Antitrust Law Daily Charlotte’s largest hospital system unable to shake proposed class action
Wednesday, April 12, 2017

Charlotte’s largest hospital system unable to shake proposed class action

By Jeffrey May, J.D.

Less than two weeks after a federal district court in Charlotte, North Carolina, refused to throw out a joint federal/state antitrust enforcement action against Charlotte-Mecklenburg Hospital Authority (CMHA) based on CMHA’s purported use of "anti-steering" provisions in contracts with insurers, a North Carolina superior court has ruled that a proposed class action can proceed under a similar theory. Insureds were found to have adequately alleged claims under North Carolina’s antitrust laws (DiCesare v. Charlotte-Mecklenburg Hosp. Auth., April 11, 2017, Robinson, M.).

CMHA, the second largest public hospital system in the United States and the dominant hospital system in the Charlotte area, allegedly maintained anti-steering provisions in its contracts with the four insurers that provided coverage to more than 85 percent of the commercially-insured residents of the Charlotte area: Cigna Healthcare of North Carolina, Inc., Blue Cross and Blue Shield of North Carolina (BCBS), Aetna Health of the Carolinas, Inc., and United Healthcare of North Carolina, Inc. According to the plaintiffs, these provisions prevented insurers from "steering" patients to the hospital system's competitors. They contended that, "[i]n the absence of the [Anti-Steering Provisions], insurers would likely steer consumers to lower-cost providers more than their current contracts with [the Hospital] permit."

The U.S. Department of Justice and the State of North Carolina jointly sued CMHA in June 2016, challenging these contracting practices. Last month, the federal district court in Charlotte denied CMHA’s motion to dismiss the suit. The hospital authority has now suffered the same fate in state court with respect to the proposed class action.

Standing generally. At the outset, the court ruled that, under controlling North Carolina law, the allegations were sufficient, at the pleading stage, to demonstrate standing. The plaintiffs, who received health insurance from Cigna and BCBS, alleged that they paid more for health insurance, incurred higher out-of-pocket costs, had fewer insurance plans to choose from, and were denied access to truthful information that would enable them to comparison-shop based on cost and quality.

These allegations sufficiently alleged an injury in fact—increased cost and less consumer choice—that was fairly traceable to the hospital’s imposition of the anti-steering provisions, the court ruled. Rejected was the hospital’s argument that the plaintiffs did not have standing because the relevant market was the sale of acute inpatient hospital services to insurers but the plaintiffs did not allege that they received acute inpatient hospital services. Whether or not the plaintiffs received or paid for acute inpatient hospital services was immaterial to the alleged injury, in the court’s view.

The court also ruled that the plaintiffs were not required at the pleading stage to prove a causal chain between the hospital’s challenged conduct and their alleged injury and there was no need to allege "antitrust injury" at the pleading stage. In addition, it was noted that whether the plaintiffs (customers of Cigna and BCBS) could challenge the anti-steering provisions in the hospital’s contracts with the other two insurers—Aetna and United—on behalf of insureds of Aetna and United would be more properly addressed at the class certification stage.

Indirect purchaser standing. While the court refused to dismiss the suit on indirect purchaser standing grounds, it expressed concern that the state supreme court had not provided "the means . . . to distinguish those indirect purchasers who have sustained actual injuries from those who have sustained injuries that are too remote or attenuated to warrant relief." Thus, the court urged the state’s highest court to take up immediate appellate review of its decision if the defendants were to seek such review.

Motion for judgment on the pleadings. The defendant's motion for judgment on the pleadings as to the conspiracy and monopolization claims was denied. For purposes of the conspiracy claim, the plaintiffs alleged that the restraint of trade was unreasonable based on its anticompetitive effects in the (unchallenged) market for the sale of general acute inpatient hospital services to insurers in the Charlotte area. The hospital’s supracompetitive pricing, which was passed on to insureds, could satisfy the proof requirements of an actual adverse effect on competition, the court noted.

As for the monopolization claim, the court addressed only the sufficiency of the allegations regarding monopoly power and found that they were adequate. "Although Plaintiffs will bear a heavy burden in proving the existence of monopoly power if discovery reveals that the Hospital’s market share is in fact 50%, that burden of proof is not imposed at the pleading stage," the court explained.

Whether the learned profession exemption, which excludes professional services rendered by a member of a learned profession from the definition of commerce, barred the claims could not be decided on the motion for judgment on the pleadings. While it was well settled that hospitals were members of a learned profession for purposes of the learned profession exemption, the issue was whether the pleadings established that the hospital’s conduct was a rendering of professional services. The hospital ultimately bears the burden of proving that its conduct falls within the learned profession exemption, the court stated.

The case is No. 16 CVS 16404.

Attorneys: R. Michael Elliot (Elliot Morgan Parsonage, PLLC); Brendan P. Glackin, Dean M. Harvey, and Abbye R. Klamann (Lieff Cabraser Heimann & Bernstein, LLP); Bruce L. Simon, Daniel L. Warshaw, and Benjamin E. Shiftan (Pearson, Simon & Warshaw, LLP) for Christopher DiCesare, James Little, and Johanna MacArthur. James P. Cooney III, Debbie W. Harden, Meredith J. McKee, Sarah Motley Stone, and Russ Ferguson (Womble Carlyle Sandridge & Rice, LLP) and Hampton Y. Dellinger (Boies, Schiller & Flexner LLP) for Charlotte-Mecklenburg Hospital Authority.

Companies: Charlotte-Mecklenburg Hospital Authority

MainStory: TopStory Antitrust NorthCarolinaNews

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