Hospitals feel the heat over anticompetitive contracting

Driving the news: The Justice Department sued the New York-Presbyterian hospital system last week, saying the nonprofit wrote contracts that forced insurers to put its facilities in their most favored tier and blocked them from offering incentives to patients who seek out lower-priced rivals.

• Similarly, DOJ sued OhioHealth in February over anticompetitive contract restrictions it said force patients to pay higher prices. The department also is investigating contracting at Advocate Health, a Charlotte-based nonprofit, the Wall Street Journal reported.
• Earlier this month, the Federal Trade Commission announced the launch of a new health care task force, arguing that "consolidation and anticompetitive conduct have distorted the economic landscape in many healthcare markets."
• Almost two dozen states now have anticompetitive contracting restrictions on providers and insurers, and DOJ is joining the states, employers and labor unions that have filed similar lawsuits against health systems.

The big picture: Hospital markets are heavily consolidated, giving big health systems leverage in their negotiations with insurers and employers.

• Nearly all — 97% — of metro areas had concentrated markets for inpatient hospital care under antitrust guidelines, the same analysis found.
• But health systems are hardly alone when it comes to consolidation and market power. Insurers are increasingly coming under fire for their metamorphosis into giant health care conglomerates that operate as both payers and providers of care.

What they're saying: "Millions of New Yorkers pay more for healthcare because of these anticompetitive practices," Attorney General Pam Bondi said in a statement announcing the latest lawsuit.

• In its own statement, New York-Presbyterian called the lawsuit "without merit."
• "We do not seek to exclude any other hospital from any insurer's network," it added. "We seek to maximize access to the highest quality of care. Insurance companies hold the market power and use it to restrict patient choice."

Between the lines: The high-profile lawsuits come as health care affordability looms large in the run-up to the midterm elections.

• It's also happening as the Federal Trade Commission has been turning up the heat on pharmacy benefit managers over manipulating insulin prices and the companies' rebate practices.
• "It does seem like a significant escalation in their focus," Katie Keith, director of the Health Policy and the Law Initiative at Georgetown's O'Neill Institute for National and Global Health Law, said of the DOJ actions.

• Eliminating "anti-steering" and other restrictions would give insurers and employers more flexibility to negotiate in-network rates and not be "at the will of the hospital system," she added.

Yes, but: It's not easy to quantify how much such a crackdown would actually lower health costs.

• A Wall Street Journal investigation of hospital contracting found a health plan that entirely excludes an expensive hospital system can be more than 10% less costly for consumers and employers, according to insurance industry officials.
• A plan that includes all providers but steers patients away from the costlier ones can save 3% to 7% or more.

What we're watching: The Justice Department is seeking an order that would enjoin the health system from imposing contractual restrictions on insurers and employers.

• Further legal action could add to industry's headaches as facilities try to navigate tariff uncertainty and hospitals try to diversify their revenue streams beyond direct patient care.

The bottom line: The U.S. health care system was built around the idea that competition would keep prices in check.

• Now, the courts are increasingly being asked to opine on whether the activities of some large health care companies are legal.