United States District Court, W.D. North Carolina, Charlotte Division
UNITED STATES OF AMERICA and THE STATE OF NORTH CAROLINA, Plaintiffs,
THE CHARLOTTE-MECKLENBURG HOSPITAL AUTHORITY d/b/a CAROLINAS HEALTHCARE SYSTEM, Defendant.
J. Conrad, Jr. United States District Judge.
MATTER comes before the Court on Defendant's Motion for
Judgment on the Pleadings, (Doc. No. 10), and the Memorandum
in Support, (Doc. No. 11); Plaintiffs' Opposition to
Defendant's Motion, (Doc. No. 25); Plaintiffs' Reply
Memorandum in Support of Their Motion, (Doc. No. 31);
Defendant's Supplemental Memorandum, (Doc. No. 37);
Plaintiffs' Supplemental Memorandum, (Doc. No. 38); and
Defendant's Suggestion of Subsequently Decided Authority,
(Doc. No. 39). Additionally, before the Court is
Defendant's Motion to Exclude or Alternatively to Strike
Extraneous Materials regarding Exhibit 2 of Plaintiffs'
Opposition to Defendant's Motion for Judgment on the
Pleadings, (Doc. No. 29) (“Motion to Exclude”);
Defendant's Memorandum in Support of its Motion to
Exclude, (Doc. No. 30); Plaintiffs' Response in
Opposition to the Motion to Exclude, (Doc. No. 32); and
Defendant's Reply in Support of its Motion to Exclude,
(Doc. No. 36). The motions are ripe for adjudication.
most, the world of healthcare is a perplexing one sought to
be avoided, but frequently necessary. Health insurance only
adds complexity, including factors such as co-pays,
deductibles, in-network providers, and out-of-network
providers. And while these complexities may have benefits,
they also present difficulties, frequently to consumers who
become limited by who can provide their healthcare and how
much it will cost. This case involves the relationship
between hospital system and insurance company, and how that
relationship affects everyday patients and consumers. At its
core, this case asks whether a hospital system's
contractual restrictions on insurance companies operate as an
unreasonable restraint on trade, specifically, can a hospital
authority's contract with insurance companies include
“steering” restrictions that limit insurance
companies' ability to inform their customers about, or
incentivize them to use, other health-service providers which
may be able to provide better or more affordable service.
Charlotte-Mecklenburg Hospital Authority, d/b/a Carolinas
HealthCare System (“Defendant” or
“CHS”) is a not-for-profit corporation providing
healthcare services with its principal place of business in
Charlotte, North Carolina. (Doc. No. 1, ¶ 1; Doc. No. 8,
¶ 1). CHS operates ten acute-care hospitals in the
Charlotte area, the largest of which is the Carolinas Medical
Center. (Id.). CHS is the largest hospital system in
the Charlotte area; it has a fifty percent share of the
relevant market and its next closest competitor has half the
number of acute-care hospitals and less than half the
revenue. (Doc. No. 1, ¶ 2).
other hospital authorities, Defendant enters into contracts
with insurance companies governing the purchase and sale of,
among other things, general acute care inpatient hospital
services. (Id. ¶ 17). General acute care
inpatient hospital services include the basic services that
people typically receive from hospitals-broadly and generally
speaking, medical and surgical diagnostic and treatment
services, including everything from obstetrics to cardiac
services. (Id. ¶ 19). Insurers then provide
coverage for those services via different insurance plans
offered for purchase to consumers.
to the Complaint filed by the United States of America and
the State of North Carolina (collectively,
“Plaintiffs” or the “Government”) on
June 9, 2016, CHS's contracts with insurance companies
frequently if not always prohibit certain competitive
behavior. (Id. ¶¶ 15- 16). One of these
competitive behaviors is steering. (Id. ¶12).
Examples of steering in the health insurance industry include
tiered networks, which may give consumers lower coinsurance
payments or better quality healthcare services if they use a
healthcare provider from a higher tier, and narrow-network
insurance plans, which may give consumers lower premiums and
out-of-pocket expense in exchange for choosing from a smaller
list of healthcare providers. (Doc. No. 1, ¶¶ 8-9);
see, e.g., (Doc. No. 8-3). Plaintiffs also allege
that Defendant uses its contracts with insurance companies to
restrict the flow of information to consumers, specifically,
that Defendant limits the ability of insurance companies to
share comparative cost and quality information with
consumers. (Id. ¶ 13).
CHS maintains and enforces steering restrictions in its
contracts with at least 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., which collectively insure more than
eighty-five percent of the commercially-insured residents in
the Charlotte area. (Id. ¶¶ 15-16). The
steering restrictions with each insurer vary, but range from
an outright prohibition to granting CHS the right to
terminate the contract if the insurer steers patients.
(Id. at 16). The Government alleges that regardless
of their precise wording, each of these restrictions
consistently create disincentives and deter insurers from
providing patients with full information about healthcare
options, including price and cost comparisons across
healthcare providers. (Id.). In other words, an
insurance company may be restricted from telling one of its
enrollees that he or she could receive certain treatment for
less money or from a better healthcare provider. Although
insurance companies do not want these restrictions, they feel
compelled to agree to them in order to maintain their
relationships with CHS because of its market power the
largest hospital in the area. (Id. ¶ 26).
effect on the market, according to the Complaint, is that
CHS's restrictions reduce competition in the Charlotte
area, which in turn causes higher prices for health
insurance, fewer healthcare plans available, less available
information that would allow consumers to compare prices and
plans, and generally less efficient healthcare plans.
(Id. ¶¶ 14, 25, and 27). In a nutshell,
the Government alleges that both consumers and insurers are
directly harmed by CHS's essentially mandatory steering
restrictions. (Id. ¶ 27). CHS instituted and
continues this practice without a procompetitive purpose, but
instead to protect itself from price competition, maintain
higher prices, and preserve a dominant position in the
market, according to the Government. Thus, the Government
contends, CHS has violated federal law-Section 1 of the
Sherman Act, which prohibits agreements that unreasonably
restrain trade. (Id. ¶¶ 33-39).
response to the allegations outlined above, CHS timely filed
an Answer to the Government's Complaint and a Motion for
Judgment on the Pleadings on August 8, 2016. (Doc. Nos. 8,
10). That motion is currently before the Court, in
conjunction with CHS's Motion to Exclude, which was filed
in relation to the Motion for Judgment on the Pleadings.
(Doc. No. 29).
STANDARD OF REVIEW
Rule of Civil Procedure 12(c) provides that “[a]fter
the pleadings are closed but within such time as not to delay
the trial, any party may move for judgment on the
pleadings.” Fed.R.Civ.P. 12(c). A motion for judgment
on the pleadings is governed by the same standard as a motion
to dismiss brought under Rule 12(b)(6). Occupy Columbia
v. Haley, 738 F.3d 107, 115 (4th Cir. 2013). That
standard tests “legal sufficiency of the
complaint” but “does not resolve contests
surrounding the facts, the merits of a claim, or the
applicability of defenses.” Republican Party of
N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992). The
complaint will survive if it contains enough facts “to
state a claim to relief that is plausible on its face.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570
(2007)). Facial plausibility means allegations that allow the
court to draw the reasonable inference that the defendant is
liable for the misconduct alleged. Id.
“Threadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not
Rule of Civil Procedure 8(a)(2) requires only “a short
and plain statement of the claim showing that the pleader is
entitled to relief.” Specific facts are not necessary;
the statement need only “‘give the defendant fair
notice of what the ... claim is and the grounds upon which it
rests.'” Twombly, 550 U.S. at 545 (quoting
Copperweld Corp. v. Independence Tube Corp., 467
U.S. 752, 775 (1984)). Additionally, when ruling on a
defendant's motion to dismiss, a judge must accept as
true all of the factual allegations contained in the
complaint. Erickson v. Pardus, 551 U.S. 89, 93-94
(2007) (quoting Twombly, 550 U.S. at 555-56).
Nonetheless, a court is not bound to accept as true legal
conclusions couched as factual allegations. Papasan v.
Allain, 478 U.S. 265, 286 (1986). Courts cannot weigh
the facts or assess the evidence at this stage, but a
complaint entirely devoid of any facts supporting a given
claim cannot proceed. Potomac Conference Corp. of
Seventh-Day Adventists v. Takoma Academy Alumni Ass'n,
Inc., 2 F.Supp.3d 758, 767-68 (D. Md. 2014).
Furthermore, the court “should view the complaint in
the light most favorable to the plaintiff, ” drawing
reasonable inferences in its favor. Mylan Labs, Inc. v.
Matkar, 7 F.3d 1130, 1134 (4th Cir. 1993). Judgment on
the pleadings may be granted when the undisputed facts show
that the moving party is entitled to judgment as a matter of
law. Bradley v. Ramsey, 329 F.Supp.2d 617, 622 (W.D.
N.C. 2004) (citing Moore's Federal Practice, § 12.38
may consider the complaint, answer, and any materials
attached to those pleadings or motions for judgment on the
pleadings “so long as they are integral to the
complaint and authentic.” Philips v. Pitt Cty.
Mem'l Hosp., 572 F.3d 176, 180 (4th Cir. 2009);
see also Fed. R. Civ. P. 10(c) (“[A]n exhibit
to a pleading is part of the pleading for all
purposes.”). Any factual allegations contained in an
answer are only taken as true if they do not conflict with
the complaint and have not been denied by plaintiff.
Alexander v. City of Greensboro, 801 F.Supp.2d 429,
433 (M.D. N.C. 2011) (quoting Jadoff v. Gleason, 140
F.R.D. 330, 331 (M.D. N.C. 1991)). When an answer does not
require a responsive pleading, the allegations are assumed
denied. Id. (citing Jadoff, 140 F.R.D. at
332); Fed.R.Civ.P. 8(b)(6).
Defendant's Motion to Exclude or Alternatively Strike
Exhibit 2 of Plaintiffs' Response in Opposition to