TX Hospital Charged With Anti-Trust by DOJ for Insurance Contracts

In a surprising move, the Department of Justice sued United Regional Health System, a Texas regional hospital system based in Wichita Falls, a small city with just over 100,000 residents. This is the first time the Department of Justice has sued for anti-trust activities related to medical practitioners and systems since 1999.

The core issue at the heart of the suit was the Department’s allegations that United Regional had given health insurance companies strong financial incentives to not contract with other hospitals in the area. The results of these activities were that United Regional affected a virtual monopoly on health care in the area, in the process becoming one of the most expensive Texas hospitals.

The suit has since been settled, and although the final details of the settlement have not been disclosed, United Regional has had to stop its strong-arm tactics with health insurers. According to the details of the suit, United Regional’s anti-trust activities began in 1998, after two smaller area hospitals had merged to form the largest medical complex in the area, with 389 beds.

The newly-named United Regional began re-negotiating service contracts with private insurers. At the same time, a small, independent hospital was being built in the area, Kell West, a 41-bed full service hospital which United Regional apparently saw as a potential threat. At that time, the larger hospital system began issuing heavy discounts to those insurers who would sign contracts stipulating they would only deal with United Regional. All the other insurers in the area signed these exclusive contracts, except for Blue Cross Blue Shield of Texas, who is the largest insurer in the area.

If any insurer did business with Kell West or referred clients to any other practitioners not under United Regional’s umbrella, the DOJ lawsuit alleges, the lower rates were immediately increased, almost to the point of out-of-pocket care, which is the most expensive level of care. Within ten years, United Regional had eight exclusive contracts with private insurers.

Another point of the lawsuit are the prices charged by United Regional, which were fully 50% more than rates charged at comparable hospitals in other areas of the state. The per-day rate at United Regional was around 70% more than other hospitals as well.

The Department of Justice filed the anti-trust suit on February 25 of this year, and by the end of March had settled with the hospital. According to statements made by United Regional’s management, the hospital disagreed with the findings of the suit, but wanted to “move forward” from that point by agreeing to honor the discounted services while at the same time releasing the insurers from the exclusive contracts.

United Regiona’sl CEO, Phyllis Cowling, stated, “We believe then and now that these contracts were appropriate and legal.” She also went on to dismiss the DOJ cost calculations. “We are paid a little bit more by insurers, but I know it’s not 70 percent,” says Cowling. “It’s probably some 10 percent or 15 percent more, based on our numbers.”

The main issue at stake in this lawsuit is the federal government’s growing attention to what had previously been standard practice for large health systems, one of many tactics designed to increase health care costs and hospital and insurer profits.

Matthew Cantor, an anti-trust attorney associated with the New York law firm Constantine Cannon, commented on the case that this suit proves that the DOJ is now “looking at ways in which dominant hospitals or conglomerations of medical practices are conspiring to increase medical costs.” Constantine Cannon is not affiliated with the suit in any way.

The Department of Justice has also been challenged such conspiratorial and anti-trust policies in other states, such as Idaho and Michigan. These actions by federal authorities are seen as evidence of the current administration’s follow-through regarding commitment to health reform in the United States from the bottom-up.