In June 2016, the United States Department of Justice (“DOJ”) and the State of North Carolina filed a complaint to prevent the Charlotte-Mecklenburg Hospital Authority (later acquired by Atrium Health (“Atrium”)) from enforcing the anti-steering restrictions included in its contracts with health insurers. Soon after this complaint was filed, the Second Circuit ruled that DOJ failed to meet its burden in its case against American Express Company (“Amex”), which alleged that the anti-steering contractual provisions used by Amex in its merchant contracts were anti-competitive. Despite this ruling by the Second Circuit (and the subsequent 2018 Supreme Court ruling that Amex’s anti-steering provisions did not violate the antitrust laws), DOJ and the State of North Carolina continued their suit against Atrium’s anti-steering contractual provisions and argued that the Amex decision was not applicable to the issues in the Atrium case. DOJ and the State of North Carolina and Atrium settled in November 2018, announcing that Atrium would not enforce its anti-steering restrictions except in highly limited circumstances. This settlement was upheld in April 2019.
Atrium operated ten general acute-care hospitals in the Charlotte, North Carolina area at the time of the complaint. DOJ and the State of North Carolina alleged that Atrium was the dominant hospital system in Charlotte, with a market share of approximately fifty percent in the alleged relevant market. DOJ and the State of North Carolina further alleged that Atrium used its market power to prevent insurance companies from steering patients away from Atrium to more efficient healthcare providers.
Steering occurs when a health insurer uses economic incentives to influence a consumer to choose lower-cost or higher-quality healthcare options. There are several methods by which an insurer can steer a patient to choose more efficient care, including tiered networks, narrow networks, and providing enrollees with cost and quality information. DOJ and the State of North Carolina alleged that Atrium imposed contractual restrictions that limited an insurer’s ability to steer patients using tiered networks, narrow networks, and price information.
Specifically, DOJ and the State of North Carolina alleged that Atrium constituted such a large part of the relevant market that insurers selling health insurance plans in the Charlotte area had to include Atrium providers in their networks in order to have a commercially viable product, and this dominance gave Atrium the ability to impose anti-steering restrictions in its contracts with insurers. DOJ and the State of North Carolina further alleged that the anti-steering restrictions had several effects, including higher prices charged by Atrium, reduced incentives for Atrium’s competitors to lower their prices, and decreased consumer shopping and choice.
In response, Atrium argued that it was not a dominant healthcare provider and that Atrium’s inclusion in a provider network was not necessary for a viable insurance product, as evidenced by United HealthCare allowing their agreement with Atrium to lapse. Atrium further argued that the DOJ and the State of North Carolina failed to assert that Atrium’s alleged premium prices were the result of its anti-steering provisions, rather than Atrium’s ability to offer a premium product. Finally, Atrium argued that, to the extent that it included anti-steering provisions in its contracts, these provisions were pro-competitive and led to deeper insurer discounts. For example, the anti-steering provisions mitigated the risk that, after a contract has been executed, an insurer could steer enough patient volume away from Atrium that it would cause Atrium significant financial harm.
Several months after DOJ and the State of North Carolina filed their Complaint against Atrium, the Second Circuit ruled in the Amex case – the only other case in which DOJ had challenged anti-steering restrictions. The Second Circuit ruled that the District Court in the Amex case had defined the product market too narrowly by focusing on network services to merchants and neglecting cardholders. Additionally, the Second Circuit indicated that DOJ did not offer evidence that cardholders engaged in fewer credit card transactions, or cardholder services were lower, or that Amex’s pricing was set above competitive levels. Thus, the Second Circuit ruled that DOJ had failed to meet its burden and that Amex’s anti-steering provisions did not violate antitrust laws.
Following the Second Circuit opinion, Atrium argued that the same flaws in DOJ’s legal argument in the Amex case held in the current matter. In response, DOJ and the State of North Carolina claimed that the Amex decision was decided “on grounds that are entirely distinct from the issues in this case.” Notably, DOJ and the State of North Carolina argued that the Amex case was decided based on a differing view of how to define the relevant market in a two-sided platform, which was not an issue in the Atrium proceedings.
In March 2017, the District Court denied Atrium’s motion for a judgment on the pleadings. The District Court noted that the government met its burden. The District Court found that the government alleged higher prices resulted from Atrium’s anti-steering restrictions, and that “these allegations are specifically the type of allegation that states a direct anticompetitive effect and a plausible claim for relief under Section 1 of the Sherman Act.” Additionally, the District Court noted the government’s indirect evidence – including Atrium’s alleged high market share, the alleged necessity of including Atrium in a provider network for a viable insurance product, and the allegation that insurers would prefer to not have anti-steering restrictions in their contracts.
DOJ and the State of North Carolina ultimately reached a settlement with Atrium. This settlement broadly nullified existing contractual anti-steering restrictions between Atrium and health insurers and placed limitations on future contractual arrangements between Atrium and insurers. Prior to this case, DOJ had not challenged anti-steering restrictions in a healthcare setting. Further, DOJ and the State of North Carolina continued their challenge despite the Second Circuit’s ruling in the Amex case. This suggests that antitrust regulators may continue to question the legality of anti-steering restrictions in healthcare settings.