The United States Department of Justice has filed an action seeking to enjoin a hospital from enforcing provisions in its contracts with health insurers that prohibit the insurers from steering policyholders to lower cost providers1. The suit targets the Charlotte-Mecklenburg Hospital Authority, the dominant hospital in Charlotte, North Carolina. The hospital generally enjoys higher reimbursement rates than its competitors. According to the Complaint, which was filed on June 9, the hospital’s provider contracts with health insurers include clauses designed to prevent the insurers from steering policyholders to lower cost providers. The clauses at issue prohibited insurers specifically from employing two types of provider networks:

  • Tiered networks. The insurer places healthcare providers offering better value in a preferred tier. Policyholders using providers in the preferred tier pay lower out-of-pocket costs.
  • Narrow networks. The insurer creates a subset of lower cost providers in its network and offers plans for policyholders limited to those providers. Policyholders choosing those plans pay lower premiums and incur lower out-of-pocket costs.

The Complaint alleges that the contractual prohibitions on these types of networks provisions stifle competition by foreclosing the ability of competitive providers from offering lower cost medical services through the insurers’ provider networks.

Also challenged are provisions in the hospital’s provider contracts that prohibit insurer from providing information to policyholders of the comparative cost of healthcare services from different providers. The Complaint deems such provisions as indirect impediments to steering.

The hospital is able to impose these restrictions on the insurers, according to the Complaint, because of its dominant position, with about 50% of the local market. Insurers cannot feasibly offer plans that do not include this hospital in its network.

These clauses are alleged to be violations of Section 1 of the Sherman Antitrust Act2. The suit seeks to enjoin the hospital “from seeking, agreeing to, or enforcing any provision in any agreement that prohibits or restricts an insurers from engaging, or attempting to engage, in steering towards any healthcare provider.”

These anti-steering provisions can be found in numerous provider contracts throughout the country. The Charlotte suit suggests that they may be unenforceable.

1 United States v. The Charlotte-Mecklenburg Hospital Authority, no. 16-cv-00311 (W.D.N.C. June 9, 2016)
2 15 U.S.C. § 1.