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Is Carolinas HealthCare illegally quashing competition? Judge says lawsuit can proceed

Carolinas Medical Center is the flagship hospital of Charlotte-based Carolinas HealthCare System.
Carolinas Medical Center is the flagship hospital of Charlotte-based Carolinas HealthCare System. mhames@charlotteobserver.com

A North Carolina judge has refused to throw out a class-action lawsuit alleging Carolinas HealthCare System engaged in illegal and anti-competitive actions that have resulted in higher insurance premiums for many people.

The civil lawsuit was filed last September, three months after the state and federal governments sued Carolinas HealthCare over alleged antitrust violations, suggesting the public nonprofit hospital system has driven up health care costs through illegal efforts to prevent competition.

Allegations in the suit are similar to those in the government’s civil claim. That likeness prompted hospital lawyers, in a motion to dismiss, to call the class-action a “parasitic” lawsuit.

In his ruling this month, Judge Michael Robinson of North Carolina Business Court denied that motion, just a little more than a week after a separate judge denied the Charlotte-based health care system’s request to dismiss the government’s case.

Both cases allege the system reduces competition through contract restrictions placed on insurers that forbid them from steering customers toward lower-cost, competing hospitals.

In a statement, Carolinas HealthCare said the class action case is “without merit.”

Carolinas HealthCare “has neither violated any law nor deviated from accepted healthcare industry practices for contracting and negotiation,” the system said in a statement. Carolinas HealthCare “looks forward to presenting its position in court” and “remains committed to providing excellent care to its patients.”

At a March 22 hearing in Charlotte, the hospital system’s lawyer outlined his argument for dismissal of the class action. He claimed that plaintiffs had not adequately supported their allegation that they were charged higher premiums for health insurance because of illegal activities by the hospital system.

“There’s got to be an injury before someone’s got standing to bring a lawsuit,” said Charlotte lawyer Jim Cooney. “What is their injury?

“Plaintiffs have the burden of showing they have suffered,” Cooney said. But other than a general statement that plaintiffs “may have paid too much for insurance,” he said they alleged no injury. That is “a big hole in their case,” he said.

Both the governments’ suit and the class-action allege that Carolinas HealthCare uses its dominance in the health care market to persuade insurance companies to include language in their contracts that encourages consumers to use Carolinas HealthCare and discourages or forbids consumers from choosing Charlotte-area competitors, such as Novant Health and CaroMont Health.

Plaintiffs allege Carolinas HealthCare imposed these so-called “steering restrictions” in contracts with insurers beginning around 2013. “These restrictions impeded, and continue to impede, insurers from providing financial incentives to patients to encourage them to use lower-cost but comparable or higher-quality alternative healthcare providers.”

For years, the plaintiffs allege, insurers have tried to negotiate the removal of steering restrictions from their contracts with Carolinas HealthCare, but have been unable to do so as a result of the hospital system’s market power.

As a result, consumers “pay higher prices for health insurance coverage, have fewer insurance plans from which to choose, and are denied access to consumer comparison shopping and other cost-saving innovative and more efficient health plans than would be possible if insurers could steer freely,” the suit alleges.

The class-action suit also alleges that Carolinas HealthCare “purports to be a nonprofit working in the public interest” but “in fact operates in its own interest, leveraging market power to maximize revenues at the expense of its patients.” The suit says the system has “expanded aggressively,” growing by 50 percent since 2011, reporting average annual profits of more than $300 million and having more than $2 billion in investments.

Plaintiffs’ ‘standing’ questioned

Also at the March hearing on the question of dismissal, Cooney said the three named plaintiffs in the class-action – Christopher DiCesare and Johanna Macarthurof Charlotte and James Little of Wadesboro – failed to make the case that their premiums would be lower if Carolinas HealthCare were prohibited from the alleged anti-competitive activity.

The lawsuits challenge certain contract provisions negotiated between Carolinas HealthCare and four of the largest insurance carriers in the country – Blue Cross and Blue Shield of North Carolina, Cigna, Aetna and UnitedHealthcare.

In his arguments before the judge, Cooney said the named plaintiffs don’t have “standing” to file the suit because they are insured by Blue Cross and Cigna, not by the other two carriers. He also said their lawsuit refers specifically to prices for “in-patient acute hospital services” but the plaintiffs didn’t claim to have been treated at any hospital owned or operated by Carolinas HealthCare or to have received the services they claim are affected by the alleged legal activity.

Cooney added that Blue Cross does offer lower-cost options – including a “narrow network” plan that includes Novant Health only, to the exclusion of Carolinas HealthCare providers – but the plaintiffs did not choose them.

Brendan Glackin, a San Francisco-based lawyer for the plaintiffs, said he would “love to know the answers” to Cooney’s questions, including how much consumers have been over-charged. But he said he can’t specify the damages to plaintiffs without going through the “discovery” phase of the case, which would include the exchange of documents and deposition of witnesses.

“This is not a question to be answered today,” said Glackin, citing case law to support the plaintiffs’ “standing” – their right to sue the North Carolina hospital system.

Quoting from the complaint, he said a major health insurer has reported that Carolinas HealthCare demands reimbursement rates that are up to 150 percent more than other hospitals in the Charlotte area for providing the same services.

Before filing the class-action suit, Glackin’s firm, Lieff Cabraser Heimann & Bernstein, had advertised on its web page that it was looking for people who might have been harmed – by paying higher prices for insurance or having limited health care options – because of Carolinas HealthCare’s alleged anti-competitive actions. Glackin said plaintiffs in the class-action case include both patients and employers who provide insurance for their workers.

Carolinas HealthCare is the region’s largest hospital system, with a 50 percent share of the market. The system has $9 billion in annual revenue and more than 60,000 employees at more than 40 hospitals and 900 medical offices. Its closest competitor by size is Novant Health, based in Winston-Salem, which owns five hospitals in the Charlotte market and has less than half the revenue. After Novant, the next-largest hospital system locally is CaroMont Regional Medical Center in Gastonia, with less than one-tenth of Carolinas HealthCare’s revenue.

Federal case continues

In seeking to have the government’s antitrust allegations dismissed, Carolinas HealthCare noted the Department of Justice has filed only one other lawsuit challenging the legality of “steering provisions” – against American Express.

In September, the Second Circuit Court of Appeals rejected the government’s arguments in the American Express case. Although the North Carolina judge is not bound to follow that opinion, Carolinas HealthCare lawyers filed a brief in October arguing the lawsuit against the hospital system should be dismissed based on that ruling.

Hospital lawyers said the Second Circuit has “flatly rejected the legal arguments at the core of the government’s claims against” the hospital system. The idea “that anti-steering provisions are inherently anti-competitive – was just dealt a fatal blow.”

In his March 30 ruling on the Carolinas HealthCare antitrust case, Judge Robert Conrad wrote it’s “plausible” the system violated federal antitrust law. The suit is “full of reasons” to believe the system’s market power has the potential for “genuine adverse effects on competition,” Conrad wrote in his order denying the system’s dismissal request.

But he also noted that the court has not yet been presented with enough facts for it to conclude whether Carolinas HealthCare’s restrictions on insurers impede competition in the market.

Deon Roberts: 704-358-5248, @DeonERoberts

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