Carolinas HealthCare System, the region’s largest hospital system, has asked a federal court to dismiss a government antitrust lawsuit alleging it has driven up costs through illegal efforts to prevent competition.
In a motion this week, Charlotte-based Carolinas HealthCare claims the lawsuit, filed in June by the U.S. Justice Department and the N.C. Attorney General’s office, has no basis.
The government’s complaint “strings together a series of theoretical suppositions…surrounded by conclusory allegations,” the hospital system said.
The hospital system also said the complaint “fails to sufficiently allege actual competitive harm to the marketplace” and fails to provide “specific facts demonstrating the plausibility of their novel theory of law.”
In its June lawsuit, the state and federal government contend Carolinas HealthCare uses its dominance to get its way with four major health insurance carriers, negotiating “unlawful contract restrictions” that prevent consumers from taking advantage of lower prices at other hospitals.
“Deprived of the option to benefit from choosing more cost-efficient providers, Charlotte area patients incur higher out-of-pocket costs for their healthcare,” the lawsuit contends.
The complaint alleges that health insurers must have Carolinas HealthCare as a participant to have a viable business in the Charlotte area. Because of its size and leverage, Carolinas HealthCare is able to charge “premium prices” and force insurers to accept contract language that restricts them from “steering” patients to lower-priced hospitals, the complaint says.
But in its document supporting the motion to dismiss the lawsuit, the hospital system said plaintiffs have provided no proof that the contract provisions “caused the premium prices.” Indeed, the hospital system said the complaint “does nothing to dispel the possibility” that the prices are due to “superior value in the form of better quality” and a broader range of services.
Also, Carolinas HealthCare lawyers said the suit offered no proof that other Charlotte-area hospitals systems have been harmed or “marginalized as competitors.”
With more than $9 billion in annual operating revenue, Carolinas HealthCare, owns or operates 40 hospitals in the region including Carolinas Medical Center and nine other hospitals in the Charlotte area. Annual operating revenue for the Greater Charlotte portion of the system was $5.4 billion in 2015.
Its closest competitor is Novant Health, which owns five hospitals in the Charlotte area and has less than half of CHS’ revenue, the lawsuit states. After Novant, the next-largest hospital system in the Charlotte area is CaroMont Health, which has less than one-tenth of CHS’ revenue, according to the complaint.
‘Steering’ a key contention
The dispute centers on a practice called “steering.”
The lawsuit contends that Carolinas HealthCare encourages insurers to steer patients its way and uses its influence to prevent insurers from giving the same deal to competing hospitals. For example, the complaint states, one contract stipulates that an insurer “shall not directly or indirectly steer business away from” Carolinas HealthCare.
The lawsuit said Carolinas HealthCare imposes “steering restrictions” in contracts with four major health insurance carriers – Blue Cross and Blue Shield of North Carolina, Aetna Health of the Carolinas, Cigna Healthcare of North Carolina and United Healthcare of North Carolina. They cover 85 percent of the commercially insured residents in the Charlotte area, the lawsuit says.
The lawsuit also claims that some contracts give Carolinas HealthCare the right to terminate their agreements if the insurers try to steer patients from the hospital system. These contracts give Carolinas HealthCare the ability to deny the insurer and its consumers access to the dominant hospital system in the area “unless the steering ends,” the lawsuit states.
In response, Carolinas HealthCare lawyers say the system’s contracts with insurers are similar to those in place across the country. Carolinas HealthCare is being represented by Jim Cooney, a prominent Charlotte lawyer, and Boies, Schiller & Flexner, a Washington-based firm that has fought in many of the nation’s highest profile legal battles.
In their argument supporting dismissal of the suit, hospital lawyers object to calling the insurance companies “victims of the market power” of Carolinas HealthCare because the hospital system is “dwarfed” in size by the insurance companies.
For example, the hospital’s court filing said, Blue Cross had $8.2 billion in gross revenues in 2015, Cigna had $37.9 billion, Aetna had $60.3 billion and United Healthcare $157.1 billion.
Insurers often use the “steering” technique to give consumers a financial incentive to use a lower-cost health care provider. For instance, consumers often have the option of paying lower premiums or out-of-pocket expenses if they agree to choose from a “narrow network” of lower-cost providers.
Contrary to allegations in the government complaint, Carolinas HealthCare lawyers said the system’s contract with Blue Cross does not “prohibit” or “forbid” steering to other hospitals. For example, while Blue Cross has a narrow network contract in the Charlotte area (Blue Local) that includes only providers in Carolinas HealthCare, it also has one (Blue Value) that includes only Novant Health.
That shows, the hospital system document says, that “the largest commercial insurer serving the Charlotte area can direct – and indeed has directed – its members to providers as it sees fit.”