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Developments in Antitrust Law Impacting Hospital Relationships with Insurance Companies

In a win for state-deputized hospital corporations, a North Carolina non-profit hospital authority defeated a putative antitrust class seeking treble damages on the pleadings. Benitez v. The Charlotte-Mecklenburg Hospital Authority, d/b/a Carolinas Health System, No. 3:18-cv-00095 (W.D.N.C. March 4, 2019). At issue in Benitez was the presumably anti-competitive effect of so-called “anti-steering” clauses in the defendant hospital’s insurer agreements, notably the same conduct the Department of Justice (DOJ) had already investigated, sued against, and obtained a preliminary settlement on two years prior. The DOJ framed the deleterious antitrust effect of anti-steering provisions as follows, stating that these “restrictions impede insurers from providing financial incentives to patients to encourage them to consider utilizing lower-cost but comparable or higher quality alternative healthcare providers.”

In the class action, the named plaintiff proceeded under Section 1 of the Sherman Act and identified the relevant product market as “[t]he sale of general acute care inpatient hospital services to insurers” and the relevant geographic market as “no larger than the Charlotte area,” seeking both treble damages and injunctive relief to prevent future use of the anti-steering provisions.

The public health system moved for judgment on the pleadings under FRCP 12(c) on multiple grounds, obtaining dismissal of the damages portion of the putative class action based solely on the Local Government Antitrust Act of 1984 (LGAA). The court stayed the class request for injunctive relief, as the LGAA did not bar equitable remedies; however, the hospital’s pending settlement with the DOJ’s Antitrust Division, which will provide for virtually identical relief as that sought here, will likely preempt the class from ever moving forward, if approved.

Interestingly, the defendant’s victory on its LGAA “immunity” argument allowed the court to avoid all analysis of the other, more traditional Sherman Act defenses, such as the indirect-purchaser bar under Illinois Brick and the ever-popular antitrust standing defense, none of which were reached in the decision. The court applied the more arcane provisions of the LGAA, essentially prohibiting the imposition of monetary damages in antitrust actions against official bodies to “allow local governments to go about their daily functions without the paralyzing fear of antitrust lawsuits.” In doing so, it found that the defendant hospital system was created as a not-for-profit corporation, pursuant to North Carolina state law “as a public hospital authority,” and held that its attendant nature as a “body politic” of the state conferred the extended state-action antitrust immunity shield of the LGAA upon it.

This decision follows in the evolutionary footsteps of Supreme Court jurisprudence and federal court rulings over the past decades, clarifying the “immunizing” effect the 1943 Parker v. Brown state-action doctrine has on conduct that would otherwise be considered anti-competitive and hence violative of the federal antitrust laws. In short, where local or state government allows a health-care proxy to act on its behalf (i.e., government not only exercises its powers to establish a hospital authority, but in fact delegates the operations thereof completely or to a substantial degree to a privately run corporation), its proxy is immunized as long as the anti-competitive conduct and effect were reasonably foreseeable and were “the inherent, logical, or ordinary result of the exercise of authority” delegated by the legislature. Federal Trade Commission v. Phoebe Putney Health System, 568 U.S. 216 (2013).

If your hospital is currently experiencing issues similar to these, contact Frier Levitt today to speak to an attorney.