DOJ Gets Another Crack at Enforcing Law on Illegal Business Referrals

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By Liz Crampton

The Justice Department can continue to pursue a case claiming a Charlotte, N.C. health care system illegally prevented insurers from steering patients to lower-cost options, a judge ruled March 30 ( United States of America et al v. The Charlotte-Mecklenburg Hospital Authority, W.D.N.C., 3:16-cv-00311-RJC-DCK, 3/30/17 ).

The judge’s decision to allow the case to continue puts pressure on the DOJ’s litigators because it is only the second case involving steering claims the antitrust division has brought in its history. The government lost its first steering case against American Express Co. on appeal in September and is debating whether to file for U.S. Supreme Court review.

In this case, Judge Robert Conrad of the U.S. District Court for the Western District of North Carolina noted that the American Express opinion involved different markets from the health care arena.

He said the allegations against Carolinas Health System, or CHS, involve factual issues that must be evaluated by discovery.

Consumers Hurt

In its complaint, the DOJ argued that Carolinas Health System, the largest health care provider in the state, imposed unlawful restrictions in its contracts with local commercial health insurers. Those restrictions limit consumers’ ability to find less expensive health-care services in the area and are illegal, the government said.

In briefs filed in October, CHS argued that the DOJ’s case against it should be dismissed for the same reasons the U.S. Court of Appeals for the Second Circuit rejected the DOJ’s position in the American Express case. The DOJ had claimed that American Express illegally barred merchants from steering customers to Visa and Mastercard.

Conrad disagreed and stated that he’s not “bound by the Second Circuit’s decision,” but he added that he considers the ruling “instructive.” It’s the only other case in which the government has challenged steering restrictions as anticompetitive.

If the Supreme Court takes the American Express case, that would be “huge” because the government hasn’t lost a case on a market definition basis in “forever,” said Theodore Voorhees Jr., an antitrust attorney at Covington & Burling LLP, at a conference March 30.

Impact on Competition

The DOJ was “slammed” by the appellate court for not looking at the competitive impacts in a multi-sided market that has two distinct customer bases, he said. The American Express case is “incredibly important and will be even more so if the Supreme Court takes it up,” Voorhess said.

“The Second Circuit’s analysis is deeply rooted in the details and dynamics of the credit-card industry, using specific hypothetical examples from that industry to prove its point,” Conrad wrote. He added that he has not yet been presented with facts to conclude whether CHS’s steering restrictions have pro-competitive or anticompetitive benefits.

“This factual dispute, like the one in Am. Express, must be evaluated with the benefit of discovery before this court can make a pronunciation such as the one the Second Circuit made,” he said.

To contact the reporter on this story: Liz Crampton in Washington at lcrampton@bna.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bna.com

For More Information

The text of the opinion is at http://src.bna.com/nB3

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