The North Carolina Business Court Hands Down an Important Healthcare Antitrust Decision, Part 2

In a recent blog post, we discussed a new antitrust decision from the North Carolina Business Court that involves healthcare providers and health insurers. In that post, we examined the significance of that opinion to indirect-purchaser standing under North Carolina antitrust law. Judge Michael Robinson’s decision in Christopher DiCesare, et al. v. The Charlotte Mecklenburg Hospital Authority d/b/a Carolinas HealthCare is also noteworthy because of its in-depth discussion of the pleading requirements for state antitrust claims under Chapter 75.  We explore Judge Robinson’s treatment of the antitrust claims themselves in this post. But first, let’s review the relevant facts:

Insureds Allege Antitrust Injuries from Contracts between Health Insurers and Hospitals

The plaintiffs in DiCesare are individual North Carolinians that purchased health insurance that covered acute hospital services. The plaintiffs brought the action on behalf of a putative class of all North Carolinians that purchased insurance from four particulars health insurers since January 1, 2013.

The plaintiffs alleged that the defendant, Carolinas HealthCare, maintains a 50% share of the Charlotte-area hospital market.

The plaintiffs accused Carolinas HealthCare of forcing insurers to enter into service contracts that contained provisions that violate state antitrust law. The plaintiffs alleged that the contracts contained “anti-steering” terms that discouraged insurers from providing accurate information to their insureds about treatment alternatives to Carolinas HealthCare.

The plaintiffs claimed that the anti-steering provisions harmed competition because insurers would pay hospitals less if insurers could provide customers with more complete information about their healthcare options. The plaintiffs further alleged that the insurers would pass the savings on to their insureds. Ultimately, plaintiffs contended that individual North Carolinians would pay less for insurance in the absence of the anti-steering contract provisions.

The plaintiffs brought two separate claims: (1) that the contracts were an unlawful contract, combination, or conspiracy in restraint of trade in violation of  N.C. Gen. Stat. sections 75-1, and 75-2; and (2) monopolization in violation of section 75-1.1, 75-2, and 75-2.1.

After the plaintiffs filed an amended complaint, Carolinas HealthCare moved to dismiss for lack of standing pursuant to both North Carolina Rule of Civil Procedure 12(b)(1) and 12(b)(6). Carolinas HealthCare also moved for judgment on the pleadings as to both antitrust claims. Judge Robinson denied both motions, but issued a single opinion that covered both.

In our first post, we discussed Judge Robinson’s determination that the plaintiffs had standing to bring their antitrust claims. In this post, we will discuss the court’s analysis of the substantive antitrust claims.

The Plaintiffs Adequately Pleaded an Unlawful Contract Claim

The part of Judge Robinson’s opinion that decided Carolinas HealthCare’s motion for judgment on the pleadings first addressed the plaintiffs’ unlawful restraint of trade claim. The judge noted that Section 75-1 is based on section one of the Sherman Act. As such, federal decisions applying the Sherman Act are “instructive” in determining if an agreement unlawfully restrains trade under North Carolina law.

Applying Fourth Circuit precedent, Judge Robinson determined that the elements of a restraint of trade claim under North Carolina law are: (1) a contract, combination, or conspiracy; (2) that imposed an unreasonable restraint of trade.

Judge Robinson indicated that the relevant case authorities generally find horizontal restraints on trade (e.g. price-fixing among direct competitors) to be per se unreasonable. By contrast, courts evaluate vertical restraints under a “rule of reason” analysis. The parties agreed that the anti-steering provisions were, as alleged, vertical restraints.

Relying on federal precedent, Judge Robinson indicated that a plaintiff would have to prevail under a very convoluted test in order to prove ultimately an unlawful restraint of trade under the rule of reason. First, the plaintiff must prove an adverse effect on competition in the relevant market. The burden then shifts to the defendant to demonstrate that the challenged agreement has pro-competitive effects. If the defendant is able to prove that the agreement provides a benefit to competition, the burden shifts again. The plaintiff must then prove that any legitimate competitive benefit could be achieved through less restrictive means.

Judge Robinson noted that the Court first had to determine the relevant market before analyzing the competitive effect of the defendant’s challenged activity. The parties did not dispute that the relevant market was the sale of general acute inpatient hospital services to insurers in the Charlotte area. 

Judge Robinson then analyzed whether the plaintiffs had adequately alleged an adverse effect on competition. Judge Robinson required that the plaintiffs first had to plead adequately that Carolinas HealthCare possessed market power within the relevant market. The judge determined that the plaintiffs’ allegations, which included: (1) that Carolinas HealthCare had a market share of approximately 50% of the relevant market; (2) that the hospital’s largest competitor had less than half of Carolinas HealthCare’s annual revenues; and (3) that licensing requirements and acquiring suitable sites for hospitals to build created significant barriers to entry, sufficiently alleged market power.

Finally, Judge Robinson detailed the potential anti-competitive effects flowing from Carolinas HealthCare’s alleged conduct. The plaintiffs had alleged that the anti-steering provisions contained in the insurance contracts had the following anti-competitive effects:

  • Protecting Carolinas HealthCare’s market power and enabling the hospital to charge supercompetitive prices;
  • Substantially lessening competition among service providers;
  • Restricting the introduction of innovative insurance products that could lower prices;
  • Reducing consumer incentives to obtain treatment for more cost-effective providers;
  • Depriving insurers and insureds of the benefits of a competitive market for services;
  • Reducing the number of insurance plans from which consumers can choose.

Judge Robinson held that the plaintiffs’ factual allegations were sufficient to overcome the motion for judgment on the pleadings. The judge did not require the plaintiffs to prove that alleged anticompetitive risks outweighed Carolinas HealthCare’s pro-competitive justifications, which would be the plaintiffs’ ultimate burden under the rule of reason analysis. The plaintiffs only needed to allege sufficient anti-competitive effects of the challenged conduct in order to get past the pleading stage.

The Plaintiffs’ Monopolization Claim Also Survives

Judge Robinson also used federal antitrust precedent in rejecting Carolinas HealthCare’s challenge to the monopolization claim.  Judge Robinson determined that a monopolization claim requires possession of monopoly power in the relevant market and willful maintenance of that power.

Carolinas HealthCare challenged the sufficiency of plaintiffs’ claim that it possessed monopoly power, but did not challenge the adequacy of the willful maintenance allegation. 

Although the plaintiffs bore a higher burden than to allege market power, Judge Robinson found that the plaintiffs’ allegations concerning market power were sufficient to assert monopoly power, too. Judge Robinson noted that the plaintiffs would bear a heavy burden ultimately to prove monopoly power. He recognized that, in other monopolization cases, market share below 50% is rarely evidence of monopoly power and market share between 50% and 70% is only occasionally proof of monopoly power.

Throughout Judge Robinson’s opinion, the judge emphasized the relatively low burden that the plaintiffs possessed at the pleading stage. He expressly noted that pre-discovery dismissals of state antitrust actions are relatively rare. The judge did, however, express some degree of skepticism that the plaintiffs would be able to meet their burden at summary judgment for several aspects of their claims.  Nevertheless, he allowed plaintiffs discovery as to both of their antitrust claims

Judge Robinson’s opinion in DiCesare appears to set a relatively low bar for state antitrust claims to survive to discovery, even where the claims may have a hard time ultimately making it to trial. We will have to see if there is an increase in state antitrust claims as a result.

Author’s Note: In our prior post about DiCesare, we discussed the unusual step that Judge Robinson took to invite Carolinas HealthCare to seek interlocutory review of the judge’s decision on indirect purchaser standing. Carolinas HealthCare took the judge up on his offer. Last Friday, the defendant filed a Petition for Writ of Certiorari to the North Carolina Supreme Court. 

Author: George Sanderson

Standing Room Only: Spokeo and the Video Privacy Protection Act

As we’ve discussed before, standing is often a key issue in data-breach litigation.  Standing is also frequently at issue in another type of privacy case: litigation arising from violations of privacy rights created by statute.   

Privacy and consumer protection laws such as the Telephone Consumer Protection Act and the Fair Credit Reporting Act, which create private rights of action and provide for statutory damages, have been a fertile source of consumer class action litigation. The injuries in these cases often consist primarily—or solely—of the violation of rights created by the statute. Defendants frequently seek to dismiss these actions on standing grounds.  They argue that mere violation of a right created by statute does not by itself constitute an injury-in-fact under Article III.

In Spokeo v. Robins the Supreme Court provided some guidance for analyzing these standing challenges. This post examines Perry v. Cable News Network, a recent decision from the Eleventh Circuit that applied Spokeo. Perry involved a class action arising from an iPhone app’s alleged sharing of users’ video-watching history with a third party data analytics company without those users’ consent. The plaintiffs alleged this sharing violated the Video Privacy Protection Act (VPPA).

Statutory Violations and Standing Under Spokeo

In Spokeo, the Supreme Court considered whether the violation of a right created by statute (in that case, the Fair Credit Reporting Act) can, without more, be enough to establish Article III standing in federal court.  

The Supreme Court held that violation of a statutory right may constitute an injury-in-fact sufficient to establish Article III standing, but only if the plaintiff suffers “concrete” harm from that violation. The Supreme Court, however, did not explain precisely how a plaintiff might establish the requisite concreteness in a given case.

The Court did suggest that harm caused by the violation of a statutory right can be concrete—even without a showing of additional harm—where it “has a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit in English or American Courts.” But a “bare procedural violation,” absent more, would not be sufficient.    

Since Spokeo, defendants in class actions founded on violations of statutorily-created privacy rights have frequently sought to dismiss for lack of standing, with mixed success. 

Streaming Didn’t Kill the Video Privacy Protection Act

In Perry, the statute in question was the VPPA. Subject to certain exceptions, the VPPA prohibits a “video tape service provider” from disclosing consumers’ personally identifiable video rental and sale records. The statute was famously enacted in 1988 in response to a newspaper’s publication of an article discussing Supreme Court nominee Judge Robert H. Bork’s rental history from a Washington, DC videotape rental store.

Although adopted in the VHS era, the statute has also been held to apply to modern-day video streaming services. In that context, the VPPA has been interpreted to prohibit disclosures that tie “specific people to the videos they watch.”

Watching You Watching Me

Perry centered on CNN’s iPhone app, which was available for free download from the iTunes store. The CNN app allowed users to watch recorded CNN video clips and the network’s coverage of live events. According to the complaint, CNN tracked and recorded app users’ viewing activity, and then, without their knowledge or consent, sent the collected records to a data analytics company called Bango. Those records included unique numeric identifiers that corresponded to users’ iPhones, but not the users’ names or other identifying information. Bango would then combine the records received from CNN with data collected from other sources to build a profile of users’ online behavior.

In a single count class action complaint, plaintiff Ryan Perry alleged that CNN’s disclosure of app users’ device identifiers and viewing activity to Bango without their consent violated the VPPA. He sought an injunction, as well as statutory and punitive damages for the violation of his “statutorily-defined right to privacy.”

In a pre-Spokeo decision, the trial court granted CNN’s motion to dismiss. It found after a brief discussion that Perry had standing to sue because he alleged a violation of the VPPA. But the court determined that Perry’s complaint did not state a claim under the VPPA, both because his allegations did not establish that he was a “consumer” under the statute and because the data disclosed by CNN to Bango did not constitute “personally identifiable information.”

Is the violation of a privacy interest in video-viewing history a concrete injury?

The Supreme Court decided Spokeo shortly after the trial court’s dismissal.  On appeal, CNN relied on Spokeo to argue that Perry lacked standing.

In its brief, CNN argued that Perry could not establish injury-in-fact under Spokeo because any violation of the VPPA, standing alone, did not give rise to a “concrete” harm. CNN reasoned that the disclosure of his video-viewing history to Bango did not cause personal embarrassment or damage to his employment prospects. Nor, contended CNN, did that disclosure otherwise resemble a harm that traditionally provided a basis for a lawsuit in English or American courts. 

The Eleventh Circuit disagreed. It explained that the “right of privacy” has been widely recognized by American courts to give individuals an interest in control over their personal information. It noted that the Supreme Court had previously recognized that an individual has an interest in preventing the disclosure of personal information. And it observed that the well-established tort of intrusion upon seclusion subjected defendants to liability for “the intrusion itself,” even without publication or other use of information gleaned through the intrusion.

The court thus concluded that a disclosure of personal information in violation of the VPPA is—even without a showing of additional harm—a concrete injury that can establish Article III standing.  

Although Perry won the standing battle, he ultimately lost the war. The Eleventh Circuit concluded that under an earlier decision in which it had interpreted the VPPA, Perry could not establish that his use of CNN’s free app made him a “consumer” protected by the statute. The court thus affirmed dismissal of Perry’s VPPA claim on that ground.

Lessons from Perry

Despite its affirmance of the dismissal of Perry’s claims, Perry can be viewed as a significant win for the plaintiffs’ bar on the standing front. That’s certainly true for VPPA cases in the Eleventh Circuit.

But the decision will also provide ammunition to plaintiffs seeking to ward off standing-based challenges in cases that allege violations of other privacy statutes. Provided they can credibly show that those statutes protect privacy interests that have been recognized by courts before, Perry’s reasoning would seem to insulate such claims against dismissal for lack of standing.

Author: Alex Pearce

The North Carolina Business Court Hands Down an Important Healthcare Antitrust Decision, Part 1

It is rare that a North Carolina state court hands down a Chapter 75 decision in a “pure” antitrust matter. The North Carolina Business Court, however, recently did just that.  This new decision, moreover, may have far-reaching implications both about who can bring antitrust claims under North Carolina law and how health insurers contract for services with medical providers.

The deciding judge, Judge Michael L. Robinson, himself recognized the importance of the opinion—in fact, Judge Robinson encouraged the defendant, the second-largest public hospital system in the United States, to appeal his decision to the North Carolina Supreme Court immediately!

Insureds Allege Antitrust Injuries from Contracts between Health Insurers and Hospitals

The plaintiffs in Christopher DiCesare, et al. v. The Charlotte Mecklenburg Hospital Authority d/b/a Carolinas HealthCare are individual North Carolinians who purchased health insurance that covers acute hospital services. The plaintiffs brought the action on behalf of a putative class of all North Carolinians that purchased insurance from four particular health insurers since January 1, 2013.

The plaintiffs allege that the defendant, Carolinas HealthCare, maintains a 50% share of the Charlotte-area hospital market.

The plaintiffs accuse Carolinas HealthCare of forcing insurers to enter into service contracts that contain provisions that violate state antitrust law. The plaintiffs allege that the contracts contain “anti-steering” terms that discourage insurers from providing accurate information to their insureds about treatment alternatives to Carolinas HealthCare.

The plaintiffs claim that the anti-steering provisions harm competition because insurers would pay hospitals less if insurers could provide customers with more complete information about customers’ healthcare choices. The plaintiffs further allege that the insurers would pass the savings on to their customers. Ultimately, the plaintiffs contend that individual North Carolinians would pay less for insurance in the absence of the anti-steering contract provisions.

The plaintiffs brought two separate claims: (1) a claim that the contracts constitute an unlawful contract, combination, or conspiracy in restraint of trade in violation of  N.C. Gen. Stat. §§ 75-1, and 75-2; and (2) a claim for monopolization in violation of §§ 75-1.1, 75-2, and 75-2.1.

After the plaintiffs filed an amended complaint, Carolinas HealthCare moved to dismiss for lack of standing. Carolinas HealthCare also moved for judgment on the pleadings as to both antitrust claims. Judge Robinson denied each motion, but issued a single opinion that covered both.

Because of the multiple significant issues that Judge Robinson’s opinion raises, we will divide our analysis into two posts. In our first post, we will discuss Judge Robinson’s determination that the plaintiffs have standing to bring their antitrust claims. In our second post, we will discuss the court’s analysis of the substantive antitrust claims.

The Plaintiffs Have Standing to Bring Antitrust Claims

In its motion to dismiss, Carolinas HealthCare argued that the plaintiffs lacked standing because they did not allege that they had received services directly from Carolinas HealthCare.  Carolinas HealthCare posited that the plaintiffs’ alleged injuries, which primarily related to the price that the plaintiffs paid for insurance coverage, were too attenuated to give the plaintiffs standing. 

In general, federal antitrust law allows only direct purchasers in the supply chain standing to bring antitrust claims for damages. The United States Supreme Court has ruled, however, that the general prohibition on “indirect-purchaser” standing under federal antitrust law does not categorically restrict indirect purchasers from bringing state antitrust claims.

In a seminal case, the North Carolina Court of Appeals ruled that indirect purchasers could bring antitrust claims under North Carolina law.  The North Carolina Business Court subsequently tried to define the scope of indirect-purchaser standing by developing a multi-factor test to determine when an indirect-purchaser injury was too remote or otherwise too difficult to prove to convey standing.

In Teague v. Bayer AG, the North Carolina Court of Appeals rejected the Business Court’s test.  The Teague court held that N.C. Gen. Stat. § 75-16, which controls standing in all Chapter 75 cases, should be read liberally to allow indirect-purchaser standing.

The North Carolina Supreme Court has never waded in on this precise issue. In one case, decided after Teague, the Supreme Court appeared to endorse the Court of Appeals’s broad interpretation of § 75-16, but that decision did not address indirect-purchaser standing in an antitrust case.

Carolinas HealthCare argued that the individual plaintiffs lacked standing because the insurers, not Carolinas HealthCare, set the prices for their insurance policies. Carolinas HealthCare argued that the plaintiffs could not demonstrate that the anti-steering provisions caused higher insurance premiums; in turn, any injury allegedly caused to the insureds was too speculative to convey standing.

The Business Court Rejects that the Alleged Injury to Insureds Is Too Speculative

Judge Robinson rejected Carolinas HealthCare’s argument. He determined that Teague is controlling precedent and that Teague did not require the plaintiffs “at the pleading stage to prove a causal chain between the Hospital’s challenged conduct and [p]laintiffs’ alleged injury.” Judge Robinson also expressly rejected the applicability of the Business Court’s prior multi-factor standing test. He also noted that the North Carolina Supreme Court has not spoken on the precise issue of indirect-purchaser standing.

Judge Robinson expressed concern, however, that healthcare and the health insurance industry are very important to society and the economy. He recognized that, even though the plaintiffs adequately pleaded standing, they would ultimately have to prove injury-in-fact and causation. Judge Robinson speculated that such an undertaking would involve burdensome, time-consuming, and expensive discovery.

In light of his concerns, Judge Robinson took the extraordinary step of encouraging Carolinas HealthCare to seek immediate review of his decision to the North Carolina Supreme Court. He went so far as to offer that he would stay all trial-court proceedings while the Supreme Court considered the appeal.

Judge Robinson’s decision is certainly not the last word on indirect-purchaser standing. Whether the North Carolina Supreme Court will weigh in now, or somewhere down the line, is anyone’s guess. As of the time that this post went to press, Carolinas HealthCare had not noticed an appeal or applied for a writ to the Supreme Court to hear the case interlocutory. The time for Carolinas HealthCare to do so, however, has not yet run. 

In our next post, we will discuss how Judge Robinson decided the substantive antitrust claims.

Author: George Sanderson