Texas Hospital System Agrees To Settle Case – Unfair Trade Practices To End

The Department of Justice announced late Friday it has reached a settlement with United Regional Health Care System of Wichita Falls that prohibits the hospital from entering into contracts that improperly inhibit commercial health insurers from contracting with United Regional’s competitors.

In a news release, the department said United Regional unlawfully used these contracts to maintain its monopoly for hospital services in violation of Section 2 of the Sherman Act, causing consumers to pay higher prices for health care services.

“This is the first case brought by the department since 1999 that challenges a monopolist with engaging in traditional anti-competitive unilateral conduct,” the release said.

The Department of Justice’s Antitrust Division, along with the Texas Attorney General’s Office, filed a civil antitrust lawsuit in U.S. District Court for the Northern District of Texas, along with a proposed settlement that, if approved by the court, would resolve the lawsuit.

“Unfettered competition among hospitals is vital to ensuring that patients receive high-quality, low-cost health care,” said Christine Varney, assistant attorney general in charge of the Department of Justice’s Antitrust Division. She said the settlement prevents a dominant hospital from using its market power “to harm consumers by undermining its competitors’ ability to compete in the marketplace.”

A news release from the hospital said: “United Regional is pleased that this matter has been resolved. While we disagree with the Department’s interpretation of the facts and would have welcomed the opportunity to address this matter in a court of law, we believe it is in the best interest of United Regional and our patients to instead move forward with our total attention and resources focused on our passion of providing excellence in health care for the communities we serve.”

According to the complaint, United Regional is by far the largest hospital in Wichita Falls.

Its share of general acute-care inpatient hospital services is approximately 90 percent, and its share of outpatient surgical services is more than 65 percent.

It is the region’s only provider of certain essential services such as cardiac surgery, obstetrics and high-level trauma care.

In Wichita Falls, United Regional’s average per-day rate for inpatient hospital services sold to commercial health insurers is about 70 percent higher than its closest competitor for the services that are offered by both hospitals.

United Regional claimed in its news release that despite the high insurance rates, “there appears to be little, if any, correlation between the involved contracts and United Regional’s growth of the last few years. Instead, evidence shows that our progress is the result of many strategic and operational factors.”

In a posting on the hospital’s website Friday, United Regional President Phyllis Cowling wrote: “These specific contracts do not affect anyone covered by Blue Cross and Blue Shield of Texas, the region’s largest commercial payer, or anyone covered by Medicare or Medicaid. Also, these contracts comprise a very small amount of United Regional’s overall revenue.”

The Justice Department said to maintain its monopoly in the provision of inpatient hospital and outpatient surgical services, United Regional systematically required most commercial health insurers to enter into contracts that effectively prohibited them from contracting with United Regional’s competitors.

United Regional’s contracts required these insurers to pay significantly higher prices if they contracted with a nearby competing facility.

“Since United Regional is a must-have hospital for any insurer that wants to sell health insurance in the Wichita Falls area, and because the penalty for contracting with United Regional’s rivals was so significant, almost all insurers offering health insurance in Wichita Falls entered into exclusionary contracts with United Regional,” the Justice Department release said.

As a result, competing hospitals and facilities could not obtain contracts with most insurers and were less able to compete, helping United Regional maintain its monopoly in the relevant markets and raising health care costs to the detriment of consumers, the release said.

The proposed settlement, which if accepted by the court would be in effect for seven years, restores lost competition by prohibiting United Regional from using agreements with commercial health insurers that improperly inhibit insurers from contracting with United Regional’s competitors, the Justice Department’s release said.

“In particular, United Regional is prohibited from conditioning the prices or discounts that it offers to commercial health insurers based on whether those insurers contract with other health care providers and from inhibiting insurers from entering into agreements with United Regional’s rivals. United Regional also is prohibited from taking any retaliatory actions against an insurer that enters into an agreement with a rival provider,” the release said.

United Regional Health Care System is a private Texas nonprofit corporation that had net patient revenues of approximately $265 million for 2009, according to the Justice Department release.

Editor’s Note: We saw this same situation in East Texas several years ago. One hospital was charging 300-400% more than their competitior five minutes away. But, the higher cost hospital had most of the managed care contracts.

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