Professor Mark Hall discusses federal lawsuit against Carolinas Healthcare in Winston-Salem Journal

Photo of Professor Mark Hall

Wake Forest School of Law Professor Mark Hall poses in the law library on Tuesday, May 3, 2016.

Professor Mark Hall was quoted in the following article on June 10, 2016, “Carolinas Healthcare faces federal lawsuit on competition practices in Charlotte area,” written by Richard Craver and published originally in the Winston-Salem Journal.

The U.S. Justice Department and the N.C. Attorney General’s Office filed Thursday a joint lawsuit against Carolinas HealthCare System, accusing it of illegally reducing competition in the Charlotte metro market.

Also being sued is the Charlotte-Mecklenburg Hospital Authority. The entities are being accused of violating the federal Sherman Act by using restrictions that “unreasonably restrain trade.”

The complaint asks a federal judge in the Western District of N.C. to bar the system from “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 CHS’ competitors.”

Carolinas’ main competitor is Novant Health Inc., which declined to comment on the complaint.

The lawsuit involves the U.S. Justice Department’s antitrust division.

Carolinas issued a statement in which it acknowledged the complaint, referring to it as “a dispute over certain language in contracts between CHS and insurance companies.”

“Carolinas HealthCare System is committed to fair competition and looks forward to presenting our position in court. Our arrangements with insurers are similar to those in place between insurers and health-care systems across the country. We have neither violated any law, nor deviated from accepted health-care industry practices for contracting and negotiation.

“In fact, we have been applauded by the United States government for the quality care and cost-reduction programs we’ve implemented, programs it hopes to model in other parts of the country.”

Carolinas’ steering restrictions on insurers — limiting or prohibiting them from sending customers to other health care providers — “reduce competition, resulting in harm to Charlotte-area consumers, employers and insurers,” according to the lawsuit.

The agencies said Carolinas can “seek to avoid losses on revenue and market share from lower-cost competitors by competing to offer lower prices and better value than their competitors, rather than imposing rules on insurers that reduce the benefit to its rivals from competing on price.”

“This lawsuit will stop a dominant hospital from using its market power to undermine its smaller competitors’ efforts to attract patients by competing on the price and quality of their services,” said Renata Hesse, head of the Justice Department’s antitrust division and principal deputy assistant attorney general.

U.S. Attorney Jill Westmoreland Rose, for the Western District, said that “in these times of escalating health care costs, vigilant antitrust enforcement in local health-care markets, such as the Charlotte area, is essential to protecting the interests of consumers.”

Roy Cooper, the state’s attorney general, said in a statement that “pushing medical costs artificially higher and limiting choices harms North Carolina families.”

“Consumers who need health care deserve accurate information and access to quality, affordable options.”

Mark Hall, a law professor at Wake Forest University and a nationally renowned health-care expert, said “the fact that the U.S. Department of Justice is part of this suit indicates that it is a serious matter.”

According to the AG’s office, Carolinas has a 50 percent market share in the Charlotte area, which has 2.6 million consumers in Cabarrus, Cleveland, Gaston, Iredell, Lincoln, Mecklenburg, Rowan, Stanly and Union counties in North Carolina and Chester, Lancaster and York counties in South Carolina.

Carolinas had $8.7 billion in 2014 revenue, more than double Novant’s 2014 revenue, some of which comes from the Triad, as well as other markets in North Carolina, Georgia and Virginia.

The agencies said Carolinas “acted unlawfully to preserve its dominance in the Charlotte health-care market.”

“CHS has long known that it has the reputation of being a high-priced health-care provider,” according to the complaint.

The lawsuit also alleges Carolinas “blocks consumers from receiving information about the cost and quality of CHS services, critical data that could potentially help consumers find quality care at better prices.”

The complaint cites Carolinas’ ability “to profitably charge prices to insurers that are higher than competitive levels across a range of services, and to impose on insurers restrictions that reduce competition.”

The agencies said 85 percent of commercially insured residents in the Charlotte area are customers of either Aetna Health of the Carolinas Inc., Blue Cross Blue Shield of N.C., Cigna Healthcare of N.C. Inc., or United Healthcare of N.C. Inc.

The agencies cited Carolinas setting high reimbursement rates for treating insured patients, and imposing restrictions on insurers’ abilities to steer patients to potentially lower-cost medical options.

“Those restrictions impede insurers from providing financial incentives to patients to encourage them to consider utilizing lower cost, but comparable, or higher-quality alternative health-care providers,” according to the complaint. It said some contracts give Carolinas the right to terminate its agreement with insurers if they engage in steering.

“CHS has gained patient volume from insurers steering toward CHS, and has obtained higher revenue as a result,” according to the complaint. “CHS encourages insurers to steer patients toward itself by offering health insurers modest concessions on its market-power driven, premium prices.

“However, CHS forbids insurers from allowing CHS’ competitors to do the same.”

The agencies want the court to prohibit Carolinas from retaliating, or threatening to retaliate, against any insurer for engaging or attempting to engage in steering.

Aetna declined to comment on the lawsuit. Blue Cross spokesman Lew Borman said the insurer is aware of the complaint and deferred comment to U.S. Justice officials.

The other insurers could not be reached for immediate comment.

Overall, the agencies allege that competitors “have less incentive to remain lower priced and to continue to become more efficient …. CHS’ restrictions reduce the competition that CHS faces in the marketplace.”

Cooper said his office informs consumers “to shop around for the best quality and price, and health care should be no different.”

“Competition is good for business and good for customers, including in the health care industry.”