Hospital market power and anti-competitive actions

Yesterday the Justice Department filed suit against Carolinas Healthcare Sytsem because the DOJ alleges CHS used its dominant size to illegally restrict insurer competition. Modern Healthcare has the details:

The U.S. Justice Department is suing North Carolina’s largest healthcare system, saying it illegally imposes contract requirements on insurers that reduce competition.

Carolinas HealthCare System places restrictions in its contracts with insurers that bar them from offering tiered networks that include competing hospitals in their top tiers, the Justice Department and the state of North Carolina allege in a complaint filed Thursday. The system also forbids the insurers from offering narrow networks that include only its competitors in violation of antitrust law, according to the Justice Department.

In insurance-ese that means CHS always has to be in every network according to their contract and insurers can’t use most of their useful tools for cost control if they want CHS in any of their commercial networks.  And since CHS is such a dominant player, CHS is needed in every commercial network if insurers are to be viable.

As a side note, this type of contracting may be why North Carolina’s Exchange is so jacked up and comparatively expensive.

A few months ago, the FTC lost a preliminary round in their lawsuit against the merger of Penn State Hershey Medical Center and the Pinnacle Hospital system in central Pennsylvania.  There was one clause in the contract/merger agreement that looked odd to me.

the FTC argued that patient preferences for local care meant that insurers would have difficulty marketing a health plan network in the Harrisburg Area consisting of hospitals from outside the Harrisburg Area….The FTC further alleged that Hershey held a 36% share and Pinnacle a 40% share in the purported “Harrisburg Area” geographic market, meaning the combined entity would control approximately 76% of the market post-transaction….

The court analyzed whether, post-transaction, the combined hospital would be able to impose a price increase (a “Small but Significant and Non-transitory Increase in Price,” known as a SSNIP) in the alleged geographic market and found it highly significant that the hospitals had recently entered into rate agreements with their two largest insurers (representing 75-80% of the hospitals’ commercial patients) that “maintain existing rate structures for fee-for-service contracts and preserve the existing rate differential between the hospitals” for the duration of the contracts (five years for one insurer, ten years for the other).

 The court noted it could not be “blind to this reality” that rates “cannot increase for at least 5 years”