The Source Blog

Antitrust scrutiny of anticompetitive healthcare contract terms is on the rise, and the use of anticompetitive contract terms are increasingly in the crosshairs of both regulators and courts. When healthcare systems acquire a dominant market share, one method of capitalizing on this dominance is to impose anticompetitive terms on entities they contract with for financial gain and to forestall competition.  The use of anti-steering, anti-tiering, all-or-nothing, gag clauses, etc., can result in higher costs and reduced options for healthcare consumers.  In recent years, Indiana, Connecticut, Nevada, and Texas have enacted laws to ban certain types of clauses.  This year, states have continued to show an interest in passing laws to prevent the use of these terms (for example, Massachusetts H4954/H4955, Oklahoma SB1626 and HB3259, and Missouri HB3088).  Lawsuits have been filed in California against Sutter Health, in New York against Presbyterian Hospital, and in North Carolina against Atrium Health.  All of these cases were either settled, or are still pending, so there are no formal holdings, but the settlement terms were very favorable to the plaintiffs who were challenging the contract terms.

Although the DOJ and FTC have a history of challenging anticompetitive healthcare mergers and acquisitions, it is less common for federal enforcement to go after single-firm conduct in this way.  Limited examples include cases filed by the DOJ against Atrium Health in 2016 and against Blue Cross Blue Shield of Michigan in 2010.  Other cases, such as the New York Presbyterian cases, have involved private parties challenging anticompetitive clauses.  The Sutter cases in California included both private parties and the state Attorney General’s office challenging anticompetitive contract terms.

Two recent cases in Ohio and Texas have raised issues surrounding approaches to regulating behavior among dominant healthcare systems and the payers, employers, and unions that contract with them.

The DOJ Takes a Stand in Ohio

On February 20, the Department of Justice (DOJ) and the Ohio Attorney General’s office filed suit against OhioHealth, a 16-hospital nonprofit health system, claiming that OhioHealth’s use of all-or-nothing terms (requiring insurers to include all of its providers in their networks) inflates costs for policyholders and disadvantages competitors. The DOJ reported that OhioHealth had approximately 40% market share and charges insurance companies about 50% more than competitors. The suit also claimed that OhioHealth’s contracts included terms requiring OhioHealth to be at the most-favored level of benefits in each network, and that payers were prevented from providing patients with price information about healthcare services.  This case is the first civil antitrust enforcement action by the DOJ's Antitrust Division in approximately a year.

The complaint alleges violations of both the federal Sherman Act and Ohio’s Valentine Act, both of which prohibit anticompetitive conduct. The suit argues that “contracts containing these restrictions are contracts, combinations, and conspiracies within the meaning of Section 1 of the Sherman Act, 15 U.S.C. § 1” and that “[t]he challenged restrictions unreasonably restrain trade in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1.”  Section 1 of the Sherman Act states, in part, that “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.”

Additionally, the claim adds that OhioHealth has violated the Valentine Act, Ohio’s antitrust statute.  Section 1331.04 of the Ohio Code states, in part, “[e]very combination, contract, or agreement in the form of a trust is declared to be a conspiracy against trade and illegal” and 1331(C)(1)(a) defines “trusts” to include “a combination of capital, skill, or acts by two or more persons for any of the following purposes … [t]o create or carry out restrictions in trade or commerce …”  Interestingly, the suit does not make a monopolization claim under Section 2 of the Sherman Act, instead focusing on how actions violate Section 1.  One possibility is that the DOJ and Ohio AG may have had doubts about whether they could prove that OhioHealth had monopoly power.   A successful prosecution under Section 2 requires the plaintiff to show defendant has monopoly power (typically understood to be over 50% market share), that the market share came through anticompetitive conduct, and that there was an "antitrust injury".  It is possible for an entity to have a “dominant” market position even without reaching a 50% “monopoly” share.

In the press release for the Ohio case, the DOJ stated, “Americans deserve low-cost, high quality healthcare – not anticompetitive hospital system contracts that make healthcare less affordable” and that “this Department of Justice will continue taking legal action to protect consumers and drive down healthcare costs across America,” perhaps suggesting that the DOJ may pursue more suits of this nature.  The language in the suit adds that "robust and unrestrained competition" is the "mechanism that ultimately lowers costs."

A Texas Court Invokes the First Amendment

Texas illustrates a different dynamic in which restrictive contract language originated with the state legislature rather than a healthcare system.  Texas House Bill 1696, enacted in 2023, prohibited managed-care plans from incentivizing, recommending, encouraging, or attempting to persuade their enrollees to obtain optometrist services from any particular participating provider. Lawmakers intended to prevent these plans from exploiting their vertically integrated position in the vision care supply chain, where a single corporate enterprise can control insurance coverage, patient communications, provider networks, and affiliated retail outlets simultaneously, and use each corporate entity to funnel patients away from independent optometrists and toward their own affiliated providers and stores. Through HB 1696, the Texas legislature is essentially requiring anti-steering clauses in managed care plans that cover optometrist services.

These provisions are surprising that Texas has otherwise been active in prohibiting these types of terms: HB 1919 (2021) bars pharmacy benefit managers from steering patients toward PBM-affiliated pharmacies, and HB 711 (2023) voids contract clauses that allow insurers to steer patients to specific facilities or require all-or-nothing network participation. HB 1696 thus stood in tension with the state's broader legislative trend toward protecting consumer choice and limiting anticompetitive contracting.

An insurance company that provides managed vision care plans and owns an optometry retailer filed the suit against the Texas Insurance Commissioner to prevent enforcement of the law.  On February 19, the United States District Court for the Northern District of Texas issued a ruling striking down the law, finding that it is unconstitutional under the First Amendment, as applied to the states through the Fourteenth Amendment, which courts have found protects commercial speech from unwarranted governmental regulation where the speech is not false, deceptive, or misleading  (Allstate Ins. Co. v. Abbott, 495 F.3d 151, 165 (5th Cir. 2007)).

The ruling by the District Court in Texas will allow managed care vision plans to tell patients about potential cheaper options, including retailers owned by the plan itself.  The court sided with the vision plans' argument that the provisions unconstitutionally restricted commercial speech under the First Amendment. The ruling held while the state’s interest in limiting the harms of vertical integration was substantial, restricting how plans communicate with patients was not a permissible means of advancing that interest.

The First Amendment approach that succeeded in striking down HB 1696 would not extend to gag clauses imposed by private actors, such as healthcare systems.  The First Amendment prohibits the government from "abridging the freedom of speech”, but it does not prevent private actors from doing the same.

The Effect of These Cases

The DOJ’s action in Ohio is a reminder that anti-competitive contracting can be addressed by states without having to enact specific contract term bans.  However, it can be much more difficult to prove that the contract terms are violations of the Sherman act, and enforcement is often simpler when state laws have explicit prohibitions against certain types of terms.  Additionally, states pursuing action under the Sherman law are subject to federal case law precedent, making the enacting of state-specific laws more appealing.

Additionally, with the DOJ stating that contracts with these restrictions constitute conspiracies under the Sherman Act, anyone (employers, unions, etc.) negotiating with a dominant healthcare system that seeks to impose anticompetitive terms may want to consider using the DOJ's language as a negotiating tool.

The Texas case is complex.  The Texas law functioned like an anti-steering/gag-clause, preventing insurers from steering patients to preferred providers.  However, Texas enacted the law to curb the harms of vertical consolidation.  It remains to be seen whether the court's holding in Texas (that this type of law violates the First Amendment) would carry over into other jurisdictions, but states looking to limit the harms of vertical consolidation may be hesitant to emulate the 2023 Texas legislation, and might consider a more narrowly tailored approach.

Conclusion

Reining in the use of market dominance to impose anticompetitive contract terms has proven to be a persistent challenge, as the cases in Texas and Ohio underscore. Several states have taken a more direct approach by passing laws that simply state the use of specific contract terms (e.g., anti-steering and gag clauses) are unfair business practices rather than requiring proof of competitive harm in each individual case. Studies on the impact of those laws are still underway, so it remains unknown whether these laws may prove to be a more straightforward or effective path to stopping harmful practices than antitrust litigation. These cases along with those in California, North Carolina, Michigan, and New York show the distinct but complementary roles that state legislatures, state regulators, and federal enforcers play in policing anticompetitive conduct in healthcare markets. In short, addressing market dominance requires action from multiple parties: Private parties contracting with dominant healthcare systems should look for ways to limit their exposure to restrictive contract terms, while policymakers and enforcers continue to develop the tools needed to protect competition and consumers.

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