[Federal Register Volume 83, Number 237 (Tuesday, December 11, 2018)]
[Notices]
[Pages 63674-63685]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-26755]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States et al. v. The Charlotte-Mecklenburg Hospital
Authority, d/b/a Carolinas Healthcare System; Proposed Final Judgment
and Competitive Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. Sec. 16(b)-(h), that a proposed Final
Judgment, Stipulation, and Competitive Impact Statement have been filed
with the United States District Court for the Western District of North
Carolina in United States and State of North Carolina. v. The
Charlotte-Mecklenburg Hospital Authority, d/b/a Carolinas HealthCare
System, Civil Action No. 3:16-cv-00311-RJC-DCK. On June 6, 2016, the
United States and the State of North Carolina filed a Complaint
alleging that The Charlotte-Mecklenburg Hospital Authority formerly
known as Carolinas HealthCare System (or CHS) and now doing business as
Atrium Health (``Atrium'') included provisions in its contracts with
health insurers that restricted insurers from steering their members to
lower-cost, high-quality providers, in violation of Section 1 of the
Sherman Act, 15 U.S.C. Sec. 1. The proposed Final Judgment, filed
November 15, 2018, enjoins Atrium from (1) enforcing provisions in its
current insurer contracts that restrict steering and transparency; (2)
having contract provisions with an insurer that would prohibit, prevent
or significantly restrain the insurer from using certain steering
methods or providing transparency; and (3) penalizing, or threatening
to penalize, any insurer for its use of certain steering methods and
transparency.
Copies of the Complaint, proposed Final Judgment, and Competitive
Impact Statement are available for inspection on the Antitrust
Division's website at http://www.justice.gov/atr and at the Office of
the Clerk of the United States District Court for the Western District
of North Carolina. Copies of these materials may be obtained from the
Antitrust Division upon request and payment of the copying fee set by
Department of Justice regulations.
Public comment is invited within 60 days of the date of this
notice. Such comments, including the name of the submitter, and
responses thereto, will be posted on the Antitrust Division's website,
filed with the Court, and, under certain circumstances, published in
the Federal Register. Comments should be directed to Peter J.
Mucchetti, Chief, Healthcare and Consumer Products Section, Antitrust
Division, Department of Justice, 450 Fifth Street NW, Suite 4100,
Washington, DC 20530 (telephone: 202-307-0001).
Patricia A. Brink,
Director of Civil Enforcement.
United States District Court for the Western District of North Carolina
Charlotte Division
United States of America and the State of North Carolina,
Plaintiffs, v. The Charlotte-Mecklenburg Hospital Authority, d/b/a
Carolinas Healthcare System, Defendant.
Case No. 3:16-cv-00311-RJC-DCK
Judge Robert J. Conrad, Jr.
COMPLAINT
The United States of America and the State of North Carolina
bring this civil antitrust action to enjoin Defendant, The
Charlotte-Mecklenburg Hospital Authority, d/b/a Carolinas HealthCare
System (``CHS''), from using unlawful contract restrictions that
prohibit commercial health insurers in the Charlotte area from
offering patients financial benefits to use less-expensive
healthcare services offered by CHS's competitors. These steering
restrictions reduce competition resulting in harm to Charlotte area
consumers, employers, and insurers.
I. CHS AND ITS UNLAWFUL STEERING RESTRICTIONS
1. CHS is a North Carolina not-for-profit corporation providing
healthcare services with its principal place of business in
Charlotte. Its flagship facility is Carolinas Medical Center, a
large general acute-care hospital located in downtown Charlotte. It
also operates nine other general acute-care hospitals in the
Charlotte area.
2. CHS is the dominant hospital system in the Charlotte area,
with approximately a 50 percent share of the relevant market, and
2014 revenue of approximately $8.7 billion. Its closest competitor
by size is Novant, which owns five general acute care hospitals in
the Charlotte area and has less than half
[[Page 63675]]
of CHS's revenue. After Novant, the next-largest hospital in the
Charlotte area is CaroMont Regional Medical Center, which has less
than one tenth of CHS's revenue.
3. CHS exerts market power in its dealings with commercial
health insurers (``insurers''). CHS's market power results from its
large size, the comprehensive range of healthcare services that it
offers, its high market share, and insurers' need to include access
to CHS's hospitals-as well as its other facilities and providers-in
at least some of their provider networks in insurance plans that
cover people in the Charlotte area. CHS's market power is further
evidenced by its ability to profitably charge prices to insurers
that are higher than competitive levels across a range of services,
and to impose on insurers restrictions that reduce competition.
4. CHS's market power has enabled it to negotiate high prices
(in the form of high ``reimbursement rates'') for treating insured
patients. CHS has long had a reputation for being a high-priced
healthcare provider. In a 2013 presentation, CHS's internal strategy
group recognized that CHS ``has enjoyed years of annual
reimbursement rate increases that are premium to the market, with
those increases being applied to rates that are also premium to the
market.''
5. Steering is a method by which insurers offer consumers of
healthcare services options to reduce some of their healthcare
expenses. Steering typically occurs when an insurer offers consumers
a financial incentive to use a lower-cost provider or lower-cost
provider network, in order to lower their healthcare expenses.
6. Steering-and the competition from lower-priced healthcare
providers that steering animates-threatens CHS's high prices and
revenues. In 2013, CHS's internal strategy group surveyed a dozen of
CHS's senior leaders, asking them to list the ``biggest risks to CHS
revenue streams.'' Nine of the twelve leaders polled identified the
steering of patients away from CHS as one of the biggest risks to
CHS's revenues.
7. To protect itself against steering that would induce price
competition and potentially require CHS to lower its high prices,
CHS has imposed steering restrictions in its contracts with
insurers. These restrictions impede insurers from providing
financial incentives to patients to encourage them to consider
utilizing lower-cost but comparable or higher-quality alternative
healthcare providers.
8. Tiered networks are a popular type of steering that insurers
use in healthcare markets. Typically, insurers using tiered networks
place healthcare providers that offer better value healthcare
services (lower cost, higher quality) in top tiers. Patients who use
top-tier providers pay lower out-of-pocket costs. For example, for a
procedure costing $10,000, a patient might be responsible for paying
$3,600 in coinsurance at a lower-tier hospital, but only $1,800
coinsurance to have the same procedure performed at a top-tier
hospital.
9. Narrow-network insurance plans are another popular steering
tool. Typically, narrow networks consist of a subset of all the
healthcare providers that participate in an insurer's conventional
network. A consumer who chooses a narrow-network insurance plan
typically pays lower premiums, and lower out-of-pocket expenses than
a conventional broad-network insurance plan as long as the consumer
is willing to choose from the smaller network of providers for his
or her healthcare needs.
10. Providers are motivated to have insurers steer towards them,
including through an insurer's narrow or tiered network, because of
the increased patient volume that accompanies steering. Thus, the
ability of insurers to steer gives providers a powerful incentive to
be as efficient as possible, maintain low prices, and offer high
quality and innovative services. By doing so, providers induce
insurers to steer patient volume to them. Individuals and employers
that provide health insurance to their employees benefit
tremendously from this because they can lower their healthcare
expenses.
11. CHS has gained patient volume from insurers steering towards
CHS, and has obtained higher revenues as a result. CHS encourages
insurers to steer patients toward itself by offering health insurers
modest concessions on its market-power driven, premium prices.
12. However, CHS forbids insurers from allowing CHS's
competitors to do the same. CHS prevents insurers from offering
tiered networks that feature hospitals that compete with CHS in the
top tiers, and prevents insurers from offering narrow networks that
include only CHS's competitors. By restricting its competitors from
competing for-and benefitting from-steered arrangements, CHS uses
its market power to impede insurers from negotiating lower prices
with its competitors and offering lower-premium plans.
13. CHS also imposes restrictions in its contracts with insurers
that impede insurers from providing truthful information to
consumers about the value (cost and quality) of CHS's healthcare
services compared to CHS's competitors. CHS's restrictions on
insurers' price and quality transparency are an indirect restriction
on steering, because they prevent patients from accessing
information that would allow them to make healthcare choices based
on available price and quality information.
14. Because CHS's steering restrictions prevent its competitors
from attracting more patients through lower prices, CHS's
competitors have less incentive to remain lower priced and to
continue to become more efficient. As a result, CHS's restrictions
reduce the competition that CHS faces in the marketplace. In the
instances in which insurers have steered in other markets and in the
few instances in which insurers have steered in the Charlotte area
despite CHS's restrictions, insurers have reduced health insurance
costs for consumers.
15. Four insurers provide coverage to more than 85 percent of
the commerically-insured residents of the Charlotte area. They are:
Aetna Health of the Carolinas, Inc., Blue Cross Blue Shield of North
Carolina, Cigna Healthcare of North Carolina, Inc., and United
Healthcare of North Carolina, Inc.
16. CHS maintains and enforces steering restrictions in its
contracts with all four of these insurers. In some instances, the
contract language prohibits steering outright. For example, CHS
secured a contractual obligation from one insurer that it ``shall
not directly or indirectly steer business away from'' CHS. In other
instances, the contract language gives CHS the right to terminate
its agreement with the insurer if the insurer engages in steering,
providing CHS the ability to deny the insurer and its enrollees
access to its dominant hospital system unless the steering ends.
Although the contractual language that CHS has imposed varies with
each insurer, it consistently creates disincentives that deter
insurers from providing to their enrollees truthful information
about their healthcare options and the benefits of price and quality
competition among healthcare providers that the insurers could offer
if they had full freedom to steer.
II. RELEVANT MARKET AND COMPETITIVE EFFECTS
17. The sale of general acute care inpatient hospital services
to insurers (``acute inpatient hospital services'') is a relevant
product market. The market includes sales of such services to
insurers' individual, group, fully-insured and self-funded health
plans.
18. The relevant market does not include sales of acute
inpatient hospital services to government payers, e.g., Medicare
(covering the elderly and disabled), Medicaid (covering low-income
persons), and TRICARE (covering military personnel and families)
because a healthcare provider's negotiations with an insurer are
separate from the process used to determine the rates paid by
government payers.
19. Acute inpatient hospital services consist of a broad group
of medical and surgical diagnostic and treatment services that
include a patient's overnight stay in the hospital. Although
individual acute inpatient hospital services are not substitutes for
each other (e.g., obstetrics is not a substitute for cardiac
services), insurers typically contract for the various individual
acute inpatient hospital services as a bundle, and CHS's steering
restrictions have an adverse impact on the sale of all acute
inpatient hospital services. Therefore, acute inpatient hospital
services can be aggregated for analytical convenience.
20. There are no reasonable substitutes or alternatives to acute
inpatient hospital services. Consequently, a hypothetical monopolist
of acute inpatient hospital services would likely profitably impose
a small but significant price increase for those services over a
sustained period of time.
21. The relevant geographic market is no larger than the
Charlotte area. In this Complaint, the Charlotte area means the
Charlotte Combined Statistical Area, as defined by the U.S. Office
of Management and Budget, which consists of Cabarrus, Cleveland,
Gaston, Iredell, Lincoln, Mecklenburg, Rowan, Stanly, and Union
counties in North Carolina, and Chester, Lancaster, and York
counties in South Carolina. The Charlotte area has a population of
about 2.6 million people.
22. Insurers contract to purchase acute inpatient hospital
services from hospitals
[[Page 63676]]
within the geographic area where their enrollees are likely to seek
medical care. Such hospitals are typically close to their enrollees'
homes or workplaces. Insurers who seek to sell insurance plans to
individuals and employers in the Charlotte area must include
Charlotte area hospitals in their provider networks because people
who live and work in the Charlotte area strongly prefer to obtain
acute inpatient hospital services in the Charlotte area. Charlotte
area consumers have little or no willingness to enroll in an
insurance plan that provides no network access to hospitals located
in the Charlotte area.
23. For these reasons, it is not a viable alternative for
insurers that sell health insurance plans to consumers in the
Charlotte area to purchase acute inpatient hospital services from
providers outside the Charlotte area. Consequently, competition from
providers of acute inpatient hospital services located outside the
Charlotte area would not likely be sufficient to prevent a
hypothetical monopolist provider of acute inpatient hospital
services located in the Charlotte area from profitably imposing
small but significant price increases for those services over a
sustained period of time.
24. An insurer selling health insurance plans to individuals and
employers in the Charlotte area must have CHS as a participant in at
least some of its provider networks, in order to have a viable
health insurance business in the Charlotte area. This gives CHS the
ability to impose steering restrictions in its contracts with
insurers. When CHS negotiates with insurers for CHS's network
participation, CHS typically negotiates the prices and terms of
participation for acute inpatient hospital services and other
healthcare services, such as outpatient, ancillary, and physician
services, at the same time, including services that are located
outside the Charlotte area. As a result, CHS's anticompetitive
steering restrictions typically apply to all the negotiated
services.
25. CHS's maintenance and enforcement of its steering
restrictions lessen competition between CHS and the other providers
of acute inpatient hospital services in the Charlotte area that
would, in the absence of the restrictions, likely reduce the prices
paid for such services by insurers. Thus, the restrictions help to
insulate CHS from competition, by limiting the ability of CHS's
competitors to win more commercially-insured business by offering
lower prices.
26. Insurers want to steer towards lower-cost providers and to
offer innovative insurance plans that steer. For years, insurers
have tried to negotiate the removal of steering restrictions from
their contracts with CHS, but cannot because of CHS's market power.
In the absence of the steering restrictions, insurers would likely
steer consumers to lower-cost providers more than their current
contracts with CHS presently permit.
27. As a result of this reduced competition due to CHS's
steering restrictions, individuals and employers in the Charlotte
area 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 that would be possible if insurers could
steer freely. Deprived of the option to benefit from choosing more
cost-efficient providers, Charlotte area patients incur higher out-
of-pocket costs for their healthcare. Insurers are directly harmed
by CHS's imposition of steering restrictions.
28. CHS restricts steering to help insulate itself from price
competition, which enables CHS to maintain high prices and preserve
its dominant position, and not for any procompetitive purpose.
Indeed, when asked under oath whether CHS should limit the ability
of insurers to offer tiered networks or narrow networks that exclude
CHS, Carol Lovin, CHS's Chief Strategy Officer, said that CHS should
not. And when asked her view about the possibility of eliminating
CHS's steering restrictions, she testified, ``Would I personally be
okay with getting rid of them? Yes, I would.'' CHS's steering
restrictions do not have any procompetitive effects. CHS can seek to
avoid losses of revenues and market share from lower cost
competitors by competing to offer lower prices and better value than
its competitors, rather than imposing rules on insurers that reduce
the benefit to its rivals from competing on price.
III. JURISDICTION, VENUE AND INTERSTATE COMMERCE
29. The Court has subject-matter jurisdiction over this action
under Section 4 of the Sherman Act, 15 U.S.C. Sec. 4 (as to the
claim by the United States); Section 16 of the Clayton Act, 15
U.S.C. Sec. 26 (as to the claim by the State of North Carolina);
and 28 U.S.C. Sec. Sec. 1331, 1337(a), and 1345.
30. The Court has personal jurisdiction over CHS under Section
12 of the Clayton Act, 15 U.S.C. Sec. 22. CHS maintains its
principal place of business and transacts business in this District.
31. Venue is proper under 28 U.S.C. Sec. 1391 and Section 12 of
the Clayton Act, 15 U.S.C. Sec. 22. CHS transacts business and
resides in this District and the events giving rise to the claims
occurred in this District.
32. CHS engages in interstate commerce and in activities
substantially affecting interstate commerce. CHS provides healthcare
services for which employers, insurers, and individual patients
remit payments across state lines. CHS also purchases supplies and
equipment that are shipped across state lines, and it otherwise
participates in interstate commerce.
IV. CHS'S VIOLATION OF SECTION 1 OF THE SHERMAN ACT
33. Plaintiffs incorporate paragraphs 1 through 32 of this
Complaint.
34. CHS has market power in the sale of acute inpatient hospital
services in the Charlotte area.
35. CHS has and likely will continue to negotiate and enforce
contracts containing steering restrictions with insurers in the
Charlotte area. The contracts containing the steering restrictions
are contracts, combinations, and conspiracies within the meaning of
Section 1 of the Sherman Act, 15 U.S.C. Sec. 1.
36. These steering restrictions have had, and will likely to
continue to have, the following substantial anticompetitive effects
in the relevant product and geographic market, among others:
a. protecting CHS's market power and enabling CHS to maintain at
supracompetitive levels the prices of acute inpatient hospital
services;
b. substantially lessening competition among providers in their
sale of acute inpatient hospital services;
c. restricting the introduction of innovative insurance products
that are designed to achieve lower prices and improved quality for
acute inpatient hospital services;
d. reducing consumers' incentives to seek acute inpatient
hospital services from more cost-effective providers; and
e. depriving insurers and their enrollees of the benefits of a
competitive market for their purchase of acute inpatient hospital
services.
37. Entry or expansion by other hospitals in the Charlotte area
has not counteracted the actual and likely competitive harms
resulting from CHS's steering restrictions. And in the future, such
entry or expansion is unlikely to be rapid enough and sufficient in
scope and scale to counteract these harms to competition. Building a
hospital with a strong reputation that is capable of attracting
physicians and patients is difficult, time-consuming, and expensive.
Additionally, new facilities and programs, and typically the
expansion of existing facilities and programs, are subject to
lengthy licensing requirements, and in North Carolina, to
certificate-of-need laws.
38. CHS did not devise its strategy of using steering
restrictions for any procompetitive purpose. Nor do the steering
restrictions have any procompetitive effects. Any arguable benefits
of CHS's steering restrictions are outweighed by their actual and
likely anticompetitive effects.
39. The challenged steering restrictions unreasonably restrain
trade in violation of Section 1 of the Sherman Act, 15 U.S.C. Sec.
1.
V. REQUEST FOR RELIEF
40. The United States and the State of North Carolina request
that the Court:
a. adjudge that all of the steering restrictions in the
contracts between CHS and any insurer violate Section 1 of the
Sherman Act, 15 U.S.C. Sec. 1;
b. enjoin CHS, its officers, directors, agents, employees, and
successors, and all other persons acting or claiming to act on its
behalf, directly or indirectly, from seeking, agreeing to, or
enforcing any provision in any agreement that prohibits or restricts
an insurer from engaging, or attempting to engage, in steering
towards any healthcare provider;
c. enjoin CHS from retaliating, or threatening to retaliate,
against any insurer for engaging or attempting to engage in
steering; and
d. award Plaintiffs their costs in this action and such other
relief as the Court may deem just and proper.
Dated: June 9, 2016
Respectfully Submitted,
FOR PLAINTIFF UNITED STATES OF AMERICA
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Renata B. Hesse,
[[Page 63677]]
Principal Deputy Assistant Attorney General for Antitrust.
David I. Gelfand,
Deputy Assistant Attorney General.
Patricia A. Brink,
Director of Civil Enforcement.
Peter J. Mucchetti,
Chief, Litigation I.
Jill Westmoreland Rose,
United States Attorney.
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Paul B. Taylor,
Assistant United States Attorney, Chief, Civil Division, N.C. Bar
Number 10067, Room 233, U.S. Courthouse, 100 Otis Street, Asheville,
NC 28801-2611, (828) 271-4661(phone), [email protected].
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Paul Torzilli,
Karl D. Knutsen,
Richard Martin,
John R. Read,
Antitrust Division, U.S. Department of Justice, 450 Fifth Street
N.W., Suite 4100, Washington, DC 20530, (202) 514-8349 (phone), (202
514-7308 (fax), [email protected].
FOR PLAINTIFF STATE OF NORTH CAROLINA
Roy Cooper,
Attorney General of North Carolina.
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K.D. Sturgis,
Special Deputy Attorney General, North Carolina Department of
Justice, N.C. Bar Number 9486, P.O. Box 629, Raleigh, NC 27602, Tel.
919-716-6011, Fax 919-716-6050, [email protected].
United States District Court for the Western District of North Carolina
Charlotte Division
United States of America and State of North Carolina,
Plaintiffs, v. The Charlotte-Mecklenburg Hospital Authority d/b/a
Carolinas Healthcare System, Defendant.
Case No. 3:16-cv-00311-RJC-DCK
Judge Robert J. Conrad, Jr.
[PROPOSED] FINAL JUDGMENT
WHEREAS, Plaintiffs, the United States of America and the State
of North Carolina (collectively ``Plaintiffs''), filed their
Complaint on June 9, 2016; Plaintiffs and Defendant The Charlotte-
Mecklenburg Hospital Authority d/b/a Atrium Health f/k/a Carolinas
HealthCare System (collectively the ``Parties''), by their
respective attorneys, have consented to the entry of this Final
Judgment without trial or adjudication of any issue of fact or law;
AND WHEREAS, this Final Judgment does not constitute any
evidence against or admission by any party regarding any issue of
fact or law;
AND WHEREAS, the Plaintiffs and Defendant agree to be bound by
the provisions of this Final Judgment pending its approval by this
Court;
AND WHEREAS, the essence of this Final Judgment is to enjoin
Defendant from prohibiting, preventing, or penalizing steering as
defined in this Final Judgment;
NOW THEREFORE, before any testimony is taken, without trial or
adjudication of any issue of fact or law, and upon consent of the
parties, it is ORDERED, ADJUDGED, AND DECREED:
I. JURISDICTION
The Court has jurisdiction over the subject matter of and each
of the Parties to this action. The Complaint states a claim upon
which relief may be granted against Defendant under Section 1 of the
Sherman Act, as amended, 15 U.S.C. Sec. 1.
II. DEFINITIONS
For purposes of this Final Judgment, the following definitions
apply:
A. ``Benefit Plan'' means a specific set of health care benefits
and Healthcare Services that is made available to members through a
health plan underwritten by an Insurer, a self-funded benefit plan,
or Medicare Part C plans. The term ``Benefit Plan'' does not include
workers' compensation programs, Medicare (except Medicare Part C
plans), Medicaid, or uninsured discount plans.
B. ``Carve-out'' means an arrangement by which an Insurer
unilaterally removes all or substantially all of a particular
Healthcare Service from coverage in a Benefit Plan during the
performance of a network-participation agreement.
C. ``Center of Excellence'' means a feature of a Benefit Plan
that designates Providers of certain Healthcare Services based on
objective quality or quality-and-price criteria in order to
encourage patients to obtain such Healthcare Services from those
designated Providers.
D. ``Charlotte Area'' means Cabarrus, Cleveland, Gaston,
Iredell, Lincoln, Mecklenburg, Rowan, Stanly, and Union counties in
North Carolina and Chester, Lancaster, and York counties in South
Carolina.
E. ``Co-Branded Plan'' means a Benefit Plan, such as Blue Local
with Carolinas HealthCare System, arising from a joint venture,
partnership, or a similar formal type of alliance or affiliation
beyond that present in broad network agreements involving value-
based arrangements between an Insurer and Defendant in any portion
of the Charlotte Area whereby both Defendant's and Insurer's brands
or logos appear on marketing materials.
F. ``Defendant'' means The Charlotte-Mecklenburg Hospital
Authority d/b/a Atrium Health f/k/a Carolinas HealthCare System, a
North Carolina hospital authority with its headquarters in
Charlotte, North Carolina; and its directors, commissioners,
officers, managers, agents, and employees; its successors and
assigns; and any controlled subsidiaries (including Managed Health
Resources), divisions, partnerships, and joint ventures, and their
directors, commissioners, officers, managers, agents, and employees;
and any Person on whose behalf Defendant negotiates contracts with,
or consults in the negotiation of contracts with, Insurers. For
purposes of this Final Judgment, an entity is controlled by
Defendant if Defendant holds 50% or more of the entity's voting
securities, has the right to 50% or more of the entity's profits,
has the right to 50% or more of the entity's assets on dissolution,
or has the contractual power to designate 50% or more of the
directors or trustees of the entity. Also for purposes of this Final
Judgment, the term ``Defendant'' excludes MedCost LLC and MedCost
Benefits Services LLC, but it does not exclude any Atrium Health
director, commissioner, officer, manager, agent, or employee who may
also serve as a director, member, officer, manager, agent, or
employee of MedCost LLC or MedCost Benefit Services LLC when such
director, commissioner, officer, manager, agent, or employee is
acting within the course of his or her duties for Atrium Health.
MedCostLLC and MedCost Benefits Services LLC will remain excluded
from the definition of ``Defendant'' as long as Atrium does not
acquire any greater ownership interest in these entities than it has
at the time that this Final Judgment is lodged with the Court.
G. ``Healthcare Provider'' or ``Provider'' means any Person
delivering any Healthcare Service.
H. ``Healthcare Services'' means all inpatient services (i.e.,
acute-care diagnostic and therapeutic inpatient hospital services),
outpatient services (i.e., acute-care diagnostic and therapeutic
outpatient services, including but not limited to ambulatory surgery
and radiology services), and professional services (i.e., medical
services provided by physicians or other licensed medical
professionals) to the extent offered by Defendant and within the
scope of services covered on an in-network basis pursuant to a
contract between Defendant and an Insurer. ``Healthcare Services''
does not mean management of patient care, such as through population
health programs or employee or group wellness programs.
I. ``Insurer'' means any Person providing commercial health
insurance or access to Healthcare Provider networks, including but
not limited to managed-care organizations, and rental networks
(i.e., entities that lease, rent, or otherwise provide direct or
indirect access to a proprietary network of Healthcare Providers),
regardless of whether that entity bears any risk or makes any
payment relating to the provision of healthcare. The term
``Insurer'' includes Persons that provide Medicare Part C plans, but
does not include Medicare (except Medicare Part C plans), Medicaid,
or TRICARE, or entities that otherwise contract on their behalf.
J. ``Narrow Network'' means a network composed of a
significantly limited number of Healthcare Providers that offers a
range of Healthcare Services to an Insurer's members for which all
Providers that are not included in the network are out of network.
K. ``Penalize'' or ``Penalty'' is broader than ``prohibit'' or
``prevent'' and is intended to include any contract term or action
with the likely effect of significantly restraining steering through
Steered Plans or Transparency. In determining whether any contract
provision or action ``Penalizes'' or is a ``Penalty,'' factors that
may be considered include: the facts and circumstances relating to
the contract provision or action; its economic impact; and the
extent to which the contract provision or action has potential or
actual procompetitive effects in the Charlotte Area.
L. ``Person'' means any natural person, corporation, company,
partnership, joint
[[Page 63678]]
venture, firm, association, proprietorship, agency, board,
authority, commission, office, or other business or legal entity.
M. ``Reference-Based Pricing'' means a feature of a Benefit Plan
by which an Insurer pays up to a uniformly-applied defined
contribution, based on an external price selected by the Insurer,
toward covering the full price charged for a Healthcare Service,
with the member being required to pay the remainder. For avoidance
of doubt, a Benefit Plan with Reference-Based Pricing as a feature
may permit an Insurer to pay a portion of this remainder.
N. ``Steered Plan'' means any Narrow Network Benefit Plan,
Tiered Network Benefit Plan, or any Benefit Plan with Reference-
Based Pricing or a Center of Excellence as a component.
O. ``Tiered Network'' means a network of Healthcare Providers
for which (i) an Insurer divides the in-network Providers into
different sub-groups based on objective price, access, and/or
quality criteria; and (ii) members receive different levels of
benefits when they utilize Healthcare Services from Providers in
different sub-groups.
P. ``Transparency'' means communication of any price, cost,
quality, or patient experience information directly or indirectly by
an Insurer to a client, member, or consumer.
III. APPLICABILITY
This Final Judgment applies to Defendant, as defined above, and
all other Persons in active concert with, or participation with,
Defendant who receive actual notice of this Final Judgment by
personal service or otherwise.
IV. PROHIBITED CONDUCT
A. The contract language reproduced in Exhibit A is void, and
Defendant shall not enforce or attempt to enforce it. The contract
language reproduced in Exhibit B shall not be used to prohibit,
prevent, or penalize Steered Plans or Transparency, but could remain
enforceable for protection against Carve-outs. For the Network
Participation Agreement between Blue Cross and Blue Shield of North
Carolina and Defendant's wholly-owned subsidiary Managed Health
Resources, effective January 1, 2014, as amended, Defendant shall
exclude from the calculation of total cumulative impact pursuant to
Section 6.14 of that agreement any impact to Defendant resulting
from Blue Cross and Blue Shield of North Carolina disfavoring
Defendant through Transparency or through the use of any Steered
Plan.
B. For Healthcare Services in the Charlotte Area, Defendant will
not seek or obtain any contract provision which would prohibit,
prevent, or penalize Steered Plans or Transparency including:
1. express prohibitions on Steered Plans or Transparency;
2. requirements of prior approval for the introduction of new
benefit plans (except in the case of Co-Branded Plans); and
3. requirements that Defendant be included in the most-preferred
tier of Benefit Plans (except in the case of Co-Branded Plans).
However, notwithstanding this Paragraph IV(B)(3), Defendant may
enter into a contract with an Insurer that provides Defendant with
the right to participate in the most-preferred tier of a Benefit
Plan under the same terms and conditions as any other Charlotte Area
Provider, provided that if Defendant declines to participate in the
most-preferred tier of that Benefit Plan, then Defendant must
participate in that Benefit Plan on terms and conditions that are
substantially the same as any terms and conditions of any then-
existing broad-network Benefit Plan (e.g., PPO plan) in which
Defendant participates with that Insurer. Additionally,
notwithstanding Paragraph IV(B)(3), nothing in this Final Judgment
prohibits Defendant from obtaining any criteria used by the Insurer
to (i) assign Charlotte Area Providers to each tier in any Tiered
Network; and/or (ii) designate Charlotte Area Providers as a Center
of Excellence.
C. Defendant will not take any actions that penalize, or
threaten to penalize, an Insurer for (i) providing (or planning to
provide) Transparency, or (ii) designing, offering, expanding, or
marketing (or planning to design, offer, expand, or market) a
Steered Plan.
I. PERMITTED CONDUCT
A. Defendant may exercise any contractual right it has, provided
it does not engage in any Prohibited Conduct as set forth above.
B. For any Co-Branded Plan or Narrow Network in which Defendant
is the most-prominently featured Provider, Defendant may restrict
steerage within that Co-Branded Plan or Narrow Network. For example,
Defendant may restrict an Insurer from including at inception or
later adding other Providers to any (i) Narrow Network in which
Defendant is the most-prominently featured Provider, or (ii) any Co-
Branded Plan.
C. With regard to information communicated as part of any
Transparency effort, nothing in this Final Judgment prohibits
Defendant from reviewing its information to be disseminated,
provided such review does not delay the dissemination of the
information. Furthermore, Defendant may challenge inaccurate
information or seek appropriate legal remedies relating to
inaccurate information disseminated by third parties. Also, for an
Insurer's dissemination of price or cost information (other than
communication of an individual consumer's or member's actual or
estimated out-of-pocket expense), nothing in the Final Judgment will
prevent or impair Defendant from enforcing current or future
provisions, including but not limited to confidentiality provisions,
that (i) prohibit an Insurer from disseminating price or cost
information to Defendant's competitors, other Insurers, or the
general public; and/or (ii) require an Insurer to obtain a covenant
from any third party that receives such price or cost information
that such third party will not disclose that information to
Defendant's competitors, another Insurer, the general public, or any
other third party lacking a reasonable need to obtain such
competitively sensitive information. Defendant may seek all
appropriate remedies (including injunctive relief) in the event that
dissemination of such information occurs.
V. REQUIRED CONDUCT
Within fifteen (15) business days of entry of this Final
Judgment, Defendant, through its designated counsel, must notify in
writing Aetna, Blue Cross and Blue Shield of North Carolina, Cigna,
MedCost, and UnitedHealthcare, that:
A. This Final Judgment has been entered (enclosing a copy of
this Final Judgment) and that it prohibits Defendant from entering
into or enforcing any contract term that would prohibit, prevent, or
penalize Steered Plans or Transparency, or taking any other action
that violates this Final Judgment; and
B. For the term of this Final Judgment Defendant waives any
right to enforce any provision listed in Exhibit A and further
waives the right to enforce any provision listed in Exhibit B to
prohibit, prevent, or penalize Steered Plans and Transparency.
VII. COMPLIANCE
A. It shall be the responsibility of the Defendant's designated
counsel to undertake the following:
1. within fifteen (15) calendar days of entry of this Final
Judgment, provide a copy of this Final Judgment to each of
Defendant's commissioners and officers, and to each employee whose
job responsibilities include negotiating or approving agreements
with Insurers for the purchase of Healthcare Services, including
personnel within the Managed Health Resources subsidiary (or any
successor organization) of Defendant;
2. distribute in a timely manner a copy of this Final Judgment
to any person who succeeds to, or subsequently holds, a position of
commissioner, officer, or other position for which the job
responsibilities include negotiating or approving agreements with
Insurers for the purchase of Healthcare Services, including
personnel within the Managed Health Resources subsidiary (or any
successor organization) of Defendant; and
3. within sixty (60) calendar days of entry of this Final
Judgment, develop and implement procedures necessary to ensure
Defendant's compliance with this Final Judgment. Such procedures
shall ensure that questions from any of Defendant's commissioners,
officers, or employees about this Final Judgment can be answered by
counsel (which may be outside counsel) as the need arises. Paragraph
21.1 of the Amended Protective Order Regarding Confidentiality shall
not be interpreted to prohibit outside counsel from answering such
questions.
B. For the purposes of determining or securing compliance with
this Final Judgment, or any related orders, or determining whether
the Final Judgment should be modified or vacated, and subject to any
legally-recognized privilege, from time to time authorized
representatives of the United States or the State of North Carolina,
including agents and consultants retained by the United States or
the State of North Carolina, shall, upon written request of an
authorized representative of the Assistant Attorney General in
charge of the Antitrust Division or the Attorney General for the
State of North Carolina, and on reasonable notice to Defendant, be
permitted:
1. access during Defendant's office hours to inspect and copy,
or at the option of the
[[Page 63679]]
United States, to require Defendant to provide electronic copies of
all books, ledgers, accounts, records, data, and documents in the
possession, custody, or control of Defendant, relating to any
matters contained in this Final Judgment; and
2. to interview, either informally or on the record, Defendant's
officers, employees, or agents, who may have their individual
counsel present, regarding such matters. The interviews shall be
subject to the reasonable convenience of the interviewee and without
restraint or interference by Defendant.
C. Within 270 calendar days of entry of this Final Judgment,
Defendant must submit to the United States and the State of North
Carolina a written report setting forth its actions to comply with
this Final Judgment, specifically describing (1) the status of all
negotiations between Managed Health Resources (or any successor
organization) and an Insurer relating to contracts that cover
Healthcare Services rendered in the Charlotte Area since the entry
of the Final Judgment, and (2) the compliance procedures adopted
under Paragraph VII(A)(3) of this Final Judgment.
D. Upon the written request of an authorized representative of
the Assistant Attorney General in charge of the Antitrust Division
or the Attorney General for the State of North Carolina, Defendant
shall submit written reports or responses to written
interrogatories, under oath if requested, relating to any of the
matters contained in this Final Judgment as may be requested.
E. The United States may share information or documents obtained
under Paragraph VII with the State of North Carolina subject to
appropriate confidentiality protections. The State of North Carolina
shall keep all such information or documents confidential.
F. No information or documents obtained by the means provided in
Paragraph VII shall be divulged by the United States or the State of
North Carolina to any Person other than an authorized representative
of (1) the executive branch of the United States or (2) the Office
of the North Carolina Attorney General, except in the course of
legal proceedings to which the United States or the State of North
Carolina is a party (including grand jury proceedings), for the
purpose of securing compliance with this Final Judgment, or as
otherwise required by law.
G. If at the time that Defendant furnishes information or
documents to the United States or the State of North Carolina,
Defendant represents and identifies in writing the material in any
such information or documents to which a claim of protection may be
asserted under Rule 26(c)(1)(G) of the Federal Rules of Civil
Procedure, and Defendant marks each pertinent page of such material,
``Subject to claim of protection under Rule 26(c)(1)(G) of the
Federal Rules of Civil Procedure,'' the United States and the State
of North Carolina shall give Defendant ten (10) calendar days'
notice prior to divulging such material in any legal proceeding
(other than a grand jury proceeding).
H. For the duration of this Final Judgment, Defendant must
provide to the United States and the State of North Carolina a copy
of each contract and each amendment to a contract that covers
Healthcare Services in the Charlotte Area that it negotiates with
any Insurer within thirty (30) calendar days of execution of such
contract or amendment. Defendant must also notify the United States
and the State of North Carolina within thirty (30) calendar days of
having reason to believe that a Provider which Defendant controls
has a contract with any Insurer with a provision that prohibits,
prevents, or penalizes any Steered Plans or Transparency.
VIII. Retention of Jurisdiction
The Court retains jurisdiction to enable any Party to this Final
Judgment to apply to the Court at any time for further orders and
directions as may be necessary or appropriate to carry out or
construe this Final Judgment, to modify any of its provisions, to
enforce compliance, and to punish violations of its provisions.
IX. Enforcement of Final Judgment
A. The United States retains and reserves all rights to enforce
the provisions of this Final Judgment, including the right to seek
an order of contempt from the Court. Defendant agrees that in any
civil contempt action, any motion to show cause, or any similar
action brought by the United States regarding an alleged violation
of this Final Judgment, the United States may establish a violation
of the decree and the appropriateness of any remedy therefor by a
preponderance of the evidence, and Defendant waives any argument
that a different standard of proof should apply.
B. The Final Judgment should be interpreted to give full effect
to the procompetitive purposes of the antitrust laws and to restore
all competition Plaintiffs alleged was harmed by the challenged
conduct. Defendant agrees that it may be held in contempt of, and
that the Court may enforce, any provision of this Final Judgment
that, as interpreted by the Court in light of these procompetitive
principles and applying ordinary tools of interpretation, is stated
specifically and in reasonable detail, whether or not it is clear
and unambiguous on its face. In any such interpretation, the terms
of this Final Judgment should not be construed against either Party
as the drafter.
C. In any enforcement proceeding in which the Court finds that
Defendant has violated this Final Judgment, the United States may
apply to the Court for a one-time extension of this Final Judgment,
together with such other relief as may be appropriate. In connection
with any successful effort by the United States to enforce this
Final Judgment against Defendant, whether litigated or resolved
prior to litigation, Defendant agrees to reimburse the United States
for the fees and expenses of its attorneys, as well as any other
costs including experts' fees, incurred in connection with that
enforcement effort, including in the investigation of the potential
violation.
X. Expiration of Final Judgment
Unless the Court grants an extension, this Final Judgment shall
expire ten (10) years from the date of its entry, except that after
five (5) years from the date of its entry, this Final Judgment may
be terminated upon notice by the United States to the Court and
Defendant that the continuation of the Final Judgment is no longer
necessary or in the public interest.
XI. Public Interest Determination
Entry of this Final Judgment is in the public interest. The
Parties have complied with the requirements of the Antitrust
Procedures and Penalties Act, 15 U.S.C. Sec. 16, including making
copies available to the public of this Final Judgment, the
Competitive Impact Statement, any comments thereon, and the United
States' responses to comments. Based upon the record before the
Court, which includes the Competitive Impact Statement and any
comments and responses to comments filed with the Court, entry of
this Final Judgment is in the public interest.
Date:------------------------------------------------------------------
[Court approval subject to procedures of Antitrust Procedures and
Penalties Act, 15 U.S.C. Sec. 16]
-----------------------------------------------------------------------
Robert J. Conrad, Jr.
United States District Judge.
Exhibit A
Aetna
Section 2.8 of the Physician Hospital Organization Agreement
between and among Aetna Health of the Carolinas, Inc., Aetna Life
Insurance Company, Aetna Health Management, LLC, and Defendant
states in part:
``Company may not . . . steer Members away from Participating
PHO Providers other than instances where services are not deemed to
be clinically appropriate, subject to the terms of Section 4.1.3 of
this Agreement.''
In addition, Section 2.11 of the above-referenced agreement
states in part:
``Company reserves the right to introduce in new Plans . . . and
products during the term of this Agreement and will provide PHO with
ninety (90) days written notice of such new Plans, Specialty
Programs and products. . . . For purposes under (c) and (d) above,
Company commits that Participating PHO Providers will be in-network
Participating Providers in Company Plans and products as listed on
the Product Participation Schedule. If Company introduces new
products or benefit designs in PHO's market that have the effect of
placing Participating PHO Providers in a non-preferred position, PHO
will have the option to terminate this Agreement in accordance with
Section 6.3. Notwithstanding the foregoing, if Company introduces an
Aexcel performance network in PHO Provider's service area, all PHO
Providers will be placed in the most preferred benefit level. As
long as such Plans or products do not directly or indirectly steer
Members away from a Participating PHO Provider to an alternative
Participating Provider for the same service in the same level of
care or same setting, the termination provision would not apply.''
Blue Cross and Blue Shield of North Carolina
The Benefit Plan Exhibit to the Network Participation Agreement
between Blue Cross and Blue Shield of North Carolina and
[[Page 63680]]
Defendant (originally effective January 1, 2014), as replaced by the
Fifth Amendment, states in part:
``After meeting and conferring, if parties cannot reach
agreement, then, notwithstanding Section 5.1, this Agreement will be
considered to be beyond the initial term, and you may terminate this
Agreement upon not less than 90 days' prior Written Notice to us,
pursuant to Section 5.2.''
Cigna
Section II.G.5 of the Managed Care Alliance Agreement between
Cigna HealthCare of North Carolina, Inc. and Defendant states in
part:
``All MHR entities as defined in Schedule 1 will be represented
in the most preferred benefit level for any and all CIGNA products
for all services provided under this Agreement unless CIGNA obtains
prior written consent from MHR to exclude any MHR entities from
representation in the most preferred benefit level for any CIGNA
product. . . . As a MHR Participating Provider, CIGNA will not steer
business away from MHR Participating Providers.''
Medcost
Section 3.6 of the Participating Physician Hospital Organization
agreement between Medcost, LLC and Defendant states in part:
``Plans shall not directly or indirectly steer patients away
from MHR Participating Providers.''
UnitedHealthcare
Section 2 of the Hospital Participation Agreement between
UnitedHealthcare of North Carolina, Inc. and Defendant states in
part:
``As a Participating Provider, Plan shall not directly or
indirectly steer business away from Hospital.''
Exhibit B
Cigna
Section II.G.5 of the Managed Care Alliance Agreement between
Cigna HealthCare of North Carolina, Inc. and Defendant states in
part:
``CIGNA may not exclude a MHR Participating Provider as a
network provider for any product or Covered Service that MHR
Participating Provider has the capability to provide except those
carve-out services as outlined in Exhibit E attached hereto, unless
CIGNA obtains prior written consent from MHR to exclude MHR
Participating Provider as a network provider for such Covered
Services.''
UnitedHealthcare
Section 2 of the Hospital Participation Agreement between
UnitedHealthcare of North Carolina, Inc. and Defendant states in
part:
``Plan may not exclude Hospital as a network provider for any
Health Service that Hospital is qualified and has the capability to
provide and for which Plan and Hospital have established a fee
schedule or fixed rate, as applicable, unless mutually agreed to in
writing by Plan and Hospital to exclude Hospital as a network
provider for such Health Service.''
In addition, Section 3.6 of the above-referenced agreement
states in part:
``During the term of this Agreement, including any renewal
terms, if Plan creates new or additional products, which product
otherwise is or could be a Product Line as defined in this
Agreement, Hospital shall be given the opportunity to participate
with respect to such new Product Line.''
United States District Court for the Western District of North Carolina
Charlotte Division
United States of America and the State of North Carolina,
Plaintiffs, v. The Charlotte-Mecklenburg Hospital Authority, d/b/a
Carolinas Healthcare System, Defendant.
Case No. 3:16-cv-00311-RJC-DCK
Judge Robert J. Conrad, Jr.
COMPETITIVE IMPACT STATEMENT
Plaintiff United States of America (``United States''), pursuant
to Section 2(b) of the Antitrust Procedures and Penalties Act
(``APPA'' or ``Tunney Act''), 15 U.S.C. Sec. Sec. 16(b)-(h), files
this Competitive Impact Statement relating to the proposed Final
Judgment submitted for entry in this civil antitrust proceeding.
I. NATURE AND PURPOSE OF THE PROCEEDING
On June 9, 2016, the United States and the State of North
Carolina filed a civil antitrust lawsuit against The Charlotte-
Mecklenburg Hospital Authority, formerly known as Carolinas
HealthCare System and now doing business as Atrium Health
(``Atrium''), to enjoin it from using steering restrictions in its
agreements with health insurers in the Charlotte, North Carolina
area. The Complaint alleges that Atrium's steering restrictions are
anticompetitive and violate Section 1 of the Sherman Act, 15 U.S.C.
Sec. 1, because the restrictions have detrimental effects on
competition among healthcare providers in the Charlotte area.
Healthcare providers charge health insurers a wide variety of
prices for the same service, but insurers have generally not passed
these price differences on to consumers because most commercial
health plans offer coverage that is the same no matter which
provider a patient chooses. This weakens the connection between
price and quantity that is the essence of competition because it
allows a provider to charge a high price without losing business to
rivals. To control escalating healthcare costs, insurers have
developed health plans and plan features that ``steer'' members by
providing financial incentives that enable members to share savings
by choosing more cost-effective providers, which stimulates
competition between providers. To enable patients to choose more
cost-effective providers, insurers also provide members with
transparency about the prices, quality, patient experience, or
anticipated out-of-pocket costs at different healthcare providers.
Atrium is the largest health system in the Charlotte area. For
an insurer to maintain a competitive health insurance business in
the Charlotte area, it needs to have a contractual relationship with
Atrium that gives employers and consumers the option of purchasing
insurance that covers care there.
Atrium has used its dominant position to demand contractual
restrictions on steering and transparency that interfere with the
competitive process. Insurers that contract with Atrium are
prohibited from providing financial incentives or information that
would encourage consumers to obtain healthcare services from
competing providers. These contract provisions significantly reduce
the number of additional patients that Atrium's competitors can hope
to attract by agreeing to lower prices or otherwise providing
greater value. These restrictions have been in Atrium's contracts
for years, and remain to this day.
Atrium's steering restrictions reduce the competitive incentive
that Atrium's competitors would otherwise have to lower prices in
order to win more business. This interference in the competitive
process has reduced competition between Atrium and other healthcare
providers in the Charlotte area. In addition, because many of the
most innovative healthcare plans in the country today are based on
steering to more efficient providers, Atrium's steering restrictions
have also curbed the introduction of such plans, and reduced choices
for Charlotte-area consumers.
Plaintiffs and Atrium have entered into a Stipulation and
proposed Final Judgment. The proposed Final Judgment enjoins Atrium
from (1) enforcing provisions in its current insurer contracts that
restrict steering and transparency; (2) seeking or obtaining
contract provisions with an insurer that would prohibit, prevent, or
penalize the insurer from using popular steering methods or
providing transparency; and (3) penalizing, or threatening to
penalize, any insurer for its use of these popular steering methods
and transparency. The proposed Final Judgment is described in detail
beginning with Section III below. In the Stipulation, Atrium agrees
to abide by the injunctive provisions of the proposed Final Judgment
while awaiting its entry by the Court.
The United States (unless it has withdrawn its consent), the
State of North Carolina, and Atrium have stipulated that the Court
may enter the proposed Final Judgment at any time after compliance
with the APPA. Entry of the proposed Final Judgment would terminate
this action, except that the Court would retain jurisdiction to
construe, modify, or enforce the provisions of the proposed Final
Judgment and to punish violations thereof.
II. DESCRIPTION OF THE ALLEGED VIOLATION
A. Atrium and other Charlotte-Area Hospitals
Atrium is the largest healthcare system in North Carolina and
one of the largest not-for-profit healthcare systems in the United
States. It is the dominant hospital system in the Charlotte area.
Its flagship facility is Carolinas Medical Center, a general acute-
care hospital located near downtown Charlotte and the largest
hospital in North Carolina. Atrium also operates nine additional
general acute-care hospitals in the Charlotte area. Atrium owns,
manages, or has strategic affiliations with over 40 hospitals in the
Carolinas, and sells healthcare services throughout the Carolinas,
including in
[[Page 63681]]
freestanding emergency departments, urgent care centers, physician
practices, outpatient surgery centers, imaging centers, nursing
homes, and laboratories. In 2017, Atrium's owned, managed, and
affiliated hospitals and other healthcare providers earned net
operating revenue of close to $10 billion.
In addition to Atrium's ten Charlotte-area hospitals, there are
eleven other general acute-care hospitals in the Charlotte area. The
next largest hospital system, Novant Health (``Novant''), owns five
general acute-care hospitals located in that area and had operating
revenue of approximately $4.6 billion in 2017, making Novant less
than half the size of Atrium. Novant's largest hospital in the
Charlotte area is Novant Presbyterian Medical Center, which is the
second-largest hospital in Charlotte. After Novant, the next-largest
hospital in the Charlotte area is CaroMont Regional Medical Center.
CaroMont Regional Medical Center is a 370-bed hospital in Gastonia,
North Carolina, and is owned and operated by CaroMont Health, an
independent community hospital system. In 2016, CaroMont Health had
net operating revenue of approximately $529 million. The remaining
hospitals in the Charlotte area are operated by Community Health
Systems, Inc., Tenet Healthcare Corporation, and Iredell Health
System.
B. The Relevant Market
The Complaint alleges that Atrium has market power in a relevant
market for the sale of general acute care inpatient hospital
services sold to commercial health insurers (``GAC inpatient
hospital services'') in the Charlotte area. GAC inpatient hospital
services consist of a broad group of medical and surgical diagnostic
and treatment services that includes a patient's overnight stay in
the hospital. Although individual GAC inpatient hospital services
are not substitutes for each other (e.g., a patient who needs heart
surgery cannot elect instead to have her knee replaced), GAC
inpatient hospital services can be aggregated for analytical
convenience because the competitive conditions for each of the
individual services is largely the same.
The relevant geographic market for the sale of GAC inpatient
hospital services is no larger than the Charlotte area.\1\ Insurers
contract to purchase GAC inpatient hospital services from hospitals
within the geographic area where their members are likely to seek
medical care because consumers prefer to seek medical care near the
places where they work and live. As a result, insurers doing
business in the Charlotte area must include in their provider
networks hospitals located in the Charlotte area. Charlotte-area
consumers have little or no willingness to enroll in an insurance
plan that provides no network access to hospitals located in the
Charlotte area. For these reasons, it is not a viable alternative
for insurers that sell health plans to consumers in the Charlotte
area to contract for GAC inpatient hospital services from providers
outside the Charlotte area.
---------------------------------------------------------------------------
\1\ As used in this case, the Charlotte area means the Charlotte
Combined Statistical Area, as defined by the U.S. Office of
Management and Budget, which consists of Cabarrus, Cleveland,
Gaston, Iredell, Lincoln, Mecklenburg, Rowan, Stanly, and Union
counties in North Carolina, and Chester, Lancaster, and York
counties in South Carolina.
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C. Anticompetitive Effects of the Steering Restrictions
1. Atrium is the dominant hospital system in the Charlotte area
Atrium is the dominant seller of GAC inpatient hospital services
in the Charlotte area. Atrium has market power in this market. The
market for GAC inpatient hospital services in the Charlotte area is
highly concentrated, and Atrium's market share is more than 55
percent. By comparison, Atrium's largest rival, Novant Health, has
approximately 17 percent of the licensed hospital beds in the
Charlotte area. Without an attractive broad-network plan that
includes Atrium, insurers would not be viable in the Charlotte area
because they would not be able to attract the business of employers.
Atrium's size and breadth give it significant market power because
it can decline to participate in an insurer's network unless it
obtains high prices and advantageous contract terms.
As a result of its market power, Atrium has been able to secure
from insurers high prices relative to other hospital systems in the
Charlotte area and relative to other advanced medical centers in
North Carolina. These higher prices are not explained by any measure
of relative high-quality. Because of high provider prices, patients'
out-of-pocket healthcare costs in the Charlotte area are among the
highest in North Carolina.
2. Steering is part of the competitive process
Employers in Charlotte and elsewhere around the country have
approached health insurers about ways to address rising healthcare
costs. One approach of increasing interest is the introduction of
steering mechanisms into the health plans that employers offer.
Steering can be one way of fostering competition among hospitals.
Steering can be accomplished in several ways. Popular types of
steering in healthcare are narrow networks and tiered networks,
reference-based pricing, and centers of excellence.\2\ Transparency
into hospitals' or physicians' relative prices and quality is also
important to help effectuate steering.
---------------------------------------------------------------------------
\2\ The proposed Final Judgment defines narrow networks, tiered
networks, and health plans with reference-based pricing or centers
of excellence as ``Steered Plans.''
---------------------------------------------------------------------------
a. Narrow networks and tiered networks
In addition to offering the broad-network plans that are most
popular with employers, insurers in Charlotte want to introduce
narrow network and tiered insurance options. Narrow networks are
formed by using cost and/or quality criteria to select and contract
with a subset of healthcare providers in an area. For example, a
health plan sold in the Charlotte area that consists of hospitals
and physicians only at Novant, CaroMont, and Community Health
Systems would be a narrow-network plan. Because using an in-network
provider costs a member less than using an out-of-network provider,
a consumer that enrolls in a narrow-network plan is choosing to be
steered to participating providers. The likely increase in patient
volume realized by providers in the narrow network can help the
insurer to negotiate lower prices, and then to pass those savings
along in the form of lower premiums.
Tiered networks are typically created by designating network
providers into different levels (or tiers) based mostly on quality
and price. Tiered networks typically have two or more tiers of in-
network providers: a preferred tier and one or more secondary in-
network tiers. There may also be providers that remain out-of-
network. In tiered networks, members are free to use any of the
providers, but receive the most substantial benefits when they
choose a provider in the preferred tier. This tier typically
includes the providers with the best mix of quality and price.
Tiered and narrow network plans are increasingly popular with
employers and consumers. For example, in 2017, 19 percent of large
employers that offered healthcare coverage provided a narrow-network
plan to their employees and 31 percent offered a tiered plan.\3\ A
large majority of the plans offered on the individual healthcare
exchanges are narrow network plans. Narrow and tiered networks can
effectively reduce healthcare costs and make insurance more
affordable.
---------------------------------------------------------------------------
\3\ Kaiser Family Foundation, 2017 Employer Health Benefits
Survey, 213-214, http://files.kff.org/attachment/Report-Employer-Health-Benefits-Annual-Survey-2017.
---------------------------------------------------------------------------
b. Reference-based pricing and centers of excellence
Reference-based pricing and centers of excellence are forms of
steering that can be used as a feature of a health benefit plan. For
reference-based pricing, the insurer establishes a market-wide
standard, or ``reference,'' price for a service. The reference price
can be established by drawing from average local prices or from
other sources such as the reimbursement amounts established by
Medicare rules. The benefit plan covers the member's expenses up to
the ``reference price.'' Reference-based pricing steers members
towards the providers that have prices at or below the reference
price. This gives higher-priced providers an incentive to reduce
their prices to be closer to the reference price.\4\
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\4\ The California Public Employees' Retirement System
(``CalPERS'') has successfully used reference-based pricing to lower
expenses on hip and knee replacements. A study of the first year
after implementation of the reference-based pricing program
indicates that surgical volumes at low-price facilities increased
while volumes at high-price facilities decreased. Prices declined at
both high and low price facilities. As a result CalPERS and its
employees saved approximately $3 million. James C. Robinson and
Timothy T. Brown, Increases in Consumer Cost Sharing Redirect
Patient Volumes and Reduce hospital Prices for Orthopedic Surgery,
32 Health Affairs 1392, 1394-97 (2013).
---------------------------------------------------------------------------
A center of excellence is a designation that an insurer applies
to a provider for its quality and/or cost efficiency in delivering a
particular healthcare service. The insurer often provides a
financial incentive to consumers to select the center of excellence.
For example, an insurer may designate a particular hospital in a
metropolitan area as
[[Page 63682]]
its center of excellence in bariatric surgery because the hospital
has superior expertise or is particularly cost effective. To incent
members to obtain bariatric surgery there, the insurer may reduce or
eliminate out-of-pocket expenses for members who choose that
hospital. Members remain free to obtain bariatric surgery elsewhere
and pay the out-of-pocket expenses prescribed under the plan.
Members are steered towards a center of excellence by virtue of the
designation and the cost savings.
c. Transparency
Transparency is the communication of price, cost, quality, or
patient experience information to a member. Transparency makes
steered plans more effective by providing consumers with information
to enable them to comparison shop before selecting a provider.
Transparency may also be a form of steering even in the absence of
differential benefits because information that identifies one
provider as more cost effective than another provider may prompt
consumers to choose the more cost-effective provider.
3. To insulate itself from competition, Atrium required that
steering restrictions be included in its insurer contracts
To protect its dominant share and high prices and insulate
itself from competition, Atrium has used its market power to require
every major insurer in the Charlotte area-- Aetna Health of the
Carolinas, Inc. (``Aetna''), Blue Cross and Blue Shield of North
Carolina (``BCBS-NC''), Cigna Healthcare of North Carolina, Inc.
(``Cigna''), and United Healthcare of North Carolina, Inc.
(``UnitedHealthcare'') \5\-- to accept contract terms that restrict
the insurers from steering their members to Atrium's lower-cost
competitors.
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\5\ These four major insurers cover over 90 percent of the
commercially-insured residents of the Charlotte area. MedCost is the
next-largest health plan in the Charlotte area. MedCost provides
administrative services and access to its healthcare provider
networks to employers that self-fund their employees' healthcare
benefits. Employers that are self-funded pay the healthcare benefit
claims from the assets of their business, rather than purchase
health insurance policies for the benefit of their employees. Atrium
owns 50 percent of MedCost.
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Atrium's contracts with each of these insurers contain steering
restrictions that either expressly prohibit the insurer from
steering their members away from Atrium, or impede steering through
other means, such as by imposing a financial penalty on any steering
against Atrium that exceeds a specified amount or by allowing Atrium
to promptly terminate the insurer's contract if the insurer steers
against Atrium. Atrium used its market power to require that
insurers agree to these contract provisions that restrict steering,
and thereby restrict competition.
Atrium's steering restrictions restrain insurers from offering
consumers the choice of narrow-network plans that do not include
Atrium, and tiered-network plans that do not place Atrium in the
most favorable tier. Atrium's steering restrictions also prevent
insurers from offering reference-based pricing because if the
reference price for a service is lower than the price that Atrium
charges for that service, members will be steered away from Atrium.
Insurers are also prevented from offering financial incentives for
members to obtain services at non-Atrium providers that are
designated centers of excellence.
These restrictions also prevent insurers from providing members
transparency into the price, quality, patient experience, and
anticipated out-of-pocket costs of Atrium's healthcare services
compared to Atrium's competitors. Atrium's restrictions on
transparency indirectly restrict steering because they inhibit
consumers from accessing information that would allow them to make
better-informed healthcare provider choices.
Deprived of any mechanism to reward low prices with more patient
volume, insurers cannot create incentives for Atrium's rivals to
compete on price. Atrium's steering restrictions, therefore, reduce
competition for GAC inpatient hospital services in the Charlotte
area by impeding its competitors' ability to attract patients by
offering lower prices to insurers and their members. The steering
restrictions prevent consumers from benefitting from lower prices,
so they protect Atrium from losing patient volume in response to
high prices. This reduction in competition causes prices to be
higher than they would be in the absence of Atrium's steering
restrictions.
III. EXPLANATION OF THE PROPOSED FINAL JUDGMENT
The purpose of the proposed Final Judgment is to prevent Atrium
from impeding insurers' steered plans and transparency, and to
restore competition among healthcare providers in the Charlotte
area. The proposed Final Judgment will accomplish this objective
through injunctive, compliance, and enforcement provisions.
Atrium has market power in GAC inpatient hospital services, but
the proposed Final Judgment applies to the broad range of healthcare
services that Atrium provides and to which its steering restrictions
apply. The additional healthcare services covered by the proposed
Final Judgment include outpatient services (such as ambulatory
surgeries and radiological services), professional services rendered
by physicians, and ancillary services such as imaging and lab
services. The full scope of services covered by the proposed Final
Judgment falls within the proposed Final Judgment's definition of
``Healthcare Services.'' Because Atrium uses its market power to
restrict steering away from it for any healthcare service, the
proposed Final Judgment provides relief that is broader than the set
of services in the relevant market.
The proposed Final Judgment also applies to a broad range of
benefit plans. This includes health insurance policies sold to
individuals, fully-insured and self-funded health plans sold to
employers and other groups, and Medicare Advantage plans.
A. Prohibited Conduct
The proposed Final Judgment seeks to restore competition by
prohibiting Atrium from engaging in specific conduct. There are
three main provisions. The first stops Atrium from enforcing the
current contract provisions at issue in this suit. The second stops
Atrium from enforcing similar or new contractual provisions that
would restrict steering in the Charlotte area. The third stops
Atrium from retaliating against insurers for steering in the
Charlotte area.
1. Eliminating the anticompetitive contract provisions
The proposed Final Judgment eliminates the contractual language
that Plaintiffs alleged is anticompetitive. The proposed Final
Judgment voids the contractual provisions listed in Exhibit A to the
proposed Final Judgment that expressly prevent steering. For
example, a provision stating that an insurer ``will not steer
business away from'' Atrium is voided from that insurer's contract.
Additionally, a part of a contract between Atrium and an insurer
that required the insurer to give Atrium 90 days' notice before
bringing a plan to market that would steer patients away from Atrium
is also voided. Further, the proposed Final Judgment eliminates a
provision in one insurer's contract that allows Atrium to terminate
the contract on 90 days' notice if the insurer offers a plan that
would steer away from Atrium.
In addition, Atrium's contracts with commercial insurers contain
other provisions that require the insurer to include Atrium in all
of its benefit plans. Each such provision prevents the insurer from
creating narrow networks that feature Atrium's rivals, but exclude
Atrium. The proposed Final Judgment lists that language in Exhibit
B, and prohibits Atrium from enforcing or attempting to enforce such
contractual provisions to prevent, prohibit, or penalize steered
plans and transparency.\6\
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\6\ The contract provisions appearing in Exhibit B could remain
enforceable to prevent insurers from ``carving out'' certain Atrium
procedures from their benefits plans. A ``carve-out'' is an industry
term defined in the proposed Final Judgment as an arrangement by
which an insurer unilaterally removes all or substantially all of a
particular healthcare service from coverage in a benefit plan during
the performance of a network-participation agreement. Insurers are
free to negotiate carve-outs as part of a contract, but Atrium may
prohibit insurers from carving additional services out of a contract
after it is signed.
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Finally, the proposed Final Judgment prevents Atrium from
enforcing a ``material impact'' provision in its contract with BCBS-
NC in a manner that reduces BCBS-NC's incentives to steer to more
efficient providers.
2. Preventing new contractual provisions that harm steering
The proposed Final Judgment also prevents Atrium from seeking or
obtaining similar or new contract provisions that would prohibit,
prevent, or penalize steering through steered plans or transparency
in the Charlotte area.
Paragraph IV(B) of the proposed Final Judgment identifies three
types of contractual provisions that, among others, would prohibit,
prevent, or penalize steering through steered plans and would thus
violate the terms of the proposed Final Judgment. First, Atrium may
not expressly prohibit
[[Page 63683]]
steered plans or transparency. Second, Atrium may not require prior
approval of new benefit plans. Third, Atrium may not demand to be
included in the most-preferred tier of benefit plans regardless of
price.
The Final Judgment's injunction against steering restrictions
also reaches beyond these three existing provisions to include any
contract provision that prohibits, prevents, or penalizes steering.
``Penalize'' is a term in the proposed Final Judgment that includes
within its definition anything that would significantly restrain an
insurer's steering. Because steering away from Atrium necessarily
reduces its volume and revenues, terms that punish such reductions
with higher prices or other detrimental consequences may be
penalties. Whether a provision or action is likely to significantly
restrain steering depends on the facts and circumstances, including
but not limited to its economic impact, and any procompetitive
effects that would tend to lower healthcare costs or otherwise
benefit consumers in the Charlotte area.
3. Atrium may not retaliate against steering
Under the terms of the proposed Final Judgment Atrium also may
not seek or obtain any contract provision, or take any other action
that would penalize an insurer for steering away from Atrium through
steered plans or transparency. For example, Atrium may not threaten
to terminate its participation in an insurer's healthcare networks
because the insurer was planning to introduce a tiered-network plan
that steered away from Atrium.
B. Conduct That is Not Prohibited by the Final Judgment
Paragraph V of the proposed Final Judgment sets forth conduct
that Atrium may undertake without violating the terms of the
proposed Final Judgment. Paragraph V(A) makes clear that nothing in
the proposed Final Judgment prohibits Atrium from exercising any of
its contractual rights provided it does not engage in any conduct
that would violate the terms of the proposed Final Judgment.
If Atrium is the most-prominently featured provider in a narrow-
network plan or co-branded plan,\7\ Paragraph V(B) of the proposed
Final Judgment allows Atrium to restrict an insurer from steering
away from Atrium in that plan. Such restrictions may help narrow
networks and co-branded plans be more effective, and this provision
allows Atrium to participate in plans that steer towards it.
---------------------------------------------------------------------------
\7\ A co-branded plan is a benefit plan created by a formal and
substantial level of alliance or affiliation, such as a partnership
or joint venture, between a provider and an insurer. A co-branded
plan has the logos of both the insurer and provider on the plan's
marketing materials.
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Paragraph V(C) makes clear that the proposed Final Judgment does
not prohibit Atrium from negotiating with insurers for the ability
to review the information about Atrium that an insurer disseminates
through transparency, as long as any provision for review does not
delay dissemination of the information. The proposed Final Judgment
does not prevent Atrium from challenging information that it
believes is inaccurate, including pursuing legal remedies available
to it.
Paragraph V(C) also makes clear that the proposed Final Judgment
does not prohibit Atrium from seeking certain safeguards regarding
the insurer's dissemination of the prices Atrium has negotiated with
insurers. Atrium may seek contractual provisions with an insurer
prohibiting the insurer from disseminating Atrium's negotiated
prices to Atrium's competitors, other insurers, or the general
public. Atrium may also seek contractual provisions with an insurer
requiring the insurer to obtain a covenant from any third party
receiving Atrium's negotiated prices that such third party will not
disclose that information to Atrium's competitors, another insurer,
the general public, or another third party lacking a reasonable need
to know such information. Atrium may also seek all appropriate
remedies in the event that dissemination of such information occurs.
C. Required Conduct
The proposed Final Judgment also prescribes conduct that Atrium
is required to undertake in order to facilitate prompt and effective
relief. Paragraph VI of the proposed Final Judgment requires Atrium
to provide Aetna, BCBS-NC, Cigna, MedCost and UnitedHealthcare with
a copy of the Final Judgment and notify them in writing within 15
business days of the Court's entry of the proposed Final Judgment
that (1) the Final Judgment has been entered; (2) the Final Judgment
prohibits Atrium from entering into or enforcing any agreement
provision that violates the Final Judgment; (3) Atrium waives the
right to enforce any contract language reproduced in Exhibit A; and
(4) Atrium waives the right to enforce any contract language
reproduced in Exhibit B to the extent such language prohibits,
prevents, or penalizes steered plans or transparency.
D. Compliance
Under Paragraph VII of the proposed Final Judgment, within 15
calendar days of the entry of the Final Judgment, Atrium must
provide a copy of the Final Judgment to each of its commissioners
and officers as well as each employee who has responsibility to
negotiate or approve contracts with insurers. Within 60 calendar
days of the entry of the proposed Final Judgment, Atrium must
develop and implement procedures necessary to ensure Atrium's
compliance with the proposed Final Judgment, including procedures to
answer questions from Atrium's commissioners and employees about
abiding by the terms of the proposed Final Judgment.
Within 270 calendar days of entry of the proposed Final
Judgment, Atrium must submit to the United States and the State of
North Carolina a written report setting forth its actions to comply
with the proposed Final Judgment. Atrium must also submit to the
United States and the State of North Carolina a copy of any new or
revised agreement or amendment to any agreement with any insurer
that is executed during the term of the proposed Final Judgment no
later than 30 calendar days after the date the agreement or
amendment is executed.
Atrium must also notify the United States and the State of North
Carolina within 30 calendar days of having reason to believe that a
provider which Atrium controls has a contract with any insurer with
a provision that prohibits, prevents, or penalizes transparency or
any steered plan.
To facilitate monitoring Atrium's compliance with the proposed
Final Judgment, Paragraphs VII(B) and VII(D) of the proposed Final
Judgment require Atrium to grant the United States access, upon
reasonable notice, to Atrium's records and documents relating to
matters contained in the proposed Final Judgment. In addition Atrium
must make its employees available for interviews or depositions and
answer interrogatories and prepare written reports relating to
matters contained in the proposed Final Judgment upon request.
The proposed Final Judgment also contains provisions that
promote compliance and make the enforcement of the proposed Final
Judgment as effective as possible. Paragraph IX(A) provides that the
United States retains and reserves all rights to enforce the
provisions of the proposed Final Judgment, including its rights to
seek an order of contempt from the Court. Under the terms of this
Paragraph, Atrium has agreed that in any civil contempt action, any
motion to show cause, or any similar action brought by the United
States regarding an alleged violation of the proposed Final
Judgment, the United States may establish the violation and the
appropriateness of any remedy by a preponderance of the evidence and
that Atrium has waived any argument that a different standard of
proof should apply. This provision aligns the standard for
compliance obligations with the standard of proof that applies to
the underlying offense that the compliance commitments address.
Paragraph IX(B) sets forth the parties' agreed-upon rules for
interpreting the proposed Final Judgment's provisions. Because
consent decrees share many attributes with ordinary contracts, they
should be construed as contracts for purposes of enforcement. See
Anita's New Mexico Style Mexican Food v. Anita's Mexican Foods
Corp., 201 F.3d 314, 319 (4th Cir. 2000) (quoting United States v.
ITT Continental Baking Co., 420 U.S. 223, 236-37 (1975)). The
parties have agreed that the Court should employ ordinary tools of
interpretation to enforce the proposed Final Judgment. In Paragraph
IX(B), the parties make clear the purpose of the proposed Final
Judgment that can be used as an interpretive tool. The proposed
Final Judgment was drafted with the purpose of resolving this
litigation and restoring all competition that Plaintiffs alleged was
harmed by the challenged conduct. Paragraph IX(B) says that the
provisions of the proposed Final Judgment are to be interpreted to
give effect to the procompetitive purpose of the federal antitrust
laws, and to restore this lost competition.
Atrium also agrees that the Court may enforce any provision of
the proposed Final Judgment that is stated specifically and in
reasonable detail, see Fed.R.Civ.P. 65(d) (requiring specific terms
and ``reasonable detail''), even if the provision is not clear and
[[Page 63684]]
unambiguous on its face, by applying these procompetitive principles
and ordinary tools of interpretation. See Martin's Herend Imports,
Inc. v. Diamond & Gem Trading, 195 F.3d 765, 771 (5th Cir. 1999)
(``The mere fact that interpretation is necessary does not render
the injunction so vague and ambiguous that a party cannot know what
is expected of him.'' (internal citation and quotation omitted)).
When interpreting the proposed Final Judgment, the Court should not
construe the language of the proposed Final Judgment against either
party as the drafter.
Paragraph IX(C) of the proposed Final Judgment provides that
should the Court find in an enforcement proceeding that Atrium has
violated the proposed Final Judgment, the United States may apply to
the Court for a one-time extension of the proposed Final Judgment,
together with such other relief as may be appropriate. In addition,
in order to compensate American taxpayers for any costs associated
with the investigation and enforcement of violations of the proposed
Final Judgment, Paragraph IX(C) further provides that in any
successful effort by the United States to enforce the proposed Final
Judgment against Atrium, whether litigated or resolved prior to
litigation, Atrium agrees to reimburse the United States for
attorneys' fees, experts' fees, or costs incurred in connection with
any enforcement effort, including the investigation of the potential
violation.
Finally, Paragraph X of the proposed Final Judgment provides
that the proposed Final Judgment shall expire ten years from the
date of its entry, except that after five years from the date of its
entry, the proposed Final Judgment may be terminated upon notice by
the United States to the Court and Atrium that the continuation of
the proposed Final Judgment is no longer necessary or in the public
interest.
IV. REMEDIES AVAILABLE TO POTENTIAL PRIVATE LITIGANTS
Section 4 of the Clayton Act, 15 U.S.C. Sec. 15, provides that
any person who has been injured as a result of conduct prohibited by
the antitrust laws may bring suit in federal court to recover three
times the damages the person has suffered, as well as costs and
reasonable attorneys' fees. Entry of the proposed Final Judgment
will neither impair nor assist any private antitrust damage action.
Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C.
Sec. 16(a), the proposed Final Judgment has no prima facie effect
in any subsequent private lawsuit that may be brought against
Atrium.
V. PROCEDURES AVAILABLE FOR MODIFICATION OF THE PROPOSED FINAL JUDGMENT
The United States, the State of North Carolina, and Atrium have
stipulated that the proposed Final Judgment may be entered by the
Court after compliance with the provisions of the APPA, provided
that the United States has not withdrawn its consent. The APPA
conditions entry upon the Court's determination that the proposed
Final Judgment is in the public interest.
The APPA provides a period of at least 60 calendar days
preceding the effective date of the proposed Final Judgment within
which any person may submit to the United States written comments
regarding the proposed Final Judgment. Any person who wishes to
comment should do so within 60 calendar days of the date of
publication of this Competitive Impact Statement in the Federal
Register, or the last date of publication in a newspaper of the
summary of this Competitive Impact Statement, whichever is later.
All comments received during this period will be considered by the
United States Department of Justice, which remains free to withdraw
its consent to the entry of the proposed Final Judgment at any time
prior to the Court's entry of the judgment. The comments and the
response of the United States will be filed with the Court. In
addition, comments will be posted on the U.S. Department of Justice,
Antitrust Division's internet website and, under certain
circumstances, published in the Federal Register.
Written comments should be submitted to:
Peter J. Mucchetti
Chief, Healthcare and Consumer Products Section
Antitrust Division
United States Department of Justice
450 Fifth Street, NW, Suite 4100
Washington, DC 20530
The proposed Final Judgment provides that the Court retains
jurisdiction over this action, and the parties may apply to the
Court for any order necessary or appropriate for the modification,
interpretation, or enforcement of the proposed Final Judgment.
VI. ALTERNATIVES TO THE PROPOSED FINAL JUDGMENT
As an alternative to the proposed Final Judgment, the United
States considered continuing this litigation, and proceeding to
trial in May 2019 against Atrium. While the proposed Final Judgment
represents a negotiated resolution to the action that necessitated
compromises by Plaintiffs and Atrium, the United States is satisfied
that the relief contained in the proposed Final Judgment will remedy
the anticompetitive conduct identified in the Complaint. The
proposed Final Judgment would achieve all or substantially all of
the relief the United States would have obtained through litigation
but avoids the time, expense, and uncertainty of a full trial on the
merits.
VII. APPA's STANDARD OF REVIEW FOR THE PROPOSED FINAL JUDGMENT
The Clayton Act, as amended by the APPA, requires that proposed
consent judgments in antitrust cases brought by the United States be
subject to a 60-day comment period, after which the Court shall
determine whether entry of the proposed Final Judgment ``is in the
public interest.'' 15 U.S.C. Sec. 16(e)(1). In making that
determination, the Court, in accordance with the statute as amended
in 2004, is required to consider:
(A) the competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement and
modification, duration of relief sought, anticipated effects of
alternative remedies actually considered, whether its terms are
ambiguous, and any other competitive considerations bearing upon the
adequacy of such judgment that the court deems necessary to a
determination of whether the consent judgment is in the public
interest; and
(B) the impact of entry of such judgment upon competition in the
relevant market or markets, upon the public generally and
individuals alleging specific injury from the violations set forth
in the complaint including consideration of the public benefit, if
any, to be derived from a determination of the issues at trial.
15 U.S.C. Sec. 16(e)(1)(A) & (B). In considering these statutory
factors, the Court's inquiry is necessarily a limited one as the
government is entitled to ``broad discretion to settle with the
defendant within the reaches of the public interest.'' United States
v. Microsoft Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995); see
generally United States v. SBC Commc'ns, Inc., 489 F. Supp. 2d 1
(D.D.C. 2007) (assessing public interest standard under the Tunney
Act); United States v. U.S. Airways Group, Inc., 38 F. Supp. 3d 69,
75 (D.D.C. 2014) (explaining that the ``court's inquiry is limited''
in Tunney Act settlements).
As the United States Court of Appeals for the District of
Columbia Circuit has held, under the APPA a court considers, among
other things, the relationship between the remedy secured and the
specific allegations in the government's complaint, whether the
decree is sufficiently clear, whether its enforcement mechanisms are
sufficient, and whether the decree may positively harm third
parties. See Microsoft, 56 F.3d at 1458-62. With respect to the
adequacy of the relief secured by the decree, a court may not
``engage in an unrestricted evaluation of what relief would best
serve the public.'' United States v. BNS, Inc., 858 F.2d 456, 462
(9th Cir. 1988) (quoting United States v. Bechtel Corp., 648 F.2d
660, 666 (9th Cir. 1981)); see also Microsoft, 56 F.3d at 1460-62;
United States v. Alcoa, Inc., 152 F. Supp. 2d 37, 40 (D.D.C. 2001).
Instead:
[t]he balancing of competing social and political interests affected
by a proposed antitrust consent decree must be left, in the first
instance, to the discretion of the Attorney General. The court's
role in protecting the public interest is one of insuring that the
government has not breached its duty to the public in consenting to
the decree. The court is required to determine not whether a
particular decree is the one that will best serve society, but
whether the settlement is ``within the reaches of the public
interest.'' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.
Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted).\8\
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\8\ See also BNS, 858 F.2d at 464 (holding that the court's
``ultimate authority under the [APPA] is limited to approving or
disapproving the consent decree''); United States v. Gillette Co.,
406 F. Supp. 713, 716 (D. Mass. 1975) (noting that, in this way, the
court is constrained to ``look at the overall picture not
hypercritically, nor with a microscope, but with an artist's
reducing glass'').
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In determining whether a proposed settlement is in the public
interest, a district
[[Page 63685]]
court ``must accord deference to the government's predictions about
the efficacy of its remedies, and may not require that the remedies
perfectly match the alleged violations.'' SBC Commc'ns, 489 F. Supp.
2d at 17; see also U.S. Airways, 38 F. Supp. 3d at 74-75 (noting
that a court should not reject the proposed remedies because it
believes others are preferable and that room must be made for the
government to grant concessions in the negotiation process for
settlements); Microsoft, 56 F.3d at 1461 (noting the need for courts
to be ``deferential to the government's predictions as to the effect
of the proposed remedies''); United States v. Archer-Daniels-Midland
Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003) (noting that the court
should grant ``due respect to the government's prediction as to the
effect of proposed remedies, its perception of the market structure,
and its views of the nature of the case''). The ultimate question is
whether ``the remedies [obtained in the decree are] so inconsonant
with the allegations charged as to fall outside of the `reaches of
the public interest.''' Microsoft, 56 F.3d at 1461. To meet this
standard, the United States ``need only provide a factual basis for
concluding that the settlements are reasonably adequate remedies for
the alleged harms.'' SBC Commc'ns, 489 F. Supp. 2d at 17.
Moreover, a court's role under the APPA is limited to reviewing
the remedy in relationship to the violations that the United States
has alleged in its complaint, and does not authorize a court to
``construct [its] own hypothetical case and then evaluate the decree
against that case.'' Microsoft, 56 F.3d at 1459; see also U.S.
Airways, 38 F. Supp. 3d at 75 (noting that the court must simply
determine whether there is a factual foundation for the government's
decisions such that its conclusions regarding the proposed
settlements are reasonable). Because the ``court's authority to
review the decree depends entirely on the government's exercising
its prosecutorial discretion by bringing a case in the first
place,'' it follows that ``the court is only authorized to review
the decree itself,'' and not to ``effectively redraft the
complaint'' to inquire into other matters that the United States did
not pursue. Microsoft, 56 F.3d at 1459-60. As the court confirmed in
SBC Communications, courts ``cannot look beyond the complaint in
making the public interest determination unless the complaint is
drafted so narrowly as to make a mockery of judicial power.'' SBC
Commc'ns, 489 F. Supp. 2d at 15.
In its 2004 amendments,\9\ Congress made clear its intent to
preserve the practical benefits of utilizing consent decrees in
antitrust enforcement, adding the unambiguous instruction that
``[n]othing in this section shall be construed to require the court
to conduct an evidentiary hearing or to require the court to permit
anyone to intervene.'' 15 U.S.C. Sec. 16(e)(2); see also U.S.
Airways, 38 F. Supp. 3d at 76 (indicating that a court is not
required to hold an evidentiary hearing or to permit intervenors as
part of its review under the Tunney Act). This language explicitly
wrote into the statute what Congress intended when it first enacted
the Tunney Act in 1974. As Senator Tunney explained: ``[t]he court
is nowhere compelled to go to trial or to engage in extended
proceedings which might have the effect of vitiating the benefits of
prompt and less costly settlement through the consent decree
process.'' 119 Cong. Rec. 24,598 (1973) (statement of Sen. Tunney).
Rather, the procedure for the public interest determination is left
to the discretion of the court, with the recognition that the
court's ``scope of review remains sharply proscribed by precedent
and the nature of Tunney Act proceedings.'' SBC Commc'ns, 489 F.
Supp. 2d at 11. A court can make its public interest determination
based on the competitive impact statement and response to public
comments alone. U.S. Airways, 38 F. Supp. 3d at 76. See also United
States v. Enova Corp., 107 F. Supp. 2d 10, 17 (D.D.C. 2000) (noting
that the ``Tunney Act expressly allows the court to make its public
interest determination on the basis of the competitive impact
statement and response to comments alone''); S. Rep. No. 93-298 93d
Cong., 1st Sess., at 6 (1973) (``Where the public interest can be
meaningfully evaluated simply on the basis of briefs and oral
arguments, that is the approach that should be utilized.'').
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\9\ The 2004 amendments substituted ``shall'' for ``may'' in
directing relevant factors for a court to consider and amended the
list of factors to focus on competitive considerations and to
address potentially ambiguous judgment terms. Compare 15 U.S.C.
Sec. 16(e) (2004), with 15 U.S.C. Sec. 16(e)(1) (2006); see also
SBC Commc'ns, 489 F. Supp. 2d at 11 (concluding that the 2004
amendments ``effected minimal changes'' to Tunney Act review).
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VIII. DETERMINATIVE DOCUMENTS
There are no determinative materials or documents within the
meaning of the APPA that were considered by the United States in
formulating the proposed Final Judgment.
Respectfully submitted,
Dated: December 4, 2018
FOR PLAINTIFF UNITED STATES OF AMERICA:
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John R. Read
Karl D. Knutsen
Natalie Melada
Catherine R. Reilly
David Stolzfus
Paul Torzilli
Antitrust Division, U.S. Department of Justice, 450 Fifth Street NW,
Suite 4100, Washington, D.C. 20530, (p) 202/307.0468,
[email protected].
[FR Doc. 2018-26755 Filed 12-10-18; 8:45 am]
BILLING CODE 4410-11-P