Atrium Health settles anti-steering contract suit with feds

(Updated at 4:40 p.m. ET)

The U.S. Justice Department said it has reached a settlement with Atrium Health that would prohibit the Charlotte, N.C.-based hospital system from using anticompetitive steering restrictions in contracts between commercial health insurers and its providers.

The proposed settlement, which was filed Thursday in U.S. District Court for the Western District of North Carolina and must be approved by the court, also bars Atrium from seeking contract terms or taking action that would prevent or penalize steering by insurers in the future. Steering is a strategy used by insurers to direct patients to certain healthcare providers.

"With healthcare costs rising, vigilant antitrust enforcement is an essential tool for protecting consumers," Assistant Attorney General Makan Delrahim said in a news release announcing the settlement. "By eliminating restrictions that curb comparison shopping and interfere with competition among healthcare providers, today's resolution of our antitrust action allows consumers in the Charlotte area to benefit from competition when making critically important healthcare choices."

Atrium said in a statement that the anti-steering language in question is from contracts created as long ago as 2001 and was added to "ensure Atrium Health was provided an equal opportunity to compete for patients." Atrium said its contracts with insurers have evolved since then to reflect current practices. It also noted that the settlement is not an admission of wrongdoing and it will not be required to pay fines or penalties.

While the settlement doesn't set a legal precedent, it does send a strong signal to every major hospital that restricting steering by insurers is a questionable practice and could "invigorate" state legislatures to address anti-steering clauses in hospital contracts in their states, said Tim Greaney, professor of law at UC Hastings College of Law in San Francisco.

Many markets around the country are dominated by a "must-have" hospital system that exercises its market power to obtain higher reimbursement from insurers. Steering is one of the few weapons insurers have to negotiate effectively, short of excluding the hospital from its network, Greaney said.

He noted that the California attorney general is suing Sutter Health for anticompetitive contracting practices, alleging the Sacramento-based health system used its market power in local healthcare markets across all markets and prevented insurers from using steering to counter its high prices.

Anti-steering practices are also garnering attention from federal lawmakers. In October, Senate Judiciary Committee Chairman Chuck Grassley (R-Iowa) urged the Federal Trade Commission to assess how prevalent the use of steering restrictions is in the healthcare industry and whether those contract provisions are anticompetitive. His request followed a Wall Street Journal report detailing the use of the secret contract terms hospitals use to maximize profits.

The settlement announced Thursday relates to a case brought by the Justice Department against Atrium Health, then called Carolinas HealthCare System, in June 2016 for allegedly violating antitrust law by including steering restrictions in contracts with insurers that ultimately raised prices for patients. The case is one of the first from the Justice Department targeting anti-steering provisions in hospital contracts.

Insurers are increasingly designing health plans that give consumers financial incentives to choose more cost-effective doctors and hospitals, which helps increase competition between providers to offer lower costs and better services, according to the Justice Department.

Steering can include tiered and narrow networks, in which insurers allow their members to pay less out of pocket when they choose top-tier providers or seek care within the narrow network. The Justice Department argued that steering gives providers a big incentive to be efficient, maintain low prices and offer high quality, innovative healthcare services to induce insurers to steer patients to them.

But the feds claimed that Atrium—the largest healthcare system in North Carolina with net operating revenue of $9.9 billion in 2017—used its market power to force insurers into contracts that prevented them from steering patients to less costly providers, which would have encouraged competition that would potentially require Atrium to lower its prices. In its 2016 complaint, the Justice Department said Atrium Health "has long had a reputation for being a high-priced healthcare provider."

The Justice Department claimed Atrium included restrictions on steering in its contracts with Aetna, Blue Cross and Blue Shield of North Carolina, Cigna Corp. and UnitedHealthcare, which together insured 85% of the commercially insured people in the Charlotte area. The restrictions varied with each insurer but sometimes granted Atrium the right to terminate the contract if the insurer steered patients to competitors, the feds alleged.

They also claimed that Atrium prevented insurers from providing truthful cost and quality information about its healthcare services compared to its competitors, limiting patients' ability to shop for the best deals.

These actions reduced competition because without the promise of attracting more patients, Atrium's competitors have less incentive to offer lower prices or increase efficiency, the Justice Department said. Insurers did not want the restrictions but were compelled to accept them because of the Atrium's dominant market position. As a result, the feds said individuals and employers in Charlotte pay higher prices for insurance and have fewer options for healthcare.

Atrium, however, argued that the anti-steering provisions served to prevent the insurance companies from promising to provide insured customers and then encouraging those customers to avoid Atrium services. Its attorneys also claimed that their arrangements with the insurers promote competition because the health system is providing discounted services in exchange for "customer loyalty."