- The Department of Justice (DoJ) is shedding more light on its recent settlement with North Carolina-based Atrium Health over allegations the health system used its market power to create anti-competitive contracts with private payers.
Atrium agreed to a settlement with the DoJ and the North Carolina Office of Attorney General in November 2018 to clear up claims that the health system demanded contract provisions that limited or prohibited private payers from steering patients to lower cost providers in the market.
Once finalized, the settlement would prohibit Atrium from using anti-competitive steering restrictions in its contracts with private payers.
The DoJ is now expounding on its proposed settlement with the largest health system in the Charlotte, NC area. The Competitive Impact Statement filed by the DoJ on December 4, 2018, explained:
“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.”
Consequently, Atrium’s steering restrictions are increasing healthcare costs in the Charlotte area, the DoJ continued. The contract provisions reduced the competitive incentive that Atrium’s competitors would have had to lower their prices to compete with the large health system.
Higher prices have led to greater out-of-pocket costs for patients. Patient out-of-pocket costs in the Charlotte area are among the highest in the state, the federal department reported.
The steering practices used by Atrium and its insurers were not based on “any measure of relative high-quality.” Therefore, the restrictions on steering were anticompetitive, the DoJ explained.
Steering, however, can be used to boost competition, the federal department elaborated. In the Competitive Impact Statement, the DoJ provided examples of steering provisions that be used to boost competition between hospitals in a market, resulting in lower costs for patients.
For example, narrow and tiered networks can be pro-competitive steering provisions in hospital contracts with payers.
Private payers develop narrow networks based on cost and/or quality criteria. Through the networks, payers contract with a small subset of providers and hospitals in a market. Since providers in the narrow network would cost members less than an out-of-network provider, the narrow network steers members.
The narrow network can be pro-competitive because 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,” the DoJ stated.
Similarly, private payers develop tiered networks using quality and/or cost information. But in this case, the payer separates providers into different levels based on quality and/or cost performance.
The steering involved in tiered networks can help to boost competition because members are free to use any providers, but they receive the most benefits when they select a provider in the preferred tier, the DoJ explained.
Reference-based pricing and centers of excellence are also examples of pro-competitive steering strategies.
With reference-based pricing, private payers establish a market-wide standard, or reference price, for a specific service, and plans cover that service up to the reference price. The strategy steers patients toward lower-cost providers whose prices do not exceed the reference price. And providers are incentivized to reduce their prices closer to the market-wide standard to attract consumers.
On the other hand, private payers can partner with a specific provider to create a center of excellence for a certain service. With the center of excellence, payers offer an incentive to members for seeking care at a specific provider.
The strategy is pro-competitive because members can still seek service outside of the center of excellence.
Finally, transparency is key to avoiding anti-competitive hospital contracting provisions, the DoJ stressed.
“Transparency makes steered plans more effective by providing consumers with information to enable them to comparison shop before selecting a provider,” the federal department stated. “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.”
The Competitive Impact Statement shows that the federal government supports specific types of steering strategies when they are designed to improve competition among providers in a market. However, healthcare organizations that try to include contract provisions that limit steering could face federal scrutiny and legal repercussions.