Health insurers, often the targets of state and federal regulators, increasingly are performing what is traditionally a government role: antitrust enforcement.
Antitrust lawsuits by commercial health insurers against hospitals and hospital-owned managed-care plans are on the rise. Within the past 13 months, healthcare organizations have brought at least six private antitrust suits against rivals or even customers, alleging unfair competition, restraint of trade, exclusionary practices, illegal boycotts, price-fixing, monopolization and predatory pricing. At least two more cases may end up in court. Though the cases are expensive to handle, a lack of government intervention has spurred healthcare antitrust lawyers to take them on.
Most recently, a commercial health insurer in Wichita, Kan., filed a federal antitrust lawsuit against the largest health system in town and the system's HMO and PPO, alleging that the system is trying to drive it out of business (Sept. 3, p. 6). In other cases, cardiologists in Mesa, Ariz.; surgeons in Rome, N.Y.; and HMOs in Harrisburg, Pa., Pittsburgh and Salt Lake City have filed private antitrust lawsuits against local health systems alleging unfair competition.
Healthcare lawyers say the suits are part of a growing trend.
David Balto, a former Federal Trade Commission attorney now with the Washington office of White & Case, says escalating healthcare prices, particularly in markets typified by consolidation and lacking strong competition, are behind many of the private antitrust actions.
"As provider groups merge and consolidate and grow larger, they exercise their market power," Balto says. "The problem is that government antitrust agencies haven't done a good job of making sure markets are structurally competitive, and now, after the harm's occurred, we're seeing the beginning of a trend in its incipiency. Five years from now these kinds of cases will be very prevalent."
Coventry goes on the offensive
In its 38-page lawsuit filed Aug. 9 in U.S. District Court in Wichita, Coventry Health Care of Kansas alleges that not-for-profit Via Christi Health System and its wholly owned for-profit health plans, Preferred Health Systems and Preferred Plus of Kansas, practiced predatory pricing. It also alleges that Via Christi unfairly competed to steal a vital customer from Coventry-Raytheon Aircraft, a Wichita subsidiary of Falls Church, Va.-based defense contractor Raytheon Co.
The suit alleges that Via Christi illegally used its domination and market power in inpatient hospital care to extend its monopoly into the greater Wichita managed-care market and freeze Coventry and other insurers out of the PPO and HMO markets. With 65,000 enrollees, PHS and PPK control 52% of the Wichita managed-care market. Coventry, with 34,000 enrollees, controls about 29% of the market. But if it fails in court, Coventry would lose 25,000 enrollees Jan. 1 when PHS and PPK take over the Raytheon account. Coventry accuses Via Christi and its insurers of offering lower hospital and doctor reimbursement rates to its own health plans than it makes available to Coventry and other insurers that don't own hospitals. The company alleges the defendants undercut its health plan proposal to Raytheon by $37 million over a three-year contract.
Coventry contends that the October 1995 merger that created 857-bed Via Christi Regional Medical Center is at the root of the problem. The merger between St. Joseph's Hospital and St. Francis Regional Medical Center, two former Wichita competitors, made Via Christi the city's dominant health system, with 63% of the inpatient beds and 59% of hospital discharges. Via Christi also acquired a third hospital when it purchased Riverside Health System, parent company of 125-bed Riverside Hospital in Wichita, in a deal that became final Oct. 1. Via Christi's only Wichita competition is 534-bed Wesley Medical Center, owned by HCA.
Three of the six suits-against Via Christi, Williamsport, Pa.-based Susquehanna Health System (See story below) and Pittsburgh-based UPMC Health System-were filed by subsidiaries of Coventry Health Care, a national HMO with 1.8 million members in 13 U.S. markets that has demonstrated a willingness to play hardball. Coventry Chief Financial Officer Dale Wolf refuses to comment on the antitrust suits that Coventry has filed against health systems and competing HMOs, except to cite previously published news releases that explain the suits as tools to control rising healthcare costs.
"After careful thought and deliberation, HealthAmerica (of Pennsylvania, the Coventry subsidiary suing the Susquehanna Health System) and its parent company, Coventry Health Care, strongly believe that as one of Pennsylvania's leading healthcare companies, we have an obligation to address this issue in order to protect the interests of our company, our customers and the community at large," says Francis Soistman Jr., HealthAmerica's president and chief executive officer.
"We have alleged in our complaint that certain business practices of Via Christi, PHS and PPK are illegal," Coventry Health Care of Kansas spokeswoman Jan Stallmeyer said in a statement that called Wichita's healthcare costs among the highest in the country. "Left unchecked, over time the continuation of these activities will drive competitors from the health benefits marketplace, resulting in even higher healthcare costs and fewer choices for consumers in the Wichita area."
Where's the government?
So why haven't state and federal antitrust regulatory agencies intervened in these cases of allegedly anticompetitive behavior?
FTC spokesman Howard Shapiro says the commission would not comment on private litigation. He adds that in spite of the FTC's past failures to successfully challenge hospital mergers in court, the commission has not forsaken or limited its involvement in regulating any healthcare sector.
"The commission maintains an active presence in all aspects of healthcare," Shapiro says. "And we absolutely welcome complaints about any kind of perceived anticompetitive conduct."
But David Marx, a healthcare antitrust lawyer with the Chicago office of McDermott, Will & Emery, says government antitrust regulators usually don't get involved in cases that they don't believe serve a broad public interest, especially when private parties are willing to pursue legal action themselves.
"The government hasn't focused on hospitals recently and is devoting its antitrust resources now to the marketing practices of pharmaceutical companies," Marx says. "It's a question of limited resources and where you spend them. I'm not surprised they're not intervening."
Robert Bloch, a healthcare antitrust lawyer with the Washington office of Mayer, Brown & Platt, says historically the government has not pursued the kinds of actions being brought privately now.
"They have tended to pursue anticompetitive hospital mergers and certain types of business practices, such as physician or provider group boycotts, most of which focus on pricing and directly affect consumers," says Bloch, a former chief of the U.S. Justice Department's healthcare antitrust division. "That contrasts with private cases that have largely dealt with exclusive dealing arrangements that tended to exclude providers from providing services to hospitals."
Bloch says the recent lack of government intervention in hospital mergers stems partly from agency failures to prevail in court challenges but should not indicate inaction.
William Kopit, a healthcare antitrust lawyer with the Washington office of Epstein, Becker & Green who has represented Coventry in several suits, says most previous private antitrust actions in healthcare have been brought by disgruntled physicians who cried foul when their hospital privileges were revoked. Kopit, who has filed four of the six antitrust suits on behalf of health provider clients, says these cases are different and have legitimate antitrust concerns.
Kopit concedes that private litigation isn't the best solution to resolve market disputes.
"Nobody wants to lose money, and these are expensive cases to bring," he says. "But these parties feel they have no other alternative."
Going through the process
Some of the cases have trial dates. A few have passed early barriers, such as overcoming defendant motions to dismiss. Two plaintiffs, the Rome, N.Y., surgery center and the Rocky Mountain Medical Center in Salt Lake City, went out of business after filing the suits.
In one of the most recent antitrust cases that has not yet made it to court, a smaller hospital in Springfield, Mass., asked the state's attorney general to order a competitor's HMO to contract with it. Although Attorney General Thomas Reilly refused in September to compel Springfield-based Baystate Health System's Health New England HMO to give a full-service contract to struggling 311-bed Mercy Medical Center, Reilly warned Baystate to play fair or state regulators would intercede (Oct. 8, p. 12).
Mercy's sponsor, the Springfield-based Sisters of Providence Health System, told the state that Baystate froze it out of managed-care contracts for most acute-care services, costing the hospital access to thousands of patients. Baystate is parent of 564-bed Baystate Medical Center and owner of 91,000-member Health New England HMO.
Another private antitrust case that has not yet reached litigation pits a group of Illinois physicians and a local hospital against a St. Louis subsidiary of Coventry's. In August, 27 physicians from the Southern Illinois Physician Hospital Network simultaneously sent identical letters to Group Health Plan stating their intention to bargain collectively, rather than individually, with the HMO. The physicians are part of a network affiliated with 289-bed St. Elizabeth's Hospital in Belleville, one of 13 hospitals owned by the Springfield, Ill.-based Hospital Sisters Health System. In response to the letters, Group Health Plan and its attorney Kopit have threatened to sue, alleging the doctors are illegally boycotting the HMO in violation of the Sherman Antitrust Act, which prohibits illegal boycotts and agreements that restrain trade.
Lawyer Balto says the kinds of private antitrust cases brought this year are hard to win.
"A better idea is to prevent these large consolidations and mergers between hospitals and provider groups from happening in the first place," he says.