Two-Sided Transactions – How Will Supreme Court Decision Affect PPO’s?

On June 25, the US Supreme Court issued a 5–4 opinion in a case that may have significant implications for health care……………….The case of the two-sided transaction………………

Will Insurance Companies Be Able to “Steer” Patients To And From Providers?

By Marcia Boumil & Gregory D. Curfman

JULY 31, 2018

On June 25, the US Supreme Court issued a 5–4 opinion in a case that may have significant implications for health care. Because the facts of Ohio vs. American Express have no direct connection to insurance referrals or health care, the case has gone largely unnoticed by this community. Nevertheless, the potential impact of the case on medical practice may be substantial and warrants careful consideration by physicians, health care leaders, and policy makers.

Antitrust Law And The So-Called “Two-Sided Transaction”

How exactly might an antitrust dispute between American Express and the federal and state governments have the potential to impact health care delivery? The Supreme Court’s opinion in Ohio vs. American Express raises alarm bells in a multitude of “platform” industries, where a single intermediary negotiates with both sides of a so-called “two-sided” transaction. In the American Express case, the two sides were credit card holders (offered lower interest rates, airline miles, cash back, and so forth) on the one hand and merchants (who are charged processing fees) on the other. In the health care context, insurers (as intermediaries) negotiate with employers on behalf of employee patients and with provider networks. Both are examples of the “two-sided market.”

In Ohio vs. American Express, the Supreme Court majority held that the usual antitrust analysis changes when evaluating the anticompetitive effect of a dealing in a two-sided market: Competitive effects on both sides of the platform (cardholders and merchants in the American Express case) must be evaluated together as a single transaction. Specifically, courts must evaluate the anticompetitive effect of American Express’s antisteering provisions on both merchants and cardholders together. Holding that the antisteering provisions imposed a vertical restraint of trade, the transaction was analyzed under the antitrust “rule of reason.” However, the Court went on to define the “relevant market” as a single unit including both merchant and consumer transactions, even though the alleged anticompetitive activities occurred only on the merchant side. This analysis will make it substantially more difficult to prove an antitrust violation in any “platform” industry. In antitrust terms, companies such as American Express can exploit their market power to stifle competition—as long as they can prove some benefit to consumers on either side of the transaction. In the health care context, the American Medical Association (AMA) is concerned that this change in antitrust analysis could pave the way for denial of insurance referrals, which would be evaluated pursuant to substantially weakened antitrust principles.

Antisteering Provisions

The contractual issue at the heart of the legal dispute is known as an “antisteering” provision. The contract between American Express and its merchants includes a requirement that prevents merchants from asking or incentivizing consumers to use competing (lower-fee) credit cards such as MasterCard, Visa, or Discover. (Many consumers do not know that American Express charges the merchant higher “swipe” fees). Thus, American Express, through its so-called “gag order” on merchants, prohibits them from “steering” consumers away from using the American Express credit card. The federal and state governments challenged the American Express antisteering provisions as being anticompetitive. They argued that American Express’s antisteering provisions limit competition for merchants and burden consumers by increasing costs that are passed onto them. American Express countered by claiming that its antisteering provisions contribute to the overall value of the credit card and are not anticompetitive.

Justice Stephen Breyer, a former antitrust professor writing for the four-person minority, read part of his blistering dissent from the bench to emphasize his substantial disagreement with the opinion. He accused the majority of ignoring the factual evidence that American Express’s antisteering provisions stifled competition from the lesser-known Discover card and of creating law around the logic of a “two-sided platform market,” which, he insists, is not an antitrust term of art. Noting that virtually any market could be identified as two-sided (even his example of a farmers’ market), he denied that there is any logic to analyzing anticompetitive impact by imposing this different standard. While Justice Breyer outlined the immediate detriment to both merchants and consumers, it was his fear of “interpretive impact” that was most compelling: Unfettered monopoly power flowing from a permissive antitrust standard could dramatically alter a range of so-called platform industries.

According to the AMA, one of those very vulnerable industries may be health care. To the extent that the Court permits antisteering provisions in the American Express contract, it raises the concern that health insurers will be empowered to impose comparable “antireferral” clauses in their contracts with physician groups, to restrict out-of-network referrals and referrals for certain advanced diagnostic tests. In the past, physicians and patients who were refused necessary referrals based on the needs of the patient relied on antitrust laws, among others, to overcome oppressive insurance denials. Players in other platform industries (such as Amazon, Facebook, and Google) will worry about facing increased expense as a result of this case. In health care, there is the added risk of adversely affecting patients’ access to providers and diagnostic services—as well as physicians’ ethical responsibility to provide high-quality care.

Antitrust laws function to protect consumers by prohibiting business practices that interfere with free competition and lead to higher prices. For example, if all vendors providing eyeglasses got together and agreed that each would sell their products only at the same high price, consumers would have no choice but to pay that price. Antitrust laws prohibit collusive activity that interferes with free competition and requires merchants to respect free-market principles so that companies compete only on the basis of quality, price, and service. In Ohio vs. American Express, the federal and state governments accused American Express of using its market power as leverage over merchants to stifle competition from other credit cards that charge lower merchant fees.

As to whether the antisteering provisions in the American Express contracts were anticompetitive, the Supreme Court found insufficient evidence that the contractual provisions had a substantial anticompetitive effect. The majority of the Court held that applying antitrust analysis in this so-called two-sided market would require that any alleged anticompetitive effect be evaluated in the light of the totality of the transaction, not just merchant fees. The Court determined that, viewed that way, there was insufficient proof that American Express unduly stifled competition. By analogy to the health care context, to show anticompetitive effect, a physician would need to demonstrate that a company’s insurance denials had an anticompetitive effect on the system as a whole and not just on a particular patient being denied a particular service. If insurance companies could identify “some” benefit to patients as a whole on either side of the platform, they may be able to justify insurance denials to individual patients.

Does Antisteering Equal Antireferral?

In an amicus curiae brief filed in the case, the AMA and the Ohio State Medical Association (collectively called the AMA) expressed concern that the American Express ruling could extend to dominant health insurers or hospital systems and would empower them to include antireferral provisions in their contracts. These provisions would allow them to prevent physicians from making out-of-network referrals to specialists or other practitioners who offer advanced (and often more expensive) procedures not available in network. The AMA pointed out that traditional antitrust law protects physicians’ judgments from interference by dominant health systems on matters of medical treatment and supports autonomy in patient care.

If the antisteering provisions upheld in Ohio vs. American Express are interpreted to include antireferral provisions in provider contracts, however, the results may be different. For example, in a dispute with an insurance company that refuses to approve a patient referral to a particular specialist, the law could be interpreted as justifying that decision. In legal terms, the AMA expressed concern that such antitrust analysis would require that the benefits and harm of the non-referral be measured not as to the effects on the individual patient but as to the effect on a pool of theoretical, similarly situated enrollees of the insurance plan. Using that criterion, the denied referral could be permitted unless proved anticompetitive on the market as a whole—a standard that would virtually always be impossible to meet.

Can We Still Rely On Antitrust Laws To Protect Against Unjust Denials Of Insurance Referrals?

Many insurance networks do not include providers in every field of medicine who offer state-of-the-art (and often expensive) therapies or diagnostics. Under the current system, patients who require specialty care often receive out-of-network referrals. In the wake of the American Express case, future law could allow insurance networks to impose greater barriers for physicians who make such referrals.

When health insurers decline requests for referral, physicians will be forced to choose between unsatisfactory alternatives: making the referral and having payment rejected; making treatment decisions based on health system constraints; or making the referral and subjecting themselves to claims of breach of contract. Those claims would be defensible if the usual legal protections—including antitrust laws—no longer provide the needed recourse for referral constraints. In a system that does not protect medical judgement from insurer interference, physicians would be forced to evaluate their professional and ethical duties to their patients.

The Ohio vs. American Express case raises troubling questions about the changing landscape of antitrust law and the implications of those changes for US health care. The Federal Trade Commission recently announced that it would hold public hearings on competition and consumer protection directed toward monopoly policy. It is vital that these hearings, as well as future case law and legislation, provide a remedy and clarify that antireferral and antisteering provisions are fundamentally different and must not be subject to the same antitrust analyses.