(Story updated at 4:37 p.m. ET)
The U.S. Justice Department is suing North Carolina's largest healthcare system, saying it illegally imposes contract requirements on insurers that reduce competition.
Carolinas HealthCare System places restrictions in its contracts with insurers that bar them from offering tiered networks that include competing hospitals in their top tiers, the Justice Department and the state of North Carolina allege in a complaint filed Thursday. The system also forbids the insurers from offering narrow networks that include only its competitors in violation of antitrust law, according to the Justice Department.
Carolinas HealthCare System said in a statement Thursday that such arrangements with insurers are similar to others between insurers and healthcare systems across the country.
“We have neither violated any law nor deviated from accepted healthcare industry practices for contracting and negotiation,” the system said. “In fact, we have been applauded by the U.S. government for the quality care and cost reduction programs we've implemented, programs it hopes to model in other parts of the country.”
According to the complaint, the restrictions stop insurers from providing financial incentives to patients to encourage them to use lower-cost, high-quality care. Carolinas includes the restrictions in its contracts with four insurers that cover more than 85% of commercially insured residents of the Charlotte area, including Aetna Health of the Carolinas, Blue Cross and Blue Shield of North Carolina, Cigna Healthcare of North Carolina and United Healthcare of North Carolina, according to the complaint.
“Pushing medical costs artificially higher and limiting choices harms North Carolina families,” North Carolina Attorney General Roy Cooper said in a statement Thursday. “Consumers who need healthcare deserve accurate information and access to quality, affordable options.”
Carolinas, a not-for-profit system based in Charlotte, is the dominant system in the area with about a 50% share of the relevant market and 2014 revenue of about $8.7 billion, according to the complaint.
Antitrust experts say the suit may be one of the first out of the Justice Department against a provider over so-called anti-steering provisions in contracts. The Justice Department has, however, targeted a similar issue—contracts that included most-favored-nation clauses—in the past, said Barak Richman, a Duke University law professor.
Earlier, the Justice Department and the state of Michigan sued Blue Cross and Blue Shield of Michigan over such a clause. In that case, the most-favored-nation clause guaranteed that the Michigan Blues would receive the lowest contracted rate on any service, in some cases requiring hospitals to raise rates charged to other insurers. Ultimately, the feds and state dropped their lawsuit in 2013 after state lawmakers made such clauses illegal.
A number of states have now outlawed most-favored-nation clauses, Richman said. He suspects that anti-steering provisions in contracts between insurers and providers may be next.
“Anti-steering clauses, by and large, do the same thing as these most-favored-nation clauses, and it's quite likely that they too will soon be outlawed by state legislation,” Richman said.
The Justice Department's challenges against most-favored-nation clauses and anti-steering provisions in this latest lawsuit go hand-in-hand, said Tim Greaney, co-director of the Center for Health Law Studies at St. Louis University School of Law, and a former assistant chief of healthcare antitrust enforcement at the Justice Department. He said the Obama administration has been more aggressive than the last Bush administration was in recognizing that vertical contracts can be used to maintain or increase market power.
The judge in this latest case will ultimately have to weigh whether any potential pro-competitive effects of the anti-steering provisions outweigh the anti-competitive effects, said Jeff Miles, an antitrust expert with law firm Ober Kaler.
Other hospitals and insurers might have similar anti-steering provisions in their contracts, Miles said. But this case won't likely have implications for all of them, Miles said. Its biggest effects would likely only fall on hospitals that have the same kind of market power as Carolinas and that also enter into arrangements with multiple, large insurers, he said.