Introduction
Mounting health care costs are a critical policy problem at both the national and state levels. Policymakers and advocates are taking a variety of approaches to rein in commercial insurance market costs. In recent years, stakeholders have focused on a particular problem identified by economists and other researchers: hospital contracting practices that allow monopoly power in the private insurance market, preventing competition on price and quality in our health care system.
As explained below, such practices are not only being outlawed by legislators, but also being challenged as unlawful anticompetitive conduct in the courts by the government and private litigators. This Expert Column will describe the problem of anticompetitive hospital contracting and summarize how legislators and litigators are addressing the issue.
Background
Private health insurance spending in the United States totaled $1,464.6 billion in 2023, reflecting a trend of increasing costs over recent decades. Rising health care spending results in higher health care premiums for individuals, with the average premium for a family with private insurance rising from approximately $9,000 in 2003 to nearly $24,000 in 2023. As health care costs grow faster than wages, families are struggling to pay for other basic necessities such as rent, car payments, child care, and groceries.
Independent experts, such as the Congressional Budget Office, have found that increased health care costs are linked to, among other factors, high prices charged by hospital systems. Recently, policymakers and advocates have focused on the impact of certain hospital contracting practices that can lead to higher prices for insurers, consumers, and taxpayers.
Two of the most common terms large hospital systems seek in negotiations with insurers are anti-steering terms and all-or-nothing terms.
Many insurers divide providers into “tiers,” with lower copays for higher-value providers. When hospitals negotiate anti-steering terms, they require the insurer to place all of the hospital’s providers into the most preferred tier, or prevent the insurer from using tiering altogether through anti-tiering clauses. This raises costs by preventing insurance plans from directing patients to affordable providers.
All-or-nothing terms, also known as tying clauses, require insurers to include all of a hospital system’s services in-network, rather than allowing the insurer to cover only a subset of services provided by a system. Hospitals especially hold negotiating power if their system includes an essential service that an insurer must bring in-network, forcing the insurer to bring the entire hospital system in-network. Hospitals can also leverage this power to negotiate higher prices for other services.
Policymakers Are Outlawing Some Hospital Contracting Practices
One way to combat the use of these terms is to ban them through legislation, an approach attempted by both federal and state policymakers.
Federal
Federal lawmakers on both sides of the aisle have pushed for laws that would ban the use of these contract terms.
Legislation was introduced in 2023 in the Senate Health, Education, Labor and Pensions (HELP) Committee to ban anticompetitive contracting terms. The bill included a section that would prevent health plans from entering into contracts that included anti-steering or all-or-nothing clauses. The bill advanced out of the Senate HELP Committee but was not adopted by the full Senate. Recently, the House Committee on Education and Labor advanced a similar bill. The Congressional Budget Office projected that the House bill would lower premiums and reduce the federal deficit by roughly $5 billion over ten years. While there is bipartisan and bicameral support against these contracting terms, the future of these bills is unclear in the new Congress.
However, Congress did pass a prohibition on gag clauses under the No Surprises Act. The law prohibits health insurers and providers from contracting to conceal pricing information. The law took effect in 2022, and implementation remains ongoing.
Where the federal government has failed to act, many states are beginning to fill some of the gaps. In 2023, Connecticut enacted HB 6669, “An Act Protecting Patients and Prohibiting Unnecessary Health Care Costs.” Among other things, the law prohibits providers, carriers, and plan administrators from entering into contracts that “directly or indirectly” contain all-or-nothing, anti-steering, anti-tiering, or gag clauses.
Meanwhile, Massachusetts, Nevada, and Texas have also outlawed numerous hospital contracting practices that drive up consumer costs. For example, since 2010, Massachusetts has prohibited insurer-provider contracts where the insurer is forced to include all of the provider’s members in a certain network plan, or on an “all-or-nothing basis.” In 2021, Nevada barred providers from contractually limiting third parties from “steering a covered person to a specific provider of health care” or from “assigning providers of health care into tiers for the purpose of encouraging the use of certain providers of health care.”
Litigation Challenging These Practices
Government Actions: Government and private plaintiffs are using antitrust law to hold health systems accountable for capitalizing on their market power to secure anticompetitive contractual terms. Since 2016, at least two government enforcement actions brought by federal and state governments have resulted in successful settlements. Meanwhile, private lawsuits by consumers, employers, and competitor hospitals are ongoing, and in many cases, plaintiffs are achieving early victories.
Various government entities have effectively challenged hospitals’ anticompetitive contracting. For example, in 2016, the United States and North Carolina sued Charlotte-Mecklenburg Hospital Authority for negotiating anti-steering clauses, alleging that such practices “prohibit commercial health insurers in the Charlotte area from offering patients financial benefits to use less-expensive healthcare services offered by [its] competitors.” The government asserted that this conduct causes hospitals to operate in a less competitive market, as providers are disincentivized to reduce prices and increase the quality of care. The case settled in 2018, curbing Charlotte-Mecklenburg’s anti-steering conduct in the Charlotte area.
In 2018, California also filed a notable action targeting anticompetitive contracting, accusing Sutter Health of unlawful anticompetitive conduct, including negotiating all-or-nothing clauses. Upon filing, then California Attorney General Xavier Becerra lamented that these “tactics are risking Californians’ lives by driving up the cost of health care for everyone.” The case was consolidated with a class action, and both settled. Sutter Health agreed to pay $575 million in compensation to class members and certain injunctive relief to block “the alleged anticompetitive conduct at the heart” of the case.
Private Actions: Private actors have also challenged hospitals’ anticompetitive contracting. Consumers allege higher premiums and out-of-pocket costs, and employers are suing insurers for the rising cost of employees’ health plans. Furthermore, hospitals allege that their competitors are unfairly dominating the market. Many of these challenges have enjoyed early successes. Below are some examples:
Consumers: In 2022, a group of consumers filed a class action in Connecticut Superior Court against Hartford HealthCare Corporation (HHC) for anticompetitive conduct, including tying practices, as well as the use of anti-steering and anti-tiering contract clauses. The consumers allege suffering through higher premiums and deductibles. In late 2023, the court denied the health system’s requests to dismiss the case and strike the suit for legal inadequacy. Most notably, the court found that under Connecticut law, the consumers have standing to challenge such conduct, even as “indirect purchasers” of the health care services. The court also found that the consumers sufficiently pleaded “anticompetitive effects” by alleging that the defendant’s prices are “the result of the defendant’s efforts to stifle competition.” The parties are in the process of discovery, obtaining information from each other as the case proceeds to a trial.
Employers: Employers are also suing health systems for anticompetitive practices, causing them to pay higher health care costs on their employees’ behalf. In 2022, Uriel Pharmacy, a Wisconsin-based business offering health benefits to its employees, sued Aurora Health Care, Inc., the largest hospital system in Wisconsin, in federal court for anticompetitive practices. Uriel claims that the defendant maintains “must-have hospitals” in Eastern Wisconsin, which monopolize the market. According to Uriel, the defendant leverages those hospitals to coerce network vendors to adopt all-or-nothing, anti-steering, and gag clauses, allowing it to retain monopolies in eight markets across Wisconsin. In April 2023, the court denied the motion to dismiss the lawsuit, and the case remains ongoing.
In 2022, employers Team Schierl Companies and Heartland Farms, Inc., sued Aspirus, Inc. and Aspirus Network, Inc. in federal court in Wisconsin, claiming the defendants engaged in unlawful anticompetitive conduct to seize market power, including all-or-nothing clauses and “exclusive dealing.” “Exclusive dealing” harms competition by precluding providers from joining other health plan networks. In 2023, the court denied the request to dismiss the case in its entirety, and discovery is ongoing.
More recently, in June 2024, Estuary Transit District and Teamsters 671 Health Service & Insurance Plan filed a class action lawsuit against Hartford HealthCare Corporation (HHC) in Connecticut federal court. HHS also currently faces a consumer class action lawsuit, as mentioned earlier. The plaintiffs accuse HHC of “abus[ing] their market power to carry out a multifaceted anticompetitive scheme.” This includes foisting all-or-nothing, anti-tiering, and anti-steering requirements on health plans, causing them to pay “artificially inflated prices” for services. The case is currently in discovery.
Hospitals: Anticompetitive contracting not only harms consumers and employers, but also other competitors. Competitors face losing prospective patients because of these practices. In January 2022, Saint Francis Hospital and Medical Center in Hartford, Connecticut, sued HHC, its regional competitor, in federal court. Saint Francis claims that the defendants are engaging in anticompetitive contracting and conduct, driving up prices.
Saint Francis asserts that the defendants exploit their market power to demand anti-tiering clauses, “requir[ing] in . . . contracts with [certain] payors that they limit or eliminate any use of tiered networks in markets in which [HHC] operates.” As explained previously, plans use tiering to attract customers to “preferred” providers that offer cheaper copays and deductibles. Without tiering, hospitals are not competing to be placed in the top tier, which can lead to higher prices for patients. Saint Francis also accused the defendants of obtaining contracts that grant them “exclusive access” to “cutting edge equipment” for robotic surgery, preventing Saint Francis from using the equipment.
Saint Francis further accused the defendants of buying physician practices previously connected to Saint Francis and “controlling” physicians’ referrals, such as financially rewarding physicians who refer within HHC and its physician-hospital network, or intimidating them not to refer beyond those systems.
On February 13, 2023, a federal judge in Connecticut denied in part and granted in part the defendants’ motion to dismiss. The court only dismissed Saint Francis’s claims that HHC “violated antitrust law by refusing to participate in tiered networking and other similar programs.” However, Saint Francis could challenge the defendants’ other conduct. The parties settled in 2024, but the terms of the settlement were not publicly disclosed.
Looking Ahead
With government enforcement actions forcing industry reform, and private plaintiffs defeating motions to dismiss, litigation appears to be a promising tool in the fight against anticompetitive hospital contracting. However, litigation is time-consuming, costly, and unpredictable, and the scope of relief can vary — resulting in inconsistent standards. Policymakers are also pursuing more universal approaches to promote a more competitive system and lower health care costs in the private insurance market.
Meanwhile, absent broader policy action, the continued use of anticompetitive contracting in health care largely depends on private parties prepared to litigate against powerful health systems, including frustrated patients, employers, and competitor hospitals. This Expert Column outlined multiple categories of such cases, with early victories signaling that litigation might be an effective, albeit imperfect, strategy against such conduct.
