistant to revise an antitrust law textbook.

Ms. Nikonova formerly worked as an economic analyst with expert witnesses on antitrust litigation and merger clearance matters. She received her B.A. summa cum laude in economics and psychology from UCLA.

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