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Michelle S. Lowery focuses her practice on antitrust and competition. Michelle has experience in a broad range of antitrust litigation, transactional and counseling matters. Her practice focuses on complex litigation, government investigations, mergers and acquisitions, and counseling. Read Michelle Lowery's full bio.

The Department of Justice (DOJ) announced last week that it and the State of North Carolina have reached a settlement with Carolinas Healthcare System / Atrium Health relating to provisions in contracts between the health system and commercial insurers that allegedly restrict payors from “steering” their enrollees to lower-cost hospitals. The settlement comes after two years of civil litigation, and serves as an important reminder to hospital systems and health insurers of DOJ’s continued interest in and enforcement against anti-steering practices.

WHAT HAPPENED:

  • On June 9, 2016, the DOJ and the State of North Carolina filed a complaint in the Western District of North Carolina against the Charlotte-Mecklenburg Hospital Authority, d/b/a Carolinas Healthcare System, now Atrium Health (Atrium).
  • In its complaint, DOJ accused Atrium of “using unlawful contract restrictions that prohibit commercial health insurers in the Charlotte area from offering patients financial benefits to use less-expensive health care services offered by [Atrium’s] competitors.”
  • DOJ alleged that Atrium held approximately a 50 percent share of the relevant market and was the dominant hospital system in the Charlotte area. DOJ defined the relevant product market as the sale of general acute care inpatient hospital services to insurers in the Charlotte area.
  • DOJ alleged that Atrium used market power to negotiate high rates and impose steering restrictions in contracts with insurers that restrict insurers from providing financial incentives to encourage patients to use comparable lower-cost or higher-quality providers. Such financial incentives include health plan designs that charge consumers lower out-of-pocket costs (such as copays and premiums) for using top-tier providers that offer better value, or for subscribing to a narrow network of providers.
  • Atrium also allegedly prevented insurers from offering tiered networks with hospitals that competed with Atrium in the top tiers, and imposed restrictions on insurers’ sharing of value information with consumers about the cost and quality of Atrium’s health care services compared to its competitors. These “steering restrictions” allegedly reduced competition and resulted in harm to consumers, employers, and insurers in the Charlotte area.
  • Atrium allegedly included these steering restrictions in its contracts with the four largest insurers who in turn provide coverage to more than 85 percent of commercially insured residents in the Charlotte area.
  • On March 30, 2017, the court denied Atrium’s motion for judgment on the pleadings, finding that the government met its initial pleading burden. Atrium had argued that the complaint failed to properly allege that the contract provisions actually lessened competition or lacked procompetitive effects.
  • More than a year later, on November 15, 2018, DOJ announced that the State of North Carolina and DOJ had reached a settlement with Atrium, which prohibits Atrium from continuing its practices of using alleged steering restrictions in contracts with commercial health insurers. The proposed settlement also prevents Atrium from “taking actions that would prohibit, prevent, or penalize steering by insurers in the future.” The agreement lists certain prohibitions and permissions for Atrium; for example, that Atrium may not enforce existing alleged anti-steering provisions, and must allow payors to be transparent with consumers about price, cost and quality information. However, Atrium is permitted to enforce other contract provisions that protect against carve outs (where an insurer unilaterally removes a health care service from coverage in a health plan), and may restrict payor steering for any co-branded plan or narrow network in which Atrium is the most prominently-featured provider.

WHAT THIS MEANS:

  • Going forward, both DOJ and the Federal Trade Commission (FTC) are likely to investigate similar contract provisions by health systems susceptible to allegations of market power. The resolution of the Atrium matter comes just one month after Senator Chuck Grassley sent a letter to FTC Chairman Joseph Simons, asking FTC to investigate certain allegedly anticompetitive hospital system managed care contracting practices and to assess how prevalent they are in the marketplace. Senator Grassley’s October 10 letter cited to a recent Wall Street Journal article detailing various provisions said to increase health care costs and restrict patient choice, including anti-steering provisions. The letter cited to the then-pending Atrium case specifically. In the wake of the Grassley letter and the Atrium settlement, hospital systems that have entered into alleged anti-steering provisions with payors may need to expect inquiry from the FTC or DOJ.
  • The Atrium settlement follows the resolution of another DOJ challenge to anti-steering provisions. Earlier this year, in American Express, the Supreme Court rejected DOJ’s challenge to the anti-steering rules that the credit card company imposed on merchants. The cases are distinguishable in part due to the difference in market share of defendants. American Express held 26.4 percent of the credit card market, whereas Atrium allegedly holds 50 percent of the relevant market asserted by DOJ.
  • Many watched the Atrium case as an opportunity for further guidance from the courts on the competitive implications of anti-steering practices, but the settlement means practitioners and industry members must continue to wait for judicial consideration of these types of provisions in the health care industry.
  • The Atrium matter serves as a reminder of the agencies’ interest in alleged anti-steering and other restrictive contracting practices. Now is an opportune time for hospital systems to review their managed care contracting practices for potential antitrust risk under the rule of reason, particularly hospital systems with relatively high shares within concentrated service areas or that have contracting provisions with payors representing a majority of the local patient population that could be characterized as allegedly restrictive.

In this month’s American Bar Association (ABA) Section of Antitrust Law Spring Meeting, the program “Antitrust & Health Care: Square Peg in a Round Hole?” featured debate and discussion about antitrust law treatment of health care transactions and how that treatment might (or should) evolve (via regulation, legislation, or some combination of approaches), or conversely, whether the intersection of antitrust law and health care is more akin to a square peg meeting a round hole.  Moderated by Jim Donahue (Office of the Pennsylvania Attorney General), the panel’s speakers included Robert Berenson, MD (The Urban Institute), Alexis Gilman (the Federal Trade Commission (FTC)), Melinda Hatton (American Hospital Association (AHA)) and Elinor Hoffmann (Office of the New York Attorney General (AG)).

Horizontal Mergers

The program first considered a hypothetical merger of specialty physician practices, where the acquiring practice has privileges at one of the market’s two hospitals and the merger would consolidate privileges at that hospital.

The FTC said it would likely look at the transaction on a specialty-by-specialty basis; the New York AG agreed, but thought it was worth considering: is multi-specialty a market itself? She referenced ProMedica’s cluster markets as a possible route for analyzing the transaction (e.g., a parent might take two children to a multi-specialty practice at the same time, one to see a pediatrician and the other to see a dermatologist).

The American Hospital Association (AHA) thought that with the Affordable Care Act’s (ACA’s) incentive to keep the population out of the hospital, hospitals are repurposing services toward population health goals, and referenced remote medicine and affiliations.

Remedies

The FTC stated that it continued to prefer structural remedies in the form of injunctions or divestitures for health care transactions, pointing to its rejection of Phoebe Putney’s proposed conduct remedy. The New York AG agreed that while structural remedies are typically best, the states (particularly Pennsylvania and New York) tend to be more willing to consider conduct remedies, often with the goal of marrying regulation with achievement (efficiencies).

Dr. Berenson posited that physician group acquisitions are the wave of the future, because the current regulatory environment makes solo practice difficult. So, he said, where physicians or specialties must be divested, those doctors are now likely to seek hospital employment.

From the hospital perspective, the AHA noted that health care transactions are a peculiar breed— health care cannot be divorced from regulation, acquisition costs are usually very high, and hospitals must pay fair market value under Stark and Anti-Kickback laws—and commented that the peculiarities of such transactions are not always adequately taken into consideration in merger challenges.

Vertical Mergers; Narrow vs. Broad Networks

The panel next considered a hypothetical merger where a health plan with 60 percent market share in a mid-size city purchases one of the two hospitals and changes its network from broad to narrow.

The FTC noted that although they have not challenged this sort of vertical health care transaction, it would do so under the right circumstances (e.g., if the hospital had no excess capacity, market entry was difficult and there was a Certificate of Need requirement), and its analysis would likely focus on foreclosure and changes in foreclosure.

The AHA stated that 60 percent market share for an insurance company in a mid-size city is not necessarily high, especially depending on the makeup of the other 40 percent and how well the state’s exchanges are functioning. The AHA also noted that as incentives continue to move the population out of hospitals, many hospitals are left with excess capacity, so a hospital excluded from a network must repurpose its space to better fit the community’s needs.

Dr. Berenson believed that change in health care delivery happens at the provider level, not the payor level. He opined that insurance companies with narrow networks may be short sighted, since, he said, narrow networks make little sense when exchanges offer a range of broad networks.

Integration vs. Quality

Finally, the panelists debated the relationship between integration and quality. Dr. Berenson stated that current quality metrics for employed physicians in an integrated setting often are not meaningful, which leads to lower quality.  The AHA responded that linking provider compensation to quality metrics acts as an incentive to find appropriate measures.

The New York AG stated that that the ACA and the Sustainable Growth Rate repeal make clear that quality is aspirational, and that regulation is evolving to support that goal.  She averred that a (probably unintentional) effect of the ACA is that, in light of the burdens imposed by value-based payment and reporting regulations, competitive actors are looking into consolidation.

The AHA argued that acquisition of physician practices is the ideal way to form a cohesive team at a hospital (since otherwise, Stark and Anti-Kickback laws require doctors and hospitals to remain at arm’s length), and that the agencies should issue guidelines on clinical integration if they prefer affiliations over acquisitions.

Dr. Berenson, on the other hand, argued that the data shows that large integrated systems produce lower quality, do not achieve efficiencies, and actually end up raising prices.  In his opinion, the theory of integration leading to efficiencies is there, but the data is not.  He said that reimbursements remain largely based on volume and therefore are not yet an incentive to achieve efficiencies.  Instead, he argued, the current system is just an overlay to fee-for-service payments, and hospitals will prove that the right incentives are in place when their aim shifts to emptying beds instead of filling them.

The U.S. Court of Appeals for the Ninth Circuit affirmed an Idaho federal district court’s decision ordering the divestiture of a physician practice group that had been acquired by a competing health system. The case, which pitted the health system against private plaintiffs as well as the Federal Trade Commission and the state attorney general, illustrates some of the key issues hospitals and health systems must evaluate as they consider potential acquisitions.

Read the full article.

On October 2, 2014, the U.S. Department of Justice (DOJ) issued its first business review letter since issuing jointly with the Federal Trade Commission (FTC) the Agencies’ Antitrust Policy Statement on Sharing of Cybersecurity Information in April 2014 (the Policy Statement).  The Policy Statement recognized that sharing cyber threat information is integral to defending against cyber-attacks.  It states that cyber information sharing will be reviewed under a rule of reason analysis that focuses on the improved efficiency and security of cyber networks, the nature of the cyber information to be shared, and whether the information exchange is likely to harm competition.

CyberPoint International, LLC, requested the business review letter for its cyber intelligence data-sharing platform called TruSTAR.  The TrueStar platform collects incident reports, anonymously submitted, that include technical information, targets of the attack, contextual information and remediation solutions, which help members analyze their organization’s risk and current defenses.  The platform also contains a members-only forum where members can anonymously interact with the member that submitted a particular incident report, but requires as a prerequisite for participation a certification that members will not exchange “competitively sensitive information—such as recent, current, and future prices, cost data, or output levels—or otherwise attempt price or other coordination.”  Members must also have a Dun and Bradstreet D-U-N-S number, be in good standing with local, state and federal government and agencies, as well as satisfy minimum technical performance criteria.

In analyzing the proposed data-sharing platform, the DOJ found significant that “the business purpose and nature of the information sharing agreement does not suggest competition or consumers will be harmed.”  Notably, “the nature of the information that will be shared is unlikely to facilitate tacit or explicit price or other competitive coordination among competitors,” because “[t]he information to be shared through incident reports and the collaboration forum are very technical and is the type of information sharing contemplated by the . . . Policy Statement.”  Specifically, “no competitively sensitive information about recent, current, and future prices, cost data, output levels, or capacity will be exchanged,” and “CyberPoint will obtain commitments from members that competitively sensitive information won’t be exchanged.”  Therefore, the DOJ concluded that competitive harm was unlikely and that consumers would likely benefit from the lower cost and more efficient means of establishing network security.

The business review letter is available at http://www.justice.gov/atr/public/busreview/309071.pdf.

On July 24, 2014, the district court in Animal Sci. Prod., Inc. et al. v. China Nat’l Metals & Minerals Imp. and Exp. Corp. et al., Case No. 2:05-cv-04376 (D.N.J.), dismissed direct purchaser plaintiff’s Amended Complaint without prejudice in favor of magnesite producers accused of engaging in a price fixing scheme for magnesite and magnesite products sold in the United States.  The court found that the direct purchaser plaintiff, Resco, did not plausibly plead facts to establish antitrust standing as a direct purchaser.  The analysis was complicated by the fact that Resco inherited its claim from an assignor, Possehl (US), and the Amended Complaint contained no facts supporting the allegation that Possehl made direct purchases from the defendants.  The court recommended amending the complaint to identify specific transactions and the governing agreements for those purchases.

The dismissal is another setback for the plaintiffs, who filed suit in 2005 against 17 foreign companies, 16 of which are located in China.  None of the Chinese defendants responded to the complaint and in 2007, and plaintiffs filed a motion for a default judgment.  Seven of the companies responded in 2008 with a motion to compel arbitration.  However, before any of the motions were resolved, the case was administratively closed while the Third Circuit determined the appropriate standard for analyzing whether the district court had jurisdiction to hear the case under the Foreign Trade Antitrust Improvements Act.  The case was reopened in April 2012 and the district court asked for briefing on antitrust standing issues, which resulted in the dismissal of the Amended Complaint.

At the recent Antitrust in Health Care conference in Arlington, Virginia, representatives from the Federal Trade Commission and U.S. Department of Justice Antitrust Division discussed important health care and antitrust topics.  Speakers stressed that the Affordable Care Act is not an opportunity for anticompetitive consolidation and conduct.  Providers and payers alike should continue to analyze every acquisition, collaborative arrangement, contract or unilateral action under the traditional framework of antitrust law.

Please click here to read the full article.

After receiving a draft complaint and a stipulated order from the Federal Trade Commission (FTC) banning its allegedly deceptive letters to infringers of its scanning technology, MPHJ Technology Investments LLC (MPHJ) filed suit against the FTC in the Western District of Texas, alleging violations of the First Amendment.  The complaint alleged that the FTC’s investigation prevented MPHJ from its government-granted right to enforce its patent, a form of free speech under the Bill of Rights.  On March 28, 2014, the FTC filed a motion to dismiss the complaint, and MPHJ filed its response on April 18, 2014.

The FTC argued in its motion to dismiss that the controversy was not ripe for suit because there had been no final agency action, that MPHJ was not immune from suit because patent enforcement activity is not protected by the First Amendment and that the FTC is not looking to prevent MPHJ from sending letters, only looking to prevent the deceptive statements within those letters.

MPHJ contended in its response that the FTC’s draft complaint was a sufficient “credible threat” of suit to make the case ripe for adjudication.  MPHJ’s patent enforcement conduct included a threat to sue the alleged infringers, and it was this conduct, in part, that was subject to the FTC investigation and also protected by the First Amendment.  MPHJ argued that in order to sue it under Section 5 of the FTC Act, the FTC must overcome the First Amendment protection for plaintiffs in a lawsuit from allegations of misconduct related to bringing that suit, which applies unless the suit brought was “objectively baseless.”  MPHJ argued that the FTC has not overcome the burden of showing objective baselessness, because in its investigation of MPHJ’s conduct, it concluded only that the letters threatening to sue infringers were “deceptive.”  According to MPHJ, allowing the type of enforcement activity pursued by the FTC would prevent patent holders like MPHJ from threatening to sue infringers.  MPHJ further argued that the District of Nebraska entered a preliminary injunction against the attorney general when faced with identical facts.

The case is MPHJ Tech. Inv., LLC v. FTC, case number 6:14-cv-00011, pending before the U.S. District Court for the Western District of Texas.

On January 13, 2014, MPHJ Technology Investment LLC (MPHJ) filed a seven-count complaint against the Federal Trade Commission (FTC) alleging various constitutional and other violations, including violations of MPHJ’s First Amendment rights and violations of the Separation of Powers Doctrine.

The FTC began an investigation into MPHJ’s business practices and in December 2013 served MPHJ with a draft complaint.  The FTC’s complaint alleges that MPHJ sent 16,000 demands to small companies to pay $1,000 per employee to license MPHJ’s patents over document scanning equipment.  In particular, the FTC took issue with two statements in the demands.  The first was that MPHJ would file suit if the company did not respond and the second was that many companies with similar technology promptly paid licensing fees upon notification of the infringement.  These statements were both false, according to the FTC, because MPHJ never intended to file suit and never actually filed suit against any recipient and also because MPHJ only sold 17 out of the 16,000 demanded licenses.  Therefore, the FTC contends MPHJ’s demand letters constitute deceptive business practices.

MPHJ filed its complaint against the FTC in response to the FTC’s draft complaint.  MPHJ alleges that its patents are valid, that they are being infringed by thousands of companies, that it has a right to enforce those patents, that the first step to doing so is sending demand letters to infringers, and that those demands may legally contain a threat to sue for infringement.  MPHJ’s complaint states that the FTC has not contradicted or even disagreed with any of these assertions.  Instead, according to MPHJ, the FTC’s position is that a litigation threat not followed by a prompt lawsuit is a violation on its own.  In any event, MPHJ alleges the FTC does not have jurisdiction to interfere with MPHJ’s patent activity because the letters at issue do not meet the commerce requirement for Section 5 enforcement.  Moreover, MPHJ alleges that the right to enforce a federally granted patent is covered under the First Amendment right to petition the government.  As such, its patent enforcement activity is a petition to the government, and protected by the Noerr-Pennington doctrine.  MPHJ also charges the FTC with failing to do the requisite pre-suit investigation to find infringement as required under Federal Rule of Civil Procedure 11.

MPHJ’s complaint was filed in the Western District of Texas as MPHJ Tech. Inv. LLC v. FTC et. al., Case No. 6:14-cv-00011.

On September 24, 2013, the Northern District of California certified a class of indirect purchasers in In re Cathode Ray Tube Antitrust Litig., No. 3:07-cv-5944 SC, 2013 WL 5391159 (N.D. Cal. September 24, 2013).  The case was brought by indirect purchasers of products containing cathode ray tubes (CRTs) against CRT manufacturers alleging a global conspiracy to fix prices.  In support of their motion for class certification (and specifically with respect to the predominance requirement of Rule 23(b)), the plaintiffs offered a damages model and expert testimony that “it is more probable than not that the cartel’s price increase impacted all, or nearly all, direct purchasers in a common way.”  The defendants countered that running the model resulted in calculations of no impact for certain members of the class and therefore the model was unable to show impact to each individual class member.  The Court relied on recent Supreme Court decisions on class certification for the proposition that “proving predominance does not require plaintiffs to prove that every element of a claim is subject to classwide proof: they need only show that common questions predominate over questions affecting only individual members.”  The Court further held that “[w]hen an expert’s testimony relates to damages calculations in a class certification case, the district court must undertake a rigorous analysis of the expert’s opinions in the class certification context, such as whether the opinions are consistent with the liability case and whether they demonstrate that case’s proposed damages are measurable on a classwide basis.”

The Court found that the plaintiffs’ expert made a sufficient showing to meet the predominance requirement and that class certification was appropriate.  Specifically, the Court found that the plaintiffs’ expert could establish that damages were measurable on a classwide basis, consistent with recent Supreme Court decisions, and that the plaintiffs’ expert demonstrated that “common influences on the price structure could be estimated using a formula, and by the same type of regression analysis, a very high percentage of sales prices could be determined by common variables.  Therefore, [the expert’s] declaration show[ed] that proof of harm to direct purchasers could be proved without individual inquiry.”  The Court also found that the expert was able to show that the pass-through rate to indirect purchasers was 100 percent.

The defendants’ main argument against plaintiffs’ proposed model was that it predicted no injury to individuals included in the class definition. The Court disagreed, however, and  held that its concern was to determine whether the indirect purchasers “showed that there is a reasonable method for determining, on a classwide basis, the antitrust impact’s effects on the class members,” which the Court found to be “a question of methodology, not merit.”  The Court cited other Supreme Court cases for the notion that none of the earlier cases changed the standard for class certification and none required a full merits analysis at the class certification stage.  Thus, according to the Court, the indirect purchasers “need not prove, at the class certification stage, that every single class member was in fact injured in a specific way.”