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

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