DOJ brings antitrust lawsuits challenging hospital contracting practices

May 12 update

OhioHealth filed a motion to dismiss the lawsuit brought by the Department of Justice (DOJ) and the state of Ohio over allegations that the health system engaged in anticompetitive conduct in its health plan contracting (see the original story below).

The organization’s contracting approach actually was procompetitive, according to the motion, in that the favorable network terms came as a result of competition with The Ohio State University Wexner Medical Center and Mount Carmel Health System.

“Hospitals’ competition for contracts with insurance companies to obtain enough patient volume to support their business is what courts have identified as ‘competition-for-the-contract,’” OhioHealth writes, and such competition is protected rather than prohibited under antitrust law.

“This competition, occurring regularly when contracts are terminated, re-bid or expire, lowers prices and benefits consumers,” the motion reads.

The government’s position essentially would require OhioHealth to ensure its competitors gain patient volume, rather than competing for patients:

“After OhioHealth made those difficult investments and built a strong reputation, the governments assert that OhioHealth should not be permitted to use those hard-won advantages to compete in the marketplace. Instead, OhioHealth must artificially restrain itself and help its competitors obtain the necessary patient volume to grow and succeed.”

If other systems struggle to gain patient volume or expand services as a result of OhioHealth’s contracting practices, those are ordinary consequences of losing competitive bids, the defendant argues.

“In [the health plan] negotiations, OhioHealth offered discounts and lower prices in exchange for premium shelf space in the store — i.e., being the featured hospital or being on equivalent terms with other featured hospitals,” the motion states. “Just like Kellogg’s can bargain for Frosted Flakes to be prominently displayed on the cereal aisle, OhioHealth can bargain for high-tier status with insurance companies.”

Not an excessive amount of leverage

OhioHealth also lacks the market power to create the circumstances needed for an antitrust violation, according to the motion. The complaint by the DOJ and the state cites the health system as having a 35% market share.

“Even accepting the governments’ unsupported claims, 35% is not sufficient to state a claim [of excessive market power],” according to the motion. “Courts consistently reject claims of market power based on market shares below 50%.”

OhioHealth also touted its CMS quality ratings and its efforts to comply with or exceed price transparency mandates.

“Public records also show that any price differences or preference for OhioHealth hospitals are inseparable from recognition of OhioHealth’s high quality in the market,” the motion states.

Lacking in detail

Another issue, according to OhioHealth, is that the complaint falls short of established precedent in putting forth the specifics needed to bring an antitrust case.

For example, the DOJ and the state have not specified the insurers that agreed to allegedly unlawful terms with the health system, nor when the agreements were reached or the duration of those agreements. In addition, no examples are given of the contractual language that causes concern or of instances when insurers have been blocked from offering lower-cost plans.

Other arguments in the motion are based on court rulings establishing that anti-steering provisions, as described in the complaint, are not inherently anticompetitive. The allegations do not pertain to price fixing or exclusive dealing, for example.

“While every business contract represents some restraint on trade, only restrictions with recognized anticompetitive effects on competition give rise to a valid antitrust claim,” the motion states.

Original story

Litigation brought by the U.S. Department of Justice (DOJ) asserts anticompetitive behavior in contracting by two health systems.

The allegations in lawsuits filed Feb. 20 against OhioHealth and March 26 against NewYork-Presbyterian (NYP) connect to concerns in the Trump administration about the impact of dominant health systems in some markets.

Repeated references in the lawsuits to the importance of allowing insurers to offer “budget-conscious insurance plans” speak to the administration’s emphasis on enhancing access to plans with relatively low premiums made possible, for example, through narrow-network setups. The DOJ alleges that such plans are less available in markets where health systems capitalize on their substantial leverage in contract negotiations in what amounts to anticompetitive conduct.

The government is seeking to have the health systems barred from “entering into or enforcing these illegal contractual plan design restrictions,” according to one of the lawsuits.

What the DOJ alleges in recent healthcare contracting lawsuits

In both filings, the health system is described as a dominant entity in its market based on share of inpatient discharges, thereby raising concerns about contracting approaches that the government says stymie competition.

Among the contracting approaches at issue are requirements for insurers to include the health system in all of their health plans, including in favored benefit tiers. The DOJ says such approaches constrain the ability of insurers to guide members toward cost-effective providers, including lower-cost sites of service, through products and approaches such as narrow networks, tiered-network plans, centers of excellence and site-of-service steering.

Results include supra-competitive prices and reduced competition on price and quality, according to the government.

Remedies sought by the DOJ in both cases include bans on anti-steering and anti-tiering clauses as negotiated by the two health systems. The respective federal courts — the Southern District of New York and the Southern District of Ohio — also are asked to ensure there is no retaliation against any insurer that seeks to offer budget-conscious health plans.

OhioHealth stated that it has been cooperating throughout the government’s review of its insurer agreements.

“We are confident in our position and remain committed to full compliance with all applicable laws and regulatory requirements,” the health system added, noting that it will not comment on specifics of active litigation.

NewYork-Presbyterian did not respond to a message seeking comment Monday.

Small differences in the respective lawsuits

Details that diverge between the two lawsuits include a mention of gag clauses in the OhioHealth complaint, referring to what the government says is “effectively” a contractual block on the ability of insurers to offer price transparency information to members.

The NYP complaint appears to have more of a focus on outpatient services, including whether contract terms have discouraged access to lower-cost sites of care such as freestanding imaging centers.

That complaint also includes references to subpoenaed internal documents and executive statements that describe the health system’s contracting approach.

A co-plaintiff in the OhioHealth case is the state of Ohio, so remedies potentially will be sought based on both federal and state antitrust law.

Legal precedent shaping DOJ enforcement strategy

Spanning the final seven months of the Obama administration and nearly the first two years of the first Trump administration, a case involving Charlotte, N.C.-based Atrium Health (known as Carolinas HealthCare System until early 2018) led to a November 2018 settlement that has implications for the current cases.

That earlier litigation served as “the leading case against anti-steering and anti-tiering clauses in healthcare contracts,” according to a 2020 legal analysis. Atrium Health argued that the contractual terms in question served a procompetitive purpose by allowing for discounted rates to insurers.

Per the 2020 analysis, Atrium also sought to apply a standard set by a 2018 Supreme Court decision involving American Express, which was defending against antitrust charges pertaining to its use of anti-steering clauses in its merchant agreements. The high court ruled 5-4 in favor of the credit card company.

The DOJ argued the precedent did not apply in the Atrium case because healthcare is a one-sided market, with hospitals selling to insurers, whereas credit-card networks were described as two-sided platforms between cardholders and merchants. A federal district court accepted the government’s logic preceding the settlement.

In a statement after the settlement, Atrium noted it did not incur a financial penalty and admitted no wrongdoing.

“The language in question is from contracts created as long ago as 2001 and was originally added to contracts to ensure Atrium Health was provided an equal opportunity to compete for patients,” the health system stated, adding that its contracting language subsequently “evolved to reflect current healthcare practices.”

While not taking place at the federal level, litigation brought by the state of California and private plaintiffs against Sutter Health focused on similar contractual issues. The parties settled in 2019 for $575 million and injunctive relief.

Market consolidation and policy scrutiny

The new complaints differ from many prior hospital antitrust cases in that they apply to contracting practices specifically rather than focusing on a health system’s market share more broadly. Still, the issue of market share provides the backdrop for the lawsuits and is resonating with policymakers.

At a March 18 hearing hosted by a House subcommittee to consider healthcare affordability issues in the provider space, much of the discussion focused on the impact of consolidation. For example, Rep. Kat Cammack (R-Fla.) stated that “Congress has taken steps to improve transparency, but transparency alone does not create competition in highly consolidated markets. It can just as easily become a tool to raise prices as lower them.”

Rick Pollack, president and CEO of the American Hospital Association (AHA) and a panelist at the hearing, replied that the AHA’s research shows operating costs drop by 3.3% when organizations come together in a new system.

“The issue is that doesn’t always get passed on to the patient because there’s an insurer in between that sets the rates,” Pollack said.

A new analysis from KFF quantifies some of the consolidation trends, using Medicare cost-report data processed by RAND. Among the findings is that 97% of metropolitan statistical areas are categorized as highly concentrated markets for inpatient care, based on federal antitrust guidelines.

Between 2015 and 2024, 80% of markets either became more concentrated or were controlled by one health system over the decade-long period, according to the analysis.