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Department of Justice Settles Monopolization Claim with Hospital System

Department of Justice Settles Monopolization Claim with Hospital System

Anititrust News
(August 2011)

On February 25, 2011, the U.S. Department of Justice (the "DOJ") announced the filing and settlement of its first action challenging unilateral conduct under Section 2 of the Sherman Act in over a decade.  The case, U.S. v. United Regional Health Care System, N.D. Tex., No. 7:11-cv-00030-O involved claims of monopolization against a hospital system in Texas.

In the complaint, the DOJ alleged that the defendant, United Regional Health Care System of Wichita Falls, Texas, entered into exclusionary contracts with health insurers that effectively prevented the insurers from contracting with the hospital's competitors.  In particular, the contracts required insurers to pay a large penalty if they contracted with other local hospitals.  According to the complaint, these penalties would require insurers to pay 15% to 27% more for services if they contracted with competing hospitals.

The complaint also alleged that because the defendant hospital had monopoly power in two areas.  First, the defendant hospital had a market share of nearly 90% for general acute-care inpatient services.  In addition, the defendant hospital had a 65% market share for outpatient surgical services.  Because of this large market share, the DOJ alleged that insurers were effectively forced to enter into the exclusionary contracts.  As a result, according to the DOJ, competing hospitals were unable to contract with most insurers and were, therefore, less able to compete.  Ultimately, the DOJ claimed that this practice allowed the defendant hospital to maintain its monopoly for hospital services and resulted in higher prices for medical services.

The proposed settlement agreed to by the DOJ and the defendant hospital must now be approved by the Court.  The parties submitted a consent decree that would prohibit the defendant from entering into any contracts that would prevent insurers from contracting with the defendant hospital's competitors for a period of seven years.  In particular, the consent decree prohibits the defendant hospital from (1) conditioning the price it will pay for services based on whether the insurer has contracted with competing hospitals, (2) contracting only with insurers that will agree not to contract with competing hospitals, or (3) taking any retaliatory actions against an insurer from contracting with its competitors.  According to the DOJ, this settlement "prevents a dominant hospital from using its market power to harm customers by undermining its competitors' ability to compete in the marketplace."  The Court, which is accepting comments on the proposed settlement, has not yet ruled on the proposed consent decree.

Although it appears that the case will not be litigated, it is notable because it is the first monopolization case filed in over a decade, and it may signal a heightened interest in healthcare antitrust issues by the DOJ.   

Article originally appeared in the August 2011 issue of North Carolina Bar Association's Anititrust News. Reproduced with permission.

C. Bailey King
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