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United States v. Charlotte-Mecklenburg Hospital Authority

United States District Court, W.D. North Carolina, Charlotte Division

March 30, 2017



          Robert J. Conrad, Jr. United States District Judge.

         THIS 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.

         I. BACKGROUND

         For 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.

         Defendant 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).

         Like 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.

         According 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).

         Defendant 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).

         The 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).

         In 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).


         Federal 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 suffice.” Id.

         Federal 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 (3d ed.)).

         A court 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).


         a. Defendant's Motion to Exclude or Alternatively Strike Exhibit 2 of Plaintiffs' Response in Opposition to ...

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