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Stephen Wu focuses his practice on antitrust litigation, defending mergers and acquisitions before antitrust enforcement agencies and counseling clients on antitrust compliance issues. He represents clients in a wide variety of industries ranging from aerospace to consumer products and food, with a particular concentration on health care antitrust matters. He is co-chair of the Firm’s Health Antitrust Affinity Group. Read Stephen Wu'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 Special Report, we highlight notable trends in antitrust litigation involving health care providers over the past two and a half years. Our complimentary update identifies the types of cases filed against providers, who is filing them, case results and currently pending cases to watch.

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On April 27, 2018, the United States Senate confirmed President Trump’s five nominees for Commissioners of the Federal Trade Commission (FTC). Three are Republicans: Chairman Joseph Simons, Noah Phillips and Christine Wilson, and two are Democrats: Rohit Chopra and Rebecca Slaughter. The Senate’s vote returns the FTC to a full complement of Commissioners for the first time under the Trump Administration. Of note to participants in the health care sector: the FTC shares civil antitrust law enforcement jurisdiction over the health care industry with the Department of Justice Antitrust Division, but takes the lead when it comes to the health care provider, pharmaceutical and medical device industries. Continue Reading THE LATEST: Health Care Antitrust Enforcement Remains a Top Priority for New FTC Commissioners

Manufacturers of optical disk drives defeated electronics companies’, retailers’ and indirect purchaser plaintiffs’ conspiracy claims after seven years of litigation. On December 18, 2017, the US District Court for the Northern District of California issued simultaneous orders that granted summary judgment in favor of defendants after finding that the electronics companies, retailers and indirect purchasers failed to demonstrate evidence of injury and causation.

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On October 20, 2016, the United States Department of Justice Antitrust Division (DOJ) and Federal Trade Commission (FTC) issued joint Antitrust Guidance to Human Resource (HR) Professionals (the Guidance) involved in hiring and compensation decisions. The agencies issued the guidance to educate HR professionals about how the antitrust laws apply in the employment context. 

Read the full article here.

On September 27, 2016, the US Court of Appeals for the Third Circuit handed an important victory to the Federal Trade Commission and the Commonwealth of Pennsylvania in a closely watched hospital merger case. The decision provides clear guidance on the appropriate tests for determining geographic markets in hospital merger cases, while also suggesting that efficiencies claimed in many hospital transactions may face increased scrutiny in future cases.

Read “Third Circuit Blocks Hospital Merger in Key Victory for FTC on Geographic Market Definition”

The ultimate effectiveness of the corporate compliance program depends on its ability to mitigate risks arising from all substantive laws materially affecting the company — not only the most visible or notorious ones. Yet, both experience and impression suggest that many health company compliance programs are primarily focused on addressing concerns arising from the anti-fraud and abuse, self-referral and reimbursement rules. This level of focus is understandable, given the historical prominence of these rules and the strong public voice of the U.S. Department of Health and Human Services Inspector General. However, such program imbalance can itself lead to significant compliance concerns given the increasing extent to which the civil and criminal antitrust laws are applied to the health care sector.

The fundamental purpose of a corporate compliance program is to detect the particular types of misconduct most likely to occur in a particular corporation’s line of business. The parameters of most programs are based upon the core “effectiveness” principles set forth in the Federal Sentencing Guidelines.[1] Specific details of particular programs often reflect guidance provided by regulators with particular interest in certain industries. For example, the compliance programs of many health industry companies follow DHHS regulations that set forth basic principles of such programs, and specific anti-fraud elements that companies should consider when designing and implementing their programs.

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The Federal Trade Commission (FTC) and the Antitrust Division of the U.S. Department of Justice (DOJ) held a public workshop on February 24–25, 2015, to examine recent trends and developments in health care provider organization and payment models, and their potential effects on competition in the provision of health care services. A main message from FTC and DOJ leadership at the workshop is that the agencies evaluate new provider and payment models for their adherence to competition principles, effect on cost of care, access and quality, and avoidance of market power.

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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.

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During the last several years, the Federal Trade Commission (FTC) has taken an active role in antitrust enforcement in the health care industry, particularly with respect to hospital and physician group acquisitions.  Last week, the FTC held a two-day public workshop to examine new trends and developments in the health care industry related to professional regulations of health care providers, health information technology, new care delivery models, quality measurements and pricing transparency and how those developments may affect competition.  Health care providers should anticipate increased FTC scrutiny of these trends and how they affect health care costs, quality, access and care coordination.

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