Tuesday, March 01, 2011

Texas Hospital Settles U.S., State Monopoly Claims

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

A Texas hospital has agreed to settle allegations brought by the U.S. Department of Justice Antitrust Division and the State of Texas that it unlawfully used contracts with commercial health insurers to maintain its monopoly for hospital services in violation of Section 2 of the Sherman Act.

The action is notable because it is the first unilateral conduct case brought under Sec. 2 of the Sherman Act in over a decade and because it is the first case brought by the Antitrust Division in the health care sector since the October 2010 civil antitrust lawsuit against Blue Cross Blue Shield of Michigan (BCBSM).

In BCBSM case, which is ongoing, the Justice Department and State of Michigan are challenging most favored nation (MFN) clauses in BCBSM’s agreements with hospitals. The government contends that the MFNs raised hospital prices and prevented other insurers from entering the marketplace. The complaint alleges violations of Sec. 1 of the Sherman Act and the state law analogue.

This latest complaint was filed on February 25 in the federal district court in Wichita Falls, Texas, against United Regional Health Care System of Wichita Falls—by far the largest hospital in Wichita Falls.

Relevant Product Markets

The complaint alleges monopoly power in two relevant product markets in Wichita Falls, Texas and the surrounding area:

(1) the sale of general acute-care inpatient hospital services (inpatient hospital services) to commercial health insurers, and

(2) the sale of outpatient surgical services to commercial health insurers.
United Regional has an approximately 90% share of the alleged inpatient hospital services market and a greater than 65% share of the outpatient surgical services market.

According to the complaint, in order to maintain its monopoly in the provision of inpatient hospital and outpatient surgical services, United Regional systematically required most commercial health insurers to enter into contracts that effectively prohibited them from contracting with United Regional’s competitors.

United Regional’s contracts required these insurers to pay significantly higher prices for services—13% to 27% more—if they contracted with a nearby competing facility, according to the Department of Justice.

The government contends that there was no valid procompetitive business justification for United Regional’s exclusionary contracts.

Proposed Consent Decree

Under the terms of a proposed consent decree, United Regional would be prohibited from entering into contracts that improperly inhibit commercial health insurers from contracting with its competitors.

In particular, United Regional is prohibited from conditioning the prices or discounts that it offers to commercial health insurers based on whether those insurers contract with other health-care providers and from inhibiting insurers from entering into agreements with United Regional’s rivals.

United Regional is also prohibited from taking any retaliatory actions against an insurer that enters into an agreement with a rival provider. The term of the consent decree is seven years.

The case is U.S. and State of Texas v. United Regional Health Care System of Wichita Falls. Further information will appear in the CCH Trade Regulation Reporter.

A press release, complaint, and proposed final judgment are available on the Department of Justice Antitrust Division website.

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