In a recent blog post, we discussed a new antitrust decision from the North Carolina Business Court that involves healthcare providers and health insurers. In that post, we examined the significance of that opinion to indirect-purchaser standing under North Carolina antitrust law. Judge Michael Robinson’s decision in Christopher DiCesare, et al. v. The Charlotte Mecklenburg Hospital Authority d/b/a Carolinas HealthCare is also noteworthy because of its in-depth discussion of the pleading requirements for state antitrust claims under Chapter 75.  We explore Judge Robinson’s treatment of the antitrust claims themselves in this post. But first, let’s review the relevant facts:

Insureds Allege Antitrust Injuries from Contracts between Health Insurers and Hospitals

The plaintiffs in DiCesare are individual North Carolinians that purchased health insurance that covered acute hospital services. The plaintiffs brought the action on behalf of a putative class of all North Carolinians that purchased insurance from four particulars health insurers since January 1, 2013.

The plaintiffs alleged that the defendant, Carolinas HealthCare, maintains a 50% share of the Charlotte-area hospital market.

The plaintiffs accused Carolinas HealthCare of forcing insurers to enter into service contracts that contained provisions that violate state antitrust law. The plaintiffs alleged that the contracts contained “anti-steering” terms that discouraged insurers from providing accurate information to their insureds about treatment alternatives to Carolinas HealthCare.

The plaintiffs claimed that the anti-steering provisions harmed competition because insurers would pay hospitals less if insurers could provide customers with more complete information about their healthcare options. The plaintiffs further alleged that the insurers would pass the savings on to their insureds. Ultimately, plaintiffs contended 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) that the contracts were an unlawful contract, combination, or conspiracy in restraint of trade in violation of  N.C. Gen. Stat. sections 75-1, and 75-2; and (2) monopolization in violation of section 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 pursuant to both North Carolina Rule of Civil Procedure 12(b)(1) and 12(b)(6). Carolinas HealthCare also moved for judgment on the pleadings as to both antitrust claims. Judge Robinson denied both motions, but issued a single opinion that covered both.

In our first post, we discussed Judge Robinson’s determination that the plaintiffs had standing to bring their antitrust claims. In this post, we will discuss the court’s analysis of the substantive antitrust claims.

The Plaintiffs Adequately Pleaded an Unlawful Contract Claim

The part of Judge Robinson’s opinion that decided Carolinas HealthCare’s motion for judgment on the pleadings first addressed the plaintiffs’ unlawful restraint of trade claim. The judge noted that Section 75-1 is based on section one of the Sherman Act. As such, federal decisions applying the Sherman Act are “instructive” in determining if an agreement unlawfully restrains trade under North Carolina law.

Applying Fourth Circuit precedent, Judge Robinson determined that the elements of a restraint of trade claim under North Carolina law are: (1) a contract, combination, or conspiracy; (2) that imposed an unreasonable restraint of trade.

Judge Robinson indicated that the relevant case authorities generally find horizontal restraints on trade (e.g. price-fixing among direct competitors) to be per se unreasonable. By contrast, courts evaluate vertical restraints under a “rule of reason” analysis. The parties agreed that the anti-steering provisions were, as alleged, vertical restraints.

Relying on federal precedent, Judge Robinson indicated that a plaintiff would have to prevail under a very convoluted test in order to prove ultimately an unlawful restraint of trade under the rule of reason. First, the plaintiff must prove an adverse effect on competition in the relevant market. The burden then shifts to the defendant to demonstrate that the challenged agreement has pro-competitive effects. If the defendant is able to prove that the agreement provides a benefit to competition, the burden shifts again. The plaintiff must then prove that any legitimate competitive benefit could be achieved through less restrictive means.

Judge Robinson noted that the Court first had to determine the relevant market before analyzing the competitive effect of the defendant’s challenged activity. The parties did not dispute that the relevant market was the sale of general acute inpatient hospital services to insurers in the Charlotte area. 

Judge Robinson then analyzed whether the plaintiffs had adequately alleged an adverse effect on competition. Judge Robinson required that the plaintiffs first had to plead adequately that Carolinas HealthCare possessed market power within the relevant market. The judge determined that the plaintiffs’ allegations, which included: (1) that Carolinas HealthCare had a market share of approximately 50% of the relevant market; (2) that the hospital’s largest competitor had less than half of Carolinas HealthCare’s annual revenues; and (3) that licensing requirements and acquiring suitable sites for hospitals to build created significant barriers to entry, sufficiently alleged market power.

Finally, Judge Robinson detailed the potential anti-competitive effects flowing from Carolinas HealthCare’s alleged conduct. The plaintiffs had alleged that the anti-steering provisions contained in the insurance contracts had the following anti-competitive effects:

• Protecting Carolinas HealthCare’s market power and enabling the hospital to charge supercompetitive prices;
• Substantially lessening competition among service providers;
• Restricting the introduction of innovative insurance products that could lower prices;
• Reducing consumer incentives to obtain treatment for more cost-effective providers;
• Depriving insurers and insureds of the benefits of a competitive market for services;
• Reducing the number of insurance plans from which consumers can choose.

Judge Robinson held that the plaintiffs’ factual allegations were sufficient to overcome the motion for judgment on the pleadings. The judge did not require the plaintiffs to prove that alleged anticompetitive risks outweighed Carolinas HealthCare’s pro-competitive justifications, which would be the plaintiffs’ ultimate burden under the rule of reason analysis. The plaintiffs only needed to allege sufficient anti-competitive effects of the challenged conduct in order to get past the pleading stage.

The Plaintiffs’ Monopolization Claim Also Survives

Judge Robinson also used federal antitrust precedent in rejecting Carolinas HealthCare’s challenge to the monopolization claim.  Judge Robinson determined that a monopolization claim requires possession of monopoly power in the relevant market and willful maintenance of that power.

Carolinas HealthCare challenged the sufficiency of plaintiffs’ claim that it possessed monopoly power, but did not challenge the adequacy of the willful maintenance allegation. 

Although the plaintiffs bore a higher burden than to allege market power, Judge Robinson found that the plaintiffs’ allegations concerning market power were sufficient to assert monopoly power, too. Judge Robinson noted that the plaintiffs would bear a heavy burden ultimately to prove monopoly power. He recognized that, in other monopolization cases, market share below 50% is rarely evidence of monopoly power and market share between 50% and 70% is only occasionally proof of monopoly power.

Throughout Judge Robinson’s opinion, the judge emphasized the relatively low burden that the plaintiffs possessed at the pleading stage. He expressly noted that pre-discovery dismissals of state antitrust actions are relatively rare. The judge did, however, express some degree of skepticism that the plaintiffs would be able to meet their burden at summary judgment for several aspects of their claims.  Nevertheless, he allowed plaintiffs discovery as to both of their antitrust claims

Judge Robinson’s opinion in DiCesare appears to set a relatively low bar for state antitrust claims to survive to discovery, even where the claims may have a hard time ultimately making it to trial. We will have to see if there is an increase in state antitrust claims as a result.

Author’s Note: In our prior post about DiCesare, we discussed the unusual step that Judge Robinson took to invite Carolinas HealthCare to seek interlocutory review of the judge’s decision on indirect purchaser standing. Carolinas HealthCare took the judge up on his offer. Last Friday, the defendant filed a Petition for Writ of Certiorari to the North Carolina Supreme Court. 

Author: George Sanderson