Division Sues Companies to Stop Conduct That Subverts Competition and Harms Consumers

Division Update Spring 2017

Over the past year, the Antitrust Division has challenged various incidents of anticompetitive conduct and has raised public awareness that the United States will not allow companies with market power to subvert the processes of healthy competition at the expense of consumers. These civil conduct cases are critical efforts to protect the vigorous competition that American consumers deserve. By challenging this conduct, the Division seeks both to redress conduct that harms consumers and to educate other market participants about the substantial risks they face for violating the antitrust laws.

DIRECTV

DIRECTV

Photo Credit: PhotoObjects.net/Thinkstock

As one example, the Division filed a complaint in the U.S. District Court for the Central District of California to stop DIRECTV and its corporate successor, AT&T Inc., from orchestrating a series of unlawful information exchanges between DIRECTV and three of its direct pay television competitors—Cox Communications, Charter Communications, and AT&T—during the companies’ negotiations to carry SportsNet LA, a pay television channel that holds the exclusive rights to telecast almost all live Dodgers games in the Los Angeles area. A settlement to end this conduct and prevent its recurrence has been filed with the Court.

The Division’s lawsuit, filed on November 2, 2016 in the U.S. District Court for the Central District of California, alleged that DIRECTV acted as the ringleader of a series of unlawful information exchanges sharing competitively sensitive, strategic information with Cox, Charter, and AT&T during the companies’ negotiations for the right to telecast SportsNet LA (also referred to as the Dodgers Channel), in order to insulate themselves from competition. Specifically, the complaint alleged that DIRECTV and each of these competitors agreed to and did exchange confidential strategic information about their companies’ ongoing negotiations to telecast the Dodgers Channel, as well as their companies’ future plans to carry—or not carry—the channel. The complaint also alleged that the companies engaged in this unlawful conduct in order to increase their bargaining leverage and to reduce the risk that they would lose subscribers if they decided not to carry the channel but a competitor chose to do so. The complaint further alleged that the information learned through these unlawful agreements was a material factor in the companies’ decisions not to carry the Dodgers Channel. The Dodgers Channel is still not carried by DIRECTV, Cox, or AT&T.

On March 23, 2017, the Division filed a proposed settlement with the Court. The settlement, which will obtain all of the relief sought by the Division in its lawsuit, will ensure that when DIRECTV and AT&T negotiate with providers of video programming, including negotiations to telecast the Dodgers Channel, they will not illegally share competitively-sensitive information with their rivals. The settlement also requires the companies to monitor certain communications their programming executives have with their rivals, and to implement antitrust training and compliance programs.

Health Care Systems

Carolinas HealthCare System, Allegiance Health, St. Mary's Medical Center

Photo Credit: millionsjoker/iStock/Thinkstock

Carolinas HealthCare System

The Antitrust Division and the State of North Carolina filed a complaint in the U.S. District Court for the Western District of North Carolina against Carolinas HealthCare System (CHS) in June 2016. CHS is the largest healthcare system in North Carolina and one of the largest not-for-profit healthcare systems in the United States.

In this lawsuit, the Division alleges that CHS, with an approximately 50 percent share in the sale of acute inpatient hospital services to health insurers in the Charlotte area, has market power. CHS has market power over Charlotte health insurers because insurers must make CHS available in their health insurance plans in order to make those plans attractive to health insurance purchasers. Indeed, a health insurer in Charlotte that does not include CHS in any plan would not likely have a viable health insurance business. The Division further alleges that CHS uses its market power to restrict the major Charlotte insurers from offering health plans that encourage or “steer” patients to use medical providers that compete with CHS by offering quality services at lower prices.

CHS’s restrictions on steering reduce price and quality competition between CHS and its competitors. Because major Charlotte insurers cannot steer their patients to use services that are priced lower than those offered by CHS, its competitors do not have the opportunity to obtain additional patient volume in exchange for their lower prices. This lessens the incentives of CHS’s competitors to lower their prices and CHS, in turn, has little need to respond to price-cutting competition that otherwise would put downward pressure on its own rates. CHS also restricts insurers’ efforts to provide accurate information to consumers about how the cost and quality of CHS’s healthcare services compare to those of CHS’s competitors.

Defendant CHS filed an answer and a motion for judgment on the pleadings on August 8, 2016. That motion has been fully briefed and is awaiting a decision by the Court.

Allegiance Health

The Antitrust Division and the state of Michigan also continue to litigate against Allegiance Health a lawsuit filed on June 25, 2015 that challenges agreements among Hillsdale Community Health Center and three other hospital systems located in the state of Michigan to unlawfully allocate territories for marketing competing healthcare services.

The potential impact on competition is significant—executives from the hospitals acknowledged that marketing is an important tool that the hospitals use to compete for patients. Advertising, direct mailings, and outreach to physicians and employers are all ways that hospitals traditionally try to increase market share; many times, these efforts include free medical services, such as health screenings, physician seminars, and health fairs. By agreeing not to compete with each other for patients, the defendants deprived patients and physicians of the information needed to make informed healthcare decisions, as well as free medical services that they would have otherwise received had healthy competition existed.

The Division and the state of Michigan sued four health systems. The other three health systems—Hillsdale Community Health Center; Community Health Center of Branch County; and ProMedica Health System—all entered into a settlement at the time of the complaint, provisions of which are designed to stop similar anticompetitive agreements in the future, and which also require implementation of strict compliance programs. The parties’ cross-motions for summary judgment are fully briefed and oral argument is scheduled for April 24, 2017. The trial against Allegiance is scheduled to start on May 23, 2017.

St. Mary’s Medical Center and Charleston Area Medical Center

In April 2016 the Division settled a case against two West Virginia hospitals for agreements not to advertise or market competing service lines in each others’ territories. The Division challenged the two hospitals, St. Mary’s Medical Center and Charleston Area Medical Center (CAMC), after its investigation determined that the two hospitals had unlawfully agreed not to advertise on billboards or in print in each others’ home counties in West Virginia. Marketing is an important tool that hospitals use to compete for patients by informing them about a hospital’s quality and scope of services and the expertise of its physicians. Thus, the agreement eliminated a significant form of competition to attract patients and substantially diminished competition to provide healthcare services.

At the same time that the Division filed its complaint, it filed a consent decree whereby both St. Mary’s and CAMC agreed to refrain from (1) agreeing with any healthcare provider to prohibit or limit marketing or to allocate any service, customer, or geographic market or territory, and (2) communicating with each other about marketing, subject to narrow exceptions.

Updated March 28, 2017

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